Jeremy Siegel Explains Why Even DOW 15,000 Would Be Cheap

Jeremy Siegel’s call for Dow 15,000 has been well known since the story graced the cover of Barron’s in February.  Specifically, he believes the Dow could see 15,000 or 17,000 by some time in 2013.

Hedge funder Doug Kass was one of the first people to fire back on his call.

Dr. Siegel comes off as a very nice person, but he is an academic who has been bullish at some very wrong times. Importantly, his theories regarding equities for the long term have been wildly off, as bonds have outperformed stocks for one, five, 10, 30 and 40 years, which, according to his investment thesis, is impossible.

In an interview on CNBC’s Squawk Box this morning, Siegel was reitierating his bullish call.

However, Andrew Ross Sorkin channeled a Doug Kass question to the Wharton Finance professor.

“Professor, Doug Kass wrote a little column called a question for Professor Siegel,” said Sorkin. “Wouldn’t a 15,000 plus Dow Jones require the revival of animal spirits driving valuation back to historical levels, which would be a difficult feat given economic and geopolitical economics in terms of the headwinds of our country’s fiscal imbalances?’

“That’s a good point,” responded Siegel. “Let me tell you why my answer is yes.  We are below that long-term historical mean.  I think what’s very important that will give us a boost is the low interest rate.  15 is the long-run PE ratio over all time.  But [if you adjust for when interest rates were in double-digits or 8% or 9%], the average PE ratio in the post-World War II period is actually 18 or 19. So, we are really well below to low-to-moderate interest rate PE module.  We can get to 15 or 16 even with the headwinds in front of us and still be below average.”

So there you have it.  Stocks are extraordinarily cheap, and they’re made even cheaper when considering relative value to bonds.

Here’s the whole interview via

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