2/9/16

The Nightmare of Low Interest Rates Continues


Interest rates on US treasury bonds continue to decline. Contrary to conventional wisdom, low interest rates hurt the economy. 

Here of some highlights of an article I wrote 18 months ago. US 10-year Treasury yield was 2.4% at the time of article. Currently, the same rate is 1.7% 

"Financial markets live in terror of the day the Federal Reserve raises interest rates. However, we should fear exactly the opposite: a persistent nightmare of low interest rates. Chronically low interest rates signal trouble, and they inflict financial pain. Ominously, a recent economic poll (interpreted correctly) suggests that interest rates are going to fall, not rise. ...

And the bad news is that U.S. interest rates are likely headed lower. This spring, 100 percent of surveyed economists predicted rising rates. And if 100 percent of economists believe anything, they are almost surely wrong."

Click on the image of this homeless senior citizen to read the full article. 

 Low Rates are Unfair to Senior Citizens
Federal Reserve Policy is Punishing Senior Citizens



2/5/16

Playing Offense with your Behavioral Biases

Behavioral finance books tell us that our brains are flawed and cause us to lose money. To survive, we need to play defense, and stop our bias-riddled brains from bankrupting us. 

In this post, I make a suggestion for how an 'irrational' trade may help you. Two wrongs may not make a right, but two behavioral biases may may you richer (or less poorer - to paraphrase Derek Zoolander). 




1/29/16

Chicken Little Portfolio Performance January 2016

January 2016 monthly update for the Chicken Little Portfolio.

This month the sky did fall a little bit. Stocks around the world went down about 5%, which is a lot for a month. However, US stocks are still not far from the all time highs hit in May 2015.
In January 2016, the Chicken Little Portfolio gained 2.25%; the Dow Jones Industrial Average lost 5.45%.

You can view the portfolio performance in real time by clicking here.

Chicken Little changed nothing substantial during the month of November. The portfolio remains heavily invested in US Treasuries, short precious metals, and fractionally short stocks.




1/25/16

Denial is the first stage of grief

The five stages of grief are denial, anger, bargaining, depression and acceptance.




If the bull market in US equities died in May of 2015, we are now in stage 1, denial.

1/17/16

15 Ways Chicken Little lost money in the Stock Market Decline

US Stocks have lost 10% in the last 3 weeks. As I have detailed in my monthly "Chicken Little" reports, I am modestly short stocks, which means that I make money when the stock market goes down.

So am I richer today than I was three weeks ago? No. In this article, I list 15 ways that I have lost because of the stock market decline.

The point is that almost everyone does better in a world with a rising stock market. We all have exposure to stocks even if we don't own any directly.

That means that owning a lot of stocks is a form of doubling-down, tripling-down, quadrupling-down on risky stocks. Most people would do much better if they had less exposure to stocks and other risky assets.

Stock Market pain

1/10/16

Deflationary Depression


In the movie Fletch, Chevy Chase comments that a death was very sudden. The doctor responds that the patient had been sick for years, and had been in intensive care for weeks before the death. Chevy responds with "When he actually died, that was extremely sudden." (Click for clip but be forewarned it has unpleasant moments.) 

US Stocks have lost about 8% in the last 8 trading days. This decline may seem sudden, but the sickness has been evident for a long time.

US Stocks may be catching up

1/8/16

Chicken Little's current advice as the sky may be falling

The Dow Jones Industrial Average has lost 8% in a little over a week. In this post I repeat my views and give some advice. The sky may be falling, and many people would do well to pay attention.


1. The government policies we are following are making us poorer. (Click for recent summary.)

2. When the stock market decline comes, it will be fast. (Click for video of me making this point a year ago.) 

3. The correct decision now for many people is to sell a small portion of their risky assets -- I can assure you that everyone will tell you not to sell. Just hold tight and ride it out is the conventional wisdom. (Click for my August 2015 post)

1/1/16

Chicken Little Portfolio Performance December 2015

December 2015 monthly update for the Chicken Little Portfolio.
In December 2015, the Chicken Little Portfolio lost 0.23%. In December, the Dow Jones Industrial Average lost 1.60%.

You can view the portfolio performance in real time by clicking here.

Chicken Little changed nothing substantial during the month of November. The portfolio remains heavily invested in US Treasuries, short precious metals, and fractionally short global stocks.




12/15/15

Fruit Flies to Save Adam Smith?


I believe that research on fruit flies may be important to improving economics. And, I am not kidding. 





Let me start by saying that I am aware that almost no one agrees. One academic reviewer wrote, "why would I study drosophila when I can walk down the hall and study humans?"

If you believe something that no else believes you could be a genius or a kook. Given that there are probably a million kooks for every genius, the odds are against the flies. However, I had to have some level of self-deception during the project, and I thought about examples of genius.

12/14/15

Adam Smith is stuck without Charles Darwin

What would make you happier in 2016?

Charles Darwin (young) & Adam Smith


If you could change one aspect of your life during 2016, what would make you the happiest? Imagine yourself on December 31, 2016 looking back with satisfaction on 2016. What would it be?

Standard economics has an answer. It is illustrated by this anecdote conveyed to me by Professor Amartya Sen, Nobel Laureate in Economics. Walking through Harvard Square one day Professor Sen asked me, “What should you do if you see a person trying to cut his fingers off with a pair of dull scissors?”


My response: stop him from cutting off his fingers, call the police for help, etc.

“Offer him sharper scissors,” was Professor Sen’s answer. Standard (a.k.a. “neoclassical”) economics assumes that people know what they want. Professor Sen is a critic of some aspects of neoclassical economics, so his question (and answer) was a rhetorical maneuver designed to educate.

Let us to return to your happiness in 2016.  Did you secretly answer ...

Click on Professor Sen to read more



12/13/15

Challenging Year for Mutual Fund Investors


Here are the top ten mutual funds by size, and the return to owning them (including dividends) from January 1, 2015 through December 13, 2015. 

If you are feeling bad about your investments this year, you have a lot of company with the professionals running these funds. The average return (equal weighted) for these funds is a loss of 0.26%. So the smartest people in the world, with the best information, are being beaten by a snail. 

Federal Reserve Chair Janet Yellen has kept interest rates at 0% (for now)



NameTickerYTD return
Vanguard Total Stock MarketVTSMX0.64%
Vanguard 500 Index FundVFIAX1.67%
PIMCO Total ReturnPTTRX0.98%
American Funds Growth Fund of AmericaAGTHX5.88%
American Funds EuroPacific GrowthAEPGX-0.49%
Fidelity ContrafundFCNTX7.24%
Franklin IncomeFKINX-7.37%
Vanguard Wellington Fund VWELX0.28%
Dodge & Cox International StockDODFX-11.41%
Fidelity Cash ReservesFDRXX0.01%

11/30/15

Chicken Little Portfolio Performance November 2015

November 2015 monthly update for the Chicken Little Portfolio.
In November 2015, the Chicken Little Portfolio lost 0.29%. In November, the Dow Jones Industrial Average returned 0.74%.

You can view the portfolio performance in real time by clicking here.

Chicken Little changed nothing substantial during the month of November. The portfolio remains heavily invested in US Treasuries, short precious metals, and fractionally short global stocks.