Meredith Whitney: Avocado Toast With A Side of Wage Garnishment
Summary
Market Outlook: The podcast discusses the current investment environment, drawing parallels to the dotcom bubble of 1999-2000, highlighting concerns over speculative behaviors in the market, such as companies converting to crypto treasury entities.
Housing Market: Meredith Whitney emphasizes the unique challenges in the current US housing market, noting that seniors own a significant portion of homes and are not selling due to financial stability, which is contributing to a sluggish market.
Consumer Lending: Whitney highlights the ample liquidity in credit markets, with seniors increasingly tapping into home equity, and the rise of new mortgage products targeting them, suggesting a prolonged period of consumer lending growth.
Government Policy: Discussion includes the potential privatization of Fannie Mae and Freddie Mac, predicting a mega public float and continued implicit government guarantees, which could impact mortgage rates and market dynamics.
US Consumer Spending: The podcast addresses the impending slowdown in spending by Gen Z and millennials, driven by the resumption of student loan payments and rising healthcare premiums, which could dampen economic growth.
Private Credit Market: Whitney notes the significant role of private credit in consumer finance, providing a buffer against traditional credit constraints, but warns of potential risks if market conditions change.
Regulatory Environment: The weakening of the Consumer Financial Protection Bureau (CFPB) is discussed, highlighting the potential for increased financial sector leniency and the implications for consumer protection.
Investment Recommendations: Whitney shares her positive outlook on companies like SoFi and Rocket Mortgage, driven by liquidity in consumer finance, and highlights investment opportunities in rare earth materials due to geopolitical factors.
Transcript
In this episode of On the Tape, I welcome my longtime friend Meredith Whitney to the pod. I've known Meredith for almost 30 years. And for those not familiar with her, she along with Vincent Daniel worked with Steve Eisman back in the mid '90s at Oppenheimer and later went on to make some bold correct calls, including the infamous 2008 Croup dividend cut call because of mounting losses in their subprime portfolio. Not too long after, it was Michael Lewis that approached Meredith first about who on Wall Street had been successfully navigating the GFC. and Meredith pointed Michael to Steve Eisman and our team at Frontpoint later depicted in the Big Short. Throughout her career, Meredith has built relationships in both public and private sectors that have proved to be valuable, especially in today's climate. After a few successful stops, which included both managing institutional capital and working at startups, Meredith returned to her roots and founded the Meredith Whitney Advisory Group, which she runs today, providing thoughtful macro and strategy-driven research to a broad audience that includes both investors and seuite executives. Never in my investment career has this been more important to understand. Not just the fundamentals of a company, but the macro and government policies that influence their businesses. And Meredith gets it. Meredith continues to see ample liquidity in the credit markets providing support in the consumer lending markets. We touch on government policy as it relates to Fanny May and Freddy Mack and what's ahead there. The state of the US consumer in a K-shaped economy. And fresh off her op- ed in today's FT, we talk about the state of the US housing market and why the demographics around it are secular and not cyclical. But before we get to Meredith, I often get asked, Danny, what does this current investment environment remind you of? Any similarities to the GFC, etc. My answer is often a little bit of everything. But that has shifted in my opinion over the last few months and having been on Wall Street and trading during the dotcom bubble in 992000. I think this cycle now not only rhymes with 992000, but it's very close to mimicking it. When I see things like companies converting to crypto treasury entities and then trading at a premium to the underlying crypto with leverage, I might add, it reminds me of the businesses converting to do strategies back in 99 and 2000 and in some cases just creating a website like pets.com to try and join the party. And when I see stocks like Open Door and Better Homes and Finance move like they are on outlandish assumptions and price targets, I get concerned. The vendor financing and investment stakes that Nvidia has been conducting over the last several months are eerily similar to what Lucen and Nortell did during the dotcom bubble to try and ensure the demand for and ability to buy their product would continue regardless of who was paying for it. I'll remind people that the same way the internet was exploding onto the scene in the late 90s with the perceived endless demand for all things related to high-speed fiber optic networks is similar to what we are seeing today in the AI arena. Michael Lewis's book, The New Thing, was about the.com boom and bust and was about Netscape and others that had disruptive technologies and business models that were reshaping the economy. Does that sound familiar? I know that the last thing that a bullish investor wants to hear during a cycle like this is that stock's too expensive. Oh, and it can't go higher from here. I get it. But at some point, math comes into play and you realize that the denominator or the TAM is not infinity. At one point during the dotcom bubble, the cap X and supposed demand for fiber would have equated to enough fiber to circle the earth many times over. And it became a game of musical chairs. There is no doubt that AI is real and here to stay, but I'm just asking you to do the math. With that out of my system, please enjoy my conversation with Meredith Whitney. And hang around for my NFL picks at the end of the episode. Welcome to the On the Tape podcast. I'm your host, Danny Moses, and today I welcome my longtime friend, Meredith Whitney, to the pod, founder of Meredith Whitney Advisory Group. Meredith, you were on the OG on the tape pod back towards the end of last year, and a lot of the things that you talked about then are now happening now. And we're going to get into that, but let's start with front and center oped in the Financial Times, right? Nice to have you on the day that you put something like that on, which is about housing, which is huge focus. And let's just start with that and then we're going to work our way around the uh financial globe here. >> Sure. Um the focus of the op-ed was on the fact that in terms of existing home sales, this is going to be 2025 is set to be the worst year in terms of the slowest year in terms of existing home sales in well over 25. The market is really gummed up and a lot of people are wondering why coming up with a lot of different explanations. there's hasn't been enough home building. And that's just in my opinion just not the entire entirety of the story. The entirety of the story includes the fact that this housing market's very different from housing markets of the past. And the reason, the main reason is because um seniors own such a high percentage of homes. Well over 54%. I think it's actually up towards closer to 60%. The stated number is 54%. I think it's closer to 60% with second homes and whatnot and they're not selling. So they don't have financial pressure to sell. They want to age in place. So not only do Red Fin and AP say that seniors want to age in place, but they also don't have the financial strain. Now owning a home has been for the past couple of years has been much more expensive than renting largely due to increased homeowners insurance, property taxes, and just overall general inflation. But uh there's one area where a lot of seniors are are seeking relief is through tapping the equity in their homes. So there's 36 trillion of equity built up in homes and um they're tapping into it. So if you look at the whole pie of home equity uh loans, seniors represent 41% of it, which is you know you contrary to uh to everything you'd believe because typically when you get older you have less debt. So to just throw out some stats, 79% of seniors own their own their own homes and 74% own them free and clear, do not have any mortgage, but a couple of things are happening. So they're tapping into traditional revolving helocks. They're tapping into first mortgages. So, uh, 60% or closer to as over 60% of the cash out refinances were done at higher rates just so people could, uh, access the cash in their homes. Um, there also a bunch of new products coming out targeting seniors, intereston, uh, more interest only home equity loans. Um, one, uh, one product that's fashioned after a very popular product in the UK, retirement investment only. So senior market is really the golden goose for consumer lenders and because of that I think you're going to see a housing market stay basically gummed up stuck going nowhere um for the next few years >> new mortgage products wherever we heard that before. So, it's really interesting in housing because global financial crisis, the great financial crisis, what do you want to call it, in 2008 kind of changed the way that next generation of homeowners, to your point, younger ones that aren't the largest percentage of of owners of homes, how they think about owning owning homes and so forth. And then obviously COVID changed the way that people acted by working at home. And now this is a result of all that. You talked about this last year. You talked about the explosion, you know, possible in second mortgages and helocks and things like Rocket Mortgage, which you had identified early as a beneficiary of all this. And so, where are we right now in kind of that tabbing cycle? Because as bearish as like I always want to be on the consumer, we're going to get to kind of the K-shaped economy here here in a bit. There is I mean it's it's a built-in almost savings to a degree. Yes, you have to borrow it against, you know, future ownership, but talk about that where we are