August 2023, Chicken Little Portfolio Performance

WOLF, wolf, wolf, wolf, wolf!
I have been crying wolf prematurely for a decade. 
Aesop ends the fable of the boy who cried wolf with these lines: 
Q: I cried out, "Wolf!" Why didn't you come? 
A: Nobody believes a liar even when he is telling the truth! 

Protect your sheep

Is the liar now telling the truth?

In the last two weeks, I have become even more negative because interest rates have risen to multi-decade highs. For example, mortgage rates have risen to the highest level in twenty years. 
Higher rates are a global story. Japanese bonds, German bonds, US Treasuries of various maturities all hit recent, multi-decade highs. The end has to come with higher real rates, and now that higher rates are here, the chances of the end are increasing.  

What is ahead? My answer is higher real interest rates. 

I believe the period of historically low nominal and real rates has passed. We are in for tighter monetary conditions which will squeeze the next bits of madness out of asset prices. 

August 2023 performance
Because the collapse might be imminent, in August, I invested 2% of the portfolio in relatively deep out-of-the-money puts on the S&P 500. 

These puts will most likely expire worth nothing, but have the potential to provide downside protection in the event of a stock market collapse. I mark the puts to zero in the portfolio so it appears as a 2% loss. 

The rest of the portfolio is invested in short term treasuries earning just over 5%. The treasuries continue to deliver steady, modest profits every month. 

August 2023YTD 2023
Chicken Little
Chicken Little Total-1.44%0.49%
Dow Jones Industrials-2.02%6.23%

The Dow Jones Industrial Average lost 2.02% in August 2023. With the loss on the puts, the Chicken Little Portfolio totaled a loss of 1.44% in August 2023. Year to day, the Dow is up 6.23% and Chicken Little is barely positive at 0.49%. 

August 2023 was a broadly negative month for financial assets. Year to date, every major asset class has had positive returns except long-term Treasury bonds. 

AssetSymbolAugust 2023YTD 2023
Dow Jones IndustrialsDIA-2.02%6.23%
Non-US StocksEFA-3.87%10.97%
Emerging Market StocksEEM-5.89%5.63%
US Long-Term BondsTLT-3.65%-1.88%

September 2023 portfolio position
The Chicken Little Portfolio remains prepared for financial disaster. The purchase of S&P puts was the only trade in the month. 

No treasuries were sold, but every position in the portfolio is getting closer to maturity. Thus, the graph of the positions now shows 100% of the portfolio as 'Cash & Equivalents,' which includes US treasury obligations that mature in under 2 years. 

Chicken LittleDow Jones Industrials
2023 (through August)0.49%6.23%
2015 (April through Dec)-2.49%-0.27%
since inception (3/31/15)18.61%131.57%

No comments :

Post a Comment