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.
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
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.
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 !
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.
"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."
"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.
is it possible that rates could rise, bonds could fall and stocks could fall?
Copyright © 2014 Microsoft. All rights reserved.
The company plans to close stores and lay off employees, and says it needs to make some deeper changes.
VIDEO ON MSN MONEY
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.