The same old

A little more fallout from All Things Considered host Robert Siegel’s interview last evening with Wharton’s Jeremy Siegel, in which Siegel (the Wharton Siegel) urged people to get into the stock market.

“Even in December of 1930, where you were 50 percent down from that all-time high in 1929, your five-year return was more than seven percent after inflation. The world looks different once you’re down as much as we have been down,” he said.

The Wall Street Journal’s MarketBeat blog isn’t buying it. “After the crash 1929, the Dow didn’t return to its high of that year until 1954,” it said.

The Motley Fool carried a Siegel quote worth considering:


Mr. Jeremy “Wizard of Wharton” Siegel apparently agrees, saying in a recent interview: “You are now investing when stocks are down 50% from their peak. … Once you’re down 50% from the peak there are almost no bad outcomes going ahead 10 years.”

I’m not an equity market expert; I’m just a guy with a fraction of the retirement account I used to have. But the Siegel-on-Siegel interview suggests to me the American media is ready to make the same old mistake again — using economists as predictors.

Economists make good analysts of what’s happened, but for the most part they make lousy predictors of what’s going to happen.

Take Siegel, for example.

July 4, 2005 – “I think stocks return is going to be somewhere between, say, 7, 9 percent per year over the next five years. I think real estate is high, and I don`t think real estate is going to compete with stocks, either.” In fact, there was a link between real estate and the stock market that Siegel failed to recognize or acknowledge.

August 10, 2007 – “There are good values out there in equities — especially in financial stocks — and you will be rewarded in the long run if you start dollar cost-averaging now.” At the time he recommended General Electric, Citigroup, and Bank of America.

October 17, 2008 – “I think these prices will be viewed as extremely cheap even a year from now. People will wish they’d had the guts to go in.” The Dow is 247 points lower at midday today than it was then.