Jeremy Siegel

Siegel is a professor and famous author, best know for Stocks for the Long Run. His background:

• PhD from MIT with specialty in monetary theory
• Worked in Chicago with Milton Freeman
• Longtime professor at the University of Pennsylvania & WisdomTree advisor

Wharton’s Jeremy Siegel still against the Fed, bullish on stocks in 2023 (January 1, 2023)

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There has never been a time when 60% of economists forecast a recession.

2022 was marked by good job growth, poor GDP growth, and poor productivity growth. We might see the opposite next year:

• job losses
• faster than expected GDP growth
• good year for profits if the Fed pivots

In September 2021, the Fed said that they weren’t going to raise rates in 2022. They obviously raised rates a ton in 2022. Now they’re saying they will have rates high for a long time, but Siegel questions if that’ll actually happen.

Siegel thinks more people will be talking about inflation being under control. Fed should have a different tone if there are job losses.

Fed started tightening way too late and now they’re starting to loosen to them way too late. Most of their inflation fighting battle is behind them and Siegel thinks they’ll eventually get this message.

Jeremy Siegel: How Federal Reserve’s Response to Inflation Impacts Wall Street (May 11, 2022)

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Jeremy Siegel has been predicting this inflation for a long time. The Fed totally missed it and now they’re playing catchup. They’re still moving too slow - they should be moving 75bp at a time.

We’ve had moderation in the money supply over the last couple months.

In the long run, stock markets are good hedges against inflation.

We’ve had much more inflation than the official statistics say. The BLS is extremely lagged in how it collects housing data. We’ve already had the inflation & it’ll be reflected in the statistics in the coming months.

The short rate will need to raise above 2-3% to get inflation under control.

The initial response to COVID was good, but the Federal Reserve and Federal government went way overboard.

He thinks the Fed is going to keep saying they’re targeting 2% inflation, but they’ll really start targeting 3% inflation.

It wouldn’t surprise him if inflation falls, but not to 2% anytime soon. It might fall to 6-7%.

He thinks there is a 50% probability of a recession in 2023.

I would like Fed to go 100bps, says Wharton’s Jeremy Siegel (May 11, 2022)

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The housing sector is very lagged in the way that it gets incorporated in the CPI. Housing will lift the index for the next 6-9 months.

He’d like to see the Fed go to 100bp. He thinks this would create a rally after the initial sell-off cause it’d indicate that the Fed was protecting our currency.

Promising slowdown in the growth of the money supply, but it’s just the beginning.

They started tightening way too late and we’re suffering the consequences.

Monetary policy has a big lag, probably 12-18 months.

There is still a lot of inflation in the pipeline, says Wharton’s Jeremy Siegel (May 3, 2022)

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Investors can’t pick peaks and troughs. Long-term investors should not even try.

He’s been warning about inflation for the last 2 years.

He’s seen a slowdown in the monetary growth over the last 2 years.

He thinks there is still a lot of inflation in the pipeline.

We had negative GDP in Q1 2022, but earnings came in pretty good.

A recession usually means:

• earning dip (suppose 20%)
• maybe for a year

Then the earnings usually continue to go up after that. A recession is no reason to sell a long-term asset if you’re a long-term investor.

The Fed shouldn’t use Ukraine as an excuse to not raise rates, says Jeremy Siegel (March 8, 2022)

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Siegel is worried that the Fed will use the Ukraine invasion as an excuse to not raise interest rates.

We have a fundamental inflation problem that goes way beyond just oil prices.

He could see headline inflation going to 10%.

It seems silly to debate if we’ll go from 0 => 25bp or 0 => 50bp when we could have 10% inflation.

The market is fragile, but rising rates is the medicine we need to take to slow inflation.

Fed needs to hike rates 50 basis points in March if high inflation persists: Jeremy Siegel (February 11, 2022)

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He expected a worse than expected inflation report & that’s what we got. He doesn’t expect the next month to be good either.

