Jeremy Siegel: The "Irving Fisher of the 21st Century?"

In his latest weekly letter, fund-manager John Hussman posits that Jeremy Siegel, the famous finance professor known as the "wizard of Wharton," is well on his way to becoming the Irving Fisher of this era.  Fisher, you may remember, was the well-regarded economist who opined in early September 1929 that stocks had "reached what looks like a permanently high plateau."  As Siegel himself noted in his excellent Stocks for the Long Run, Fisher made this remark two weeks before the start of The Great Crash.  Soon thereafter, his reputation was forever destroyed.

Siegel hasn't said that stocks will never again fall, but in Hussman's opinion, he's now stretching his bullish interpretations so far that he's making methodological errors.  Hussman cites a Financial Times piece in which Siegel argues that "Real returns can be estimated from the earnings yield, the reciprocal of the more popular price-earnings ratio. Since stock earnings are based on real assets, the earnings yield provides a good estimate of the real return on the stock market.”  Siegel then uses this logic to suggest that stocks may produce even higher returns in the future than they have in the past.

Hussman, also a finance PhD, has a number of problems with this logic, starting with the fact that Siegel is equating earnings with dividends.  He also ignores that 1% of stock performance over the past 80 years has come from multiple expansion, compares apples with oranges by conflating trailing and forward P/Es, and ignores that profit margins are at currently at record highs (thus producing artificially low P/Es).

This latter omission is the part of Siegel's bullish argument that I find inexplicable.  As Jeremy Grantham has observed, earnings are "one of the most dependably mean-reverting series in finance."  It would be one thing if Siegel were to acknowledge today's record profit margins and then argue that this time they won't revert to historical means.  But he doesn't even acknowledge them!  Instead, he just takes a simple current P/E and compares it to a century average based on average profit margins.

If Siegel weren't so smart and well-informed, this omission might be understandable.  In fact, he is one of the world's foremost market experts and a good friend of Yale professor Robert Shiller who popularized the "cyclically adjusted P/E".  So the only conclusions that one can draw are either that 1) Siegel doesn't think profit margins will drop (an argument radical enough that it deserves to be made explicitly), or 2) he is now so wed to his bullishness that can't let it go (wouldn't be the first time this has happened to a market guru...).  A third, more negative interpretation is that now that Siegel is an advisor to ETF vendor WisdomTree, he can't afford to be publicly bearish because it would be bad for business.  I'll give him the benefit of the doubt on that one.

Comments

[buy viagra]

hello friend congratulation you did a great work with this post about Jeremy Siegel: The "Irving Fisher of the 21st Century? I really appreciate this professional information, thanks for sharing!!

[breast feeding]

Read my mother breastfeeding blog. It's very interesting

[hairy cunt]

http://wives-hairy-cunt.www-hairypussy.com/
understandable. In fact, he is one of the world's foremost market experts and a good friend of Yale professor Robert Shiller who popularized the "cyclically adjusted P/E". So the only conclusions that one can draw are either that 1) Siegel doesn't think profit margins
http://hairy-blonde-bush.www-hairypussy.com/ http://free-hairy-cunts.www-hairypussy.com/

[Aşk Büyüsü]

Read my mother breastfeeding blog. It's very interesting.

[Cheap Jerseys]

hello friend congratulation you did a great work with this post about Jeremy Siegel: The "Irving Fisher of the 21st Century? I really appreciate this professional information, thanks for sharing!!

[Wholesale NFL Jerseys]

Couldn't agree more...Had a post already written about this too, (good job i checked around first)never mind.It is a really good tune though.
Here's hoping more labels wise up and do this.

[foreign exchange student]

Many economists have offered theories about how financial crises develop and how they could be prevented.

[viagra]

For my tastes, a natural combination for the blueberry pasta was something with a gamey flavor.

[viagra]

For my tastes, a natural combination for the blueberry pasta was something with a gamey flavor.

[new balance]

Power invariably means both responsibility and danger.

[Lisa Alloju]

Jeremy Siegel i think is correct. however, Hussman has valid points too. both have good inputs.

[starcraft 2 cheats]

I am very enjoyed for this site. Its an informative topic. It help me very much to solve some problems. Its opportunity are so fantastic and working style so speedy.

[Air Jordans]

yes you are right!

[ugg outlet store]

Literature is a kind of intellectual light which, like the light of the sun , may sometimes enable us to see what we do not like.

[moncler jackets]

I did not discuss that particular issue!!

[air jordan]

*Good health, like air, is essential to human beings!*

[nike air max]

I like your concept.*_*

[songs.pk]

The post is written in very a good manner and it entails many useful information for me. I am happy to find your distinguished way of writing the post.thanks

[payday loan direct lender]

Great site. I like the way you explain everything without using complicated terms.

[Abilify 5mg]

I always read this information it is very usefull..

[starcraft 2 cheats]

Fully agreed with your points on this post.

[Payday loan lenders]

He is the best. I think kasriel Recession Warning Indicators Red are useful on the streets. On the other hand, I consider this information useful everyday.

http://getpaydayloan.us/

[same day payday loans]

In fact, he is one of the world's foremost market experts and a good friend of Yale professor Robert Shiller who popularized

[cash advance]

Great ....You have beautifully presented your thought in this blog post.

[Air Jordan]

There are painters who transform the sun to a yellow spot, but there are others who with the help of their art and their intelligence, transform a yellow spot into the sun. Do you agree?