in that cycle and how much more are we in the second inning, third inning of this potentially. >> It could really still be the first inning. So, uh, it was the summer of 24 when I when I noticed because I look at this so closely that revolving home equity, which had been a product that had been shrinking for 17 years, began to grow, reversing a 17-year trend. And to me, that was stunning. And it was also corresponding with a one other trend which was private credit which is this massive market was now coming after consumer duration loans. That's anything let's say not a credit card but a personal loan and certainly a mortgage. They want you thick duration product. Um and you just saw so many deals being inked with private credit in terms of for purchase agreements. So what I saw was so much liquidity coming into into the market and because home equity had been a product that had not been popular, banks have been distancing themselves from that product for so long. It hadn't been on the minds of consumers. So consumers are only now getting solicited and becoming comfortable with tapping their their equity. Now seniors are familiar with this product. So maybe that's why seniors are much more receptive to the product. But also seniors own a disproportionate. So the the population of people over 60 uh over 65 is still you know just 20% yet they own over 54% of homes. So you see how how how concentrated the the system is. I think this is going to be a major theme growing momentum for the next several years. I'll give you an example. So, Rocket is the third largest um issuer of home equity and the number one issue of a second mortgage where you you get a fixed second mortgage. You can keep the low original low rate on your on your first mortgage and get a second mortgage, fixed u fixed dollar amount and fixed uh fixed rate. They're on track uh year to date. They're over 57% in excess of what they originated last year. And I think next year is going to look the same way. So if I look, you know, Rocket Mortgage and uh Mr. Cooper are uh the deal is supposed to the merger deal is supposed to close in the first fourth quarter. Mr. Cooper's done close to two billion and sorry, excuse me, well north of two billion in securization so far this year. They didn't do anything last year. So between the two of them, they're just getting started. And the there's a laundry list of companies that are uh that are are doing this. Banks to a certain extent. You know, Bank of America and and Citizens and Fifth Third are active in in the market, but really it's when we first met back in the in the '9s, the monoline consumer finance company really dominated consumer finance. And that's happening again. So, so many private companies that people don't know about are also originating this product. very very early stages. >> Yeah. So, when the Fed cuts rates, certain things that has an impact on obviously helocks being one of them, you know, any type of floating credit card debt, but you're right, and you've been talking about this for a long time, the amount of private credit that's out there chasing these loans through securizations not only creates a smoothing mechanism to a degree, but you're also getting the benefit of the Fed cutting. So, you certainly could see more there. All right, let's take a step back because one of the things that you have done over your career is to align yourself or get to know the regulators. I mean during the housing crisis obviously you knew everybody Sheila from Sheila Bear to Fed governors to everyone you were really involved and now the biggest topic related to mortgages and housing is Fanny May and Freddy Mack and what's going to happen there and you're down in DC a lot or you live in DC I should say so you're you're down there a lot so you have a sense for what's happening where are we right now um let's go back to the inning baseball call since we're entering playoffs here probably without the Mets. Sorry, Vinnie. Um, where we're going to enter here in the cycle and, uh, what to look for here going forward on Fanny and Freddy. >> Well, Fanny Freddy has been sort of this ongoing saga for, you know, upwards of almost, you know, 18 years. and only and I think during the last administration, sorry, last Trump administration, there were rumblings that they were going to be privatized that went that kind of because of COVID got kicked to the curb and then went literally on ice during the Biden administration. So the there was a lot of hope that something would happen early days. I think something if if I had to say I would I think something gets announced at the end of this year if not very early ne next year that they're going to in fact the government's going to steadily release them from conservatorship and there's going to be a mega public float of these these companies. If I had to say, I think that could be obviously like of course I could be wrong with any of this stuff that Fanny Freddy gets smooshed together because the there's a lot of synergies. There's a tremendous amount of cost saves. This deal has to be attractive to investors because of the the sheer size of capital being raised. Um, and I think that they're going to model some of this off of past experience. So I think if you want to be au you know a student of how the government got out of AIG that will be a proxy for um how the government will get out of Fanny Fanny Freddy. Uh but that to me is a is the is the the only issue in mortgage or one of the very few issues in mortgage to talk about going into 26 aside from home equity which I've been focused on for as you said well over a year. I've heard a lot of well I've heard mixed answers to this question is what happens to mortgage rates in general as a result there's a lot of concern obviously that with quote the without the explicit guarantee now there's still an implied guarantee you have you pay a g fee right you're still going to be paying that to the government so they can provide support but how do you think that works its way through the markets in terms of mortgage rates staying contained with these >> you know it all depends on um it all depends on what people think about growth and what people think about like the deflation coming from AI. So, I think it's it's beyond just Fanny Freddy. I don't know that Fanny Freddy necessarily compete so much, you know, so aggressively together that they keep rates low. I think that there's still an implicit guarantee. I think they're going to make it I think that the administration has already said the implicit guarantee will continue. So, I don't see that much of a risk of disruption. um particularly with you know like real a a real emphasis on deflationary pressures keeping rates low. >> All right, let's talk about another area that you focus on which is the US consumer. Um you wrote an article or you wrote a report sorry in uh September actually last week called the impending slowdown in Gen Z and millennial spending. You titled it avocado smash which was was great. Talk about that and we're going to get into the K-shaped economy off of that. So >> one of the uh two things have been driving the e economy in so far as consumer spending is concerned the very high-end and then what I call the avocado toast generation which is uh older millennials sorry older gen Z and younger millennials it's really 24 to 38 and they have been spending dramatically they don't here's the commonality they don't own homes and they want to and they're spending what they earn for the most part and they're spending on experience They're spending it on, you know, things that I wouldn't spend, you know, a $20 avocado toast, a $10 French press coffee. Those are things that they feel entitled to. they've had so much money because what what I think was underappreciated was the fact that, you know, COVID stimulus checks ended in 200 um 2022 and uh but but financial uh forbearance for student borrowers um has continued up until October of 2024. So technically it ended in September 23, but there was a a very very uh generous on-ramp period where if you were delinquent or didn't pay, it wouldn't go on your credit record. Um it wouldn't be reported to the credit bureaus. Sure, you'd incurred interest. So people didn't pay for that on-ramp period. And then when people have started to pay after October 24 there's been this in or the few people that have I think only something like 34% are current over 11% are seriously delinquent. What's happening in in what's started to happen in August is for the people that have not paid either seriously delinquent or in default they're going to start to garnish their wages. So over 54% of student debt is owned by the avocado toast generation and they can say fine. It's very difficult as you know psychologically if you haven't paid a bill for 5 years the tendency to either have saved money up to be able to pay that bill or the willingness to pay that bill is very very low. So, uh, they've been spending. When they start getting their wages garnished, I think that's going to be a real sting to this this group that has been, um, carrying a lot of the spending in in the economy. And, you know, a typical student debt payment is $200, $300 a month, but the government, the Department of Education is authorized to garnish 15% of your wages. That works out to an average income of let's say 64 65,000 which is the average college um graduate uh income of that age cohort to about $7 $800 a month. That's a big sting. So I think that and I expect spending to come down in a lot of those areas. I I don't think it's coincidence that that restaurants like Sweet Greens, Cava, uh Panera, Chipotle have all seen declines in saying same store sales. Um that's where that's where this demographic, the avocado toast generation is spending. >> Seniors tapping into their homes, they're not using that money to go to sweet greens obviously. And you also mentioned on this that health care premiums even for people people that are employed are going up dramatically as well, which is obviously very under reportported as it relates to inflation. But talk about that because those are the biggest expenses obviously that that people may