If the March number is above expectations, then the Fed will need to hike rates at least 50 basis points in March.

He’s been saying the Fed has been way behind the curve for over a year. It makes no sense to have rates below 1% when inflation is between 7 and 8%.

He expects hawkish surprises.

On the other hand, you want to be in real assets like stocks in an inflationary environment. Firms are having no trouble passing on higher prices. This is different from the 1970s when firms couldn’t pass on inflation to end consumers.

He thinks the NASDAQ will go into bear market territory, but doesn’t think the S&P will.

Ultra long-term investing with Jeremy Siegel (February 7, 2022)

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The pandemic was highly unusual and the loose monetary / fiscal response was not normal either.

Siegel has been calling for inflation since 2020.

We have one of the strongest labor markets in history. They’re talking about raising rates to 1% which just doesn’t make sense to Siegel.

He thinks the conditions are favorable for a value rotation in 2022.

Technology has delivered (the companies in the S&P 500 index). They have delivered earnings growth that is remarkable.

We still have a pretty extreme valuation difference between growth and value, something that seems to happen every 25 years. Mid 1970s with the Nifty-Fifty, dot com boom, current boom. This isn’t as extreme as the dot com boom, but valuations are still a stretch.

The 60/40 portfolio isn’t sufficient anymore.

Almost no money managers beat the S&P 500 index in 2021.

Siegel prefers value tilting (towards earnings or dividends).

The US is 50% of the world’s equity.

Siegel also thinks international stocks will outperfom US stocks in 2022.

Siegel doesn’t think Bitcoin will be the currency of the future.

Siegel is writing a new version of the book Stocks for the Long Run.

There will be more than four rate hikes in the months ahead: Wharton’s Siegel (January 5, 2022)

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He’s been sayind the Fed had to be far more aggressive for over a year.

He thinks inflation was never temporary and will get worse.

He thinks there will be many more than 4 rate hikes in 2022.

We have 4 trillion dollars more reserves now than we did in 2018. Back in 2018, we didn’t have an inflation problem.

We are at full employment, actually above full employment by some measures.

Siegel: Nothing in the Bond Market Is Attractive (January 3, 2022)

Markets will encounter some bumps going forward because there are going to be a lot of rate hikes. Siegel would not be surprised to see the short term interest rate go to 2% by the end of 2022.

TINA - there is no alternative.

He sees the stock market going up in the first half of 2022, some bumps in the middle, but still an overall up year.

High flying tech stocks are most impacted by changes in discount rates.

Growth beat value in 2021. Siegel thinks the tables will be turned in 2022. He thinks investors will be searching for dividend paying stocks in 2022.

Don’t forget that dividends on stocks are basically real yields. They’re inflation protected becuase they’re based on real assets.

“You can’t find anything in the bond market that I see attractive”.

If you take out FAANG, then the P/E is 18x, which isn’t that unreasonable.

He expects dollar to strengthen as yields increase (said investors look at nominal yield differentials in the short term).

He’s not sure we’ll see that strong of a dollar by the end of the year.

Emerging markets have not performed well. Valuation differential between the US and Europe / emerging markets is nearly at an all time high.

Finance Prof. Jeremy Siegel on Markets & the Fed in 2021 & 2022 | Wharton Business Daily Interview (December 29, 2021)

Early on in 2021, Siegel saw the burst of money supply from the Fed and that clued him on as to what was going to happen.

He knew this money would first go into the market and then cause substantial inflation.

He expects 20-25% cumulative inflation over the next 3-4 years. We could have 7-7-7 or 5-5-5-5.

He thinks the Fed is way behind the curve. They should have stopped the tapering and should have started raising interest rates by now.

We may see rate increases of 50 basis points. Baby steps of 25 basis might not do it.

The interest rate is far below the rate of inflation, which encourages people to borrow and buy goods.

Powell is the most dovish Fed chariman that Siegel knows.

