Tuesday, March 12, 2013

One of My Favorites, Jeremy Siegel, Predicts 18,000 on Dow in 2014

Jeremy Siegel is definitely neither a crackpot nor a pollyanna. When it comes to analyzing the stock market, he's a real pro.

He also is a distinguished Wharton professor and the author of perhaps the best ever book on investing for individuals titled "Stocks for the Long Run."

In other words, Siegel is someone who knows a lot about the stock market, and for individual investors it's always worth listening to what he has to say. So what's he saying these days?

Well, he sees much more good news ahead for individual investors. In fact, Siegel is forecasting a continuing movement out of bonds and into stocks as well as ongoing improvement in both the housing market and the general economy as well.

And he argues that the stock market, despite having doubled in the past few years, is still not overvalued. Based on all of these factors, Siegel believes that both the economy and share prices will continue to make considerable headway for the foreseeable future.

Thus, barring some unexpected catastrophe occurring, he reasons that the Dow could reach 16,000 to 17,000 by the end of this year and perhaps as high as 18,000 in 2014.

{NOTE: I generally share his optimism about the likelihood for future market gains. That said, I'm not quite as bullish about the speed of the market's share price appreciation to 18,000 as he is. But for long term investors, taking another year or more to get to 18,000 or even 20,000 won't make any difference.}

In Jeremy Siegel makes the case for the Dow going to 18,000, he discusses his reasons:

"Wharton School of Business Finance Professor Jeremy Siegel makes the case for the Dow /quotes/zigman/627449to hit 18,000 in an interview on Fox Business News.

In the interview, Siegel pointed to the rotation out of savings and bonds, recovering housing and an economy that can continue to expand without heating up inflationary pressures as key drivers for stocks.

Among the key quotes from Siegel :
“I think by the end of this year, we’ll be in the 16,000 to 17,000 range.” 
“The market is gaining adherents, money is flowing from the bond funds [and the] money funds.” 
With trillions of dollars locked up in accounts that aren’t earning any money, “We don’t have to have that much flow towards the stock market to reach these new highs.” 
“We are still operating well below our potential…We have unused capacity. We can have more demand without overheating this economy.” 
Nearly 93% of workers are employed in the U.S. “with less fear than any time in the last five years that they’re going to lose their job. They feel more secure with the housing market moving up with housing values moving up.” 
“Housing is going to be leading this stronger recovery [in] the second half of 2013.” 
“Valuations I believe are still so low, given the low interest rate, that this bull has legs.”"
Summing Up

Jeremy Siegel knows markets. His book "Stocks for the Long Run" should be required reading for all investors.

And while he may not always be right about predicting the future for share prices (nobody is), he has a better chance of doing so than almost all of the other so-called experts.

Besides, history is on his side, and the rotation out of bonds and into stocks, coupled with an improving economy, should propel the market to new highs for the next several years.

There will be time enough to worry about new highs and market peaks down the road. So for now, let's enjoy the ride.

And for long term investors, let's not get all caught up in trying to time the market or call the correction. As long as the long term trend is favorable, and it is, that's good enough.

That's my amateur take.

Thanks. Bob.

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