face. >> Yeah. So this was the American Rescue Act which subsidized people's health care premiums and that runs out at the end of this year. That is going to be a doozy. And I think the double whammy between uh student uh loan garnishments and um increased premiums which equate to about again another 300 bucks a month and 51 52% of all Americans are privately or independently um insured. The rates for that goes up. Also the rates for corporate insurance go up across the board. that will be one of the biggest inflationary um like stinging points uh next year. So all of the services. So then the place to watch on inflation is going to be services because you know health care just by the math of the ro the uh expiration of the American uh rescue act you know healthcare premiums are going to go up property uh homeowners insurance is going to continue to go up because the the replacement value the replacement costs of all the imported items that go into home building is going to is going to go directly through to the consumer and then obviously auto insurance. So this is I can't see how you get inflation out of the picture for 26. >> Yeah. And you're right. And the more people take out out of their homes in terms of mortgages, the more those companies will require a higher amount of insurance, you know, at the same time. So one of the things that you're watching, so you're obviously in the camp that the economy it's bifrocated, but it's definitely slowing and you're going to see unemployment rise. I know you've talked about, you know, we were down to 3.8, 3.9%, working our way here into the mid fours. I'd imagine you see a trajectory here to kind of get towards the 5%, you know, by the end of the year. Talk about that and and talk about whether you think that the Fed is justified in cutting right now or the stuff you just talked about that is inflationary where we sit. Are we looking at a kind of a stagflationary type of environment here going forward? >> Yeah. So, the stagflation makes the Fed's position really difficult. So, you see cost inflation, but you see the employment market really weakening. And one of the reasons why I see employment heading so much higher is because uh you see the slowdown in spending in leisure, hospitality, retail, and retail's been better back to school, but but it that's off of a very low level. And that's 20% of employment. Those three categories are 20% of the of employment. And so the only way and also with with any type of goods inflation, they're they are going to pass a little back on onto the consumer, but they're going to eat it by ways of cutting uh cutting employees. And for that reason, just the math works out to a much higher unemployment picture. >> All right. So, I got to um push back on one of the reports you put out. It's it's correct, but I just want to get your thoughts, I should say, on one of the reports you put out. So in August you talked about the K-shaped economy which you're kind of describing here and you also at the same time acknowledged the amount of private credit and people chasing we just talked about a few minutes ago assetbacked lending products and so forth. So, one of the issues that I've have a problem with is well, one of the names I have a problem with is Upstart. And I think Upstart is right in the center of all of this, of these counter trends, right, that are kind of coming in. And I'll put a firm to the side for a second in the buy now pay later. Let's just talk about Upstart. And for people that don't know what Upstart is, it's basically an online lending platform. Basically gives you gives gives consumer loans. They're going into home equity. They're in auto now and doing some other stuff, but it is the low-end consumer and they are dependent upon credit in markets staying frothy and people ch and wanting to buy that product and whatever. You and I both know Meredith what the beginning of the end was in 2006 was when Wall Street started to pull the warehouse lines from the mortgage companies because they saw credit start to deteriorate. So where do those two things meet in the middle? And I'll just say one extra thing on Upstart here and you you were right on this thing and I was wrong is that it's a financial company and it's not a tech company and it trades at 10 times book value. So at what point does it matter Mayor? Oh, well, let me go back a little bit further that because I when I came into uh 25, I thought that you'd get a a leveling out of a K-shaped economy specifically because there was so much private credit coming into the system that the first thing personal loans and home equity um well first thing uh home equity uh uh uh uh money is used for is home renovations. The second thing is uh debt consolidation. So I thought surely if there's so much money which is going to basically eat the lunch of the subprime or higher cost credit card debt that one thing that would happen would be the credit cards that have really been staying mid-market to high-end would have to shift down a level and there'd be more credit supplied to um the subprime or lower tier market. That has not happened. So you see credit card companies I mean even after this like mega deal between Capital One and Discover Capital One stock is really has not been a great stock this year. It's up 20 something% but that's that pales in comparison to a SoFi or a Rocket um or even a firm. So it just is going to be very difficult to grow credit card loan balances because they're getting paid off so so quickly. So I was absolutely wrong about the fact that I I I thought that credit card companies would say we are not going to sacrifice earnings. We are going to lower or widen our credit band go down market so we can expand balances and you know keep earnings uh on a roll that may happen but it hasn't happened so far this year. So uh in terms of where I thought uh the that the economy would would blend out that hasn't happened. So what you see then is really a you know I think you're going to see pressure with the with what we said the avocado toast but the low end is is out of luck unless they have equity in their homes and they can do they can access a product uh a new product from when we were first got to know each other in the early 90s um which is a home equity investment or shared equity investment product and the estimated market for that is about a trillion dollars. So, let's say the size of of the credit card industry. Um, that's subprime um uh homeowners that can sell a portion of their home for a piece of cash, which may or may not be cheaper than a credit card loan. I I think it's still a very small market, but I think you'll see more more growth in in that area. But interest so far as a firm, the reason why I uh I turned uh positive on a firm was because they got a forward purchase agreement with um I believe it was Adalia Sixth Street and that just means that they become an originate and sell model. So they don't have to hold the loans on the on their books. Similarly, like with SoFi, they're basically uh they've cleaned up their credit profile because they can just originate and offload it. And the music stops when either the securization market closes or private credit stops buying their paper. But what the originators are saying is that they cannot keep up with the demand from private credit. They can't originate enough to keep up with the demand from private credit. And because private credit is longer duration capital, I don't see that I don't see that changing any anytime soon. So the risks, you're absolutely right. The risks of subprime subprime still exist, but they got a get out of jail free card because of private credit. >> Well, it's a K-shaped economy and it's a K-shaped business environment too at the same time because to your point, if those are the people that are providing the money, it's not your your traditional cap ones of the world, which aren't dipping down. This money has to find a home and it finds its home obviously lending or buying these assets from these companies that originating. And if you're right on your thesis about the consumer, then at some point this that's my point. At some point this will turn because we don't even know what the loss sharing arrangements are really between kind of these lenders, right? So you don't know. Yes, they might not have to keep as much on their balance sheet to your firm, but at the same time, believe me, when the music stops, whatever, things will get obviously like like we saw in the mortgage crisis, things will start to bubble up a little bit and things will get stuck in the pipe, so to speak. So that's certainly something to watch there. Um, Meredith, what other policies that are out there right now that are shaping your thoughts? Because never has it been this crucial really understand all the things that are happening maybe that I have not touched on here today, whether it's mortgage finance or, you know, some stuff with the consumer and insurance and um, you know, Medicare, Medicaid, things that we aren't really talking about here. Is there something else on your on your uh, radar here that that we should be paying attention to? I'm sure it's appreciated, but the fact that the CFPB is basically been taken out behind the woodshed and doesn't exist means that for financial companies, things just get a lot easier because all you have to have is one friendly state regulator. So, when so much of the regulatory onus uh uh goes to the states, then people just arbitrage the states that they're active in. And you know, uh uh Maryland is not a friendly state. Uh, New Jersey happens to be a friendly state. California happens to be a state friendly state. Florida's a friendly state. So, the lenders will just arbitrage and go to the states that are most lenient. It's almost like way back in the day when I used to cover subprime finance for for Steve Eisman. It was all about where you were active and who had the most liberal usery laws. >> Yeah. Listen, that's the that's the other thing, right? So, people like, "Oh, yeah, get rid of the CFPB." Well, consumers that have been rooting for that, that would be the Consumer Financial Protection Bureau, um, which was obviously set up