He thinks the stock market will have some headwinds from the Fed but he’s still optimistic. You want to hold real assets when there is inflation (and stocks are real assets).

He doesn’t regard the stock market as cheap, but not wildly expensive either. He thinks the bulk of the market is reasonbly priced.

Siegel expects big labor bumps in the coming months. Workers will want raises to keep up with inflation.

I think stocks are the place to be next year, even with a more aggressive Fed: Wharton’s Siegel

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We have inflation and where are you going to go?

• bonds look terrible
• cash looks terrible

You want to be in real assets. Corporate profits are doing very well.

Siegel thinks the Fed will have to be much more aggressive than what the market is expecting thus far.

He expects a 10% gain in the S&P in 2022.

Siegel thinks we may have to get to 2% on Fed Funds next year. If you measure them in quarter points, that’s 8 rake hikes!!

Think you’ll need lots of hikes to battle a 5-6% inflation rate.

He also thinks the long bond will stay at 2%.

Money supply is up 35% compared to where it was pre-COVID.

Fed Taper Should’ve Ended Months Ago (November 18, 2021)

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Siegel thinks the taper should have ended 6 months ago.

Siegel thinks we should be raising rates now to get a handle on inflationary pressures.

Inflation is why consumer sentiment is going down.

GWS Interviews Professor Jeremy Siegel (July 16, 2021)

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Powell is the most dovish central banker that Siegel has ever seen.

Siegel thinks we’ll see persistent inflation for quite a few months and well into the next year.

Siegel tracks the M2 money supply. M2 is 30% over the pre-pandemic levels. He thinks there will be 20% cumulative inflation over the next several years. He doesn’t know how it’ll be divided. Could be 5-5-5-4. Or 10-5-2, or whatever.

The M2 money supply is a great predictor of inflation over several years.

He’s not predicting double digit inflation, but he thinks the recent money creation has been “clearly excessive”.

You’ve got to be prepared for a 50% drawdown. Weather the storm and enjoy the bounce-back.

The equity gains are always long term.

Meme stocks have a market value compared to the entire market cap of the market that’s trivial. Gamblers might find them interesting, but Siegel doesn’t find them interesting.

He thinks the Fed should start tapering right now. There is zero need for the Fed to be buying $120 billion in bonds every month given market conditions.

He wouldn’t be surprised if the Fed announces a taper in the next three months and then start raising rates later this year / early 2022.

Stocks are real assets. The better companies in inflationary times are leveraged, especially if they’ve locked in low interest rates.

Biden’s infrastructure bill is in trouble.

What yield pullback means for stocks (July 8, 2021)

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10 year Treasury yield pulled back to 1.3% and the 30 year Treasury yield pulled back to 1.9%. This surprised Siegel, but makes sense cause everyone was short bonds and it was a crowded trade.

The next CPI report is the economic metric that Siegel is most looking forward to. If the CPI surprises on the upside, then it could be a market moving event. That’d force the Fed to be more aggressive at tightening.

He thinks the Fed should be more aggressive with tightening in any case. These open market purchases of mortgage backed securities don’t make sense given the economy.

The economy is very strong.

Fiscal stimulus, Fed (June 25, 2021)

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The trend of the market is decidedly upward.

Inflation isn’t that bad for stocks, it is bad for bonds. Stocks are real assets.

Powell may announce tapering at Jackson Hole in August or perhaps even sooner (CPI release on July 13th). PPI is released on July 14th.

Tapering back on 120 billion monthly asset purchases and keeping interest rates at 0% is still extrodinarily stimulating in a strong economy. Any interest rate under 2% is stimulating.

Relative to history, this is still a very, very loose Fed.

Siegel thinks the money will keep flowing into the stock market.

Dividend yields that are protected from inflation look really good compared to a 1.5% long bond yield that’s not protected by inflation.

Inflation could be 20% in the next three years (May 14, 2021)

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There has been unprecedented monetary action and fiscal support.

