October 2023, Chicken Little Portfolio Performance

Real US interest rates have risen from being below zero to about 2%. This is the start of a longer-term return to tighter financial conditions. In this regime, many common beliefs will change and risk assets will decrease in price. 

Regime change in the US interest rates

Interest rates headwinds for years to come
In the early 1980s real interest rates exceeded 5% for many years. (Real rates subtract inflation from nominal rates.) For forty years, real interest rates declined until they were almost minus 1% around the post-COVID lows.

Before 2009, real interest rates were almost never below 2%. Then for more than a decade, starting in 2009, real rates were almost never above 2%. 

Is the rise in real interest rates over? Some argue yes, and the first few weeks of November have seen rapid stock price gains. However, the longer term data suggest that real rates can go much higher, especially considering the large amount of US government debt and its likely rapid future increase.  

Investing in a higher real interest rate world.

Most investors alive have spent 40 years in a declining interest rate world - at least up until 2021. The correct behavior is diametrically different in a higher, real interest rate world. 

October 2023 performance

The Dow Jones Industrial Average lost 0.67% in October 2023. The Chicken Little Portfolio gained 0.37% from its short-term treasuries. Year to day, the Dow is up 1.94 % and Chicken Little is up 1.19%. 

Oct 2023YTD 2023
Chicken Little0.37%1.19%
Dow Jones Industrials-0.67%1.94%

October 2023 was a mixed month for financial assets. Long-term treasury bonds continue to experience historic losses. Bitcoin and gold had very strong returns in October and are the best performers year to date. 

AssetSymbolOct 2023YTD 2023
Dow Jones IndustrialsDIA-0.67%1.94%
Non-US StocksEFA-1.95%4.91%
Emerging Market StocksEEM-2.33%0.77%
US Long-Term BondsTLT-3.99%-13.18%

November 2023 portfolio position
The Chicken Little Portfolio remains prepared for financial disaster. The portfolio is 100% in cash and short-term US Treasuries.  And, still holding significantly out of the money puts on the S&P 500.  No trades in the month of October.  

Chicken LittleDow Jones Industrials
2023 (through Oct)1.19%1.94%
2015 (April through Dec)-2.49%-0.27%
since inception (3/31/15)19.43%122.22%

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