Fruit Flies to Save Adam Smith?

I believe that research on fruit flies may be important to improving economics. And, I am not kidding. 

Let me start by saying that I am aware that almost no one agrees. One academic reviewer wrote, "why would I study drosophila when I can walk down the hall and study humans?"

If you believe something that no else believes you could be a genius or a kook. Given that there are probably a million kooks for every genius, the odds are against the flies. However, I had to have some level of self-deception during the project, and I thought about examples of genius.

Adam Smith is stuck without Charles Darwin

What would make you happier in 2016?

Charles Darwin (young) & Adam Smith

If you could change one aspect of your life during 2016, what would make you the happiest? Imagine yourself on December 31, 2016 looking back with satisfaction on 2016. What would it be?

Standard economics has an answer. It is illustrated by this anecdote conveyed to me by Professor Amartya Sen, Nobel Laureate in Economics. Walking through Harvard Square one day Professor Sen asked me, “What should you do if you see a person trying to cut his fingers off with a pair of dull scissors?”


My response: stop him from cutting off his fingers, call the police for help, etc.

“Offer him sharper scissors,” was Professor Sen’s answer. Standard (a.k.a. “neoclassical”) economics assumes that people know what they want. Professor Sen is a critic of some aspects of neoclassical economics, so his question (and answer) was a rhetorical maneuver designed to educate.

Let us to return to your happiness in 2016.  Did you secretly answer ...

Click on Professor Sen to read more

Challenging Year for Mutual Fund Investors

Here are the top ten mutual funds by size, and the return to owning them (including dividends) from January 1, 2015 through December 13, 2015. 

If you are feeling bad about your investments this year, you have a lot of company with the professionals running these funds. The average return (equal weighted) for these funds is a loss of 0.26%. So the smartest people in the world, with the best information, are being beaten by a snail. 

Federal Reserve Chair Janet Yellen has kept interest rates at 0% (for now)

Name	Ticker	YTD return
Vanguard Total Stock Market	VTSMX	0.64%
Vanguard 500 Index Fund	VFIAX	1.67%
PIMCO Total Return	PTTRX	0.98%
American Funds Growth Fund of America	AGTHX	5.88%
American Funds EuroPacific Growth	AEPGX	-0.49%
Fidelity Contrafund	FCNTX	7.24%
Franklin Income	FKINX	-7.37%
Vanguard Wellington Fund	VWELX	0.28%
Dodge & Cox International Stock	DODFX	-11.41%
Fidelity Cash Reserves	FDRXX	0.01%

Name

Ticker

YTD return

Vanguard Total Stock Market

VTSMX

0.64%

Vanguard 500 Index Fund

VFIAX

1.67%

PIMCO Total Return

PTTRX

0.98%

American Funds Growth Fund of America

AGTHX

5.88%

American Funds EuroPacific Growth

AEPGX

-0.49%

Fidelity Contrafund

FCNTX

7.24%

Franklin Income

FKINX

-7.37%

Vanguard Wellington Fund

VWELX

0.28%

Dodge & Cox International Stock

DODFX

-11.41%

Fidelity Cash Reserves

FDRXX

0.01%

Chicken Little Portfolio Performance November 2015

November 2015 monthly update for the Chicken Little Portfolio.

In November 2015, the Chicken Little Portfolio lost 0.29%. In November, the Dow Jones Industrial Average returned 0.74%.

You can view the portfolio performance in real time by clicking here.

Chicken Little changed nothing substantial during the month of November. The portfolio remains heavily invested in US Treasuries, short precious metals, and fractionally short global stocks.

October 2015 Chicken Little Portfolio Performance

October 2015 monthly update for the Chicken Little Portfolio.

In October 2015, the Chicken Little Portfolio lost 0.54%. In an historic month, the Dow Jones Industrial Average gained 8.58%.

You can view the portfolio performance in real time by clicking here.

Chicken Little changed nothing substantial during the month of October. The portfolio remains heavily invested in US Treasuries, short precious metals, and fractionally short global stocks.

