Jeremy Siegel: Stocks and bonds can both rise

The famed economist predicts long-term bond rates will stay low, regardless of what the Fed does. He remains bullish on stocks.

By MSN Money producer May 8, 2014 9:02AM

Intraday stock charts (© Daniel Acker/Bloomberg via Getty Images)By Matthew J. Belvedere, CNBC CNBC.com


It looks like interest rates are going to remain low regardless of what the Federal Reserve does, and that's why Wharton School Professor of Finance Jeremy Siegel said he's sticking to his forecast of Dow 18,000.


"Everyone expected the 10-year (Treasury yield) to be 3.5 percent by now on its way to 4 percent. It's closer to 2.5 percent," Siegel said on CNBC's "Squawk Box" Wednesday. He admitted he was one of those calling for higher rates in the bond market.


"Now I think we're going to have low interest rates on that long-term (bond) for quite a while now no matter what (Fed Chair) Janet Yellen says," Siegel said -- predicting that there's "still upside" in the stock market under this scenario.


Stocks and bond prices can both track higher for different reasons in this current environment, he explained, because older investors and pensions seek the traditional-safety of fixed income, while younger investors snap up stocks, which are viewed as riskier.


"The baby boomers, which still control most of the wealth, (are) getting to 65 and saying, 'Yeah, stock prices may be a better deal, but I've got to be conservative.' That push on to bonds is going to keep a lid on their rates," Siegel explained.


At the same time that "there's huge demand for bonds," he continued, "the deficit right now of the government ... is less than the historical average. There aren't that many bonds being pumped into the market."


By contrast, private equity manager Jay Jordan told CNBC that he sold all his stocks about six months ago. "I was very nervous about what was going on globally." The Jordan Co. has about $5 billion of assets under management.


He admitted he missed a big upturn in the stock market, but chose to reinvest in some of his businesses instead.


"The Fed should go negative on interest rates and drive GDP up because earnings are not tracking with the stock market," Jordan proposed.


"How do you stimulate earnings? You put more liquidity in the market," he said. If the Fed forced the banks to lend their $3 trillion of excess reserves, that would stimulate the economy, he concluded.


"That's not a crazy proposal," Siegel said. "There's no incentive (right now) for banks to lend it out in this environment." 


More from CNBC


Tags: $INDU
13Comments
May 8, 2014 2:03PM
avatar

  Ah, ah pardon me but haven't we been there before? Can't believe people that would force banks to make loans would show there faces after the last debacle when banks were forced to make loans. Forced loans mean more bad loans and after all is our government and we the tax payer willing to back them once again. That is exactly what has to happen if they are forced to make loans. They have to be backed by someone.

 Incentives are supposed to be return of capital plus interest by responsible people and companies. Maybe the banks see some of that lacking right now.  

May 8, 2014 10:37AM
avatar
Once you release the dogs of debt anything becomes possible.  The war in America is now a social struggle between those that have to sweat and toil to get money versus those that merely print it or borrow it for nothing with little to no issue not paying it back.  We have a now monsterous divide between those that have and those that don't.  Almost all books writen about the history of the world and declining empires have the same last few chapters.  We are no different. 
May 8, 2014 4:00PM
avatar

As long as Interest Rates stay low - people will be buying Dividend Stocks. Why ? Because there is no place else to go to earn a buck !

As soon as Interest rates on (CD's) rise above 5% - watch out.

I will have another strategy though - When everyone else is buying CD's I'll be buying even more Dividend Stocks at a Bargain !

If you run with the Herd - You get trampled by the herd. Better to find your own spot to graze !

May 8, 2014 2:32PM
avatar
What's even crazier then lowering rates aka interest income even more, all the Crazy talk about how Banks were forced to give out loans to the Working Poor and Fading Middle-Class. Big Banks don't do anything they don't want to. Big Banks own the Government, not the other way around.

Certain posters refuse to look at the Size of the entire Mortgage Market for Consumer and then look at the total value of homes that went under. Some folks want you think that a small Minority of folks within a even smaller minority of folks that mortgages went delinquent, cause the great recession. The math didn't add up then and it certainly doesn't add up now. Besides we all know the same posters will ignore this.

2014
"Fannie will pay a dividend of $5.7 billion to the U.S. Treasury next month. With its previous payments totaling about $121 billion, Fannie has more than fully repaid the $116 billion it received from taxpayers.

Freddie Mac posted net income of $4 billion for the first quarter. Freddie, based in McLean, Virginia, will pay a dividend of $4.5 billion to the government. Freddie already had repaid its full government bailout of $71.3 billion after paying its third-quarter 2013 dividend."




May 8, 2014 10:31AM
avatar

"The Fed should go negative on interest rates and drive GDP up because earnings are not tracking with the stock market," Jordan proposed."How do you stimulate earnings? You put more liquidity in the market," he said. If the Fed forced the banks to lend their $3 trillion of excess reserves, that would stimulate the economy, he concluded."That's not a crazy proposal," Siegel said. "There's no incentive (right now) for banks to lend it out in this environment."


That is in FACT crazy talk. Global Debt has risen 40% since the Great Recession. The problems that caused it were only delayed not solved. This Nut-Job wants to encourage entities to take on even more Debt and basically end up in Epic Failure. And folks wonder why the World is falling apart. Insane Folks like this is why.

May 9, 2014 7:08AM
avatar
Currency dilution will end this stupidity. When the Dollar doesn't buy anything or it exists only in the markets, People will resort to a useful currency and do away with greedy grubbers. 
May 8, 2014 1:55PM
avatar

is it possible that rates could rise, bonds could fall and stocks could fall?

 

hmmmm .......

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124
124 rated 1
267
267 rated 2
467
467 rated 3
605
605 rated 4
645
645 rated 5
691
691 rated 6
617
617 rated 7
459
459 rated 8
313
313 rated 9
130
130 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
BIDUBAIDU Inc10
BXTHE BLACKSTONE GROUP L.P10
CELGCELGENE CORP10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.