Influential economist Jeremy J. Siegel says he remains a long-term bull on the stock market, but he points to several “scary scenarios” that keep him awake at night.

Siegel is no longer worried about a real estate-induced crisis. But the European financial crisis will likely result in some countries defaulting on their debt and could even lead to a breakup of the euro currency area, Siegel writes in Kiplinger’s Personal Finance. However, he believes disruptions to the market would probably be short-term.

Siegel is the Russell E. Palmer Professor of Finance at the University of Pennsylvania’s Wharton School. His seminal book “Stocks for the Long Run” demonstrated that equity stocks outperform all other investment classes over time.

Siegel says another worry keeping him up at night is the massive debt of state and local governments, with mutual funds holding more than $850 billion in municipal debt. But he thinks the federal government would likely step in to deal with repercussions from threatened defaults.

As for the massive federal debt, Siegel writes that most of the current deficit is due to the recession and will shrink when the economy recovers.

In the long run, he argues that Medicare is the biggest concern. “Fixing it will require a fundamental reworking of our entitlement programs, but that won’t threaten stocks in the near future,” Siegel says.

He says the one scenario that “keeps me up at night” is the threat of a terrorist attack, particularly a nuclear attack on a major city.

That would result not only in a great loss of lives and property, but also extraordinary measures to prevent another attack, which would restrict freedom and increase government regulation — bad news for stocks and private enterprise.

One other note: Siegel observes that the financial crisis hasn’t resulted in a backlash against capitalism. Rather, recent elections indicate a public rejection of the notion that government can run the economy better than private enterprise.

The U.S. market has always surmounted crises, he adds. “I see no reason the future should be any different.”


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