Chris Whalen: Stocks Running Out of Buyers, NYC's Future Under Mamdani & The Case for Gold
Summary
Housing Correction: The guest expects a gradual home price correction into 2027–2028 as supply catches up, buyers await lower rates, and affordability remains strained by past inflation.
Commercial Real Estate: He foresees ongoing stress in older assets and NYC offices as corporates downsize and relocate, pressuring the city’s tax base and benefiting business-friendly regions.
Private Credit: Significant concerns over fraud, collateral games, and fundraising challenges point to a tougher outlook, with potential losses across pensions, insurers, and retail-linked products.
Banks and Duration: He contrasts BAC’s duration missteps with JPM’s stronger balance sheet management, noting universal banks’ trading/IB strength while loan demand stays tepid.
Mortgage & Homebuilders: Lenders set coupons and value servicing, while builders like Lennar have been buying down mortgages; policy and secondary market dynamics will drive rates and sales momentum.
Gold and Junior Miners: Bullish on gold and junior miners with expectations of majors acquiring juniors; supply-chain shifts to reduce China dependence support long-term metals investment.
Currency Debasement: He frames gold as a long-term hedge as central banks elevate it as a reserve asset, while persistent inflation erodes dollar purchasing power over time.
Positions and Opportunities: He disclosed buying NYCB (Flagstar) as a speculative turnaround tied to management quality, while remaining cautious in risk-taking elsewhere.
Transcript
I think stocks are just slowing down because they had to. When you have a period of price appreciation, whether it's stocks or gold, at a certain point, you run out of buyers. And that's what you're seeing here. I think crypto is losing a lot of momentum. Part of the reason that you heard the Trump administration going on and on about cutting interest rates is because of real estate. The older assets are going at a discount, and I think that's going to continue. You're going to hear more pain coming out of sectors like private equity and private credit. >> Hey everyone, welcome to another very special in-person episode of the Julia Rose Show where we are joined today by Chris Whan. He is the chairman of Whan Global Advisors, author of the institutional risk analyst blog, investment banker, the very best independent analyst that you will find on Wall Street and a friend of this show. So great to see you again, Chris, as always, >> Julia. >> I love our inerson episodes. Well, here in New York, you know, post mandami. >> Gosh, that's right. [laughter] But we don't live in New York anymore, so >> No. And we'll be fine. >> Okay. Last time I did this show, I did I I didn't intend for it to be political, but you brought it up, so let's just get your reaction to the M Donnie election here. >> He He's a very articulate salesman for socialism, but of course, socialism doesn't work. Because you know, we've learned in Argentina and any number of places, New York has had socialist politicians in the past, Americans forget that in the early part of the last century, 1920s, we had all sorts of very far-left uh people. And then, of course, Franklin Roosevelt, who used the crisis of the uh the Great Depression to install state socialism in America. So, I I don't think this is going to be a big deal for most people. Um, uh, New Yorkers are under horrible pressure because of the cost of living, inflation, and housing costs, things like that. So, they naturally gravitated to a candidate like this, especially given the alternatives. Andrew Cuomo, Curtis Leewa were just not viable candidates. >> Yeah. So, we've talked about this the it's it is the product of inflation. >> Yes. >> Yeah. >> Very much. Almost everywhere you look, most issues today, especially things like affordability of housing are driven by inflation. And who brought us the inflation? Our friends on the Federal Reserve Board. So, you know, they have totally failed in their mandate to control prices. Uh I'm not sure what they're doing with employment. So, you know, it's it's a tough time right now because politicians, especially at the state and local level, don't have any answers. They may pretend that they have answers, but ultimately they can't address the issue. It really is a Washington issue. >> Okay. If they can't address the issue, and it's a Washington issue, how does it get resolved? Because I think inflation is probably here to stay then. You wrote a whole book on it, inflated. >> Yes. But I do think we're heading into a a correction in home prices. Uh it's going to kind of very very slowly unfold. I think by 202728, you know, to paraphrase my friend Stan Middleman at Freedom, Misery on the AIDS, I think we'll see significant home price correction because supply has caught up. Obviously, there's not enough buyers. There are a lot of Americans who are waiting for interest rates to fall and also I think home prices to go down a bit, especially in the southern states where you've had a lot of uh new home construction. here in the north. No, home prices are still going up in New York and partly because of the politics. A lot of people who have young children, they want to get out of New York City, >> getting out of the city, but like other parts of New York, like Westchester County, >> I live in the top of Westchester County, which is beautiful. Uh, but the home prices have risen 20 30% in the past 5 years, >> which is crazy. >> Okay. So, do you we're headed you think we're headed toward a correction in in home prices? Let me ask you this because at least anecdotally in in North Carolina, I run the same route every morning. And so like all summer, I was like, there are all these homes. They're all north of a million dollars. Beautiful neighborhood. And I was like, none of these homes are moving. Like they're just stuck there. But I have noticed that there's signs now that say pending under contract. Like so there some of them are kind of starting to move or I've seen some of the signage taken down. So I was like, was it because they've lowered rates in the last few days? But >> a little bit rates have come down significantly. So that helps. Also, uh, you know, the home builders eventually have to sell the house, >> so they'll make concessions. >> Well, these were older homes, though. I'll say that that it, you know, the owner, okay, one way or another, we'll will get the house sold. With some of the new home construction, you actually saw the the Lenars and the rest of them buying down mortgages, subsidizing the mortgage rather than cutting the home price in order to get assets off the uh the inventory. So, you're going to see a variety of means, but look, we've dropped interest rates half a point in terms of mortgages. We almost hit 6%. That's backed up since September, but you'll see rates come down a little more over time. And the lenders will push this. If lenders want to get aggressive, they can push the coupons down. As we've talked about before, lenders set mortgage rates. The bond market sets the rates where those mortgages are sold in the securities. Two different worlds. >> Yeah. the importance of the long bond there because so much is priced off of the long bond. >> Well, when you sell the mortgage into the secondary market after it's closed, the bond market determines the price, but ultimately the mortgage lender decides what coupon to put on that loan because they're not so worried about the loans. They're really worried about the servicing asset that they want to retain. That's their long-term investment. >> The last time you and I spoke, it was in New York. It was after when was the last time we spoke? When did we we last got together? I feel like we had a little bit. We've had a little bit of a gap since we last. >> Almost a month. >> Almost a month. It's a little >> I was getting worried. >> I know. Well, I wanted to do this one in person. We usually have you at the start of the month. Um >> you had me a couple times. I mean, you know, you were wearing me out. >> I never um we would have you on every week if you would come on every week, but it's been a while. The Last time you and I spoke, you had mentioned that we could see a housing emergency or that the administration would declare a housing emergency. I actually wanted to explore that idea again with you because I feel like we didn't quite flesh it out as much as I would have liked in the last conversation. >> Do you think we're still going to see that scenario play out? I >> I hope not. I've been back channeling with people in the administration saying look housing doesn't really need help at the moment. We have actually built a lot of new homes. The question is can we get credit to come down in terms of the cost of the mortgage and also I think you know one of the interesting things a friend of mine Sean Dobson at Ammerst Mortgage was talking about the fact that many people after 2008 who had had credit problems are still kind of shut out of the mortgage market. So the industry has to figure out how to deal with that. There are a lot of uh I think interesting proposals. So what the housing emergency that you heard President Trump talking about and also Secretary Besson is about how do we help affordability in terms of offsetting inflation because let's face it since co the Federal Reserve Board pushed up home prices almost 50%. >> That's crazy. Yeah. >> And that is the single biggest issue. How do we deal with that? Well, we're going to have to have a correction. At some point, the Fed has to say stand back, lower rates, and allow prices to fall. Remember, they're