If stocks and long dated treasuries are down -25% and cash is unchanged at 0%, then that cash buys 33% more shares - a considerable increase in purchase power. But if you're spending cash on general consumer products/services then cash purchase power has declined.Tortoise wrote: ↑Tue Oct 11, 2022 5:04 pmIndeed.Smith1776 wrote: ↑Tue Oct 11, 2022 3:01 pm Someone else on the forum, I can't remember who, pointed out that cash lost value to inflation this past year, therefore cash sucks and stocks are the way to go. That was the gist of the poster's point anyway. I thought to myself, well, wait a minute. Cash has a steady nominal value and has lost value to inflation this year, but stocks have lost an equal amount to inflation in addition to the nominal losses. Inflation affects all dollar denominated assets equally, so cash shouldn't be given some extra criticism when all assets priced in the same currency get impacted the same way.
To bring it back to what I said, though, I didn't give cash extra criticism. I actually pointed out that it's getting walloped less than the other three assets.
My point was simply that cash is getting walloped. You said that cash "benefitted tremendously from these rising rates", but that's not the case if we define "benefitted" as providing a positive real return. It's just losing less real value than the other three assets.
Of course. Economic conditions are dynamic, so this won't last forever (thankfully).
To rebalance a PP back to equal weightings compared to year start levels, a PP investor might be spending 15% of available cash to buy more stock shares and long dated treasury bonds where its gained 33% of purchase power against each/both. Spending a similar amount from across the portfolio (that is down -15% nominal and -25% real assuming 10% inflation) on CPI products/services and in one sense the PP might have yielded a overall positive real return relative to its 'basket' of things bought (some CPI, some stocks, some bonds). Could be considered as only if you don't rebalance, such as buying more long dated treasury bonds (and stocks) when their price in cash terms is relatively down, spend on CPI items only, then only then is the PP down in real terms.