Where Do You Think Interest Rates Are Headed?

A very common question without a very direct answer

Disclaimer: The following is a summary of my personal opinions and is not to be considered or construed as financial advice. It is a summary of a recent conversation that seemed relevant enough to post.

SUMMARY:

In short, yes, I do believe they will go up as we've been in a 30-year declining rate environment, and they are (were) at zero. So, much like a batting average, when at zero there really is nowhere to go but up. Otherwise, it’s game over for you as a hitter. Having said that, it won't be a straight line up, and if it is you will see an environment more like the 70's, or 1930/40s. 

LENGTHY DETAILS IF YOU DESIRE MORE:

At this point, I don't think we have political or financial leaders in place that are willing to make the challenging and contrarian decisions that leaders in the 30/40/70s made. If we do get leaders that make those decisions, then, in my opinion, that is what the "Great Reset" slogan might be about. 

I could easily be wrong, and that is why I think it's most important to own a few different asset classes vs. only equities and bonds. 

This is why Bitcoin / Crypto, gold (silver), commodities/land, and some cash are important allocations to be diversified across in some form or another. Cash as an asset is "trash" because it declines over time, but in periods as we are seeing it can be valuable for short stints as it allows you to weather storms and pick up cheap assets when they get hit. Granted, you are still losing purchasing power. More details here.

Both short and long rates are near 3% now (2.82 and 2.92 at the time of the original writing). I won't bore you but it's likely that the 41-year decline in interest rates is over, with these recent moves up.

We should see some near-term easing between now and just over 3% and as long as 2.20% holds I expect rates to continue to climb to the next target after 3% which is 4-4.5%. At that point, I'd relook at the charts and what's going on in our daily lives. More detail on inflation here.

On The Monetary Front

The FED is in a conundrum because they missed that technology made the rate game irrelevant as today you can start a business with a credit card, a $50 internet connection, and a $1200/mo rented apartment. All without the need for inventory, a loan, a warehouse, etc.

So, effectively because of technology, you don't need debt based liabilities because it's now mostly revolving credit and low overhead. My notes from the Bitcoin 2022 conference or more detailed thoughts on global leverage.

What does impact every human on earth though, is the cost of food, gas, clothing, and transportation.

Hence why we are seeing those pricing levers being pulled. Because they directly speed up or slow down the economy where rates don't anymore.

What further has the FED in a bind is that we are seeing bouts of deflation within a monetary system designed for inflation which has been non-existent and forcefully manufactured for two decades while there is very little to no productivity in relative terms. Is this not a recipe for Stagflation???

Additionally, we have other nation-states jockeying for our global financial leadership role. For most, it's confusing that both deflation and inflation exist at the same time, but in varying periods. Here are two podcasts I did on both - deflation and inflation.

Individuals with cash (though not too much), financial assets, and low to no debt are in a superior position as long as you stay diversified. Remember invest in 7 ventures!

Ecc 11:2:

2 Invest in seven ventures, yes, in eight;
    you do not know what disaster may come upon the land.

Focusing on the rate game is less important than focusing on your balance sheet and cash flow construction.