afraid of deflation. They worry about that because of the bond market. So, you have to have a period where prices fall and then we can get people back into the market in terms of the buyers. sellers is another issue because you have a lot of boomers, myself included, who are very happy to shelter in place >> or it probably looks great when you're like, "Wow, my look at my estimate on my home's worth I paid like what$180 for it. Now it's worth a million dollars or whatever the numbers are." >> We moved out of New York City in 2021. I got us a 3% mortgage cuz, you know, I work in the industry. Uh, and I told my wife, I said, "When I do a face plant, do not prepay this mortgage. keep this mortgage forever. [laughter] >> But you know to us it's actually we are in the best situation we could be because the mortgage is the least part of our payment every month. >> The property taxes and the insurance are the biggest part of the payment. So where else would we go? >> You know it's just me, the wife, and two small white dogs. So that's it. >> Oh man. Yeah. But okay. So I know they need to get the affordability part right. >> Yes. I'm one of those millennials that's annoyed or frustrated because >> I know you want my house. I >> keep complaining about it. I know I do. But I'm also like kind of listening to you like maybe that misery on the eight side you should wait for my opportunity because Yes. >> versus like jumping in next year. But >> okay. So there's >> a whole cohort that wants to get in, but we're annoyed that we >> Okay. >> Well, if you want to get in right now, go out and get a floating rate mortgage. So, you push down that monthly payment as much as you can, and in a couple of years, you're going to flip that mortgage and refinance it into a a fixed. >> But how about like the actual prices of the homes? Because if you're a home owner, you probably like like that your houses have gone up 40% of when it comes to the house >> when it's Yeah. When it's Exactly. So, that's why I'm like, they probably have to really balance this one, too. Like, that seems really tricky to get that right. It is. But time will solve this problem. You know, people say, "Well, they're not moving out of their houses. They're they're stuck in in that." Yes and no. People do have points in their life when they have to make changes, when they have to downsize, maybe move into an apartment, and that gives them the opportunity to take that capital out of the house, enjoy that appreciation, and sell the house to another person. We're seeing that in my neighborhood. When we moved in, you know, we were one of the younger couples in the neighborhood. There were a lot of older uh couples. Kids were grown, moved out. That's changing now. We're starting to see kids moving into these houses, but they're very expensive. >> They are selling though. And remember, this is New York. New York was a terrible market before co low volumes. Prices were not moving. And now all of a sudden, everybody wants to get out of New York City thanks to Mr. Montan. >> Do you think that we will see that exodus though of getting out of New York City? And what does that mean for just New York as like a financial capital of the world? I think like all the big companies here like the tax base here, those who can afford to get out, great for them. >> They are from JP Morgan on down. You know, they may talk uh the talk in terms of supporting New York, but they're moving their people out as fast as they can. I don't know what Jamie Diamond's going to do with all that real estate he's got on Park Avenue. >> Beautiful office over there. Yeah. >> Well, yeah. It kind of looks like something out of the Chronicles of Riddic. Uh but you know he's got the old Bear Sterns building which makes me very sad being a bear banker and then he's got other real estate in New York that he doesn't need. >> So I think you're going to see a continuing exodus of large corporates out of New York City which over time is going to hurt the tax base. We just had Veronado walk away from a major asset on Madison Avenue. Now if the guys of Veronado could have fixed that asset and restructured the loan, they would. But instead they handed the keys to the lender. That's a bad sign. >> And they are a huge player in the city. So you have to think like there's probably a limited number of vernado type >> players. Yeah. >> And where are these guys building new projects down where you live in the southern part of the country? The blue states which attract investment which don't treat developers as enemies. >> Oh wait, you mean the red states? >> Or the red states. Excuse me. We got our colors wrong. It's okay. No, I when you treat developers like they're some kind of of of horrible enemy, which is what happens in New York with the politics, they're going to leave and that's what's happened. >> So, [snorts] what's kind of your outlook for New York for the next four maybe plus years? Because like what do you think happens? >> Well, uh you know what I would tell you is that as the long-term leases roll off, many of the large corporate tenants in the city are going to leave. They will downsize. They will do a lot of other things to reduce the cost and also their exposure to the New York market. That is going to hurt the city over time because it is business taxes, taxes on commercial properties that pay the bills in New York City. You cannot pay for this city simply with residential uh ownership. It doesn't work. You have to have a business community. And unfortunately, the pressure on consumers, the pressure on just everyone in this extremely expensive town has colored the politics so radically that it's almost impossible for reasonable people to do business. And yet, every time we see one of these buildings uh go for sale at a bargain basement price, you have a new investor jump in here thinking that it's a deal. >> So, you have a really strange situation in New York. the old experienced developers are slowly exiting the market, but you have a number of new players who've jumped in. You know, God bless them. I I think they're going to need a lot of luck. >> This episode is brought to you by Van X Rare Earth and Strategic Metals ETF, ticker symbol REMX. Rare Earths are the hidden backbone of modern technology and defense, powering everything from smartphones and electric vehicles to fighter jets and wind [music] turbines. 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I know stocks have been selling off this week, but what is kind of the big picture view for you today? Has anything changed? Anything new come up? >> I think stocks are just slowing down because they had to. when you have a period of price appreciation, whether it's stocks or gold, at a certain point you run out of buyers. And that's what you're seeing here. I think crypto is losing a lot of momentum. You've seen some really interesting developments in the last couple weeks, which illustrates the fact that it's not a market that can support a lot of selling. There's not longs and shorts the way we have in stocks and bonds, and there's a total opacity in terms of what's actually going on. So when they see big players exiting, it tends to really hurt prices. Um, part of the reason that you heard the Trump administration going on and on about cutting interest rates is because of real estate. They still see a lot of pain in existing assets. Not so much new assets, new buildings, new homes. That's what people want. But the older assets are going at a discount. And I think that's going to continue. You're going to hear more pain coming out of sectors like private equity and private credit. You know, we had the cockroach about private credit. >> Well, it's it's a it's a institutional story that's not easy for people to track, but as we wrote in the blog this week, cockroaches is a nice problem, right? We're talking about war frats here because we're talking about fraud. We're talking about people who are doing bait and switch with collateral that's backing loans. You've seen this with First Brands. You've seen this with Tricol, the auto lender. >> What was the other one? Wasn't there another one? >> Oh, well, Blackstone just got whacked uh by a fraud involving a supposed telecom company. >> Clearly was set up. You know, there were cars in the garage. There was mail on the doorstep. These people are gone. $500 million. So I think you're going to see a lot more cases where idiosyncratic events of default are tied to fraud, tied to all kinds of other chicainery. And you see fraud like this in the consumer markets too. >> What do you think it's indicative of though? Like okay, there was the cockroach metaphor. You have war frats. >> War frats. >> Wait, what? Just because it's bigger than >> Well, they carry the plague. >> Okay, there you go. That's a really good metaphor then. So this could this be systemic then? Is that the >> it's it's a function of low rates for too long. >> Again, our friends at the Federal Reserve playing God, uh social engineering, thinking that they control the economy when they do not. Uh and people take advantage of it. When you have so much money, running around looking for investment opportunities, the fraudsters and the grifters will create opportunities for them and take their money. any and we're repeating uh a century ago during the 1920s. By the way, we've seen all this before. Read Galbra's great crash 1929 and just change all the dates. >> I am reading Sorcin's book, but I know he references um Galat's work. >> What happened to 19? What were they doing? What was the parallel? >> Uh Florida. >> Oh yes. All the housing developments selling real estate