Reserach Paper

Professor Siegel is a professor of Economics at the Wharton School of the University of Pennsylvania, and is a Senior Investment Strategy Advisor of Wisdom Tree Investments. Siegel states than a analysis of the historical relationships among real stock returns, PE’s, earnings growth, and dividend yields and an awareness of the biases justify a future P/E of 20 to 25, an economic growth rate of 3 percent, expected real returns for equities of 4-5 percent, and an equity risk premium of 2 percent.

He says that since interest rates are low, people should invest in the stock market because it’s a bargain he stated. Countries like Europe are in trouble due to taxes and interest rates. The U.S. is hurt because of the oil prices and we import it, and the margins are higher and that’s how it’s so much improved over the years. The U.S. is going to have record profits this year due to the earnings and interest rates. When making investments people have to look into the bond or stock prices and how well they are doing, so you get a better evaluation on companies. He says that in the long run bond markets are very dangerous because of the inflation he believes will be 2 percent, also the interest rates will be higher which is risky on the price. For him it all depends on the economy, they will lower interest rates if the economy does better in the long run. In the early stages the stock markets wont

Giammarusco 2

have a negative effect on price, but in the long run will have a little bit of an impact on prices.

Diversification is important because one state can go under, but if you stay will higher quality you should be fine. He likes international investing because they are making money off of U.S. stocks even that the Euro is failing. Exporters can make a good profit, and we can make a good impact on the market. We can pay in yen and the currency in ETF’s is good with investors, which will make the U.S. a ton of profit. In a demographic standpoint we are the sellers to other countries like India, and we can making a killings in capital if we keep investing