Since last summer, Siegel has been saying that this loose policy would first flow into financial markets and then explode into inflation.

Jay Powell is the most dovish Fed chairperson he’s ever seen.

While the money keeps flowing, Siegel thinks the stock market will keep going up.

The money supply is up 30% since the beginning of the pandemic. This money will find it’s way to more spending and inflation.

Stocks are financial assets, but they are claims on real assets.

We all know on Treasuries that you’ll get negative real returns. TIPS are paying -1%.

Economy and Markets in the COVID 19 Crisis

Date: March 25, 2021 Video link

$1 invested in the stock market in 1802 is worth $1,929,736 as of December 2020. 6.8% annual real return for stocks. 1.068 ^ 220 for you math nerds ;)

January 1802 - December 2020 real returns by asset class:

• Stocks: 6.8%
• Bonds: 3.6%
• Bills: 2.6%
• Gold: 0.7%
• Dollar: -1.4%

Siegel’s forecast by asset class:

• doesn’t think stocks will be quite as high as 6.8% in the future
• bonds & bills will be WAY lower
• Gold will be lower, but not as low as bonds
• Dollar will depreciate at a much more rapid rate

The M1 money supply is up 40% during the pandemic. This is what caused him to predict a boom in stocks and an increase in inflation.

He’s thinking of 3-5% inflation for a few years. He’s not predicting super high inflation, but inflation that’s much higher than what we’ve seen for a long time.

In the last financial crisis, most of the money created by the Fed ended up as excess reserves at financial institutions and was not lent to businesses/consumers. Today’s money is going directly to the pockets of consumers and businesses (stimulus, grants, payroll protection).

This powerful monetary stimulus will cause strong spending and higher inflation this year.

The Fed wants to run this economy hot.

Stocks tend to do well in moderate inflation environment, especially those that are leveraged.

Siegel thinks Powell knows that the latest stimulus is too much, but he’s not criticizing cause he wants to get reappointed.

The P/E ratio has been on an upwards trend since the 1950s. He thinks a P/E of 20 is the “new normal”.

The earnings yield (E/P) predicts long-term real returns.

A P/E of 15, corresponds to an earnings yield of 1/15, or 6.7% earnings yield, just what we saw earlier ;)

P/E ratio is currently 22.5, which forecasts a 4.4% return.

Real return forecasts by asset class:

• stocks: 4.4%
• bonds: -1%

Equity risk premium is around 5.5% right now. ERP is historically around 3 - 3.5%.

Three historical peaks when growth stocks had very high values:

• Nifty-Fifty bubble (1970s)
• Dot-com (2000)
• Quality-growth bubble (2020)

He doesn’t think tech will crash, he think it’ll underperform.

Bondholders are going to pay for the “war on COVID” - they’ll pay with inflation eating away their purchasing power.

Bond interest rates are too low right now to make the 60% stock / 40% bond portfolio viable anymore.

He thinks value stock with outperform in 2021.

Yields from stocks are basically protected from inflation.

He thinks bond yields will rise substantially, ending the 40-year bull market in bonds.

International investing has not been rewarding over the last 5 years. History tells us that markets turn.

Crypto thoughts:

• Bitcoin cannot compete as a payments mechanism compared to what we have today.
• if tax reporting and other regulations were enforced on Bitcoin (anti money laundering), Bitcoin would fall 90% from current levels (he’s not saying this is what’ll happen). He’s not talking about new laws, just enforcing existing laws.
• He doesn’t think is the medium of exchange of the future.

Real estate will be good. Real assets perform well in inflationary environments.

The political reality is that we will have tax increases coming up soon.

Book value is now a “stupid” measure of value because it doesn’t factor in intellectual property. Intangibles are a principle source of wealth in the market and they’re not captured by book value.

Siegel thinks the run up in tech stocks was much deserved, but now they’re fully priced and value is where you want to be today.