Rising Real Interest Rates will Crush Stocks
Interest rates have risen dramatically in recent months. Headlines every day discuss the bond market rout, the devastating impact on mortgage rates, and the looming debt crises. Looking at the historical data, real rates have a lot of room to go much higher. The implications are broad and profound. A change in financial, social, and military conditions.
The Resilient Stock Market
Real (inflation adjusted) interest rates have risen by about 3% since the COVID low rate period. Higher real rates should (all other factors held constant) cause stock prices to fall. The mathematical calculation is to multiply the change in rates times the duration of the asset. Duration is the weighted average time until cash flows are received.
The duration of the US stock market is about 20 years. So a 3% rise in real rates should (all else being equal) cause a fall of 60% in stock prices. However, rather than fall 60%, the cumulative return to the Dow Jones Industrial Average has been almost exactly 100%.
Rising interest rates alone should have caused a 60% decline in US stocks. What explains the fact that stocks have doubled? Two possible explanations. First, company profit estimates have increased. Second, investors have not yet absorbed the implications of high interest rates.
While profit estimates have risen, I believe that there is a reckoning to come when people realize that we are in a new higher interest rate world.
Worse still, real rates can rise a lot more and still be within historic ranges. The current 3% real rate is lower than the real rate for the entire 1980s and 1990s.
So look out below.
September 2026 Portfolio Performance
In September 2026, the Dow Jones Industrial Average lost 4.07%, while the Chicken Little Portfolio gained 0.29%. Year to date, Chicken Little has returned 1.11% vs. a gain of 6.96% for the Dow.
| Sept 2026 | YTD 2026 | |
| Chicken Little | 0.29% | 1.11% |
| Dow Jones Industrials | -4.07% | 6.96% |
September 2026 was a negative month for the Dow, for non-US stocks, and for the 'safety' trades of US treasuries and gold. Bitcoin had a positive month and has almost returned to zero for the year. Year to date, stocks around the world have had the best returns, gold and bitcoin have lost money. Long-term US Treasury bonds are having a disastrous year.
| Asset | Symbol | Sept 2026 | YTD 2026 |
| Dow Jones Industrials | DIA | -4.07% | 6.96% |
| Non-US Stocks | EFA | -3.26% | 9.89% |
| Emerging Market Stocks | EEM | 0.12% | 24.48% |
| US Long-Term Bonds | TLT | -5.63% | -8.89% |
| Gold | GLD | -6.75% | -3.90% |
| Bitcoin | BTC | 7.81% | -4.14% |
October 2026 portfolio position
Chicken Little Portfolio remains 100% in cash. Looking for an opportunity to short stocks. I really, really want to short stocks. However, I am trying to be patient and look to short the first big rally after the first big break in stocks. So collapse, Fed rate cuts, big rally, then short stocks.
| Chicken Little | Dow Jones Industrials | |
| 2026 (through Sept) | 1.11% | 6.96% |
| 2025 | -0.03% | 14.56% |
| 2024 | 3.30% | 14.71% |
| 2023 | 2.05% | 15.80% |
| 2022 | -5.88% | -7.06% |
| 2021 | 5.11% | 20.69% |
| 2020 | 8.04% | 9.27% |
| 2019 | 9.03% | 24.82% |
| 2018 | 1.27% | -3.63% |
| 2017 | 4.57% | 27.72% |
| 2016 | -1.92% | 16.08% |
| 2015 (April through Dec) | -2.49% | -0.27% |
| since inception (3/31/15) | 25.77% | 254.81% |
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