The Risk of Under Heckling

December 06, 2004
And Today's Winners of the Mendacity Sweepstakes Are...

Glassman's investment advice today is good. He is right when he writes that "stocks are a far better place than bonds and cash to put the vast majority of your money for the long run." But his flat-out claim that this "was the unequivocal message of [Dow 36000: The New Strategy for Profiting from the Coming Rise in the Stock Market]" is flat-out false. That "stocks are a far better place than bonds and cash to put the vast majority of your money for the long run" was the unequivocal message of Jeremy Siegel's Stocks for the Long-Term. Glassman and Hassett may wish that they had written the book that Seigel wrote, but they didn't.

Is it good advice? Are we sure? The jury is still out on Jeremy Siegel's "far better place" theory. The DJIA was 10,547.06 on December 6, 2004. It is now 12,479.63. It is taking massive economic stimulus (deficit spending) and a tanking currency to get that 4.9% average annual increase. A better place perhaps (if one can stomach the risk), but far better? Further, that same stimulus and currency debauchment wasn't enough to keep real estate climbing (historically also a "far better place than bonds and cash").

Toilet paper is currently beating the Dow by a wide margin. It too is a paper product. We'll see it if can keep it up long-term. To be fair, toilet paper is not generally regarded as an asset class (pun alert!) but can be very useful if the you know what meets up with the fan (ba-dum-ching).

The I-Bonds from 2000 and 2001 are paying 3.4% over the CPI and will do so tax-deferred until 2030. I wish the government hadn't put a limit on how much could be bought. At the time, few thought they'd have a hope in heck of beating the Dow over the long haul either. A gambling man these days might assign them even odds.

Perhaps the stock market can continue to climb this wall of worry though. On the one hand, we've got Ben Bernanke who has studied the Great Depression in great detail (while simultaneously putting some of his own money in Canadian Treasuries). That's gotta be good news for us. On the other hand, we're all fighting Imelda Marcos Economics. There's just so many shoes!

69,400 Economy Shoe Dropping Search Results

And now for the main event. Here are Jeremy Siegel's thoughts from the past.

September 30, 2003
LOU DOBBS TONIGHT

DOBBS: When you say that is it -- that there are positives in the loss of all of these jobs that are being exported to China, to around the world, it seems at best counterintuitive.

SIEGEL: It does seem that way. But there is a very important other side that I think Americans should realize. And that is that when China or India can produce goods and services cheaper that means that we, as consumers -- and we're all consumers -- are able to have our income go further, stretched longer, increase productivities. My belief -- a lot of the increase in productivity we're seeing is really because of a lower cost of goods for China.

Should have just ended it on that in my opinion. We send them tons of dollars (paper IOUs) and in return they send us tons of goods we can actually use? What's not to like? Oh yeah, now I remember. Those dollars lose their value at some point.

May 3, 2006
Jeremy Siegel on the Fed, Commodities and Global Markets

What could happen on the down side? There is always something to worry about. There’s always Iran to worry about; there’s oil going to $100 a barrel or who knows, even higher. My feeling is that the bubble is going to burst before we’re going to get that high. I think that we’re going to suddenly see some very down days in commodities and that’s going to be ultimately encouraging. Once commodities settle down and people realize, “Wow, housing is under control, commodities are finally under control,” they will become very bullish on equities. That is a very good scenario for the large cap stocks worldwide.

I know what you are thinking. Someone must be finally spending all those dollars we sent to China. No? Please tell me you aren't thinking... Wow. Housing is under control. Commodities are finally under control. I am becoming very bullish on equities. This is a very good scenario for the large cap stocks worldwide.

May 2, 2008
Should We Worry About the Plunging Dollar?

All told, we do need to worry about the plunging dollar. We are now at the point where the Fed has done enough to stimulate the economy by lowering interest rates and must turn its attention to the inflationary implications of the sinking dollar. I hope that the recent hints that Fed is done easing are enough to strengthen the dollar. But if they are not, the Fed must reverse direction and raise interest rates. Ultimately price stability will benefit our economy far more important than the short-term stimulus of another rate cut.

Why weren't you worried about it when we were sending all those dollars and jobs over to China? How many chapters in your Stocks for the Long Run were dedicated to our massive deficits? We haven't had those for the long run. Or can I simply ignore them entirely? I have no idea. I haven't read the book.

April 12, 2004
Ten detrimental deficits

Social Security will be bankrupt by 2016. Or 2046. Or maybe never, depending on which politicians are jiggling the numbers. Critics blame the tax cuts, warning of $7 trillion shortfalls. But Wharton Economist Jeremy Siegel says a one-percent change in productivity estimates and the problem disappears. Still, the administration promised to privatize Social Security, giving Wall Street access to trillions of new fee-generating assets. Unfortunately, privatization will not take care of the system's underlying structural problems and America's declining savings rate.

I do love an economist optimist. The rhyme has a nice ring to it. You know you've got one when the "one-percent change" is always assumed to be in the right direction. However, you will note that in 2003 ("My belief -- a lot of the increase in productivity we're seeing is really because of a lower cost of goods for China."), Jeremy Siegel considered China to be the primary driver of our productivity gains. Now the rage (literally) is that we're beginning to import inflation from them. Oh oh. There go our productivity gains right down the productivity toilet.

I just want to make sure I don't under heckle. I really don't want to take on any additional risk these days. We are in very big trouble as a country, and I've never been more convinced of it.