Is This a Tight-Money Recession?

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stpeter
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Is This a Tight-Money Recession?

Post by stpeter » Mon May 02, 2022 8:22 pm

With stocks, long-term bonds, and gold all down (not to mention GDP), I wonder if we're in one of those rare tight-money recessions that Harry Browne talked about...
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Re: Is This a Tight-Money Recession?

Post by whatchamacallit » Mon May 02, 2022 9:38 pm

I think so too.

I found this quote from review of book:

https://taylorpearson.me/bookreview/fai ... investing/

Stocks take advantage of prosperity. They tend to do poorly during periods of inflation, deflation, and tight money, but over time those periods don’t undo the gains that stocks achieve during periods of prosperity.

Bonds also take advantage of prosperity. In addition, they profit when interest rates collapse during a deflation. You should expect bonds to do poorly during times of inflation and tight money.

Gold not only does well during times of intense inflation, it does very well. In the 1970s, gold rose twenty times over as the inflation rate soared to its peak of 15% in 1980. Gold generally does poorly during times of prosperity, tight money, and deflation.

Cash is most profitable during a period of tight money. Not only is it a liquid asset that can give you purchasing power when your income and investments might be ailing, but the rise in interest rates increases the return on your dollars. Cash also becomes more valuable during a deflation as prices fall. Cash is essentially neutral during a time of prosperity, and it is a loser during times of inflation.
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Re: Is This a Tight-Money Recession?

Post by dockinGA » Tue May 03, 2022 5:30 am

whatchamacallit wrote:
Mon May 02, 2022 9:38 pm
I think so too.

I found this quote from review of book:

https://taylorpearson.me/bookreview/fai ... investing/

Stocks take advantage of prosperity. They tend to do poorly during periods of inflation, deflation, and tight money, but over time those periods don’t undo the gains that stocks achieve during periods of prosperity.

Bonds also take advantage of prosperity. In addition, they profit when interest rates collapse during a deflation. You should expect bonds to do poorly during times of inflation and tight money.

Gold not only does well during times of intense inflation, it does very well. In the 1970s, gold rose twenty times over as the inflation rate soared to its peak of 15% in 1980. Gold generally does poorly during times of prosperity, tight money, and deflation.

Cash is most profitable during a period of tight money. Not only is it a liquid asset that can give you purchasing power when your income and investments might be ailing, but the rise in interest rates increases the return on your dollars. Cash also becomes more valuable during a deflation as prices fall. Cash is essentially neutral during a time of prosperity, and it is a loser during times of inflation.
I think you're both on the right track, but my only concern is that Cash is losing out to inflation right now. With rates rising and hopefully peaking inflation, maybe that's about to change. Of course, maintaining nominal value is better than losing nominal value like all other assets are doing right now, even if maintaining nominal value means that it's losing real value.

This certainly appears to be the bursting of the Everything Bubble, and I'm kinda anxious to see how things shake out.
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Re: Is This a Tight-Money Recession?

Post by Kbg » Tue May 03, 2022 8:04 am

Not really compared to the 1970s/early 80s, but as compared to monetary policy of the last decade I'd say yes.
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Re: Is This a Tight-Money Recession?

Post by stpeter » Tue May 03, 2022 10:42 am

dockinGA wrote:
Tue May 03, 2022 5:30 am
whatchamacallit wrote:
Mon May 02, 2022 9:38 pm
I think so too.

I found this quote from review of book:

https://taylorpearson.me/bookreview/fai ... investing/

Stocks take advantage of prosperity. They tend to do poorly during periods of inflation, deflation, and tight money, but over time those periods don’t undo the gains that stocks achieve during periods of prosperity.

Bonds also take advantage of prosperity. In addition, they profit when interest rates collapse during a deflation. You should expect bonds to do poorly during times of inflation and tight money.

