Siegel: US Stocks Looking Very Attractive
July 07, 2011
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Ludwig: Do you have any anxiety about the dilly-dallying in Washington—the grandstanding surrounding the debt ceiling and the long-term fiscal situation in the U.S.? Siegel: They dilly-dally on a lot of things. But honestly, I don’t see how they’re going to put longer-term things on the table before the November 2012 election. Why should one party give it to the other? They’re going to fix the debt, and they’re going to do it for a period that lasts until the election. The question is whether the Republicans can capture the White House. If they can’t, then Obama has won on taxes as far as I’m concerned—it doesn’t even matter if the Senate goes Republican. Ludwig: I was talking to Jim Rogers recently, and he’s convinced shorting long-dated U.S. Treasury debt is going to be the great trade of the coming years. Surprise, surprise, right? What do you think of that view? Well, last year I wrote “The Great American Bond Bubble.” It was the lead op-ed in the Wall Street Journal in August. That happened to be a nice call. Ludwig: But do you see any calamitous possibilities related to inflation and rising bond yields? Siegel: I’ve talked about the fact that I see inflation going at 2 to 4 percent over the next five years—above the Fed range. But I don’t see double-digit inflation. Ludwig: So, is it fair to say that you’re sobered by what’s happened with this soft patch in the economy, but you’re cautiously optimistic? Siegel: I think the ECB will backstop the banks—and it is about the banks; Greece is secondary—so we’re not going to have a Lehman calamity. Ludwig: So what are investors to do? Siegel: Well, as I’ve been saying, stocks have nearly doubled in price since March of ’09. But we are still very cheap on a historical basis, relative to price/earnings ratios and based on current expectations of this year’s earnings on the S&P 500—even trimmed expectations. Ludwig: Do P/E ratios still have the same significance after what went down in 2008 and 2009? Siegel: Interestingly enough, if you’re going to peg P/E ratios to anything, they’re pegged to interest rates. When we had double-digit interest rates, we had single-digit P/E ratios; now we have near-zero interest rates. I did some analysis for the post-war period, that when you’re in the low or middle interest-rate range—and we’re in a very low range right now—the average P/E ratio is 19. It’s not even 15, which is the average number over the last 50 years. Ludwig: So, stocks are still worthwhile? Siegel: Relative to interest rates, stocks are among the most attractive I have ever seen them. |
