February 2019, Chicken Little Portfolio Performance

Can you get into fantastic physical shape by watching TV and eating pizza? Can the Wealth of a Nation (to paraphrase Adam Smith) be fostered by deficit spending and printing money? 

Adam Smith is Crying

February 2019 performance

Chicken Little was shorting stocks in Q4 of 2018. In December, I wrote, "Chicken Little still believes the sky is falling, but perhaps not in the very beginning of 2019." 

Make Hay While the Rally Lasts

The decision to end the bear raid in December 2018 was good as the market has (essentially) risen every hour of every day since Christmas Eve. Chicken Little has survived this incredible rally by hiding in Treasury Bonds, and is ready to begin shorting stocks again. 

2019: The best stock market start since 1928

In February of 2019, the Chicken Little portfolio lost half a percent because Treasury bonds declined fractionally. Meanwhile the Dow Jones Industrial Average added just under 4% in February to add to a host of superlatives (e.g., '2019 is the best start to a year for the stock market since 1928').

Feb 2019YTD 2019
Chicken Little-0.50%-0.56%
Dow Jones Industrials3.94%11.56%

February and January of 2019 have provided amazingly strong returns to risky assets. The Dow has gained 11.56% in two months(!), exceeding the average annual gain for stocks. 

AssetSymbolFeb 2019YTD 2019
Dow Jones IndustrialsDIA3.94%11.56%
Non-US StocksEFA2.34%9.34%
Emerging Market StocksEEM-1.53%8.65%
US Long-Term BondsTLT-1.37%-1.00%

The first two months of 2019 are similar to the entire year 2017 - the "Year of Free Money" for speculators. 

Jay Powell (aka 'the invertebrate') hands out free money

Remember, however, that the 2017 year of free money was followed by losses.  Does Chicken Little believe that the fun of January and February will be followed by losses similar to 2018? No. Chicken Little believes the future will be much worse than the minor loss of few percent in the Dow in 2018. 

AssetSymbolYTD 201920182017
Dow Jones IndustrialsDIA11.56%-3.63%27.72%
Non-US StocksEFA9.34%-13.57%24.92%
Emerging Market StocksEEM8.65%-15.25%37.13%
US Long-Term BondsTLT-1.00%-1.50%9.08%

Chicken Little is old-fashioned and believes that deficits and debt matter. The US budget deficit is roughly $1 Trillion (~5% of GDP). This is a large deficit by any measure, but it is the largest in history for a peace-time economy with 4% unemployment. 

US Debt is massive and growing rapidly

In addition, the deficit would be much larger if interest rates were not being suppressed.  Every 1% rise in interest rates (on $22 Trillion in US debt) is $220 Billion. So the US federal deficit could easily top $3 Trillion (deficit means per year) in a recession accompanied by rising interest rates. 

The United States deficit reduction plan

Can you get into fantastic physical shape by watching TV and eating pizza? No. 

$1 Trillion Deficits will look small

Can the Wealth of a Nation be fostered by deficit spending and printing money? No. 

March 2019 portfolio positions

Chicken Little remains positioned for a deflationary depression by owning only cash and Treasuries. Chicken Little made no trades in February of 2019, waiting for the stock market rally to end. Chicken Little is planning to re-commence bear market operations at the correct time.

Previous month's report                 Subsequent Month's report

Chicken LittleDow Jones Industrials
2019 (through February)-0.56%11.56%
2015 (April through Dec)-2.49%-0.27%
since inception (3/31/15)0.71%58.96%

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