Did Harry Browne account for quantitative easing?
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Did Harry Browne account for quantitative easing?
We all saw how quickly bonds collapsed when the Fed announced they may be tapering off of QE this year. If Harry Browne were alive today, would he still say we should keep 25% of our assets in treasuries, or do you think QE is so far outside of what Browne thought could happen, that Browne would change his strategy, today? Would Browne say QE is irrelevant in regards to the PP, and any drop in treasuries that may occur if/when QE is removed will be counterbalanced by gains in the stock and gold allocations?
Last edited by jason on Thu Jul 18, 2013 3:50 pm, edited 1 time in total.
Re: Did Harry Browne account for quantitative easing?
And here... We... Go!
(Gotta sit this one out, fellas)
Jason,
In short, gold still does what it's supposed to do. No matter how bad things get with monetizing debt, gold should counteract.
Whether QE is a big deal is a whole other animal that I'll let others debate. This time.
(Gotta sit this one out, fellas)
Jason,
In short, gold still does what it's supposed to do. No matter how bad things get with monetizing debt, gold should counteract.
Whether QE is a big deal is a whole other animal that I'll let others debate. This time.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: Did Harry Browne account for quantitative easing?
Nobody knows what he'd do because he's no longer with us unfortunately.
My view is that things don't change because QE does not do what many think it does. The money being "printed" is not flowing into the economy in any appreciable way to cause high inflation. I got into this same debate with a friend after showing me a presentation back in 2008(!). The presenter showed this huge spike in Fed excess funds and predicted massive inflation and rapidly rising long term bond rates were inevitable. I told them it means nothing at all until people start taking that money in sufficient quantity to make it into the broad economy. And in fact that bond rates could nose dive if we had deflation from the real estate bust.
Both things happened.
QE is some accounting magic on the backside where the Fed is trying to ensure a certain amount of money remains in the economy after a massive asset bust took a lot of it away (housing). That's it. It does not mean inflation must happen.
As for QE ending and bond rates going up. This is no surprise that it's a possible outcome. But then again you get people freaking out about bond rates going to 8, 9, 10%, etc. and I guess this could happen. But why would rates go that high without substantial inflation? And if there is substantial inflation causing those high rates why would gold not respond back upwards again?
But even if there is no high inflation and you get bonds paying those high rates, why would stock owners not want to sell of some stocks and lock in really attractive long-term bond rates? I think most people would be pretty happy owning some bonds paying 8% if real inflation were only 2-4% for instance. So this could put downward pressure on stocks and put a cap also on rising bond rates as more people wanted to buy them.
In the end, these things tend to work themselves out. We just don't know how it will pan out which is why all the assets in the portfolio should be owned regardless of what pundits may think. Pundits are wrong all the time.
My view is that things don't change because QE does not do what many think it does. The money being "printed" is not flowing into the economy in any appreciable way to cause high inflation. I got into this same debate with a friend after showing me a presentation back in 2008(!). The presenter showed this huge spike in Fed excess funds and predicted massive inflation and rapidly rising long term bond rates were inevitable. I told them it means nothing at all until people start taking that money in sufficient quantity to make it into the broad economy. And in fact that bond rates could nose dive if we had deflation from the real estate bust.
Both things happened.
QE is some accounting magic on the backside where the Fed is trying to ensure a certain amount of money remains in the economy after a massive asset bust took a lot of it away (housing). That's it. It does not mean inflation must happen.
As for QE ending and bond rates going up. This is no surprise that it's a possible outcome. But then again you get people freaking out about bond rates going to 8, 9, 10%, etc. and I guess this could happen. But why would rates go that high without substantial inflation? And if there is substantial inflation causing those high rates why would gold not respond back upwards again?
But even if there is no high inflation and you get bonds paying those high rates, why would stock owners not want to sell of some stocks and lock in really attractive long-term bond rates? I think most people would be pretty happy owning some bonds paying 8% if real inflation were only 2-4% for instance. So this could put downward pressure on stocks and put a cap also on rising bond rates as more people wanted to buy them.
In the end, these things tend to work themselves out. We just don't know how it will pan out which is why all the assets in the portfolio should be owned regardless of what pundits may think. Pundits are wrong all the time.
Last edited by craigr on Thu Jul 18, 2013 5:05 pm, edited 1 time in total.
Re: Did Harry Browne account for quantitative easing?
I just made this a blog post with some more information:
https://web.archive.org/web/20160324133 ... portfolio/
https://web.archive.org/web/20160324133 ... portfolio/
Re: Did Harry Browne account for quantitative easing?
Great blog post. Thanks Craig!craigr wrote: I just made this a blog post with some more information:
https://web.archive.org/web/20160324133 ... portfolio/