Cash instruments returns better during periods of high inflation?

CFA Level III
#1

Someone can offer examples of such cash instruments and the logic behind it power to counter inflation?

I always thought that cash instruments = my savings account and high inflation would destroy it.

#2

Exactly my thoughts. I don’t get it either. How does cash offer any return whatsoever? When they say cash instruments, do they even include checking/savings accounts?

#3

If you get into a fixed rate investment , when rates rise , the value of the investment falls ( prices drop ). So you face increasing market ( interets rate ) risk. At this timme investors flee to the shorter end of the curve ( read short maturity or very similar to cash ). Cash actually has zero duration but things like savings and checking accounts that pay a nominal rate of interest also have a very low duration . Cash is typically invested in t-bills which have low risk. Plus the nominal value of cash is always the same, so it is a friend during rising interest rates.

#4

Here cash is cash and equivalent, like t bill or commercial paper. Duration of it could .25.

#5

Right now, in the real world, I’m treating short term AAA corporates as “Like-cash”…and the logic is that, if inflation picks up, I might lose a few basis points, but it’ll be way better than owning the long end of the curve over the next 5 years…

…but on that note, anybody else finding that the CFA curriculum doesn’t really handle deflation/inflation/reflation/stagnation/etc that well…especially w.r.t. the recent monetary policy in the US. I know the table the op is referencing, it’s too late for me to look it up on which table it is, but I remember chuckling that the three rows…they were something akin to:

  1. Above expected inflation

  2. Below expected inflation

  3. Deflation.

I chuckled at the author…since it’s sort of like comparing something akin to…

  1. Beating positive earnings estimates

  2. Missing positive earnings estimates

  3. Negative earnings.