Jeremy Siegel Is ‘Not Convinced We Can Prevent a Recession’

Wharton professor Jeremy Siegel said Monday that the country is in “need of presidential guidance — this is the time when calm concern should be expressed and [helpful] measures need to be taken.”

“Tens of millions of Americans cannot work from home,” explained Siegel, who is also a senior investment strategy advisor for WisdomTree. “This is a big concern … [and] maybe we need delayed payments/forgiveness periods for debt, mortgage obligations or tax payments.”

As Siegel spoke on a call with investors late Monday, President Donald Trump was discussing a possible payroll tax cut and other relief measures in response to the coronavirus at a press conference. (These remarks pushed stock futures up in after-hours trading.)

“This is the time for politicians of both parties to come together,” Siegel added, “and I think they will. We have to get these loans [and other steps] in place. … I am not convinced we can prevent a recession. At 11 years, this is longest expansion in economic history — but all good thing come to end.” 

As for different investments, the finance guru says dividend-paying stocks “are the new bonds” when it comes to providing yield, while long-term bonds “are the new gold” and “the new VIX” volatility indicator.

“The negative beta property of Treasuries has been growing, and as long as bonds are viewed as a hedge, we’re going to have extremely low yields,” he added.  

Though he doesn’t like gold as a long-term asset, Siegel sees it as a better short-term, defensive holding than Bitcoin: “Bitcoin was down 14% today, so that won’t help its image as a stock hedge.”

Oil Spill

Addressing what happened to the markets on Monday, Siegel explained: “It’s been quite a day with a 7%-plus decline — and it’s ironic that 11 years ago to the date the great bull market began. I can recall the S&P 500 at 676 and the Dow at [about 6,500]. Another 2-3% would bring us our first bear market in 11 years.”

He said the big drop was due “about 50% to the oil situation and 50% to other concerns associated with the coronavirus.”

“We are no longer an importer and are now an exporter of oil,” said Siegel. “As such, we should suffer the loss of real economic income. While users (like drivers) gain, the loss to producers should be greater — which has not been the case before … We have about $1 trillion in capital locked into the energy sector, directly and indirectly.” 

Other effects include putting “tens of thousands out of work, and it upends renewables, since no renewable energy source can compete with [cheap oil],” he added.