Guru watch
“You cannot ignore the supply of money when you talk about inflation. The Fed must pay attention to the supply of dollars it is putting into the economy,” Jeremy Siegel, the almost invariably bullish author of Stocks for the Long Run, tells Advisor Perspectives. The pandemic has permanently reduced the supply of workers in many industries in the US; combine that with the “classic monetary, demandpull inflation” caused by unprecedented central-bank policies and you have a recipe for sustained inflation.
“We are going to have a cumulative inflation of 20%25%… [over] a period of three to four years.”
The US Federal Reserve is “way behind the curve” and will be “forced to accelerate tightening greatly”, says Siegel. “You can’t keep interest rates at zero to 1% when inflation’s going at 5% to 7%.” This means “we may have to go into a mild recession for the Fed to slow spending enough” and that means there are going to be “tremors in equities”.
Nonetheless, the overall US market is “fairly valued and not bubble-like”, Siegel maintains. “If I had to give a target next year, it is 5,000 for the S&P 500.” (The index is currently around 4,600.) Value stocks should do well. “People are going to be searching for yield that’s inflation protected.” Similarly, he is still moderately bullish on real estate. “In an inflationary environment, people want to buy real assets and homes are the quintessential real asset. We’ve already seen a 20% increase in house prices. We could see another 5% or 10% increase.”