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Siegel (Mike Mergen/Landov)

A bull for all seasons

Money | Economic guru Jeremy Siegel predicts big gains for stock prices in 2013 and beyond

Issue: "The brain trust," June 30, 2012

Jeremy Siegel is a Wall Street celebrity. The Wharton Business School professor and former John McCain economic advisor has his own website and his own nickname: "The Wizard of Wharton." Back in March he made headlines when he gave the Dow Jones Industrial Average a 70 percent chance of hitting 15,000 by the end of 2013. He put the odds at 50-50 that the Dow would hit 17,000 by then.

Siegel is a supply-sider, a conservative, and a Romney supporter. And even he believes that a Wall Street rally helps President Obama's reelection chances. So his prediction was not one that served his political interests. That may have been one of the reasons the prediction got such a wide airing.

But April was weak and May was a disaster for the markets. Does Siegel stand by his prediction now? "More than ever," he told WORLD. He believes stocks, based on earnings, are significantly undervalued. He also believes people tend to be short-sighted when it comes to the stock market and the challenges the world faces today. "People compare the situation today with the Great Depression, and there's absolutely no comparison."

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But wait: Europe is in economic meltdown and U.S. debt is at historic levels. Could this time be different? Not likely, Siegel says. Through famines, wars, and the fall of empires the stock market had "7 percent per year [average] real returns ... over nearly two centuries." He said that in the intermediate to long term, it is foolish to bet against the markets, though Siegel said, "In the short run, almost anything can happen."

So what will happen between now and the end of 2013? "2012 will not be a great year," Siegel said, "but over the summer the Bush tax cuts will get extended, and that will cause a rally, because Obama and the Democrats don't want to go into the fall election with a down market." As for Europe: "Europe is just slow. That's the way they are. But they'll solve their problem. They'll devalue the Euro substantially. The Germans will reluctantly accept less austerity from other countries than they want. They'll muscle through it. It won't be pretty, but it won't be a crisis, and the markets will rally."

Too little, too late?

Mark Wilson/Getty Images

Even if Jeremy Siegel is right and the markets rally, will it be too late for President Obama? Conventional wisdom continues to be that the economy will decide the election. Conventional wisdom also says that most people make up their minds on the economy three to six months before the election. In other words, right about now.

So what are people saying? Five months before the election, Gallup had Obama's approval rating at 46 percent. No incumbent has ever won reelection with a 46 percent approval rating on Election Day. May's jump in the unemployment rate, to 8.2 percent, certainly didn't help the president. The online gambling site InTrade, which some analysts say has been more accurate than opinion polls in predicting elections, still has Obama up, but the gap closed 6 points when the May jobs numbers were released.

All of which may have been why John Cassidy, writing in the liberal New Yorker, made no attempt to hide his bias when the jobs numbers came out on June 1: "I hate to ruin your weekend, but let's be honest: Mitt Romney now has a good chance of being the next president." -Warren Cole Smith

Warren Cole Smith
Warren Cole Smith

Warren, who lives in Charlotte, N.C., is vice president of WORLD News Group and the host of the radio program Listening In. Follow Warren on Twitter @WarrenColeSmith.

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