Do you have a link where I could read more about this? As a layman I fail to understand how this would work, and I couldn't find a page explaining it.
My naive understanding is that a bubble pops when investors lose confidence in the market, and instead of anticipating growth, anticipates a correction and create a feedback loop down to a certain level (at which some counter feedback stabilizes the movement).
How can earnings increase when investors have lost confidence?
The alternative I’m describing is one where panic selling doesn’t occur. Earnings can continue to rise (because earnings reflect consumer spending and other similar trends), whereas prices don’t go up as much because market speculation reduces and people are less bullish. It doesn’t have to devolve to panic selling.
The other issue we are dealing with now is also asset inflation, where the number on the screen does not reflect any intrinsic value, but moreso the ongoing devaluing of the dollar we hold in our pockets.
I personally think this whole "modern monetary theory" is a game where the smart folks at the Fed realize that rather than have people watch the number on their savings and 401ks obliterated in a crash, they prefer to keep that number appearing the same and bury the "cost" of the bubble into a deflating dollar. It keeps the masses happy because they see the $s in their savings account still going up, which retains confidence in the system. Who knows when everyone will catch on, but it's been working so far.
Even if that’s true, I recently read about the bubble potentially “bursting up”: instead of prices coming crashing down, prices stay stagnant or grow slowly, while earnings grow quickly. The net result is the same (P/E ratios stabilize), but you lose out on a lot by staying out of the market.