post DoddFrank and, you know, during DoddFrank and post crisis is there to protect you. And to your point, these companies, again, another reason to own them. So, payday lenders and whatever is that they're not going to have the same user laws andor people o have the same oversight, I should say, that kind of watches over them. But here you are again, Meredith, talking about wage garnishment potential, right? all this other stuff, debt collectors, which are publicly traded companies that we know of. It's going to be really interesting cycle when those things start to happen without the CFPB in place to protect the consumer. And it's bad for the consumer, might be good for corporate America, might be good, but it's something I don't think that people are paying enough attention to. >> Yeah. So, I think that you're going to find out. So, just as you asked me sort of how long do you have for um the rubber to meet the road on on credit, the same thing will be consumer protection. I think we're four or five years out and when the rubber meets the road is when people start losing homes again and uh you know you'll see you you you see bad credit metrics bubble up certainly in um in student and in um in auto first to a certain extent not so much in credit cards and definitely not in mortgage but you may see that but the but the the the prepaid speeds will pick up again because they'll just roll the We haven't even gotten into the cycle where people are really rolling loans. So, you're going to have to just hold your breath and, you know, have steam coming out of your your ears for a few more years because I know this is I this drives you crazy. >> Yeah. So, let let's talk about this Meredith Whitney Advisor Group that you started after years on Wall Street. It's the culmination of everything, right? in terms of uh you were on the you were on the buy side, you were on the sell side, you did this you did this consulting thing post financial crisis before, now it's all kind of come together and you cater to all investors, a ton of institutional investors, retail as well. What feedback are you getting from those investors right now and what are you telling them specifically within sectors and maybe certain stocks that they should be owning or not owning at this point? >> Well, we've had uh you know, you prepare a lot to get lucky and this has been an incredible year. are the stocks that you know we've recommended to clients have been parabolic. So um going into you know starting from September 24 SoFi and Rocket um have been what were our biggest pushes. I I thought that this was sort of the the the fat pitch you get in uh you get very rarely and this was a fat pitch and this comes into all the liquidity that's be that's going into the consumer finance space. I didn't see rock the rocket c Mr. Cooper uh deal which obviously was a huge huge bonus for that. At the end of the year in November, I uh went from being negative for three years on the dollar stores to being positive on the dollar stores. And those stocks were up 50% from uh over 50% from sorry 50% from November to May when I went neutral on the dollar stores because I thought that the weakness from liberation day and the weakness from ICE uh ICE raids and also the weakness from really the the the 52% of households that are living paycheck to paycheck would start to weigh on the dollar stores again. And those stocks have faded since, you know, since then. They I went up and then they faded back since then. So that timing was fortuitous. I still like all all of those names. Another incredibly fortuitous uh call we had was uh right after Liberation Day. So Liberation Day was on a Wednesday. On a Saturday, I I thought like, how does how's this what's happening here? How do we get out of it? How does Congress p pull this back? And I called a friend of mine who who happens to work with the most preeminent uh rare earth metal specialist in the United States and he called my attention to what China did on the Friday night Friday night after liberation day which was ban all rare earth exports. And so in doing that, I started going down a rabbit hole and found Mountain Pass MP materials that stocks up over 300% since uh since then. So I pushed that on on uh that that Saturday. That was not on anyone's radar screen. China's move to ban rare earths uh was not on anyone's radar screen for about two weeks. And in that time, I spoke with the administration about it and and the the rest the rest is history. That's been incredible. So, I think that uh all of the government investments are going to um uh they're going to go out of their way to make investors look good co-investing with them. So, that's been an another one um and which I am still very positive on. Uh and I'm doing work on others. you know, I haven't focused that much on the banks because the banks have been financial really financial engineering and they've done not as well as the picks that I've that I've had. So, I'm always looking for new for new ideas, but a lot of these ideas continue to to play out. >> So, within the banking sector, we can end with that since obviously that's your that's your right right in your wheelhouse. You know, they act like utilities or they did for a while. Now they're now they're acting like tech stocks, but IPO market open, M&A is obviously happening, deregulation, etc. While there might be nothing to do there, private credit has replaced them on kind of the lending side, right? And we've talked about this last time you were on and still growing. Last uh baseball reference of the day, what ending are we in in kind of the private credit as private credit works its way into retail? And what would you tell individuals that are all of a sudden are getting access to these kind of sophisticated high fee products that are now entering? Those are two separate separate questions. I still think it is it I still think we're sort of mid uh mid innings for private credit. I don't like the idea of retail being in private credit because you know your money's locked up for 10 years and I unless you have a very high net worth which are already in private credit but retail um you know average main street people life's too hard. you know that that lockup is going to be really potentially really painful for people. Um but it's a you know it's a a free market. People are can do what what they what they want. There have been better returns over the last you know 10 years but over the longer cycle I you know you time will time will tell. I don't I don't I don't love that idea. >> I mean I would rather own the parent companies themselves are the ones that are producing the loans. You can own Apollo, you can own Blackstone. you can own KKR. They've converted from partnerships to normal companies. You're not getting a K1 anymore and and they and they pay a dividend. >> Right. >> Right. And so to me, it's like these people that are buying these crypto treasury companies just buy the underlying crypto if you like it so much. Why are you paying a premium, right, for this other thing? So it's kind of, you're right, it's some type of financial, you know, financial engineering. So Merida, so where can people find your stuff? Obviously, you know, I have a nice inn with, you know, with you, but um on on your website, >> uh Meredith Whitney uh LLC.com. Um and I welcome every everybody. It's it's been it's been it's been really fun. >> I think it's going to get even, if you want to call it more fun. I think things are about to get really interesting in terms of we haven't had a real cycle, so to speak, for a while. And we didn't even get into gold because I know you don't really focus on that as much, but I know you pay attention to macro factors that are telling you that something's not right in terms of the dollar being this week and the gold and you have to factor that all in. But um certainly we're going to have you back on here obviously in a few months and congrats on everything you're building and the work that you're doing and I think we're going to see a lot more of you if I'm if I'm right about what's going to be happening in you know in this world and it's great to have your voice out there for all of us Meredith. So thanks for coming on. >> I always love talking to you Danny. Thank you. All right, time for my NFL picks week four. Crazy week last week. Blocked kicks, fantastic finishes. I benefited from one of those in the Eagles game as they returned a blocked field goal for a touchdown as time expired. Love covering like that. Sweep out a win with the Chargers cuz I had two and a half and got CD lammed in the Dallas game. He's also my fantasy team. So, that's a double whammy. So, I was two and one last week and making my record four and four on the year. Nothing to write home about, but let's get better from here. So, three games I like this week, all on 1 pm on Sunday. I can't believe I'm doing this, but I'm taking the Giants at home against the Chargers. Getting six. Seems like a decent amount of points to me. Uh, Chargers flying east for 1 p.m. game. Justin Herbert has actually never played against the Giants in Giant Stadium. He played against the Jets. Obviously, beat them a few years ago there, but they had a knockdown dragout against the Broncos. I mean, Giants are in go for broke mode whether Russell Wilson plays or Jackson Dark gets his first start, but give me the Giants plus six as home dogs. Dan Quinn returning to Atlanta as head coach of the Washington Commanders where he was fired in 2020, bringing the Commanders in as two and a half point favorites. Falcons look completely lost against the Panthers and the Commanders defense won't make it any easier. JD Daniels is probably not playing but Marcus Mariota who actually played for the Falcons seems to be a reliable backup. A lot of storylines in this game including Kurt Cousins is the backup in Atlanta. I wouldn't be shocked if he gets in. He was obviously drafted by Washington way back when, but Penn, I don't think he can do it. Give me the Commanders laying two and a half. And lastly, I think the Eagles found something late against the Rams and will carry that into an injury-ridden Tampa Bay team. Mike Evans pulled his hamstring and Goblin might come back at receiving, but I just don't think it's enough. They have too many injuries. Both teams are three and0. If I have to pick one team that's going to go 4-0, it's the Eagles. So, lay the three. If you have to buy the half point to get to three, definitely do it. So, those are my three picks. By the way, what a weekend ahead. We got uh college football Saturday night with Alabama at Georgia and Oregon at Penn State. Ryder Cup starting Friday goes all weekend. Europe now plus 170 seems like a decent riskreward to me. I will see you guys next week for another episode of On the Tape. Thanks for listening to the On the Tape podcast with Danny Moses. If you like what you heard, please subscribe on either Apple or Spotify to the weekly podcast and please leave a rating and review, positive only. You can also watch on the on the tape channel on YouTube and give us a thumbs up there as