after the Ponzi scheme collapsed. He went to Florida to sell incremental pieces of real estate in Florida. And when Florida finally collapsed right before the crash of 29, two three years before, it took till the 1970s for prices in Florida to recover. That's how that's how deep that deflation was in terms of prices. >> Yeah. Okay. In the private credit world, I've had this conversation with um Daniel D. Martina Booth. she was in studio and she said her Bloomberg chat like over the weekend >> had was just blowing up with a lot of conversation around this. A lot of like um a lot of folks were paying attention to it. I feel like I'm kind of hearing more people who are like players on Wall Street in the institutional space like they are talking about it. You said it's not really a consumer issue or anything but >> what is like the kind of the hot take from it? like what are you hearing from other folks who are talking about it? What's the takeaway here? >> I think for professionals in the institutional world, it is going to make it very difficult to raise money in the future. There's a very large private equity player in Europe who was uh quoted in the FT the other day saying that twothirds of all the private equity funds out there will never raise any more money because they've had such poor performance on their portfolios. And I I think you're, you know, we're kind of at the end of an era when everybody thought you could invest privately and it was better and and, you know, superior in many senses to investing in the public markets. Well, clearly that's not true. If you invested in the S&P 500 as a pension fund, for example, instead of doing private credit, you'd be much better off and you'd have a liquid instrument. >> But weren't they pushing private credit on retail? >> Everybody. >> Yeah. that came up guests on this show who were like, "That's a warning sign. Don't do that." They were like warning against the private credit. Um, >> but again, too much money chasing too few real opportunities. So, we create some more opportunities. >> Who's going to be the sucker then? >> Oh, there are many. It's it's a it's a very equal opportunity uh situation right now. >> Just about every pension fund and insurance company out there is going to take some hits. uh you've got a lot of individual investors who bought annuities that were sold into some of these private credit uh firms and then put offshore. So, they're going to suffer terrible losses. You're already hearing about this in the UK. Here in the US, you know, you have Apollo and Aries and Brookfield all involved in private credit now. Uh keep your eye on those firms. >> Okay. Um so that's the credit story. Um the story a couple years ago and you were really on this was the duration risk story. So what we were seeing at the banks, Silicon Valley Bank, >> those issues haven't gone away, have they? >> They're better. We just had uh Brian Moyahan at Bank America have his first investor day since 2011. >> Well, what's that about? Yeah, >> he's under pressure. >> I vaguely remember the investor day in 2011. >> That's right. >> Okay. Um they the stock's not moving compared to Jamie Diamond and you know Brian Moyahan has spent his whole career first digging out from the great financial crisis settling all the litigation and then avoiding risk. So they have not really run that bank anywhere nearly as well as JP and to your point about interest rate risk they got absolutely blindsided uh during co they kept all of those 2% mortgages that they were writing for a lot of my friends. I'm a customer of Bank America. >> I am too, actually. Well, cuz I went to school in North Carolina and it was like I, you know, there's like the inertia like I don't stick here with your bank you've had since you were 18. >> That's right. But they're big. And they figured, well, we'll just keep everything and we can ride through the interest rate cycle. No, that was a bad idea. What they should have done during COVID was take that 2% mortgage, sell it at record prices. Remember, people in the mortgage business were making money selling loans in 2020,221. and they could sell a mortgage for 104 versus par. That's extraordinary in the mortgage industry. You usually lose money when you sell a mortgage. And then bought T bills. That was the trade. So City, JP Morgan, a couple of the other uh large banks, they all got that right. >> But Bank America did not. They >> didn't. >> And so you've had a lot of investors, I think, privately beating the hell out of Brian Moyahan saying, "Why didn't you get this right?" Uh he's got a almost 900 plus billion dollar bond portfolio that's got a yield of three something. >> 900 billion. >> It's a third of the bank. >> Wow. >> And it's important if if they had at least kept say to the industry average they'd be up in the fives. >> H >> so that's the difference. If you really look at them they don't get the premium that JP Morgan does because Jaime Diamond understands duration. So so does Jane Frasier. you know, they they understand that the balance sheet is important, the lending is important, too, but you have to make sure that your bond investments are are managed accordingly. And this is what killed Silicon Valley Bank. >> You should read IRA. Just saying. >> Well, they do. So, look, uh, PNC, uh, Key Bank, Truist, they've all restructured and Brian, you know, I think will eventually be forced to do this. And also the Fed, you know, Danielle writes about this stuff. The Fed ought to be restructuring their mortgage back securities and selling them. >> Okay, explain that because they have balance sheet issues, too. Then the Fed >> $2 trillion worth of mortgages that are going to be sitting there for years. >> All right. What should they do again? >> Uh, you use what's called a collateralized mortgage obligation, which means you you put everything in a trust. You slice the cash flows so that you change the duration. In other words, you've got a security which is probably got a 10 12 year average life. Well, you you slice it up so you have a bunch of really short duration AAA rated paper. Remember, these are all government uh guaranteed securities. You sell that to a short-term investor. You have a medium duration piece that you sell to funds and insurance companies and you keep the tails. You put the tails in the sock drawer. So when rates fall, you turn around, sell those to a life company and make a ton of money. >> That's interesting because um with duration risk, it's like the direction of interest rates, right? >> Think of it as when are you getting your money back on the bond? >> Could that actually dictate like what the Fed does from a policy perspective or is that totally separate? Like >> no, if they were to use the CMO model, which is a wonderful uh invention that uh I've written about over the years, you you change the impact. You don't impact mortgage rates when you do this because by slicing those cash flows differently than the way they are in the mortgage back security, you change it entirely and you and you put it away. When people in the investment world buy this paper, it goes away. It doesn't get traded. >> Yeah. 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But um and you but you are known for your coverage of the banks. >> Yes. >> So, the others seem to be like they kind of got that right. Bank of America not so much, >> right? Can you kind of like walk us through like what's going on in the banking world these days? I guess let's do we can do the big banks um the bulge bracket banks but also like the regionals like what's kind of the assessment of the banking world these days? >> I think the more astute bankers are not anxious to put on risk right now because they don't tend to like what they see. Um there's not huge demand for loans. >> They've been dropping the pricing of their loans because they do want customers. They want good customers. And then on the securities side, if you happen to be a Bank America and you have a Meil Lynch, all of the big universal banks that trade the markets and do investment banking, they've been doing extremely well. So that side of the house, if you look at JP Morgan, the growth on the bank side is okay. It's not great. Deposits are still growing single digits, 3 4%. So that's the fuel for future lending. And it's really the investment side of the house, whether they're managing assets for people for 50 75 basis points a year or they're in the capital markets. That's really where earnings have been getting a bump. Morgan, Stanley, Goldman, they've all been doing quite well in that regard. So the hope is if we drop rates, we're going to see more demand. >> Okay. The Fed is going to stop running off their balance sheet in December, although they're going to allow the mortgage securities to continue to run off. They basically want to take all the prepayments from T bills, mortgage securities, and just put them in T bills. >> Mickey Bowman has talked about this a lot. They really want to get that balance sheet back to all treasuries, and they want to mirror the the maturity structure of the treasuries in the marketplace. That's really ideally what the Fed should do. Do you think we're going to get the rate cut in December because the press or pal is like it's, you know, far from a foregone conclusion or whatever he said. >> Well, the the newest governor, Steve Mirren, has indicated that he'd like to see a 50 basis point cut. >> I think he's one that the last two meetings, too, >> right? I don't think so. I'm not sure that they're going to have enough votes for a majority, >> okay, >> for another rate cut in December. And Pel, you know, he said it