Jeremy Siegel’s Commentary on Economic Events
Posted July 31, 2011on:
Today, I received an economic commentary from WisdomTree that includes a piece written by Professor Jeremy Siegel. He is a University of Pennsylvania professor and author of several books totting stocks as long-term investments. His piece covers four subjects: economic slowdown, US default, European debt crisis, and corporate earnings. Below, I have excerpted key passages for readers.
On economic slowdown
“Estimate of GDP growth in the second and third quarters have been marked down significantly over the past three months, mainly the result of lackluster consumer demand …US consumer sentiment has plummeted. Much of that is due to the continued stalemate on the budget deficit and politicians talking about curtailing Social Security and Medicare benefits.”
On US default
“It is my opinion that the US will not default on any debt payments or entitlements and that an agreement on a temporary increase in the national debt ceiling will be reached.”
On European banking crisis
“A more immediate concern to stock investors is the potential of a general banking crisis in Europe spilling over to theUS. There is no doubt that the European situation is worsening … Yet I believe that the European Central Bank will stem any general crisis by providing whatever liquidity is needed.”
On corporate earnings
“Despite the slowdown in the US economy, estimates of S&P 500 earnings for 2011 are now higher than they were when I wrote my last commentary in April, and the early returns from second-quarter earnings reports are extremely favorable … Currently the S&P 500 index is valued at about 13 times this year’s operating earnings and 11.7 times next year’s earnings. European stocks are even cheaper.”
The upshot of his message is that despite all the uncertainties, stocks may still be where you want to invest your money.
I personally do not hold Professor Siegel in as high regard as Professor Eugene Fama. However, his message is still much more credible than the noise produced by the financial talking heads.
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