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And great once again to have our monthly
conversation with Wharton Emeritus
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Professor of Finance Jeremy Siegel,
who is also with Wisdom Tree.
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Jeremy, great to talk with you.
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Let me start out with
what we've seen the last
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week or so with the
markets because of Iran.
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It's been this back and forth.
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So how should investors be looking at
this?
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Because there's optimism one day and
there's pessimism another day.
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Right.
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It seems like our podcast
should be time stamped
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and dated because 10
minutes later it could change.
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Yes.
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Yeah, a lot of optimism on Friday.
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Iran saying Straits are open.
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Well, they weren't open.
And, you know, we stopped
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an Iranian oil tanker,
and so tensions are there.
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But what is interesting is the reaction
has been relatively mild in the markets.
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I mean, yes, they are
down, but they're nowhere
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near down as much as
they were up on Friday.
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What does this mean?
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The market thinks this is going to be
solved, that it is going to be resolved.
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Now, it could be wrong, of course.
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But I think it shows you the buying power
in this market.
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This market, you know, is holding on to
every favorable.
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It doesn't show any basic weakness,
that means.
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It means there's a lot of money ready to
be put into equities on any hint of
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favorable news, unless— the most
unfavorable, of course, is we start
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bombing, they bomb back and really damage
infrastructure.
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Right.
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And that is the worst case scenario,
which would really bring the market down.
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But right now, the market thinks that's a
very low probability event.
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So you just kind of lead me into my next
question, that, when this ends, is the
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expectation that we should
look for a run up in the
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markets even further than
what we saw last week?
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Because, as you just said, there's a lot
of cash ready to go into equities.
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Yeah, no. No, listen. If there is a
deal,
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if, you know, Trump tweets,
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"We got a deal," you're going to see
the market up 1000 points plus.
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It's— it wants a deal.
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I mean, and, you know, earnings are coming
out good.
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We're seeing the economy basically strong.
It seems to be just, you know,
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moving through this,
these higher, you know,
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gasoline prices and
several other prices
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with much less drag than many people had
feared six weeks ago.
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And the comments that the President made
about gasoline prices didn't— as you said,
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didn't seem to have a
negative impact to a lot of people
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because we're kind of— we know
we're kind of in this right now.
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But I think the expectation is,
again, if we see a deal done, then the
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expectation is the gasoline
prices may not go all the
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way back to where they
were before, but pretty close.
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Well, actually, yeah. I mean, actually,
I think we're gonna stay elevated.
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Not where we are now, at $4. Let's say to
$4.20.
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And we were, right before the war,
I think, $2.90 to $3.
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Yeah.
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I don't think we're gonna go below
$3.50, honestly, because I think there's
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going to be a risk premium in oil for a
long time as a result of this.
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And the fact that all the countries
are going to ramp up their strategic oil
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reserves, there's going
to be a lot of inventory,
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a lot of cushioning
that's going to take place.
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So I actually, you know, see it coming
down if there's a deal, but not by a lot.
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The good news is that, you know,
even at current prices, the average price
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after inflation is taken into
account of gasoline at $4.20,
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let's say, is actually the
same as the last 40 years.
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I mean, we were unusually low before this
happened.
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So, I mean, you know,
it's not like we're suffering,
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you know, cripplingly
high gasoline prices.
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We really just moved to average. And
natural gas is low. Actually, has not
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rallied because, you know, we have a lot
of natural gas in this country.
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And that's also a source of a lot of
people's power and energy.
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I'm sure you have your focus
on the Federal Reserve and
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what we will see play out
on Capitol Hill this week.
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Now, we're taping this on a Monday.
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It's playing on a Wednesday.
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Kevin Warsh goes before the Senate Banking
Committee on a Tuesday.
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So by the time we actually play this,
we will have known what Kevin Warsh said.
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But it's an interesting dynamic that we
still see play out here, that—
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Yeah. I mean, there—
you know, there—
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so let me give you my bottom line.
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I think Kevin Warsh, whatever
he says, is going to be—
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I mean, he's already been
approved before, and he's qualified.
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He's going to be approved.