very well. He's trying to do two things at once and they can't do both. On the one hand, they worry about employment. On the other hand, they worry about price stability. You can't do both. >> Yeah. They don't work though that there's tension between the mandate. >> Well, Humphrey Hawkins was always a really strange piece of legislation. >> Wasn't that just to compromise between the Republicans and the Democrats? And like >> 1978, the >> Republicans wanted the rate polic or the interest rates, right? To to >> right >> and then the Democrats wanted the maximum employment. Is that right? >> Well, the Democrats wanted to guarantee everybody in the country a job. Remember the Democrats are ultimately socialist, >> but >> well, it was coming out of World War II. They were in the Korean War. They were worried about soldiers. >> Was it the Humphrey Hawkins or what was it? >> It amended a law that was passed right after World War II, but the amendments are called the Humphrey Hawkins Act. That's what set up the mandate, the dual mandate for the Fed. Um, and it had some other provisions as well. But you know the Democrats in that era and also Republicans I think thought that they could legislate economic realities when they you really can't there was a lot of hubris in that time. >> Okay. Didn't you write a piece on like the Fed funds rate and like what was it? Why am I blanking on it? I feel like maybe I'm dreaming of it. >> No, back in 2017 right after I left Croll Bond Ratings, we did a a piece about duration risk that was talking about this. But we just put out a piece about Fed funds. Yes. >> Explain. Okay. What did you put out? >> Well, during God, almost 50 years ago, the Fed started targeting uh the Fed policy. Yes, that was it. >> And we've kind of run out of runway cuz once interest rates get to zero. What do you do? >> Yeah. What do you do? >> Well, Ben Bernanki said, "We'll go out and buy a lot of securities, open market operations, which you know, we use Orwellian double speak, which is uh we call it quantitative easing, which is nonsense." Um the question is how do you communicate policy to the public and to members of Congress in a way that they could understand. So having the interest rate target was simple but it also created some real problems because what we think about as Fed funds which was unsecured overnight lending between banks is basically gone. Mhm. >> What's now the biggest market out there is what we call the repo market, which is people lending securities, whether they're treasuries or mortgage back securities, taking cash overnight out to 30 days, sometimes even longer. That's a $5 trillion market today. And it's very closely associated with the Treasury bond market and also the mortgage market. Mortgages are financed and hedged in the repo market. So, it's not something I want to see the Fed play with. You know, the Fed has this very New Deal FDR perspective that says we control the world. The Wizard of Oz is the metaphor, right? >> Yeah. Which was wasn't that the actual metaphor in the book or something? Was it central banks or was like I know everything had like its little >> Yeah. The silver slippers, the yellow >> that is a New Deal progressive institution. It is not a free market democratic institution. It's an authoritarian model. And I think one of the things I'd like to see when uh President Trump really has put in a new chairman and has a chance to put his own imprint on the Fed is we've got a clean house. We've got to get these people out of the economic modeling, economic management business and refocus them much more narrowly on their their real job, which is interest rates. >> Who do you think is going to be Fed chair? Because last time I feel like you said Hasset was your you still think Hasset. >> I like Kevin Warish. I'd love to see Kevin back in there because he's a great conservative. Uh but I think Kevin is going to uh get it because the president trusts him. He's been there for a long time. He's been through the White House, that whole process. Most Fed chairman go through the White House, Council of Economic Advisors, that sort of thing to get vetted. So, you know, to me, that's the tr because ultimately President Trump doesn't want to be betrayed. So whoever he puts in that chair, he's got to be real sure that they're going to give him what he wants. Look at all the examples >> going back through history. >> Okay. What do you think he ultimately wants? Just more rate cuts? Like where >> I'd like to see interest rates down to two, you know, 3 2% short term. I think that's a little excessive. I hope they don't do that because it will create problems. >> Like that would even result more inflation than probably. >> Oh yeah. But you know, the Republicans are thinking about the midterm election. Let's be fair. This is politics. The Fed is the most political organization in Washington. >> Oh gosh. Yeah. Yeah. Um the last few times you and I spoke, you had talked about taking like your ac your acorns off the table out of the markets. Like how do you feel right now about where you want to be? Like what are your kind of high conviction ideas? >> I have I'll just talk about my own portfolio because I don't make recommendations. I have been spending a lot of time in the metals market as you know. >> Yes, >> I am very focused on some of the junior miners. I have a really cool interview coming up uh coming out next week that I think you'll enjoy. Um I'm buying bargains. I bought some Flagstar. Okay. >> Uh which is the old New York Community Bank. It's a bit of a punt on my hand on my part because I know uh the management team uh Lee Smith who used to be the head of mortgages at Flagstar Bank before they merged with New York Community is one of the best bankers I know. If anybody can save that bank, it's him. So, I took a bit of a punt on that. Uh but other than that, I've just been very carefully, you know, putting income on the books along with gold. Uh I own a couple of minor stocks that uh I've gotten into. Uh they're very small, very speculative, but the whole sector, if you look at the majors versus the junior minors, the majors are going to have to go out and buy all of the juniors. Yeah. >> Because they don't have any productive capacity. >> People want to get China out of the global supply chain. How do you do that? You got to go create some new mines. So the Canadians are 100% focused on this. all of the big export uh finance agencies in Canada are looking at ways that they can increase production and you see other uh countries doing the same. >> When you're assessing junior miners, do you look at like the management team's like track record? Is that one I Yeah, I kind of have heard it described as like venture capital is like hard hats basically. I'm like um I don't know how accurate that is, but >> No, it is. And it's you got to look for management teams that have done this before. remember we had a very quiet period when the industry was not investing in dirt. >> Yeah, >> there was years when nothing was going on. Uh but now I think uh because people want to balance away from China. China was filling that demand during that period. >> You you have to look for experienced teams that have the financing usually with a lot of government and strategic financing. Um, and you have to be patient because it takes a long time to go from proving that there are deposits in the ground to drilling the tests, getting the permits all in place with the governmental agencies. You know, Canada, for example, it probably takes three or four years and then [snorts] you have to start producing ore and you have to refine the ore. So, you're talking about a decade. >> Yeah. >> At least. But on the other hand, I think long-term whether you're talking about gold, silver, any of the other major metals, copper, nickel, you know, China and Indonesia are the two suppliers of nickel. America actually built nickel mines in Cuba 50 75 years ago. We have to go out and start redeveloping that uh resource as well. >> H okay. So on gold um [clears throat] what do you make of like the debasement trait? suddenly I feel like in between our last conversation it got a name the debasement trade. Um yeah but >> I I think it's a long-term trade. I I have >> a weaker dollar trade or what is the >> it's partly a dollar trade people you know it was funny Kathy Wood was going on about how the dollar is going to rebound and everybody's going back to a you know dollar dominance sort of trade. I think you'll see that the dollar is going to rally off of the bottoms clearly, but long-term you want to own gold because every central bank in the world has decided that that is going to be their primary reserve asset. They're not going to stop holding dollars because dollars have financing along with it. The dollar market is unique in the world. you the Europeans don't have it, the Chinese don't have it because you can go into dollars, raise capital, and then swap it into another currency, go out and buy assets, whatever. So the the the financing market in dollars is the greatest strength of the currency. Is it a store of value? No. >> Mhm. >> It's a means of exchange. So you always have to remember both in a medium to long-term sense that while you want to use dollars short-term, you want to enjoy speculative gains in the dollar market and stocks and everything else, you always have to think to yourself, how much is that dollar going to be worth five or 10 years from now >> because remember that 2% inflation rate over 20 years will take half of your money. >> That's right. You write about that in the book, too. You do the math in there. >> Do the math. >> So I've owned gold for 14 years. I have no intention of selling it. I'm not like like an investor, so I'm not an expert, but I'm just saying I just kind of hold it for like almost like an insurance policy, if that makes sense. >> Uh, yes, it does make sense. >> And I let me tell you, 14 years ago, not the best time to buy gold because it didn't do so hot for a while. >> I got to introduce you to my buddy Henry Smith. We did an interview with him over the summer. And I remember Henry had worked at HSBC, had worked in Switzerland, you know, really knowledgeable about the gold market. Nobody cared. 