Meredith Whitney: Avocado Toast With A Side of Wage Garnishment
Summary
Transcript
In this episode of On the Tape, I welcome my longtime friend Meredith Whitney to the pod. I've known Meredith for almost 30 years. And for those not familiar with her, she along with Vincent Daniel worked with Steve Eisman back in the mid '90s at Oppenheimer and later went on to make some bold correct calls, including the infamous 2008 Croup dividend cut call because of mounting losses in their subprime portfolio. Not too long after, it was Michael Lewis that approached Meredith first about who on Wall Street had been successfully navigating the GFC. and Meredith pointed Michael to Steve Eisman and our team at Frontpoint later depicted in the Big Short. Throughout her career, Meredith has built relationships in both public and private sectors that have proved to be valuable, especially in today's climate. After a few successful stops, which included both managing institutional capital and working at startups, Meredith returned to her roots and founded the Meredith Whitney Advisory Group, which she runs today, providing thoughtful macro and strategy-driven research to a broad audience that includes both investors and seuite executives. Never in my investment career has this been more important to understand. Not just the fundamentals of a company, but the macro and government policies that influence their businesses. And Meredith gets it. Meredith continues to see ample liquidity in the credit markets providing support in the consumer lending markets. We touch on government policy as it relates to Fanny May and Freddy Mack and what's ahead there. The state of the US consumer in a K-shaped economy. And fresh off her op- ed in today's FT, we talk about the state of the US housing market and why the demographics around it are secular and not cyclical. But before we get to Meredith, I often get asked, Danny, what does this current investment environment remind you of? Any similarities to the GFC, etc. My answer is often a little bit of everything. But that has shifted in my opinion over the last few months and having been on Wall Street and trading during the dotcom bubble in 992000. I think this cycle now not only rhymes with 992000, but it's very close to mimicking it. When I see things like companies converting to crypto treasury entities and then trading at a premium to the underlying crypto with leverage, I might add, it reminds me of the businesses converting to do strategies back in 99 and 2000 and in some cases just creating a website like pets.com to try and join the party. And when I see stocks like Open Door and Better Homes and Finance move like they are on outlandish assumptions and price targets, I get concerned. The vendor financing and investment stakes that Nvidia has been conducting over the last several months are eerily similar to what Lucen and Nortell did during the dotcom bubble to try and ensure the demand for and ability to buy their product would continue regardless of who was paying for it. I'll remind people that the same way the internet was exploding onto the scene in the late 90s with the perceived endless demand for all things related to high-speed fiber optic networks is similar to what we are seeing today in the AI arena. Michael Lewis's book, The New Thing, was about the.com boom and bust and was about Netscape and others that had disruptive technologies and business models that were reshaping the economy. Does that sound familiar? I know that the last thing that a bullish investor wants to hear during a cycle like this is that stock's too expensive. Oh, and it can't go higher from here. I get it. But at some point, math comes into play and you realize that the denominator or the TAM is not infinity. At one point during the dotcom bubble, the cap X and supposed demand for fiber would have equated to enough fiber to circle the earth many times over. And it became a game of musical chairs. There is no doubt that AI is real and here to stay, but I'm just asking you to do the math. With that out of my system, please enjoy my conversation with Meredith Whitney. And hang around for my NFL picks at the end of the episode. Welcome to the On the Tape podcast. I'm your host, Danny Moses, and today I welcome my longtime friend, Meredith Whitney, to the pod, founder of Meredith Whitney Advisory Group. Meredith, you were on the OG on the tape pod back towards the end of last year, and a lot of the things that you talked about then are now happening now. And we're going to get into that, but let's start with front and center oped in the Financial Times, right? Nice to have you on the day that you put something like that on, which is about housing, which is huge focus. And let's just start with that and then we're going to work our way around the uh financial globe here. >> Sure. Um the focus of the op-ed was on the fact that in terms of existing home sales, this is going to be 2025 is set to be the worst year in terms of the slowest year in terms of existing home sales in well over 25. The market is really gummed up and a lot of people are wondering why coming up with a lot of different explanations. there's hasn't been enough home building. And that's just in my opinion just not the entire entirety of the story. The entirety of the story includes the fact that this housing market's very different from housing markets of the past. And the reason, the main reason is because um seniors own such a high percentage of homes. Well over 54%. I think it's actually up towards closer to 60%. The stated number is 54%. I think it's closer to 60% with second homes and whatnot and they're not selling. So they don't have financial pressure to sell. They want to age in place. So not only do Red Fin and AP say that seniors want to age in place, but they also don't have the financial strain. Now owning a home has been for the past couple of years has been much more expensive than renting largely due to increased homeowners insurance, property taxes, and just overall general inflation. But uh there's one area where a lot of seniors are are seeking relief is through tapping the equity in their homes. So there's 36 trillion of equity built up in homes and um they're tapping into it. So if you look at the whole pie of home equity uh loans, seniors represent 41% of it, which is you know you contrary to uh to everything you'd believe because typically when you get older you have less debt. So to just throw out some stats, 79% of seniors own their own their own homes and 74% own them free and clear, do not have any mortgage, but a couple of things are happening. So they're tapping into traditional revolving helocks. They're tapping into first mortgages. So, uh, 60% or closer to as over 60% of the cash out refinances were done at higher rates just so people could, uh, access the cash in their homes. Um, there also a bunch of new products coming out targeting seniors, intereston, uh, more interest only home equity loans. Um, one, uh, one product that's fashioned after a very popular product in the UK, retirement investment only. So senior market is really the golden goose for consumer lenders and because of that I think you're going to see a housing market stay basically gummed up stuck going nowhere um for the next few years >> new mortgage products wherever we heard that before. So, it's really interesting in housing because global financial crisis, the great financial crisis, what do you want to call it, in 2008 kind of changed the way that next generation of homeowners, to your point, younger ones that aren't the largest percentage of of owners of homes, how they think about owning owning homes and so forth. And then obviously COVID changed the way that people acted by working at home. And now this is a result of all that. You talked about this last year. You talked about the explosion, you know, possible in second mortgages and helocks and things like Rocket Mortgage, which you had identified early as a beneficiary of all this. And so, where are we right now in kind of that tabbing cycle? Because as bearish as like I always want to be on the consumer, we're going to get to kind of the K-shaped economy here here in a bit. There is I mean it's it's a built-in almost savings to a degree. Yes, you have to borrow it against, you know, future ownership, but talk about that where we are in that cycle and how much more are we in the second inning, third inning of this potentially. >> It could really still be the first inning. So, uh, it was the summer of 24 when I when I noticed because I look at this so closely that revolving home equity, which had been a product that had been shrinking for 17 years, began to grow, reversing a 17-year trend. And to me, that was stunning. And it was also corresponding with a one other trend which was private credit which is this massive market was now coming after consumer duration loans. That's anything let's say not a credit card but a personal loan and certainly a mortgage. They want you thick duration product. Um and you just saw so many deals being inked with private credit in terms of for purchase agreements. So what I saw was so much liquidity coming into into the market and because home equity had been a product that had not been popular, banks have been