ETF.com: Besides interest rates, what are the risks you’re seeing in the global investment space? Is terrorism one of them?
Siegel: Yes, terrorism is a risk. There is no question about that. A major terrorist attack in a crowded mall or crowded theater—we saw the effect after 9/11—certainly can have a short-run impact. I don’t think it’s going to have a long-run impact, because we recovered from those attacks and we’re a strong people that can move forward from temporary setbacks. But in the short run, clearly it would have an effect. There is always risk around the world.
As I often mention, I remember growing up as a teenager during the Cuban Missile Crisis, where we knew that the Soviet Union had hundreds of nuclear-tipped intercontinental ballistic missiles that were pointed at the major cities in the U.S. and in fact could reach those cities in a matter of hours over the North Pole. That was a frightening situation. We have really had global risks for well over a half century now, and that is a reality.
A lot of people think the risk is a lot greater now, failing to realize that risk has always existed. At the last ETF conference in Amsterdam, we took a trip up the Rhine River, and were told, “This is the longest period of peace between France and Germany in history.” Think about how long wars have been around, and I don’t think those people who say “today we live in a much scarier world” are right.
ETF.com: What do you see ahead for interest rates?
Siegel: I think what we’re going to see is a very moderate rise in interest rates—much, more moderate than the market fears. I don’t see any recession in 2016. And I think that people—because the interest rates are so low and they’re not going to get much higher—will be turning to dividend-paying stocks as the way to provide income in their investment portfolio.
I think that the Fed is going to be very cautious about any further hikes in 2016. I’m not sure whether we will get to 1% by the end of 2016 on the fed funds rate. I certainly do not think that a quarter point that the Fed hiked in December is going to kill the markets or the economy.
ETF.com: What do you think about U.S. fundamentals?
Siegel: We’re the fastest-growing developed country, and although GDP growth has been somewhat disappointing—we are going to get about 2.5% GDP growth next year, and I’m hoping for 3%—we have seen some strong statistics: We brought the unemployment rates down from almost 10% to half that level, and put millions of people to work.
Meanwhile, the rest of the developed world is trying to get back to where it was before the financial crisis. We are well beyond it, and we still have the most flexible labor markets, the most innovative minds and the best entrepreneurs generating ideas, research and new companies. And I think that basic strength of America is still very much with us.