2015, he's making the rounds, going to see everybody. They had no allocation to gold. They thought Henry was crazy. Well, they don't think Henry's crazy now. >> Popular now. Yeah. >> Well, he runs a offshore fund. Unfortunately, it's not available to Americans. Uh but I think you're going to see more funds, more other types of offerings in the US that will enable gold. Uh a lot of states have indicated and and pass legislation allowing gold to be treated as legal tender. uh you still have the depression era restrictions on contractual requirements for gold, but we'll see over time. I think all of that's going to have to go. The question is, will the US government eventually be so threatened in terms of the fiat currency monopoly that they'll try and limit American gold holdings? >> That would be interesting. But also like like you said, all the central banks around the world have been adding it to their balance sheet. So yeah, um >> I think we're going the other way. You know, FDR did a terrible In 1933, he used the crisis to essentially install an authoritarian regime in this country. >> He feels so anti-American, too. >> Oh, totally. Totally. The Democrats have a lot to answer for. And I think, you know, for whatever reason, I doubt that will happen again because the reaction both in this country and around the world, I I think the dollar would crater if they tried to do that. Now, Governor Steven Mirren on the Federal Reserve Board thinks we should be selling gold and buying crypto. I I think crypto is going to go by the buy sooner or later. >> You think it's going to go bye-bye? I mean, I do own some I own some Bitcoin, >> but like I got to tell you, I don't do the alerts on it, so like most of the time I don't even know where it's trading. So, [laughter] fine. It doesn't it doesn't um doesn't bother me or impact my happiness one way or the other. So, I just leave it be. But, I've had it for a while. >> I I think >> so. I'm still I'm still very much in the blood. they've run out of buyers in terms of getting new participants. Stable coins to me is a dead end uh simply because again why why do I hold the stable coin instead of holding fiat? You've seen a couple of platforms actually go to the SEC and get a stable coin blessed with an explicit yield. So it's like a bank deposit. The banking industry is fighting that. By the way, there is all sorts of stuff going on in Washington right now [snorts] with >> Oh, they're lobbying hard. >> Oh my god. Yeah. The banky industry is is very And I thought it was funny that Jamie Diamond, you know, suddenly became uh positive about Bitcoin and other crypto. But, you know, ultimately, is that really a good idea? Because the whole thesis behind Bitcoin is to get rid of the banks. >> I just I I don't understand why he did that. >> Well, Wall Street probably co-opted it, so then it kind of loses that. Well, they see the revenue and they see the potential profitability, but I think the reputational risk is also significant. >> Yeah. Chris, is there anything I didn't bring up with you today that you wanted to discuss? Like, >> no, we can't talk about football in New York, although we have the Buffalo Bills. >> And the thing about New York is they all the teams are in New Jersey. How are they New York teams except for the Bills? >> Well, they are. >> And bless the Jets hearts. Matt, I know you love the Jets, but bless their hearts. Everyone loves the Jets, but you know, it's sad. >> I know that kid. >> This is a really weird season. You know, we're going to have a whole league of 500 teams. I don't know who's going to end up going to the Super Bowl, but >> you know. >> Yeah. I just can't wait for those Bills. >> I can't wait for football season to be over. >> Oh well. >> I mean, it's like eight what 18 weeks of that stuff. >> Well, it's okay. >> I just want my husband back on Sundays, you know, but >> Well, no. >> No, I let him do his thing on Sundays. I'm like, you do your thing. So, I'll go watch my like >> Look, I my wife has to go to a wedding in Uruguay and I said I'll stay home with the doggies to watch football. >> Oh, yeah. That's exactly what he's doing. Um, [laughter] it's great. Um, but you know what I do? I I get to watch the Bachelor and the Bachelorette. >> Absolutely. Season. Yes. The >> Garden. Look, and then we have American Idol starting in January, so that's always good. >> Well, [laughter] Chris, it is always so fun having you on the show. In person's actually even better. So Chris Whan, chairman of Whan Global Advisors, author of The Institutional Risk Analyst, also author of multiple books. Which one do we want to plug today? Inflated. >> Well, inflated. That's the book everybody needs to read right now just to figure out what's going on. >> Important. I will link it in the show notes. Always great to see you. Thanks again, Chris. Thank you, Julia.
Chris Whalen: Stocks Running Out of Buyers, NYC's Future Under Mamdani & The Case for Gold
Summary
Transcript
I think stocks are just slowing down because they had to. When you have a period of price appreciation, whether it's stocks or gold, at a certain point, you run out of buyers. And that's what you're seeing here. I think crypto is losing a lot of momentum. Part of the reason that you heard the Trump administration going on and on about cutting interest rates is because of real estate. The older assets are going at a discount, and I think that's going to continue. You're going to hear more pain coming out of sectors like private equity and private credit. >> Hey everyone, welcome to another very special in-person episode of the Julia Rose Show where we are joined today by Chris Whan. He is the chairman of Whan Global Advisors, author of the institutional risk analyst blog, investment banker, the very best independent analyst that you will find on Wall Street and a friend of this show. So great to see you again, Chris, as always, >> Julia. >> I love our inerson episodes. Well, here in New York, you know, post mandami. >> Gosh, that's right. [laughter] But we don't live in New York anymore, so >> No. And we'll be fine. >> Okay. Last time I did this show, I did I I didn't intend for it to be political, but you brought it up, so let's just get your reaction to the M Donnie election here. >> He He's a very articulate salesman for socialism, but of course, socialism doesn't work. Because you know, we've learned in Argentina and any number of places, New York has had socialist politicians in the past, Americans forget that in the early part of the last century, 1920s, we had all sorts of very far-left uh people. And then, of course, Franklin Roosevelt, who used the crisis of the uh the Great Depression to install state socialism in America. So, I I don't think this is going to be a big deal for most people. Um, uh, New Yorkers are under horrible pressure because of the cost of living, inflation, and housing costs, things like that. So, they naturally gravitated to a candidate like this, especially given the alternatives. Andrew Cuomo, Curtis Leewa were just not viable candidates. >> Yeah. So, we've talked about this the it's it is the product of inflation. >> Yes. >> Yeah. >> Very much. Almost everywhere you look, most issues today, especially things like affordability of housing are driven by inflation. And who brought us the inflation? Our friends on the Federal Reserve Board. So, you know, they have totally failed in their mandate to control prices. Uh I'm not sure what they're doing with employment. So, you know, it's it's a tough time right now because politicians, especially at the state and local level, don't have any answers. They may pretend that they have answers, but ultimately they can't address the issue. It really is a Washington issue. >> Okay. If they can't address the issue, and it's a Washington issue, how does it get resolved? Because I think inflation is probably here to stay then. You wrote a whole book on it, inflated. >> Yes. But I do think we're heading into a a correction in home prices. Uh it's going to kind of very very slowly unfold. I think by 202728, you know, to paraphrase my friend Stan Middleman at Freedom, Misery on the AIDS, I think we'll see significant home price correction because supply has caught up. Obviously, there's not enough buyers. There are a lot of Americans who are waiting for interest rates to fall and also I think home prices to go down a bit, especially in the southern states where you've had a lot of uh new home construction. here in the north. No, home prices are still going up in New York and partly because of the politics. A lot of people who have young children, they want to get out of New York City, >> getting out of the city, but like other parts of New York, like Westchester County, >> I live in the top of Westchester County, which is beautiful. Uh, but the home prices have risen 20 30% in the past 5 years, >> which is crazy. >> Okay. So, do you we're headed you think we're headed toward a correction in in home prices? Let me ask you this because at least anecdotally in in North Carolina, I run the same