distancing themselves from that product for so long. It hadn't been on the minds of consumers. So consumers are only now getting solicited and becoming comfortable with tapping their their equity. Now seniors are familiar with this product. So maybe that's why seniors are much more receptive to the product. But also seniors own a disproportionate. So the the population of people over 60 uh over 65 is still you know just 20% yet they own over 54% of homes. So you see how how how concentrated the the system is. I think this is going to be a major theme growing momentum for the next several years. I'll give you an example. So, Rocket is the third largest um issuer of home equity and the number one issue of a second mortgage where you you get a fixed second mortgage. You can keep the low original low rate on your on your first mortgage and get a second mortgage, fixed u fixed dollar amount and fixed uh fixed rate. They're on track uh year to date. They're over 57% in excess of what they originated last year. And I think next year is going to look the same way. So if I look, you know, Rocket Mortgage and uh Mr. Cooper are uh the deal is supposed to the merger deal is supposed to close in the first fourth quarter. Mr. Cooper's done close to two billion and sorry, excuse me, well north of two billion in securization so far this year. They didn't do anything last year. So between the two of them, they're just getting started. And the there's a laundry list of companies that are uh that are are doing this. Banks to a certain extent. You know, Bank of America and and Citizens and Fifth Third are active in in the market, but really it's when we first met back in the in the '9s, the monoline consumer finance company really dominated consumer finance. And that's happening again. So, so many private companies that people don't know about are also originating this product. very very early stages. >> Yeah. So, when the Fed cuts rates, certain things that has an impact on obviously helocks being one of them, you know, any type of floating credit card debt, but you're right, and you've been talking about this for a long time, the amount of private credit that's out there chasing these loans through securizations not only creates a smoothing mechanism to a degree, but you're also getting the benefit of the Fed cutting. So, you certainly could see more there. All right, let's take a step back because one of the things that you have done over your career is to align yourself or get to know the regulators. I mean during the housing crisis obviously you knew everybody Sheila from Sheila Bear to Fed governors to everyone you were really involved and now the biggest topic related to mortgages and housing is Fanny May and Freddy Mack and what's going to happen there and you're down in DC a lot or you live in DC I should say so you're you're down there a lot so you have a sense for what's happening where are we right now um let's go back to the inning baseball call since we're entering playoffs here probably without the Mets. Sorry, Vinnie. Um, where we're going to enter here in the cycle and, uh, what to look for here going forward on Fanny and Freddy. >> Well, Fanny Freddy has been sort of this ongoing saga for, you know, upwards of almost, you know, 18 years. and only and I think during the last administration, sorry, last Trump administration, there were rumblings that they were going to be privatized that went that kind of because of COVID got kicked to the curb and then went literally on ice during the Biden administration. So the there was a lot of hope that something would happen early days. I think something if if I had to say I would I think something gets announced at the end of this year if not very early ne next year that they're going to in fact the government's going to steadily release them from conservatorship and there's going to be a mega public float of these these companies. If I had to say, I think that could be obviously like of course I could be wrong with any of this stuff that Fanny Freddy gets smooshed together because the there's a lot of synergies. There's a tremendous amount of cost saves. This deal has to be attractive to investors because of the the sheer size of capital being raised. Um, and I think that they're going to model some of this off of past experience. So I think if you want to be au you know a student of how the government got out of AIG that will be a proxy for um how the government will get out of Fanny Fanny Freddy. Uh but that to me is a is the is the the only issue in mortgage or one of the very few issues in mortgage to talk about going into 26 aside from home equity which I've been focused on for as you said well over a year. I've heard a lot of well I've heard mixed answers to this question is what happens to mortgage rates in general as a result there's a lot of concern obviously that with quote the without the explicit guarantee now there's still an implied guarantee you have you pay a g fee right you're still going to be paying that to the government so they can provide support but how do you think that works its way through the markets in terms of mortgage rates staying contained with these >> you know it all depends on um it all depends on what people think about growth and what people think about like the deflation coming from AI. So, I think it's it's beyond just Fanny Freddy. I don't know that Fanny Freddy necessarily compete so much, you know, so aggressively together that they keep rates low. I think that there's still an implicit guarantee. I think they're going to make it I think that the administration has already said the implicit guarantee will continue. So, I don't see that much of a risk of disruption. um particularly with you know like real a a real emphasis on deflationary pressures keeping rates low. >> All right, let's talk about another area that you focus on which is the US consumer. Um you wrote an article or you wrote a report sorry in uh September actually last week called the impending slowdown in Gen Z and millennial spending. You titled it avocado smash which was was great. Talk about that and we're going to get into the K-shaped economy off of that. So >> one of the uh two things have been driving the e economy in so far as consumer spending is concerned the very high-end and then what I call the avocado toast generation which is uh older millennials sorry older gen Z and younger millennials it's really 24 to 38 and they have been spending dramatically they don't here's the commonality they don't own homes and they want to and they're spending what they earn for the most part and they're spending on experience They're spending it on, you know, things that I wouldn't spend, you know, a $20 avocado toast, a $10 French press coffee. Those are things that they feel entitled to. they've had so much money because what what I think was underappreciated was the fact that, you know, COVID stimulus checks ended in 200 um 2022 and uh but but financial uh forbearance for student borrowers um has continued up until October of 2024. So technically it ended in September 23, but there was a a very very uh generous on-ramp period where if you were delinquent or didn't pay, it wouldn't go on your credit record. Um it wouldn't be reported to the credit bureaus. Sure, you'd incurred interest. So people didn't pay for that on-ramp period. And then when people have started to pay after October 24 there's been this in or the few people that have I think only something like 34% are current over 11% are seriously delinquent. What's happening in in what's started to happen in August is for the people that have not paid either seriously delinquent or in default they're going to start to garnish their wages. So over 54% of student debt is owned by the avocado toast generation and they can say fine. It's very difficult as you know psychologically if you haven't paid a bill for 5 years the tendency to either have saved money up to be able to pay that bill or the willingness to pay that bill is very very low. So, uh, they've been spending. When they start getting their wages garnished, I think that's going to be a real sting to this this group that has been, um, carrying a lot of the spending in in the economy. And, you know, a typical student debt payment is $200, $300 a month, but the government, the Department of Education is authorized to garnish 15% of your wages. That works out to an average income of let's say 64 65,000 which is the average college um graduate uh income of that age cohort to about $7 $800 a month. That's a big sting. So I think that and I expect spending to come down in a lot of those areas. I I don't think it's coincidence that that restaurants like Sweet Greens, Cava, uh Panera, Chipotle have all seen declines in saying same store sales. Um that's where that's where this demographic, the avocado toast generation is spending. >> Seniors tapping into their homes, they're not using that money to go to sweet greens obviously. And you also mentioned on this that health care premiums even for people people that are employed are going up dramatically as well, which is obviously very under reportported as it relates to inflation. But talk about that because those are the biggest expenses obviously that that people may face. >> Yeah. So this was the American Rescue Act which subsidized people's health care premiums and that runs out at the end of this year. That is going to be a doozy. And I think the double whammy between uh student uh loan garnishments and um increased premiums which equate to about again another 300 bucks a month and 51 52% of all Americans are privately or independently um insured. The rates for that goes up. Also the rates for corporate insurance go up across the board. that will be one of the biggest inflationary um like stinging points uh next year. So all of the services. So then the place to watch on inflation is going to be services because you know health care just by the math of the ro the uh expiration of the American uh rescue act you know healthcare premiums are going to go up property uh homeowners insurance is going to continue to go up because the the replacement value the replacement costs of all the