Chicken Little Still Hunkered Down

Six Months of Chicken Little

In 2013, I published my first PBS Making Sen$e article worrying about the economy and financial markets. Over the subsequent period, my fearful articles caused Paul Solman, business and economics correspondent for the PBS NewsHour, to label me the “Chicken Little of Finance”.

The Chicken Little of Finance

Six months ago, I embraced the Chicken Little moniker and revealed my own investment positions. I have been publishing monthly performance updates. This article takes a slightly longer-term perspective and reviews Chicken Little’s macroeconomic views and the Chicken Little Investment Portfolio over the full six months. (You can compete against Chicken Little, and see the Chicken Little portfolio performance in real time by clicking here; you have to register with the website that hosts the contest) .

The article has four parts.

Part I: Chicken Little’s Perspective on Government Policy.

Part II: The First Six months of Chicken Little’s Investment Portfolio.

Part III: Chicken Little’s Current Investments.

Part IV: Advice for other Chicken Littles.

Chicken Little Portfolio Performance September 2015

September 2015 monthly update for the Chicken Little Portfolio.

In September 2015, the Chicken Little Portfolio gained 0.89%. The Dow Jones Industrial Average lost 1.35% in September.

You can view the portfolio performance in real time by clicking here.

Chicken Little has decreased the short position in both US stocks and Non-US stocks.

Chicken Little Hunkered Down

Abolish the Fed

Click for Article

Chicken Little Portfolio Performance August 2015

August 2015 monthly update for the Chicken Little Portfolio.

In August 2015, the Chicken Little Portfolio lost 0.36%. Chicken Little worries that the sky is falling, and the Dow Jones Industrial Average lost over 6% in the month.

You can view the portfolio performance in real time by clicking here.

Chicken Little has increased the short position in both US stocks and Non-US stocks.

Chicken Little is Shorting Stocks

Sell without Panic

7:30 AM eastern time. August 24, 2015

Stock market futures indicate Dow jones industrial average will open down another 600 points.  This in addition to the recent declines.

What should investors do in the midst of a market decline? Conventional wisdom says sit tight. Stocks always come back.

I suggest people sell some fraction of their stocks and risky assets. For example, you could sell 10% of your stock holdings two hours from now. The current futures price suggests markets will open down 3-4%. This puts the market down less than 15% from all-time highs.

What would an investor do next? Buy back the sold stock if the market makes a new high. The loss from this trade would be 10% times 15% for a total of 1.5% of the amount invested in stocks. Painful, but manageable.

The psychological value of selling today is that it unfreezes you, and prepares for more sales. The sky may be falling.


---

Chicken Little is Powerless Against Central Bank Money Printing

Postscript July 2016
The Dow Jones Industrial Average made a new all-time high in July of 2016, 14 months after its previous high in May of 2015. 

Chicken Little never bets against markets at new all-time highs; according, when the new high was made in July 2016, Chicken Little bought US stocks to cover a short position, and,  in addition, bought more US stocks to establish a tiny long position. 

Read July 2016 post "Chicken Little Buys US stocks." 

Chicken Little Portfolio Performance July 2015

July 2015 monthly update for the Chicken Little Portfolio.

In July 2015, the Chicken Little Portfolio gained 1.74% while the Dow Jones Industrial Average gained 0.59%.

Chicken Little is now betting on stocks going down with a very modest short position in both US and Non-US stocks.

Chicken Little is Shorting Stocks (in Poultry amounts)

Chicken Little Portfolio Performance June 2015

June 2015 monthly update for the Chicken Little Portfolio.

Previous Chicken Little Posts

Join the Chicken Little Contest (please join)

March 30, 2015 - Where does Chicken Little Invest?

April 2015 performance

May 2015 performance

In June 2015, the Chicken Little Portfolio lost 1.66% while the Dow Jones Industrial Average lost 1.05%. Stocks, bonds, and gold were all down in June.

Trying to hide in U.S. Treasury Bonds and Being Crushed