route every morning. And so like all summer, I was like, there are all these homes. They're all north of a million dollars. Beautiful neighborhood. And I was like, none of these homes are moving. Like they're just stuck there. But I have noticed that there's signs now that say pending under contract. Like so there some of them are kind of starting to move or I've seen some of the signage taken down. So I was like, was it because they've lowered rates in the last few days? But >> a little bit rates have come down significantly. So that helps. Also, uh, you know, the home builders eventually have to sell the house, >> so they'll make concessions. >> Well, these were older homes, though. I'll say that that it, you know, the owner, okay, one way or another, we'll will get the house sold. With some of the new home construction, you actually saw the the Lenars and the rest of them buying down mortgages, subsidizing the mortgage rather than cutting the home price in order to get assets off the uh the inventory. So, you're going to see a variety of means, but look, we've dropped interest rates half a point in terms of mortgages. We almost hit 6%. That's backed up since September, but you'll see rates come down a little more over time. And the lenders will push this. If lenders want to get aggressive, they can push the coupons down. As we've talked about before, lenders set mortgage rates. The bond market sets the rates where those mortgages are sold in the securities. Two different worlds. >> Yeah. the importance of the long bond there because so much is priced off of the long bond. >> Well, when you sell the mortgage into the secondary market after it's closed, the bond market determines the price, but ultimately the mortgage lender decides what coupon to put on that loan because they're not so worried about the loans. They're really worried about the servicing asset that they want to retain. That's their long-term investment. >> The last time you and I spoke, it was in New York. It was after when was the last time we spoke? When did we we last got together? I feel like we had a little bit. We've had a little bit of a gap since we last. >> Almost a month. >> Almost a month. It's a little >> I was getting worried. >> I know. Well, I wanted to do this one in person. We usually have you at the start of the month. Um >> you had me a couple times. I mean, you know, you were wearing me out. >> I never um we would have you on every week if you would come on every week, but it's been a while. The Last time you and I spoke, you had mentioned that we could see a housing emergency or that the administration would declare a housing emergency. I actually wanted to explore that idea again with you because I feel like we didn't quite flesh it out as much as I would have liked in the last conversation. >> Do you think we're still going to see that scenario play out? I >> I hope not. I've been back channeling with people in the administration saying look housing doesn't really need help at the moment. We have actually built a lot of new homes. The question is can we get credit to come down in terms of the cost of the mortgage and also I think you know one of the interesting things a friend of mine Sean Dobson at Ammerst Mortgage was talking about the fact that many people after 2008 who had had credit problems are still kind of shut out of the mortgage market. So the industry has to figure out how to deal with that. There are a lot of uh I think interesting proposals. So what the housing emergency that you heard President Trump talking about and also Secretary Besson is about how do we help affordability in terms of offsetting inflation because let's face it since co the Federal Reserve Board pushed up home prices almost 50%. >> That's crazy. Yeah. >> And that is the single biggest issue. How do we deal with that? Well, we're going to have to have a correction. At some point, the Fed has to say stand back, lower rates, and allow prices to fall. Remember, they're afraid of deflation. They worry about that because of the bond market. So, you have to have a period where prices fall and then we can get people back into the market in terms of the buyers. sellers is another issue because you have a lot of boomers, myself included, who are very happy to shelter in place >> or it probably looks great when you're like, "Wow, my look at my estimate on my home's worth I paid like what$180 for it. Now it's worth a million dollars or whatever the numbers are." >> We moved out of New York City in 2021. I got us a 3% mortgage cuz, you know, I work in the industry. Uh, and I told my wife, I said, "When I do a face plant, do not prepay this mortgage. keep this mortgage forever. [laughter] >> But you know to us it's actually we are in the best situation we could be because the mortgage is the least part of our payment every month. >> The property taxes and the insurance are the biggest part of the payment. So where else would we go? >> You know it's just me, the wife, and two small white dogs. So that's it. >> Oh man. Yeah. But okay. So I know they need to get the affordability part right. >> Yes. I'm one of those millennials that's annoyed or frustrated because >> I know you want my house. I >> keep complaining about it. I know I do. But I'm also like kind of listening to you like maybe that misery on the eight side you should wait for my opportunity because Yes. >> versus like jumping in next year. But >> okay. So there's >> a whole cohort that wants to get in, but we're annoyed that we >> Okay. >> Well, if you want to get in right now, go out and get a floating rate mortgage. So, you push down that monthly payment as much as you can, and in a couple of years, you're going to flip that mortgage and refinance it into a a fixed. >> But how about like the actual prices of the homes? Because if you're a home owner, you probably like like that your houses have gone up 40% of when it comes to the house >> when it's Yeah. When it's Exactly. So, that's why I'm like, they probably have to really balance this one, too. Like, that seems really tricky to get that right. It is. But time will solve this problem. You know, people say, "Well, they're not moving out of their houses. They're they're stuck in in that." Yes and no. People do have points in their life when they have to make changes, when they have to downsize, maybe move into an apartment, and that gives them the opportunity to take that capital out of the house, enjoy that appreciation, and sell the house to another person. We're seeing that in my neighborhood. When we moved in, you know, we were one of the younger couples in the neighborhood. There were a lot of older uh couples. Kids were grown, moved out. That's changing now. We're starting to see kids moving into these houses, but they're very expensive. >> They are selling though. And remember, this is New York. New York was a terrible market before co low volumes. Prices were not moving. And now all of a sudden, everybody wants to get out of New York City thanks to Mr. Montan. >> Do you think that we will see that exodus though of getting out of New York City? And what does that mean for just New York as like a financial capital of the world? I think like all the big companies here like the tax base here, those who can afford to get out, great for them. >> They are from JP Morgan on down. You know, they may talk uh the talk in terms of supporting New York, but they're moving their people out as fast as they can. I don't know what Jamie Diamond's going to do with all that real estate he's got on Park Avenue. >> Beautiful office over there. Yeah. >> Well, yeah. It kind of looks like something out of the Chronicles of Riddic. Uh but you know he's got the old Bear Sterns building which makes me very sad being a bear banker and then he's got other real estate in New York that he doesn't need. >> So I think you're going to see a continuing exodus of large corporates out of New York City which over time is going to hurt the tax base. We just had Veronado walk away from a major asset on Madison Avenue. Now if the guys of Veronado could have fixed that asset and restructured the loan, they would. But instead they handed the keys to the lender. That's a bad sign. >> And they are a huge player in the city. So you have to think like there's probably a limited number of vernado type >> players. Yeah. >> And where are these guys building new projects down where you live in the southern part of the country? The blue states which attract investment which don't treat developers as enemies. >> Oh wait, you mean the red states? >> Or the red states. Excuse me. We got our colors wrong. It's okay. No, I when you treat developers like they're some kind of of of horrible enemy, which is what happens in New York with the politics, they're going to leave and that's what's happened. >> So, [snorts] what's kind of your outlook for New York for the next four maybe plus years? Because like what do you think happens? >> Well, uh you know what I would tell you is that as the long-term leases roll off, many of the large corporate tenants in the city are going to leave. They will downsize. They will do a lot of other things to reduce the cost and also their exposure to the New York market. That is going to hurt the city over time because it is business taxes, taxes on commercial properties that pay the bills in New York City. You cannot pay for this city simply with residential uh ownership. It doesn't work. You have to have a business community. And unfortunately, the pressure on consumers, the pressure on just everyone in this extremely expensive town has colored the politics so radically that it's almost impossible