Jeremy Siegel, the Wharton finance professor and adviser to New York-based ETF provider WisdomTree Investments, is as concerned about the euro as he is optimistic about the U.S. Indeed, he told IndexUniverse.com’s Managing Editor Olivier Ludwig he doubts the end of the euro as we know it could derail what he said was a self-sustaining U.S. recovery no longer in need of governmental life support.

Let’s start with the big picture. It seems to me that the EU ripped up the Maastricht Treaty over the weekend. So what’s your outlook for the eurozone? Should investors stay away, or is this a buying opportunity?

I think the euro is in trouble, but that doesn’t necessarily mean that European stocks are not a buy. I think there are very deep problems—the euro expanded too far and countries such as Spain, Portugal and Greece did not have the fiscal discipline of the core countries. That’s going to cause massive problems.

So what are we talking about? A eurozone that centers on Germany, France and Benelux?

That’s certainly a possibility. One thing the Greeks could do would be to get back to their own currency [the drachma] and devalue, so they’d be competitive again. I think the same may be true in both Spain and Portugal. Spain is already at a 20 percent unemployment rate, and that could get worse. That’s what I worry about. They are now structurally not competitive.

I’ve even read a discussion that’s sort of ingenious, and that is that the core countries could develop a “core euro” and let the “old euro” go with Greece and Portugal and all the countries that can’t hack it. The “old euro” would be valued to the “core euro” and would restore competitiveness to those peripheral countries.

Some people say the bloated public sector in Greece amounts to low-hanging fruit that would make for easy rationalization and could produce quick results. Do you buy that?

There may be some low fruit, but I think some of the high fruit is that people haven’t been paying their taxes in that country for years. I don’t think that that’s low fruit. That’s a real tough issue.

You talked about potential buying opportunities in Europe. Can you elaborate?

Individual firms that export are going to be doing well with the euro low. They’re going to be very competitive. We have an EFA product that’s hedged against the euro, the WisdomTree International Hedged Equity Fund (NYSEArca: HEDJ). So, if you’re worried, as I am, about the euro, but think the stocks of firms in Europe are going to do well, this is an excellent product.

Now, regarding last Thursday, do you have a sense of what happened?

What I gather from reading a lot of sources is that basically the New York Stock Exchange had a system to stop the liquidity when the prices went down rapidly, and it all got funneled into the electronic networks. The fast traders and the fast networks also had systems that stopped liquidity when prices went down a lot.

Back in the old days when there used to be market makers and specialists on the New York Stock Exchange, they would stop the trading and call up their people to buy. There must have been millions of people who would have bought Procter & Gamble for $36, or whatever it was trading at. I would have bought as much as I could, but there was no mechanism to get people into the market. There’s got to be a way to stop and say: “Hey, let’s get some buyers into the market.” That’s my interpretation. Obviously, they’re going to dig further on what’s going on there.

Let’s turn our attention to WisdomTree. What’s your concise reason why fundamentally based indexes are a good idea?

We have dividend screens and earnings screens. For some people the earnings screen would be more suitable and for others the dividend screen would be the more suitable. Finance theory says that the prices of securities are based on the present discounted values of cash flows, and those cash flows are dividends. So you go down to the basic definition of an asset price: It’s the present value of cash flows, and for a firm, that is dividends. So there’s a lot of logic in making that one of your most important screens that you use for a fundamental weight.

How do you square the dividend screen with tech stocks, which move with the economy, but aren’t known for dividends?

Well, in the long run, tech stocks have not been a good deal. I know they’ve done really well in the last couple of years, and they did really well in ’97 to ’99—there’s a time for tech stocks. But over the long run we’ve found that tech stocks and very-low- or no-dividend stocks are the worst performers. When people say you’re underweight tech stocks, I say: “No!” Because my historical studies have shown that they’re not a big winning sector for the economy and for investors.

If you have an earnings-weighted company, and they’re making earnings, then we’re happy to give the tech stocks their due weight. Again, it’s what they’re paying out and what they’re earning that’s the most important.

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