imported items that go into home building is going to is going to go directly through to the consumer and then obviously auto insurance. So this is I can't see how you get inflation out of the picture for 26. >> Yeah. And you're right. And the more people take out out of their homes in terms of mortgages, the more those companies will require a higher amount of insurance, you know, at the same time. So one of the things that you're watching, so you're obviously in the camp that the economy it's bifrocated, but it's definitely slowing and you're going to see unemployment rise. I know you've talked about, you know, we were down to 3.8, 3.9%, working our way here into the mid fours. I'd imagine you see a trajectory here to kind of get towards the 5%, you know, by the end of the year. Talk about that and and talk about whether you think that the Fed is justified in cutting right now or the stuff you just talked about that is inflationary where we sit. Are we looking at a kind of a stagflationary type of environment here going forward? >> Yeah. So, the stagflation makes the Fed's position really difficult. So, you see cost inflation, but you see the employment market really weakening. And one of the reasons why I see employment heading so much higher is because uh you see the slowdown in spending in leisure, hospitality, retail, and retail's been better back to school, but but it that's off of a very low level. And that's 20% of employment. Those three categories are 20% of the of employment. And so the only way and also with with any type of goods inflation, they're they are going to pass a little back on onto the consumer, but they're going to eat it by ways of cutting uh cutting employees. And for that reason, just the math works out to a much higher unemployment picture. >> All right. So, I got to um push back on one of the reports you put out. It's it's correct, but I just want to get your thoughts, I should say, on one of the reports you put out. So in August you talked about the K-shaped economy which you're kind of describing here and you also at the same time acknowledged the amount of private credit and people chasing we just talked about a few minutes ago assetbacked lending products and so forth. So, one of the issues that I've have a problem with is well, one of the names I have a problem with is Upstart. And I think Upstart is right in the center of all of this, of these counter trends, right, that are kind of coming in. And I'll put a firm to the side for a second in the buy now pay later. Let's just talk about Upstart. And for people that don't know what Upstart is, it's basically an online lending platform. Basically gives you gives gives consumer loans. They're going into home equity. They're in auto now and doing some other stuff, but it is the low-end consumer and they are dependent upon credit in markets staying frothy and people ch and wanting to buy that product and whatever. You and I both know Meredith what the beginning of the end was in 2006 was when Wall Street started to pull the warehouse lines from the mortgage companies because they saw credit start to deteriorate. So where do those two things meet in the middle? And I'll just say one extra thing on Upstart here and you you were right on this thing and I was wrong is that it's a financial company and it's not a tech company and it trades at 10 times book value. So at what point does it matter Mayor? Oh, well, let me go back a little bit further that because I when I came into uh 25, I thought that you'd get a a leveling out of a K-shaped economy specifically because there was so much private credit coming into the system that the first thing personal loans and home equity um well first thing uh home equity uh uh uh uh money is used for is home renovations. The second thing is uh debt consolidation. So I thought surely if there's so much money which is going to basically eat the lunch of the subprime or higher cost credit card debt that one thing that would happen would be the credit cards that have really been staying mid-market to high-end would have to shift down a level and there'd be more credit supplied to um the subprime or lower tier market. That has not happened. So you see credit card companies I mean even after this like mega deal between Capital One and Discover Capital One stock is really has not been a great stock this year. It's up 20 something% but that's that pales in comparison to a SoFi or a Rocket um or even a firm. So it just is going to be very difficult to grow credit card loan balances because they're getting paid off so so quickly. So I was absolutely wrong about the fact that I I I thought that credit card companies would say we are not going to sacrifice earnings. We are going to lower or widen our credit band go down market so we can expand balances and you know keep earnings uh on a roll that may happen but it hasn't happened so far this year. So uh in terms of where I thought uh the that the economy would would blend out that hasn't happened. So what you see then is really a you know I think you're going to see pressure with the with what we said the avocado toast but the low end is is out of luck unless they have equity in their homes and they can do they can access a product uh a new product from when we were first got to know each other in the early 90s um which is a home equity investment or shared equity investment product and the estimated market for that is about a trillion dollars. So, let's say the size of of the credit card industry. Um, that's subprime um uh homeowners that can sell a portion of their home for a piece of cash, which may or may not be cheaper than a credit card loan. I I think it's still a very small market, but I think you'll see more more growth in in that area. But interest so far as a firm, the reason why I uh I turned uh positive on a firm was because they got a forward purchase agreement with um I believe it was Adalia Sixth Street and that just means that they become an originate and sell model. So they don't have to hold the loans on the on their books. Similarly, like with SoFi, they're basically uh they've cleaned up their credit profile because they can just originate and offload it. And the music stops when either the securization market closes or private credit stops buying their paper. But what the originators are saying is that they cannot keep up with the demand from private credit. They can't originate enough to keep up with the demand from private credit. And because private credit is longer duration capital, I don't see that I don't see that changing any anytime soon. So the risks, you're absolutely right. The risks of subprime subprime still exist, but they got a get out of jail free card because of private credit. >> Well, it's a K-shaped economy and it's a K-shaped business environment too at the same time because to your point, if those are the people that are providing the money, it's not your your traditional cap ones of the world, which aren't dipping down. This money has to find a home and it finds its home obviously lending or buying these assets from these companies that originating. And if you're right on your thesis about the consumer, then at some point this that's my point. At some point this will turn because we don't even know what the loss sharing arrangements are really between kind of these lenders, right? So you don't know. Yes, they might not have to keep as much on their balance sheet to your firm, but at the same time, believe me, when the music stops, whatever, things will get obviously like like we saw in the mortgage crisis, things will start to bubble up a little bit and things will get stuck in the pipe, so to speak. So that's certainly something to watch there. Um, Meredith, what other policies that are out there right now that are shaping your thoughts? Because never has it been this crucial really understand all the things that are happening maybe that I have not touched on here today, whether it's mortgage finance or, you know, some stuff with the consumer and insurance and um, you know, Medicare, Medicaid, things that we aren't really talking about here. Is there something else on your on your uh, radar here that that we should be paying attention to? I'm sure it's appreciated, but the fact that the CFPB is basically been taken out behind the woodshed and doesn't exist means that for financial companies, things just get a lot easier because all you have to have is one friendly state regulator. So, when so much of the regulatory onus uh uh goes to the states, then people just arbitrage the states that they're active in. And you know, uh uh Maryland is not a friendly state. Uh, New Jersey happens to be a friendly state. California happens to be a state friendly state. Florida's a friendly state. So, the lenders will just arbitrage and go to the states that are most lenient. It's almost like way back in the day when I used to cover subprime finance for for Steve Eisman. It was all about where you were active and who had the most liberal usery laws. >> Yeah. Listen, that's the that's the other thing, right? So, people like, "Oh, yeah, get rid of the CFPB." Well, consumers that have been rooting for that, that would be the Consumer Financial Protection Bureau, um, which was obviously set up post DoddFrank and, you know, during DoddFrank and post crisis is there to protect you. And to your point, these companies, again, another reason to own them. So, payday lenders and whatever is that they're not going to have the same user laws andor people o have the same oversight, I should say, that kind of watches over them. But here you are again, Meredith, talking about wage garnishment potential, right? all this other stuff, debt collectors, which are publicly traded companies that we know of. It's going to be really interesting cycle when those things start to happen without the CFPB in place to protect the consumer. And it's bad for the consumer, might be good for corporate America, might be good, but it's something I don't think that people are paying enough attention to. >> Yeah. So, I think that you're going to find out. So, just as you asked me sort of how long do you have for um the rubber to meet the road