Chicken Little bloodied
The Bull Market continues onwards with daily record highs. Chicken Little has fought the bull for a decade, and lost almost every month. I am ready to capitulate emotionally, but so many of my macro predictions, other than a US stock market decline, have proven prescient, that I am not quite ready to quit.
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| Chicken Little beaten up |
August 2025 Portfolio Performance
In August, the Dow Jones Industrial Average made its first new high of the year, and returned 3.38% in the month. The Chicken Little Portfolio lost 0.22%. Through the end of August, the Dow has gained 8.08% in 2025, while the Chicken Little Portfolio is flat.
August 2025 was a great month for most asset classes around the world. While bitcoin and long-term Treasury bonds lost money, all other asset classes had strong gains. Year to date, gold remains the biggest winner with a spectacular 31.36% gain.
Chicken Little vs. the Dow
Since inception the Chicken Little portfolio has returned 2.01% per year while the Dow Jones Industrial Average has averaged 10.93%. As a chicken, I have taken no risk, so the Chicken Little Portfolio has low returns with no risk (as measured by either beta or volatility). However, the goal of Chicken Little was higher returns, not higher risk-adjusted returns.
Chicken Little has failed to produce higher returns than the Dow since inception by a huge margin. The persistence underperformance leads me to want to give up.
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| Chicken Little has disappointed |
Chicken Little's Victories
While my portfolio has had small returns, my view of the world has proven accurate. The view, as I written dozens of time in this blog, was/is:
1. US Government financial policies are terrible.
Let us go through these predictions in sequence.
2. Because of policy mistakes, real interest rates will rise.
3. As real interest rates rise, asset prices, including stock prices, will fall.
1a. US Government deficits are dangerous
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."
Five years after my post on deficits, my view became very popular. On September 16, 2024, for example, the Wall Street Journal printed almost exactly what I had noted in 2019, "The U.S. isn’t fighting a war, a crisis or a recession. Yet the federal government is borrowing as if it were."
1b. The Fed is corrupt & incompetent
in 2017, I wrote that "The Fed is Corrupt & Incompetent." (See my post The Fed is Corrupt & Incompetent). In this 2017 post, I focused on the Fed's corruption ("Having or showing a willingness to act dishonestly in return for money or personal gain.") This followed my 2015 article "End the Fed," which focused incompetence.
During COVID, The Fed e-printed trillions of dollars and created a massive inflation. Further evidence of incompetence.
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| The Federal created inflation during COVID |
Recently, two Fed governors have been implicated for corruption (no convictions yet). Consequently, the world now widely shares my views from 2015 and 2017.
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| People do not (and should not) trust the Fed |
2. Real Interest Rates will Rise
In 2016 (see post), I predicted rising real interest rates. In April 2020, I wrote, "Now that Treasury bond prices have soared to record highs, Chicken Little has exited Long-term Treasuries." The long-term treasuries that I sold proceeded to lose more than half their value. I have been 100% correct that interest rates would rise from 2020 lows. Here are two charts from the Wall Street Journal from last week.
Interest rates around the world haves indeed surged. However, real interest rates, rates adjusted for inflation, are still below long-term averages.
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| Real US interest rates are still low |
Given the historic levels of debt, I continue to believe that real interest rates will go up significantly.
2. Asset Prices will decline
While US stock prices continue to go up, and have produced strong returns, many other assets have disappointed. Long-term US Treasuries have lost half their value from 2020 peaks. Here is a chart of long-term treasury prices showing there devastating decline.
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| Long-Term US Treasuries have lost 50% |
Non-US stocks have also had low returns. Here are charts for 20-year returns for non-US developed stocks (EFA) and Emerging market stocks (EEM).
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| Non-US stock indices almost no gain in 20 years |
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| Emerging Market Stock Indices below 2007 |
Summary: Chicken Little still chicken
For over ten years, I have predicted that disastrous US Government financial policies would lead to asset market turmoil including the US stock market. In reality, there has been massive asset market turmoil, but US stocks have surged.
I would love to believe that the robots are going to make us all so rich that we will overcome our financial problems. I am long-term optimistic, but still believe we need a debt purge to set us up for good times.
Remember, technological innovation around the time of the Great Depression included jet engines, antibiotics, air conditioning, interstate highways, radar, and many more inventions. Technological progress does now guarantee rising stock markets.
Q: What do you call a scared chicken? A: A chicken.
I remain worried because the macro scenario I feared has occurred, while taking roughly a decade longer than I anticipated.
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| Chicken Little is still a chicken |
September 2025 portfolio position
Chicken Little Portfolio is 100% in cash; preparing to end the Chicken Little column.
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