Siegel: Dow Heading to 18K, Worry Good for Markets

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Jan. 29 (Bloomberg) –- Wharton School Professor of Finance Jeremy Siegel discusses where the U.S. markets go from here with Trish Regan and Adam Johnson on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

18,000 target utility but a few months ago?

I still think fair market value on the dow is about 18,000. after member no old market goes in a straight line.

I think i said that last december and we are getting a downturn here.

I actually like it.

A few more pessimists.

Bull markets climb a wall of worry.

At the end of december, there is nothing to worry about.

Now we've got a little worry.

It's good for a little correction in the market.

Tell me how you get to the 18,000 valuation.

Rex if we look at the s&p 500, it selling just about its average price to earnings ratio, around 17 or 16 and a half.

If i take out the double-digit interest rates where the price to 8, 9, 10 and we are not getting near that, the average pe is 18 or 19, about 10% or 15% higher than where we are today.

I had that to it and say give it our low interest-rate environment and interest rates going up, we are nowhere near the double digits.

We could certainly trade higher than today, but we will be trading 18, 19, not not counting the earnings we are going to get this year.

Analysts are expecting about 8% to 10%, but i think 18,000 will be reached by years end.

Rex and we can do it in the face of the fed scaling back, having another $10 billion taper today?

I was a little disappointed.

I thought they should mention some of the problems we have had a little more and emphasize what they actually emphasize when they started tapering in december domenech this is not a cut and dry say.

That if we see continued weakness, we might slow or stop tapering temporarily.

Nothing that explicit, but a little hint that they are looking at what happened when they and give the hint.

I think that disappointed the market and we saw some further selling after the 2:00 p.m. announcement.

When you talk about potential problems for the fed and therefore all of us, what are your top one or two?

I'm still a little concerned when i saw the unemployment rate dropped to 6.7. we'll all like that but it's only due to low participation low payroll growth.

We want to see unemployment go down with robust payroll growth.

I was the stir that that combination.

We don't want any supply constraints.

We don't want any bottlenecks and the labor market or the product market or raw material market.

That is something that can prematurely and the bull market because that means the fed will really have to start tightening earlier if they see prices rising.

We want to keep our eye on that.

One of claimant is not the bottom line.

We will be looking very closely i guess a week friday for the january labor market report.

My old professor, who is the vice chair of the fed, he was my professor at princeton and he used to talk about the wage price spiral.

We heard from president obama last night that it looks like some workers are getting a boost.

They're going to up the federal minimum wage.

If you look at your own models, what does a $10 and $.10 minimum wage do to inflation?

First of all, i know alan blinder very well.

He was at m.i.t. when i was there.

A very fine economist to say the least.

A federal minimum wage, i don't prefer it.

Listen -- we still have the best job market in the world and we are still creating more jobs than anyone else.

I don't want anything that will hamper it, even though people say it's not that important.

Why shut off jobs if the applicant and the firm want to have it?

You think it is a negative?

Honestly, i don't think it's going to be a disaster for the economy.

I would not change my protection on what the market is going to do or gdp is going to do.

I just want to make sure everyone who wants a start in the job market -- remember, only one third of those that did the minimum wage are the primary workers met family.

They are often second or third people getting extra money and that's a good thing.

We don't think of them as being the prime breadwinners in the family.

There'll be a lot of disagreement.

People on both sides -- i don't think congress is going to get to the minimum-wage this year, an election year.

It's something to talk about but it would not change my protection on the market or gdp.

Let me ask you about something else we heard from the president last night.

His creation of the mira account.

This is basically a savings account of sorts that people would be able to use similar to an ira that would be guaranteed by the government what is your thought on that?

Anything that can increase savings is a good idea.

I prefer people to be able to increase their iras tax-free and put it away for their retirement.

That's my preference, but if you can do it tax-free like in a roth form, i'm for anything that increases savings.

We are a country that saves too little.

I'm not going to knock something because it doesn't fit my first preference.

If the government wants to encourage it, i'm for it.

I know you are an equity guy.

Someone putting their money in a mira as opposed to a roth ira, are people going to miss out on some opportunities?

You know i believe that over the long run, stocks are going to do better.

But for a lot of people, they can take the short-term risk and volatility.

These are designed for first- time people.

If we're going to get them only in the fixed income market, so be it will stop hopefully that will encourage them to move more toward equities later.

Everybody needs to save more.

Thank you so much for joining

This text has been automatically generated. It may not be 100% accurate.

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