Tags: Siegel | Stocks | Euro

Wharton’s Siegel: Stocks Are Cheap, Euro to Plunge

Friday, 03 Feb 2012 08:25 AM

Stocks are cheap and the savvy investor should buy now, while the euro will weaken from around 1.3 per dollar and trade one-to-one with the greenback, known as parity, in about a year's time, says Jeremy Siegel, economics professor at the University of Pennsylvania's Wharton School.

The U.S. economy is improving and while Europe remains in trouble, measures designed to combat its debt crisis have given policymakers wiggle room to implement tough reforms for now.

The result will see the euro weaken as long as resolution and recovery remain on the horizon.
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"It is kicking the can down the road and you know what it will mean? Depreciation of the euro. We are going to see a $1 per euro and that is going to be a last chance to save the euro system," Siegel tells CNBC.

"I wouldn't be surprised to see [parity] in a year or a year and a half."

In the U.S., markets can expect a strong dollar as well as further stock-market gains.

"I think the stocks are unbelievably cheap, and there's euro risk for the investor. I think those are the two things you have to balance," Siegel says.

"I think this year is going to surprise on the upside."

Often a strong dollar can crimp into stock prices because it hurts exporters, but that won't be the case if the U.S. economy improves and domestic demand can absorb foreign demand lost from a stronger dollar.

Furthermore, the yen will end its strengthening trend, made worse by the 2011 earthquake that prompted investors to stock up on cash and sell stocks and other assets.

"It's going to be the year for the dollar against the euro and surprisingly even maybe against the yen," Siegel says.

Other high-profile market watchers are predicting a euro-dollar parity in the near future.

"Parity with the dollar next year is not out of the question," Scott Mather, head of global bond portfolio management at Pimco, the world's largest bond fund, told the Wall Street Journal in December 2011.

"I am more bearish on the euro now than three months ago."


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2012-25-03
Friday, 03 Feb 2012 08:25 AM
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