Gold not only does well during times of intense inflation, it does very well. In the 1970s, gold rose twenty times over as the inflation rate soared to its peak of 15% in 1980. Gold generally does poorly during times of prosperity, tight money, and deflation.

Cash is most profitable during a period of tight money. Not only is it a liquid asset that can give you purchasing power when your income and investments might be ailing, but the rise in interest rates increases the return on your dollars. Cash also becomes more valuable during a deflation as prices fall. Cash is essentially neutral during a time of prosperity, and it is a loser during times of inflation.
I think you're both on the right track, but my only concern is that Cash is losing out to inflation right now. With rates rising and hopefully peaking inflation, maybe that's about to change. Of course, maintaining nominal value is better than losing nominal value like all other assets are doing right now, even if maintaining nominal value means that it's losing real value.

This certainly appears to be the bursting of the Everything Bubble, and I'm kinda anxious to see how things shake out.
I take solace in the fact that markets don't always react immediately (IIRC, in March of 2020 it seemed like everything was crashing, but then bonds and gold started to come back before stocks did and it was a great time to rebalance). Patience, grasshopper! :-)
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Re: Is This a Tight-Money Recession?

Post by Ugly_Bird » Tue May 03, 2022 1:50 pm

stpeter wrote:
Tue May 03, 2022 10:42 am
dockinGA wrote:
Tue May 03, 2022 5:30 am
whatchamacallit wrote:
Mon May 02, 2022 9:38 pm
I think so too.

I found this quote from review of book:

https://taylorpearson.me/bookreview/fai ... investing/

Stocks take advantage of prosperity. They tend to do poorly during periods of inflation, deflation, and tight money, but over time those periods don’t undo the gains that stocks achieve during periods of prosperity.

Bonds also take advantage of prosperity. In addition, they profit when interest rates collapse during a deflation. You should expect bonds to do poorly during times of inflation and tight money.

Gold not only does well during times of intense inflation, it does very well. In the 1970s, gold rose twenty times over as the inflation rate soared to its peak of 15% in 1980. Gold generally does poorly during times of prosperity, tight money, and deflation.

Cash is most profitable during a period of tight money. Not only is it a liquid asset that can give you purchasing power when your income and investments might be ailing, but the rise in interest rates increases the return on your dollars. Cash also becomes more valuable during a deflation as prices fall. Cash is essentially neutral during a time of prosperity, and it is a loser during times of inflation.
I think you're both on the right track, but my only concern is that Cash is losing out to inflation right now. With rates rising and hopefully peaking inflation, maybe that's about to change. Of course, maintaining nominal value is better than losing nominal value like all other assets are doing right now, even if maintaining nominal value means that it's losing real value.

This certainly appears to be the bursting of the Everything Bubble, and I'm kinda anxious to see how things shake out.
I take solace in the fact that markets don't always react immediately (IIRC, in March of 2020 it seemed like everything was crashing, but then bonds and gold started to come back before stocks did and it was a great time to rebalance). Patience, grasshopper! :-)
Maybe it was good time to rebalance but I didn't reach the bands. :-(
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Re: Is This a Tight-Money Recession?

Post by stpeter » Tue May 03, 2022 1:59 pm

Ugly_Bird wrote:
Tue May 03, 2022 1:50 pm
stpeter wrote:
Tue May 03, 2022 10:42 am
I take solace in the fact that markets don't always react immediately (IIRC, in March of 2020 it seemed like everything was crashing, but then bonds and gold started to come back before stocks did and it was a great time to rebalance). Patience, grasshopper! :-)
Maybe it was good time to rebalance but I didn't reach the bands. :-(
Based on a scholarly article that I've mentioned here before ("Opportunistic Rebalancing: A New Paradigm for Wealth Managers" by Gobind Daryanani), I rebalance if any of the four assets goes below 20% or above 30%, in contrast to Harry Browne's 15/35 bands.
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Re: Is This a Tight-Money Recession?