for reasonable people to do business. And yet, every time we see one of these buildings uh go for sale at a bargain basement price, you have a new investor jump in here thinking that it's a deal. >> So, you have a really strange situation in New York. the old experienced developers are slowly exiting the market, but you have a number of new players who've jumped in. You know, God bless them. I I think they're going to need a lot of luck. >> This episode is brought to you by Van X Rare Earth and Strategic Metals ETF, ticker symbol REMX. Rare Earths are the hidden backbone of modern technology and defense, powering everything from smartphones and electric vehicles to fighter jets and wind [music] turbines. Van Ec recognized this early, launching the rare earth and strategic metals ETF, ticker symbol REMX, 15 years ago, well before supply chain security became a global priority. Today, China dominates the production and refining capacity of rare earths, creating real challenges for global supply chain security as these materials are essential for technological innovation, clean energy, and national security. That's why countries all around the world are racing to build their own supply chains and reduce reliance on China. As this global shift continues, investment in the rare earth ecosystem is growing rapidly from mining to advanced manufacturing. Investors can gain access to this powerful trend through REMX. Visit van.com/remxjiulia to learn more. Let's um start where we let's go back to where we usually start our episodes. Um and since it has been over a month, what is your latest big picture view on the economy and also the markets? I know stocks have been selling off this week, but what is kind of the big picture view for you today? Has anything changed? Anything new come up? >> I think stocks are just slowing down because they had to. when you have a period of price appreciation, whether it's stocks or gold, at a certain point you run out of buyers. And that's what you're seeing here. I think crypto is losing a lot of momentum. You've seen some really interesting developments in the last couple weeks, which illustrates the fact that it's not a market that can support a lot of selling. There's not longs and shorts the way we have in stocks and bonds, and there's a total opacity in terms of what's actually going on. So when they see big players exiting, it tends to really hurt prices. Um, part of the reason that you heard the Trump administration going on and on about cutting interest rates is because of real estate. They still see a lot of pain in existing assets. Not so much new assets, new buildings, new homes. That's what people want. But the older assets are going at a discount. And I think that's going to continue. You're going to hear more pain coming out of sectors like private equity and private credit. You know, we had the cockroach about private credit. >> Well, it's it's a it's a institutional story that's not easy for people to track, but as we wrote in the blog this week, cockroaches is a nice problem, right? We're talking about war frats here because we're talking about fraud. We're talking about people who are doing bait and switch with collateral that's backing loans. You've seen this with First Brands. You've seen this with Tricol, the auto lender. >> What was the other one? Wasn't there another one? >> Oh, well, Blackstone just got whacked uh by a fraud involving a supposed telecom company. >> Clearly was set up. You know, there were cars in the garage. There was mail on the doorstep. These people are gone. $500 million. So I think you're going to see a lot more cases where idiosyncratic events of default are tied to fraud, tied to all kinds of other chicainery. And you see fraud like this in the consumer markets too. >> What do you think it's indicative of though? Like okay, there was the cockroach metaphor. You have war frats. >> War frats. >> Wait, what? Just because it's bigger than >> Well, they carry the plague. >> Okay, there you go. That's a really good metaphor then. So this could this be systemic then? Is that the >> it's it's a function of low rates for too long. >> Again, our friends at the Federal Reserve playing God, uh social engineering, thinking that they control the economy when they do not. Uh and people take advantage of it. When you have so much money, running around looking for investment opportunities, the fraudsters and the grifters will create opportunities for them and take their money. any and we're repeating uh a century ago during the 1920s. By the way, we've seen all this before. Read Galbra's great crash 1929 and just change all the dates. >> I am reading Sorcin's book, but I know he references um Galat's work. >> What happened to 19? What were they doing? What was the parallel? >> Uh Florida. >> Oh yes. All the housing developments selling real estate after the Ponzi scheme collapsed. He went to Florida to sell incremental pieces of real estate in Florida. And when Florida finally collapsed right before the crash of 29, two three years before, it took till the 1970s for prices in Florida to recover. That's how that's how deep that deflation was in terms of prices. >> Yeah. Okay. In the private credit world, I've had this conversation with um Daniel D. Martina Booth. she was in studio and she said her Bloomberg chat like over the weekend >> had was just blowing up with a lot of conversation around this. A lot of like um a lot of folks were paying attention to it. I feel like I'm kind of hearing more people who are like players on Wall Street in the institutional space like they are talking about it. You said it's not really a consumer issue or anything but >> what is like the kind of the hot take from it? like what are you hearing from other folks who are talking about it? What's the takeaway here? >> I think for professionals in the institutional world, it is going to make it very difficult to raise money in the future. There's a very large private equity player in Europe who was uh quoted in the FT the other day saying that twothirds of all the private equity funds out there will never raise any more money because they've had such poor performance on their portfolios. And I I think you're, you know, we're kind of at the end of an era when everybody thought you could invest privately and it was better and and, you know, superior in many senses to investing in the public markets. Well, clearly that's not true. If you invested in the S&P 500 as a pension fund, for example, instead of doing private credit, you'd be much better off and you'd have a liquid instrument. >> But weren't they pushing private credit on retail? >> Everybody. >> Yeah. that came up guests on this show who were like, "That's a warning sign. Don't do that." They were like warning against the private credit. Um, >> but again, too much money chasing too few real opportunities. So, we create some more opportunities. >> Who's going to be the sucker then? >> Oh, there are many. It's it's a it's a very equal opportunity uh situation right now. >> Just about every pension fund and insurance company out there is going to take some hits. uh you've got a lot of individual investors who bought annuities that were sold into some of these private credit uh firms and then put offshore. So, they're going to suffer terrible losses. You're already hearing about this in the UK. Here in the US, you know, you have Apollo and Aries and Brookfield all involved in private credit now. Uh keep your eye on those firms. >> Okay. Um so that's the credit story. Um the story a couple years ago and you were really on this was the duration risk story. So what we were seeing at the banks, Silicon Valley Bank, >> those issues haven't gone away, have they? >> They're better. We just had uh Brian Moyahan at Bank America have his first investor day since 2011. >> Well, what's that about? Yeah, >> he's under pressure. >> I vaguely remember the investor day in 2011. >> That's right. >> Okay. Um they the stock's not moving compared to Jamie Diamond and you know Brian Moyahan has spent his whole career first digging out from the great financial crisis settling all the litigation and then avoiding risk. So they have not really run that bank anywhere nearly as well as JP and to your point about interest rate risk they got absolutely blindsided uh during co they kept all of those 2% mortgages that they were writing for a lot of my friends. I'm a customer of Bank America. >> I am too, actually. Well, cuz I went to school in North Carolina and it was like I, you know, there's like the inertia like I don't stick here with your bank you've had since you were 18. >> That's right. But they're big. And they figured, well, we'll just keep everything and we can ride through the interest rate cycle. No, that was a bad idea. What they should have done during COVID was take that 2% mortgage, sell it at record prices. Remember, people in the mortgage business were making money selling loans in 2020,221. and they could sell a mortgage for 104 versus par. That's extraordinary in the mortgage industry. You usually lose money when you sell a mortgage. And then bought T bills. That was the trade. So City, JP Morgan, a couple of the other uh large banks, they all got that right. >> But Bank America did not. They >> didn't. >> And so you've had a lot of investors, I think, privately beating the hell out of Brian Moyahan saying, "Why didn't you get this right?" Uh he's got a almost 900 plus billion dollar bond portfolio that's got a yield of three something. >> 900 billion. >> It's a third of the bank. >> Wow. >> And it's important if if they had at least kept say to the industry average