The Dow Jones Industrial Average is at almost exactly at the same level as a year ago, and also the same level as two years ago. The stock market resilience has Chicken Little thinking. Who is wrong? Me or the stock market?
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| Dow at the same level for 2 years |
Why is the Stock Market so Strong?
The Dow Jones Industrial Average closed on April 30, 2023 at 34,098. The Dow first hit 34,000 on April 15, 2021. So two years of going exactly nowhere.
What have we learned in two years? Most of the world has learned that Central Banks are bad at their job. Two years ago, many people loved the Fed and "Modern Monetary Theory (MMT)" was in vogue. MMT states that a government can print money and spend its way to prosperity.
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| MMT: Print & Spend --> "The People's Economy" |
Since 2021, we re-learned that printing and spending money leads, not to prosperity, but to inflation.
Just over a year ago, the Fed was still printing money in the form of quantitative easing. Furthermore, the Fed was inflating the housing market by buying mortgage bonds. At that time, US housing prices were rising at the fastest rate in history.
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| The Fed was inflating housing prices into 2022 |
Chicken Little has been ahead of the curve in disliking the Fed. In fact, the incompetence of the Fed has been a central theme of this blog. Here are three of many articles.
September 2015: "End The Fed"
April 2017: "The Fed is Corrupt & Incompetent"
March 2022: "Higher Interest Rates are Coming"
The Fed has realized that they made a big mistake and reacted by raising interest rates rapidly. As a result, US housing prices have declined, and company earnings are falling and projected to fall further.
And yet the stock market remains near all-time highs. There are two possibilities. First, the stock market foresees good news ahead. End of the war in Ukraine, end of inflation, growth in productivity due to AI, etc. Second, people are continuing to underestimate the damage done by destructive government policies.
April 2023 performance
Chicken Little is invested in treasury bills. There will be no big swings in portfolio value. In April 2023, the Chicken Little Portfolio gained 37 basis points while the The Dow Jones Industrial Average gained 2.57%. Year to date, Chicken Little is up about 1%, and the Dow has risen 3.5%.
April 2023 was a benign month in asset markets. The only loser in the assets tracked by Chicken Little was emerging market stocks. Year to date, stocks, bonds, and crypto are all up.
May 2023 portfolio position
The Chicken Little Portfolio remains prepared for financial disaster. The only change in April was selling the modest crypto position. In principle, I like the idea of owning crypto. In practice, however, I do not have sufficient conviction to hold crypto when it goes down.
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