New York Fed economists Fernando Duarte and Carlo Rosa are out with a new article on Liberty Street Economics titled, "Are Stocks Cheap? A Review of the Evidence."
The answer: judging by the equity risk premium (ERP), stocks are about as cheap as they've ever been.
The ERP is the excess return that stocks are expected to provide over the risk-free rate, and it's typically calculated as the expected future return of stocks – based on historical averages, or forecasting models, depending on whichever one is chosen for the calculation – minus the risk-free rate (typically the yield on a U.S. Treasury bond) over comparable time horizons.
OMG, the last time the Fed said something so bold was when in 2004 when NY Fed economists wrote that there was no housing bubble. At that time, I responded to the Fed which ultimately resulted in this.
Currently at the EPJ Daily Alert, I am warning that a stock market crash could develop between now and the end of October.
My schedule is pretty full today, but I should get to this latest Fed econometric forecast embarrassment, in detail, by tomorrow.
Think about the vast sums of taxpayer money spent on useless research which the taxpayer never benefits from. This is yet another case in point.
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