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You know, the drama is, is Trump going to
drop his suit against Jay Powell because
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Jay Powell says, "If you don't drop it— I
mean, I'll step down as chair, as I must.
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But I'll stay on for the next two years.
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Be a thorn in your side."
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I mean, I think it's totally crazy for
Trump to pursue it when he could have his
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own pick and ally in there rather than
someone who opposes him.
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But nonetheless, you know, honestly—
it will be interesting to see what he says.
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But I think he's going to skirt around
everything.
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You know, they're going to say, "Are you
going to lower rates, you gonna do this?"
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You can say, "It depends
on what happens, you know,
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in June when I become
the Fed governor."
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And, you know, given the pace of events,
June seems like eons away.
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Well, and obviously
one of the other topics
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that will be brought up will
be Fed independence.
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I mean— but again, that's one of those
issues that he will, you know,
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most likely kind of try and skirt around.
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Yeah.
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I mean, you know, he will always say, "We'll
do what it was. And so we'll lower rates?
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I don't know."
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And he'll be asked about the balance sheet.
That'll go over the heads of most people.
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And they don't really understand how it
fits into anything
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anyways. They're interested in interest
rates.
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He will say the independence is important,
but we have to look at all features and
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he's not going to commit to anything
whatsoever.
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I think a more interesting decision is
Supreme Court, whether they say that Trump
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cannot remove Lisa Cook, because then that
definitely means they can't remove Jay
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Powell from the governor—
- Governor's role, yeah.
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- position, not from the chair.
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That is maybe Trump's prerogative once his
four-year term comes up in May.
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But, you know, that is an interesting
issue coming up.
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Let me switch up to AI, because I
continually, covering this from a news
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perspective, I'm amazed that it seems like
every week we get a new deal announced
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between, you know, an AI company and a
chip maker, but still we are in an area
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where there is still so much more growth
to occur with all of these different
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companies and a great time to still be an
investor in a lot of these areas.
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Oh, yeah.
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Because there's so much more room to run.
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There's much more room to run.
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And in fact, the run-up
since Iran has been
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almost a Mag 7 run
more than anything else.
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We thought we were having a big rotation,
and we did, but the last two weeks have
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eaten up back to the Mag 7 not taking
preeminence, but coming back, relying less
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on, you know, whatever oil is.
Not cyclical the same way, it's secular.
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The big problem with any of those
companies, and I think it's discounted in
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the price, is the fact that technology is
moving so quickly that they can't be
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assured that their
margins can be remained
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at the extremely high
levels that they have.
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I mean, that's the question. But until
that breaks down, you know, I don't see
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why they can't continue to be market
leaders.
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But if there is a deal on
Iran and oil comes down, I think
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the non-tech stocks
are also going to do well.
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One more thing I wanted to ask you before
letting you go.
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I saw an interview with SEC
Chair Paul Atkins this morning,
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and one of the things he talked
about was market manipulation.
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How much of a concern is that still in the
mix right now?
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Well, are you talking about for individual
companies?
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I'm sorry I did not hear his interview.
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Yeah.
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I mean, insider information laws are as
much as ever.
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I don't see evidence that they're being
abrogated more than before.
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We have some talk about prediction
markets, people leaking information.
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But that's a different ballgame, really,
than insider information on leaks on that.
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I mean, you know, there always are.
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There are always a few.
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The government investigates them.
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I think around the world, the U.S.
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is still number one at catching these
people.
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So let's hope they continue to maintain
the integrity of the markets here.
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So as we roll on for the next
month, anything that you are really
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kind of trying to—
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your radar is focused on as we move
forward the next several weeks?
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Well, I haven't yet—
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you know, I do look at
the money supply.
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And the money supply has been
going up at a more rapid rate,
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and that has tempered
my expectation of a rate cut.
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And in fact, I actually said I
thought the next rate move,
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and it might not be for many
months, might be a hike.
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And that depends, you know, basically on
how strong this economy gets after the
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Iran situation at least is semi-solved,
if I should use that term.
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Jeremy, always great to catch up with you.
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We'll talk to you next month.
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Thank you very much, Dan.
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You got it.
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Jeremy Siegel, Wharton Emeritus Professor
of Finance and also with Wisdom Tree.
