Tuesday, June 12, 2012

Shock! Faber, Siegel Agree: Buy Stocks Instead of Bonds - CNBC.com

The author of the Gloom Boom & Doom report, and Siegel, the bullish Wharton School professor, believe that with negative real bond yields prevailing there's little choice but to pick stocks.

"Everything looks bad at the present time and people are relatively bearish. At the same time, you have the 10-year note at less than 1.5 percent and you have stocks like Johnson & Johnson yielding almost 4 percent," "I'm not saying Johnson & Johnson won't go down with the rest of the market, but if you have a time horizon of 10 years, I believe you're going to make more money in Johnson & Johnson than you will in U.S. government bonds," he said.

Siegel has been making the same point for some time now, telling hedge fund managers at May's Skybridge Alternatives, or SALT, conference in Las Vegas that investors don't even need the market to go up to make money in the stock market.

Dividend gains alone are reason enough to turn from government bonds and towards equities, he said during a live segment with Faber. "This is the first time in 60 years that dividend yields on the market exceed long-term interest rates. It's the first time in 60 years when you don't need gains in stocks, that you don't need higher returns than gains in bonds," Siegel said. "You don't have to worry so much about the day-to-day volatility if the corporation, if the firm has good coverage on its dividend, because it's going to continue to pay."

Falling commodity prices, particularly in oil, add a "side benefit" for consumers and investors, Siegel said.

"Slow growth, no recession, earnings flat but dividends well-covered — I think it's still a very, very good story for stocks," he said.

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