Deflation Is Real
Oil is perhaps the biggest example of that right now. That’s no surprise when you consider there is $2 trillion in infrastructure based on oil and capital devoted to the energy segment, Siegel notes. Moreover, almost 30% of capital expenditures in the past five years was related to oil in one way or another, he says. What happens in oil has huge ramifications globally.
Oil has gone from its high days of $100-plus a barrel to flirting with a $20 price tag. Producers such as Saudi Arabia have shown their commitment to slowing down the U.S. shale revolution, and have kept supplies flowing into the market.
$60 Oil May Be The New Cap
Longer term, oil may never go back to the $100 level, and might actually be capped around $60, “but that’s a level we can live with and thrive on,” he said.
China is another deflationary force, and still a bit of wild card. There are several threats to the Chinese economy. There’s corruption. And there are questions as to what happens next if the yuan is “freed up” and it tanks against the U.S. dollar. That remains to be seen.
This environment should keep the Federal Reserve from hiking interest rates in any way significant. Good news for stock investors.
“We have the most bearish market sentiment since the Lehman Brothers collapse right now,” Siegel said. “Are these not buying points for investors when everyone turns bearish? I think so.”
Contact Cinthia Murphy at [email protected].