I'm new to PP and I have a question. The gains posted for cash in the Historical Portfolio performance list seem unusually high. 19.2 in 1982?!?. I must be missing something obvious. Where do those numbers come from?
Thanks
Dick
Historical returns for cash
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dickirwin59
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MachineGhost
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Re: Historical returns for cash
Inflation was double digits back then and so was the prime rate. Volcker also jacked up short term interest rates to double digits above inflation to "break the back". It didn't last very long, only about a year or two.
What allowed the USA to recover from the double dip recession induced by Volcker was the Mexican debt default in 1982. Volcker had to reverse course from his deflationary "tight money" extremism, due to increased demand for liquidity.
What allowed the USA to recover from the double dip recession induced by Volcker was the Mexican debt default in 1982. Volcker had to reverse course from his deflationary "tight money" extremism, due to increased demand for liquidity.
Last edited by MachineGhost on Tue Oct 30, 2012 8:22 am, edited 1 time in total.
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Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
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Pointedstick
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Re: Historical returns for cash
Cash returns typically track the interest rate offered on T-bills and short-term T-bonds. When inflation is wacko and bond investors are demanding high interest rates in compensation, cash will see a very high nominal return, with the early 1980s being a particularly extreme period:
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Re: Historical returns for cash
You also have to consider that the PP cash returns (if taken from the crawlingroad site) are not for 90 day t-bills but for 1-3 year t-notes. As rates fell from late '81 onwards you also would've gotten some capital gains (provided you sold at the end of the year as part of the annual rebalancing and didn't hold to maturity) in addition to the interest payments.