July 2022, Chicken Little Portfolio Performance

The Fed is a hero again? By raising real rates to negative 6% and reducing the balance sheet by 1% has the Fed cured decades of bad decisions? A new bull market is born and new highs are coming soon? Anything is possible, but (unsurprisingly) Chicken Little sees new lows before new highs.

Chicken Little see financial storms ahead

June 2022, Chicken Little Portfolio Performance

Stocks, bonds, gold, and crypto all fell in the first half of 2022. Is it time to buy? No, for two reasons. First, real interest rates remain negative. Second, and relatedly, the Fed has not begun to sell bonds. The Fed is scheduled to sell about $1 Trillion a year until they blink after they have further ruined the economy. I continue to suggest people sell some portion of their risky assets (see post: sell now). 

The Fed has e-printed $9 trillion. 

May 2022, Chicken Little Portfolio Performance

 The Piper will be paid, the sky is falling, wolf.

What is the chance the coming financial crisis will be greater than the 'Great Depression' of the 1930s? With certainty, the odds are greater than zero. Chicken Little thinks that probability approaches 100%. A financial crisis looms of a magnitude that no one alive has endured. The Fed created the crisis; we are going to pay.

Hooverville, Central Park, NY 1932

Biological Economics

I have just published an academic article on Biological Economics with Professor Jay Phelan from UCLA. Biology has the potential, we argue, to unite the two competing intellectual schools in economics: neoclassical and behavioral. 

Neoclassical economists assume people make perfect decisions (apparently never having met a person). Behavioral economists document certain failures to optimize. Biology can unify and improve economics.  (Click here for the long version of the discussion. )

Economics can be unified by Biology 

How to prepare for the Wolf

After a decade of fiscal and monetary incompetence, the wolf may be approaching your house. Is there a way to prepare for the wolf without panicking and selling all stocks and risk assets? Yes.

WOLF!

April 2022, Chicken Little Portfolio Performance

The Piper will be paid (by us, not Jay Powell).

The bull market in everything was fueled by government overspending and Federal Reserve looseness. Stocks up, Bonds up, housing up, gold up, crypto up. Now, the Fed has decided that it is their best interest to end the party, and everyone else will have to pay

The Fed made a mess, and we all have to pay

Bear market operations de-escalate

Chicken Little has reduced the portfolio's short position in stocks. This move reversed the "bear market operations escalate" trade. I am still bearish, but market has not gone down in spite of bad news. Sold the Dow short at 34,550 and covered at 34,500 for no gain or loss. 

Bear market operations are reduced 

March 2022, Chicken Little Portfolio Performance

Historic increase in interest rates

Bond investors have been destroyed in recent weeks. On February 7, 2022, I wrote "paying the piper,' higher interest rates are coming. in the 4+ weeks since that post, interest rates have soared. The bad news is that rates can go a *lot* higher. 

First payments to the Piper (graph from WSJ)

Bear Market operations escalate

 

Chicken Little has shorted more stocks to re-establish the full size short position. The short was initiated at Dow 35,000 on Feb 4, 2022 (see post). On Feb 24, the position was cut in half at 32,300 (see post). Now back to full position at 34,550 today. The short will be covered if the Dow can take out the old high of 36,952. 

Bear Market operations are underway

February 2022, Chicken Little Portfolio Performance

 Paying the piper

Higher real interest rates are coming. Today, the 10-year Treasury yields 1.78% and CPI is 7.5% so the real rate is negative 5.72%. Over the coming cycle, the real rate can increase to over positive 5%. In the new environment, asset prices will decline, prudence will be rewarded, and profligacy punished. 

Higher real interest rates are coming

Chicken Little still uber Bearish, but managing risk

 

Chicken Little covered half the short stock position this morning. I am still as bearish as ever; this is simply risk management. I sold the Dow short at 35,000 risking 37,000. When the Dow went below 33,000, I covered half. Still have a stop at 37,000 to cover the second half. (See Chicken Little sells stocks.)

Still Bearish

 

January 2022, Chicken Little Portfolio Performance

 Stagflation

The Federal Reserve is - as I type - continuing to e-print money and interest rates are still at zero. Jay Powell and the rest of Fed have created a financial crisis via loose monetary policy. At least the fourth serious crisis created by the Fed (see my PBS article "End the Fed").

 

The Fed has created inflation