The current rally in equity prices still "has a lot of legs left," Wharton School of Finance professor Jeremy Siegel told attendees at Pershing's annual INSITE conference in Hollywood, Fla., on June 5.

Speaking with the confidence of an unrepentant bull, Siegel flashed a chart displaying long-term return data from the early 1800s for various asset classes with equity-market returns bisected with a trendline of 6.6%. Ultimately, equity returns dwarf those from bonds, Treasury bills and gold, and the U.S. dollar.

He noted that as of December 31, 2008, the negative gap between the long-term equity trendline and prices that day was 39.4%. That represents the fifth-largest negative gap since 1865, or 140 years.

The largest negative gap between real prices and Siegel's trendline occurred in 1932, when it reached 43.1%. In 1933, stocks rallied 58%.

Taking an average of the seven-largest negative gaps since 1865, Siegel told attendees that the next year after the gap appeared equity returns rallied 24%, and gave investors 21.4% over the three-year period.

He also pointed out that great opportunities remain for dividend investors. Between 2007 and March 2009, U.S. dividends fell 23% from $288 billion to $222 billion. This entire $66 billion drop in dividends is due to the financial sector. Yet the market cap of all non-financial stocks is down 43% over the same time frame. [As of December 31.]

Siegel seemed singularly unfazed by such threats as global instability, rising commodity prices and runaway big government. The recovery will "be better than most people expect," he declared, conceding rising energy and commodity prices might mute the rebound.

While we are not "going back to hyperinflation," we are likely to see inflation in the 2% to 5% range. But bond market vigilantes will extract high interest rates from the Treasury Department if government spending starts to spiral out of control, he believes.