Post by I Shrugged » Tue May 03, 2022 2:07 pm

It’s hard to say money is tight when the Fed funds rate is 0.50%.
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Re: Is This a Tight-Money Recession?

Post by boglerdude » Tue May 03, 2022 5:07 pm

Tight credit? What are the lending standards. I suppose anyone with a decent idea can get a loan. Speculators need to be reigned in at some point. The Fed now has the power to buy your house through Blackrock if they want to. Maybe they'll let markets fall 20-30% again. It'll be hard to time.
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Re: Is This a Tight-Money Recession?

Post by Ugly_Bird » Tue May 03, 2022 6:47 pm

stpeter wrote:
Tue May 03, 2022 1:59 pm
Ugly_Bird wrote:
Tue May 03, 2022 1:50 pm
stpeter wrote:
Tue May 03, 2022 10:42 am
I take solace in the fact that markets don't always react immediately (IIRC, in March of 2020 it seemed like everything was crashing, but then bonds and gold started to come back before stocks did and it was a great time to rebalance). Patience, grasshopper! :-)
Maybe it was good time to rebalance but I didn't reach the bands. :-(
Based on a scholarly article that I've mentioned here before ("Opportunistic Rebalancing: A New Paradigm for Wealth Managers" by Gobind Daryanani), I rebalance if any of the four assets goes below 20% or above 30%, in contrast to Harry Browne's 15/35 bands.
Someone here on the forum did a thorough analysis and back-testing all possible rebalance bands. Turned out that over long period of time it makes almost no difference.
Edit: found it! Here it is
viewtopic.php?f=1&t=1601&p=19097&hilit=rebalance#top
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Re: Is This a Tight-Money Recession?

Post by stpeter » Tue May 03, 2022 7:21 pm

Ugly_Bird wrote:
Tue May 03, 2022 6:47 pm
stpeter wrote:
Tue May 03, 2022 1:59 pm
Ugly_Bird wrote:
Tue May 03, 2022 1:50 pm
stpeter wrote:
Tue May 03, 2022 10:42 am
I take solace in the fact that markets don't always react immediately (IIRC, in March of 2020 it seemed like everything was crashing, but then bonds and gold started to come back before stocks did and it was a great time to rebalance). Patience, grasshopper! :-)
Maybe it was good time to rebalance but I didn't reach the bands. :-(
Based on a scholarly article that I've mentioned here before ("Opportunistic Rebalancing: A New Paradigm for Wealth Managers" by Gobind Daryanani), I rebalance if any of the four assets goes below 20% or above 30%, in contrast to Harry Browne's 15/35 bands.
Someone here on the forum did a thorough analysis and back-testing all possible rebalance bands. Turned out that over long period of time it makes almost no difference.
Edit: found it! Here it is
viewtopic.php?f=1&t=1601&p=19097&hilit=rebalance#top
Ah yes, I did read that one a while back. Personally I like the risk-reduction aspects of 20/30, but YMMV. :-)
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Re: Is This a Tight-Money Recession?

Post by perfect_simulation » Tue May 03, 2022 8:15 pm

just look at DXY. Of all the currencies, the dollar is what people want right now. Even Bitcoin has been flat while the dollar is rallying
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Re: Is This a Tight-Money Recession?

Post by whatchamacallit » Tue May 03, 2022 10:19 pm

It might be the Chinese developer defaults causing the tight money

China’s Restructuring Firms Staff Up for Record Wave of Defaults
https://archive.ph/eTu8G
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Re: Is This a Tight-Money Recession?

Post by Kbg » Fri May 06, 2022 10:39 am

When thinking about this stuff…measuring can be absolute or relative. In relative terms the changes are huge. Take a mortgage…over doubling in less than a year. Letting bonds expire at 90B a month instead of purchasing more to artificially keep interest rates low.

Liquidity is rapidly being drained out of the system and essentially free money isn’t anymore. I think getting back to more normal markets is a great thing but it’s not surprising some pain is involved.
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