The Sky is (really) going to fall.
It has been almost a decade since I earned the Chicken Little moniker (see post). In that decade, US stocks have produced one of the greatest bull markets in history. After a decade of being wrong about US stocks, I am more afraid of financial collapse than ever.
 |
| The Sky is (really) about to fall |
Wrong about stocks, but ..
My central thesis is that real interest rates will rise and asset prices -- including US stock prices -- will fall. While I have been wrong about US stock prices, I have been right about the other parts of my prediction. Below are some of the highlights. I repeat these correct parts of the analysis because they are evidence (to me) that the thesis remains correct. Look out!
Interest rates will rise.
I have been arguing that real interest rates would rise since at least 2016. See my 2016 post: Chicken Little breaks up with bonds.
I have maintained the view that real interest rates will rise through almost every post. Here is the post from February 2022.
Interest rates have, in fact, risen to multi-decade highs. Both in US and around the world.
 |
| US 10-year yield at highest level in more than a decade |
 |
| U.K. 30-year Gilt rates at more than 20 year high |
 |
| Japanese 10-year rate at highest level in a decade |
Government debt is a problem.
In 2019, I wrote that US deficits could hit $6 Trillion or more. Furthermore, I highlighted the historical first of huge, peacetime deficits during economic growth: "What's amazing is that our (2019) $1 Trillion deficit comes with no large-scale war, very low debt service cost, and no recession."
The U.S. isn’t fighting a war, a crisis or a recession. Yet the federal government is borrowing as if it were. This year’s budget deficit is on track to top $1.9 trillion, or more than 6% of economic output, a threshold reached only around World War II, the 2008 financial crisis and the Covid-19 pandemic. Publicly held federal debt—the sum of all deficits—just passed $28 trillion or almost 100% of GDP.
So the WSJ reprinted my 2019 article 5 years later.
Real rates can go a lot higher.
The world has caught up to my view on debt and interest rates. I believe, furthermore, that real interest rates can go a lot high from here. For example, Japan still has an inflation rate higher than bond yields. So even though Japanese interest rates have risen dramatically, rates can (and will, I believe) go much, much higher.
In a much higher real interest rate world, assets prices have to get crushed. Chicken Little remains terrified.
December 2024 performance
The Dow Jones Industrial Average lost 5.13% in December 2024. The Chicken Little Portfolio lost 0.41%. For the year of 2024, the Dow rose 14.71% and while Chicken Little earned 3.30%.
December 2024 was a negative month for all major asset classes. Long-term US Treasuries and US stocks were the worst performers losing over 5% in the month.
2024 was a positive year for most major asset classes. Bitcoin and gold were the best investments in the year. US stocks had strong gains, while stocks outside the US had modest gains. Long-term US treasury bonds lost 7.87% -- a very bad year.
January 2025 portfolio position
Chicken Little has been scared (financially) for a decade. That fear escalated in December 2024 because of the global rise in interest rates.
I believe that the collapse that I have long feared is imminent. Because of this fear, I initiated a considerable short position in stocks, and sold all my gold, silver & crypto. I still believe in diversifying away from fiat currencies, so will look for a chance to re-enter precious metals and crypto.
No comments :
Post a Comment