Is it time for Chicken Little to give up the bearish view and buy stocks? It certainly feels like time to buy stocks if one watches the stock market rally every day.
Chicken Little Scorecard
Rather than give up because of the stock market's resilience, let me revisit my views. I became bearish because of government deficits and loose money. I predicted a wave of rising asset prices followed by increase in real interest rates and, finally, a fall in stock prices and the prices of other risky assets. Re-examining these views today, I score my predictions as follows.
The world once praised Central Banks as saviors. Now, public opinion has turned against central banks. For example, Gallup reports as of May 2023, public confidence in the US Fed has reached an all-time low of 36%.
The world has figured out that printing money does not make you a hero, it makes inflation.
My central prediction has been, and remains, that the party ends with higher real interest rates. This prediction is partially true in the nominal interest rates have gone up dramatically. Real rates, which include the impact of inflation, however, remain very close to zero.
So, some of my predictions have turned out to be correct. The most important, however, for investors has been wrong. Stock market prices are near all-time highs.
In summary, I am not ready to give up and turn bullish. Perhaps stupid stubbornness, but also perhaps because overall scenario is unfolding as predicted, just taking approximately a decade longer than I anticipated.
June 2023 performance
Chicken Little is invested in treasury bills so there can be no drama short of a US default. In June, the Chicken Little Portfolio gained 24 basis points while the The Dow Jones Industrial Average gained 4.55% Year to date, Chicken Little is up 1.54%, and the Dow has risen 4.80%.
June 2023 was a broadly positive month for financial assets. Moreover, year to date, every major asset class has had solid gains. More speculative investments, such as NASDAQ stocks, have had much stronger gains.
July 2023 portfolio position
The Chicken Little Portfolio remains prepared for financial disaster. No trades in the month of June so we start July precisely where we started June. T-bills for Chicken Little these days.