Wednesday, July 25, 2012

Jeremy Siegel's Optimism Revisited

February 2, 2011
Risks abound with inflation-linked bonds (Jeremy Siegel)

Purveyors of this pessimism stress that the future rate of economic growth in developed countries looks bleak.

On the contrary, I believe that the long-term outlook is bright.

Click to enlarge.

As seen in the chart, the interest rate on the 10-year TIPS has fallen nearly 2% since Jeremy Siegel warned us that real yields would go higher.

This leads me to conclude that risk abounds in believing that the long-term outlook is bright. Despair

It's always darkest just before it goes pitch black.


July 25, 2012
Mish: UK GDP Disaster Far Worse Than It Looks; UK Growth in 2012 "inconceivable"

Presented that way, UK GDP does look like a disaster.

Would it have been pessimistic to argue that the future rate of economic growth in the UK looked bleak? Or would that have been considered realism?

See Also:
More Dangerous Advice from Jeremy Siegel

Source Data:
FRB: Interest Rates
U.S. Treasury: Interest Rates


fried said...

I'm thinking that Siegel is simply deeply evil, and that he really is doing a constanza...saying one thing for publication and then arranging his own portfolio a la Stag mark. Of course, he does not define "long-term"...
10 years, 20, 50? After the asteroid hits? Or perhaps being well-paid, and secure in his tenure, he's just funning with us.

Stagflationary Mark said...


Or perhaps being well-paid, and secure in his tenure, he's just funning with us.

For what it is worth, I think he believes his own story.

May 29, 2000
The Great Market Bubble Debate

Seven percent per year [average] real returns on stocks is what I find over nearly two centuries. I don't see persuasive reasons why it should be any different from that over the intermediate run. In the short run, it could be almost anything.

Oops. In hindsight, "I don't see" was the only part that mattered.

Have we learned how to prevent a banking collapse? A Great Depression? I would say, yes, we've had incredible success.

Oops. In hindsight, the incredible success was a mirage.

I will say that indexed bonds at 4% are an attractive hedge at the present time. To get a 4% real rate of return, although it's not as high as 6.5% to 7% that we talked about in stocks, as a guaranteed rate of return is certainly comforting against any inflation.

Using hindsight, locking in a 4% real rate of return long-term was actually much better than locking in a mythical 6.5% to 7% real return in stocks. Go figure.

So here's the question of the day.

Is it now better to lock in a 0% real rate of return in bonds (say I-Bonds for example) vs. a potentially mythical 2.5% to 3% real return in stocks?

I'd say the jury is still out.

1. There is nothing written in stone that claims prosperity must increase just because it has in the past.

2. The real return trend continues to deteriorate. Can't say how long it can continue but real yields were VERY low in WW2 and the 1970s.

3. The Fed has not and cannot permanently put a stop to recessions. There is a serious risk that any added prosperity during the expansion will be taken back during the next recession. It wouldn't be the first time (in the last decade).

Mr Slippery said...

I think it is easy to confuse real prosperity (health x health x free time x money) with financial returns.

Humanity is clever, and we can produce more food, goods, and services than at any time in history. Even per capita.

What is completely broken is the financial system, incentives, and laws that distort the distribution of wealth. The result is shrinking returns on money capital, over supply of goods, and growing poverty for the masses. The predicament is nothing new, except in scope. The money trust has effectively spread their "system", with some twists, into every corner of the planet.

Until the financial system is reformed, I don't think there will be any recovery, only growing misery and disparity. Just one monkey's opinion.

Stagflationary Mark said...

Mr Slippery,

Just one monkey's opinion.

There's something to be said for being a monkey.

An American monkey, after getting drunk on brandy, would never touch it again, and thus is much wiser than most men. - Charles Darwin