Federal Reserve Chairman Ben S. Bernanke and his colleagues are suffering through their own form of cognitive dissonance: revealing new concerns about the economy’s long-term prospects even as they forecast faster growth in 2014.
Larry Summers stirred a lot of interest with a talk he gave last week at an International Monetary Fund conference. The former Treasury secretary asked an unsettling question: What if the U.S. needs financial bubbles to maintain full employment?
The general consensus seems to be that CAPE -- the cyclically adjusted price-to-earnings ratio -- is elevated, stocks are overvalued, and a crash is imminent. This is a misreading of both valuation measures, as well as causes of crashes.