Jeremy Siegel: 2010 Good For Stocks, Bad For Bonds

Wharton finance professor Jeremy Siegel last month sat down for an interview in the Knowledge @ Wharton newsletter. The talk delves into his view on the markets for 2010 and he believes it will be a good year for equities and a bad year for bonds. He also believes interest rates will go up. Once investors get over their initial fear and realize that such an increase would mean the economy is recovering, Siegel thinks we could see 10% equity returns.

His pessimism on bonds is due to risk premium dissipating, interest rates rising (causing bonds to lose value) and he does not like any long-term bonds in 2010. However, he did like corporate bonds and 'risky corporates' a little bit as well. This is not the first time we've seen this overall stance as Bank of America was out saying to overweight stocks and underweight bonds.

Below you'll find Siegel's thoughts and his market outlook for 2010:



You can download the .pdf here.

Siegel also recently sat down with Bloomberg to talk about the recent pullback in the markets. Here's the video:



Siegel definitely feels stocks are the superior choice to bonds for this year. With that in mind, head to the list of top stocks held by hedge funds for a few ideas (or crowded trades if you look at it that way).
For more outlook and insight regarding the markets for this year, head to the ten investment themes for 2010.

Where Some Market Gurus Are Investing

Recently, some 'market gurus' spoke up about where they are investing in these challenging times and we wanted to highlight some of the results:

John Bogle, the founder of Vanguard

• Roughly 25% in stocks

• Says: "I earn my money and spend my money in dollars, and I don't need to take currency risk."

David Dreman, the contrarian and manager of Dreman Value Management

• Roughly 70% stock allocation

• Likes oil and gas exploration and production companies such as Apache (APA), Anadarko Petroleum (APC), & Devon Energy (DVN)

Burton Malkiel, economics professor at Princeton and author of A Random Walk Down Wall Street (which we highly recommend).

• Bumped up his allocation to tax-exempt bonds due to great yields

Jeremy Siegel, professor of finance at the University of Pennsylvania's Wharton School and senior advisor to WisdomTree

• Raised allocation to junk bonds

• Says: "Stocks and high-yield bonds will move together as the crisis passes."

• 1/4th to 1/3rd of foreign stock allocation in emerging markets: "They've gotten cheap enough to really give value now."

• Added U.S. real estate investment trusts to his portfolio

Muriel Siebert, founder of Muriel Siebert & Co

• Buying Pfizer (PFE), Altria (MO), & General Electric (GE)

• Says: "I don't mind buying a stock on the bottom and waiting. But I do think when you get a market like this, you should be paid while you wait" (hinting at the solid yields of those stocks).

Jim Rogers, founder of the successful, now defunct Quantum fund (along with George Soros). Also author of Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market

• Putting new money into Chinese shares, focusing on buying agriculture, water, infrastructure. Also focused on putting new money into commodities, particularly agricultural ones.

• Some of his other stances include: Bearish on long term US bonds/treasuries and also bearish on the British Pound.

Link: WSJ