on on credit, the same thing will be consumer protection. I think we're four or five years out and when the rubber meets the road is when people start losing homes again and uh you know you'll see you you you see bad credit metrics bubble up certainly in um in student and in um in auto first to a certain extent not so much in credit cards and definitely not in mortgage but you may see that but the but the the the prepaid speeds will pick up again because they'll just roll the We haven't even gotten into the cycle where people are really rolling loans. So, you're going to have to just hold your breath and, you know, have steam coming out of your your ears for a few more years because I know this is I this drives you crazy. >> Yeah. So, let let's talk about this Meredith Whitney Advisor Group that you started after years on Wall Street. It's the culmination of everything, right? in terms of uh you were on the you were on the buy side, you were on the sell side, you did this you did this consulting thing post financial crisis before, now it's all kind of come together and you cater to all investors, a ton of institutional investors, retail as well. What feedback are you getting from those investors right now and what are you telling them specifically within sectors and maybe certain stocks that they should be owning or not owning at this point? >> Well, we've had uh you know, you prepare a lot to get lucky and this has been an incredible year. are the stocks that you know we've recommended to clients have been parabolic. So um going into you know starting from September 24 SoFi and Rocket um have been what were our biggest pushes. I I thought that this was sort of the the the fat pitch you get in uh you get very rarely and this was a fat pitch and this comes into all the liquidity that's be that's going into the consumer finance space. I didn't see rock the rocket c Mr. Cooper uh deal which obviously was a huge huge bonus for that. At the end of the year in November, I uh went from being negative for three years on the dollar stores to being positive on the dollar stores. And those stocks were up 50% from uh over 50% from sorry 50% from November to May when I went neutral on the dollar stores because I thought that the weakness from liberation day and the weakness from ICE uh ICE raids and also the weakness from really the the the 52% of households that are living paycheck to paycheck would start to weigh on the dollar stores again. And those stocks have faded since, you know, since then. They I went up and then they faded back since then. So that timing was fortuitous. I still like all all of those names. Another incredibly fortuitous uh call we had was uh right after Liberation Day. So Liberation Day was on a Wednesday. On a Saturday, I I thought like, how does how's this what's happening here? How do we get out of it? How does Congress p pull this back? And I called a friend of mine who who happens to work with the most preeminent uh rare earth metal specialist in the United States and he called my attention to what China did on the Friday night Friday night after liberation day which was ban all rare earth exports. And so in doing that, I started going down a rabbit hole and found Mountain Pass MP materials that stocks up over 300% since uh since then. So I pushed that on on uh that that Saturday. That was not on anyone's radar screen. China's move to ban rare earths uh was not on anyone's radar screen for about two weeks. And in that time, I spoke with the administration about it and and the the rest the rest is history. That's been incredible. So, I think that uh all of the government investments are going to um uh they're going to go out of their way to make investors look good co-investing with them. So, that's been an another one um and which I am still very positive on. Uh and I'm doing work on others. you know, I haven't focused that much on the banks because the banks have been financial really financial engineering and they've done not as well as the picks that I've that I've had. So, I'm always looking for new for new ideas, but a lot of these ideas continue to to play out. >> So, within the banking sector, we can end with that since obviously that's your that's your right right in your wheelhouse. You know, they act like utilities or they did for a while. Now they're now they're acting like tech stocks, but IPO market open, M&A is obviously happening, deregulation, etc. While there might be nothing to do there, private credit has replaced them on kind of the lending side, right? And we've talked about this last time you were on and still growing. Last uh baseball reference of the day, what ending are we in in kind of the private credit as private credit works its way into retail? And what would you tell individuals that are all of a sudden are getting access to these kind of sophisticated high fee products that are now entering? Those are two separate separate questions. I still think it is it I still think we're sort of mid uh mid innings for private credit. I don't like the idea of retail being in private credit because you know your money's locked up for 10 years and I unless you have a very high net worth which are already in private credit but retail um you know average main street people life's too hard. you know that that lockup is going to be really potentially really painful for people. Um but it's a you know it's a a free market. People are can do what what they what they want. There have been better returns over the last you know 10 years but over the longer cycle I you know you time will time will tell. I don't I don't I don't love that idea. >> I mean I would rather own the parent companies themselves are the ones that are producing the loans. You can own Apollo, you can own Blackstone. you can own KKR. They've converted from partnerships to normal companies. You're not getting a K1 anymore and and they and they pay a dividend. >> Right. >> Right. And so to me, it's like these people that are buying these crypto treasury companies just buy the underlying crypto if you like it so much. Why are you paying a premium, right, for this other thing? So it's kind of, you're right, it's some type of financial, you know, financial engineering. So Merida, so where can people find your stuff? Obviously, you know, I have a nice inn with, you know, with you, but um on on your website, >> uh Meredith Whitney uh LLC.com. Um and I welcome every everybody. It's it's been it's been it's been really fun. >> I think it's going to get even, if you want to call it more fun. I think things are about to get really interesting in terms of we haven't had a real cycle, so to speak, for a while. And we didn't even get into gold because I know you don't really focus on that as much, but I know you pay attention to macro factors that are telling you that something's not right in terms of the dollar being this week and the gold and you have to factor that all in. But um certainly we're going to have you back on here obviously in a few months and congrats on everything you're building and the work that you're doing and I think we're going to see a lot more of you if I'm if I'm right about what's going to be happening in you know in this world and it's great to have your voice out there for all of us Meredith. So thanks for coming on. >> I always love talking to you Danny. Thank you. All right, time for my NFL picks week four. Crazy week last week. Blocked kicks, fantastic finishes. I benefited from one of those in the Eagles game as they returned a blocked field goal for a touchdown as time expired. Love covering like that. Sweep out a win with the Chargers cuz I had two and a half and got CD lammed in the Dallas game. He's also my fantasy team. So, that's a double whammy. So, I was two and one last week and making my record four and four on the year. Nothing to write home about, but let's get better from here. So, three games I like this week, all on 1 pm on Sunday. I can't believe I'm doing this, but I'm taking the Giants at home against the Chargers. Getting six. Seems like a decent amount of points to me. Uh, Chargers flying east for 1 p.m. game. Justin Herbert has actually never played against the Giants in Giant Stadium. He played against the Jets. Obviously, beat them a few years ago there, but they had a knockdown dragout against the Broncos. I mean, Giants are in go for broke mode whether Russell Wilson plays or Jackson Dark gets his first start, but give me the Giants plus six as home dogs. Dan Quinn returning to Atlanta as head coach of the Washington Commanders where he was fired in 2020, bringing the Commanders in as two and a half point favorites. Falcons look completely lost against the Panthers and the Commanders defense won't make it any easier. JD Daniels is probably not playing but Marcus Mariota who actually played for the Falcons seems to be a reliable backup. A lot of storylines in this game including Kurt Cousins is the backup in Atlanta. I wouldn't be shocked if he gets in. He was obviously drafted by Washington way back when, but Penn, I don't think he can do it. Give me the Commanders laying two and a half. And lastly, I think the Eagles found something late against the Rams and will carry that into an injury-ridden Tampa Bay team. Mike Evans pulled his hamstring and Goblin might come back at receiving, but I just don't think it's enough. They have too many injuries. Both teams are three and0. If I have to pick one team that's going to go 4-0, it's the Eagles. So, lay the three. If you have to buy the half point to get to three, definitely do it. So, those are my three picks. By the way, what a weekend ahead. We got uh college football Saturday night with Alabama at Georgia and Oregon at Penn State. Ryder Cup starting Friday goes all weekend. Europe now plus 170 seems like a decent riskreward to me. I will see you guys next week for another episode of On the Tape. Thanks for listening to the On the Tape podcast with Danny Moses. If you like what you heard, please subscribe on either Apple or Spotify to the weekly podcast and please leave a rating and review, positive only. You can also watch on the on the tape channel on YouTube and give us a thumbs up there as