Want Some Clues as to When Interest Rates Will Drop?

People keep asking me: when are we going to see an improvement in rates? The quick answer is that we are going to see interest rates drop when The Fed realizes that all they’ve done with raising rates is bringing down economic activity to the point where it is slowed things down. That’s when we are going to see inflation drop and unemployment rise. These appear to be their main two metrics.

That’s the pragmatic answer. But there are other clues out there, including this information from Warrant Buffett and Michael Burry, referring to timing issues.

Current Investment Decisions from Buffett and Burry

To give you some context, Michael Burry is the guy behind “The Big Short.” Back in 2005, he saw all the problems with the mortgage and housing industry. He saw that everything was about to unwind. Way before everyone else could see what was coming, he shorted it by purchasing credit default swaps – which is essentially “shorting” that sector. Fast forward to 2008, and he made a lot of money on all of those investments.

Now, he’s back. According to this article on CNN Business, he put 90% of the assets of his entire investment firm in shorting an S&P fund and a NASDAQ fund. He’s got 90% of his assets on the line, which says he believes that these prices are going to come down and equities prices are going to come down. The only reason he would short it is if he believes that we are going to see big changes here.

Additionally, this week, Warren Buffett liquidated $8 million in stocks that he owned, which totals about $33 million overall recently that he’s liquidated from stocks to cash. This also says that he anticipates some significant changes in some of these stocks.

I look to people like this to try to figure out my answers. It looks like both Warren Buffett and Michael Burry are seeing things slow down here already and they are getting out in front of it.

No One Knows What the Timing Will Be

So, what’s the timing for interest rates to come down? Who knows… I certainly don’t know. But based on these interesting happenings, I would guess that it’s not too far away. I wish I had an exact answer, but I don’t.

But we have good clues that it’s likely we’ve hit the top of the rates range. It’s starting to feel like it could be the ceiling and we’ll begin to head down from here. But only time will tell what will happen in the future.