they'd be up in the fives. >> H >> so that's the difference. If you really look at them they don't get the premium that JP Morgan does because Jaime Diamond understands duration. So so does Jane Frasier. you know, they they understand that the balance sheet is important, the lending is important, too, but you have to make sure that your bond investments are are managed accordingly. And this is what killed Silicon Valley Bank. >> You should read IRA. Just saying. >> Well, they do. So, look, uh, PNC, uh, Key Bank, Truist, they've all restructured and Brian, you know, I think will eventually be forced to do this. And also the Fed, you know, Danielle writes about this stuff. The Fed ought to be restructuring their mortgage back securities and selling them. >> Okay, explain that because they have balance sheet issues, too. Then the Fed >> $2 trillion worth of mortgages that are going to be sitting there for years. >> All right. What should they do again? >> Uh, you use what's called a collateralized mortgage obligation, which means you you put everything in a trust. You slice the cash flows so that you change the duration. In other words, you've got a security which is probably got a 10 12 year average life. Well, you you slice it up so you have a bunch of really short duration AAA rated paper. Remember, these are all government uh guaranteed securities. You sell that to a short-term investor. You have a medium duration piece that you sell to funds and insurance companies and you keep the tails. You put the tails in the sock drawer. So when rates fall, you turn around, sell those to a life company and make a ton of money. >> That's interesting because um with duration risk, it's like the direction of interest rates, right? >> Think of it as when are you getting your money back on the bond? >> Could that actually dictate like what the Fed does from a policy perspective or is that totally separate? Like >> no, if they were to use the CMO model, which is a wonderful uh invention that uh I've written about over the years, you you change the impact. You don't impact mortgage rates when you do this because by slicing those cash flows differently than the way they are in the mortgage back security, you change it entirely and you and you put it away. When people in the investment world buy this paper, it goes away. It doesn't get traded. >> Yeah. 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But um and you but you are known for your coverage of the banks. >> Yes. >> So, the others seem to be like they kind of got that right. Bank of America not so much, >> right? Can you kind of like walk us through like what's going on in the banking world these days? I guess let's do we can do the big banks um the bulge bracket banks but also like the regionals like what's kind of the assessment of the banking world these days? >> I think the more astute bankers are not anxious to put on risk right now because they don't tend to like what they see. Um there's not huge demand for loans. >> They've been dropping the pricing of their loans because they do want customers. They want good customers. And then on the securities side, if you happen to be a Bank America and you have a Meil Lynch, all of the big universal banks that trade the markets and do investment banking, they've been doing extremely well. So that side of the house, if you look at JP Morgan, the growth on the bank side is okay. It's not great. Deposits are still growing single digits, 3 4%. So that's the fuel for future lending. And it's really the investment side of the house, whether they're managing assets for people for 50 75 basis points a year or they're in the capital markets. That's really where earnings have been getting a bump. Morgan, Stanley, Goldman, they've all been doing quite well in that regard. So the hope is if we drop rates, we're going to see more demand. >> Okay. The Fed is going to stop running off their balance sheet in December, although they're going to allow the mortgage securities to continue to run off. They basically want to take all the prepayments from T bills, mortgage securities, and just put them in T bills. >> Mickey Bowman has talked about this a lot. They really want to get that balance sheet back to all treasuries, and they want to mirror the the maturity structure of the treasuries in the marketplace. That's really ideally what the Fed should do. Do you think we're going to get the rate cut in December because the press or pal is like it's, you know, far from a foregone conclusion or whatever he said. >> Well, the the newest governor, Steve Mirren, has indicated that he'd like to see a 50 basis point cut. >> I think he's one that the last two meetings, too, >> right? I don't think so. I'm not sure that they're going to have enough votes for a majority, >> okay, >> for another rate cut in December. And Pel, you know, he said it very well. He's trying to do two things at once and they can't do both. On the one hand, they worry about employment. On the other hand, they worry about price stability. You can't do both. >> Yeah. They don't work though that there's tension between the mandate. >> Well, Humphrey Hawkins was always a really strange piece of legislation. >> Wasn't that just to compromise between the Republicans and the Democrats? And like >> 1978, the >> Republicans wanted the rate polic or the interest rates, right? To to >> right >> and then the Democrats wanted the maximum employment. Is that right? >> Well, the Democrats wanted to guarantee everybody in the country a job. Remember the Democrats are ultimately socialist, >> but >> well, it was coming out of World War II. They were in the Korean War. They were worried about soldiers. >> Was it the Humphrey Hawkins or what was it? >> It amended a law that was passed right after World War II, but the amendments are called the Humphrey Hawkins Act. That's what set up the mandate, the dual mandate for the Fed. Um, and it had some other provisions as well. But you know the Democrats in that era and also Republicans I think thought that they could legislate economic realities when they you really can't there was a lot of hubris in that time. >> Okay. Didn't you write a piece on like the Fed funds rate and like what was it? Why am I blanking on it? I feel like maybe I'm dreaming of it. >> No, back in 2017 right after I left Croll Bond Ratings, we did a a piece about duration risk that was talking about this. But we just put out a piece about Fed funds. Yes. >> Explain. Okay. What did you put out? >> Well, during God, almost 50 years ago, the Fed started targeting uh the Fed policy. Yes, that was it. >> And we've kind of run out of runway cuz once interest rates get to zero. What do you do? >> Yeah. What do you do? >> Well, Ben Bernanki said, "We'll go out and buy a lot of securities, open market operations, which you know, we use Orwellian double speak, which is uh we call it quantitative easing, which is nonsense." Um the question is how do you communicate policy to the public and to members of Congress in a way that they could understand. So having the interest rate target was simple but it also created some real problems because what we think about as Fed funds which was unsecured overnight lending between banks is basically gone. Mhm. >> What's now the biggest market out there is what we call the repo market, which is people lending securities, whether they're treasuries or mortgage back securities, taking cash overnight out to 30 days, sometimes even longer. That's a $5 trillion market today. And it's very closely associated with the Treasury bond market and also the mortgage market. Mortgages are financed and hedged in the repo market. So, it's not something I want to see the Fed play with. You know, the Fed has this very New Deal FDR perspective that says we control the world. The Wizard of Oz is the metaphor, right? >> Yeah. Which was wasn't that the actual metaphor in the book or something? Was it central banks or was like I know everything had like its little >> Yeah. The silver slippers, the yellow >> that is a New Deal progressive institution. It is not a free market democratic institution. It's an authoritarian model. And I think one of the things I'd like to see when uh President Trump really has put in a new chairman and has a chance to put his own imprint on the Fed is we've got a clean house. We've got to get these people out of the economic modeling, economic management business and refocus them much more narrowly on their their real job, which is interest rates. >> Who do you think is going to be Fed chair? Because last time I feel like you said Hasset was your you still think Hasset. >> I like Kevin Warish. I'd love to see Kevin back in there because he's a great conservative. Uh but I think Kevin is going to uh get it because the president trusts him. He's been there for a long time. He's been through the White House, that whole process. Most Fed chairman go through the White House, Council of Economic Advisors, that sort of thing to get vetted. So, you know, to me, that's the tr because ultimately President Trump doesn't want to be betrayed. So whoever he puts in that chair, he's got to be real sure that they're going to give him what he wants. Look at all the examples >> going back through history. >> Okay. What do you think he ultimately wants? Just more rate cuts? Like where >> I'd like to see interest rates down to two, you know, 3 2% short term. I think that's a little excessive. I hope they don't do that because it will create problems. >> Like that would even result more inflation than probably. >> Oh yeah. But you know, the Republicans are thinking about the midterm election. Let's be fair. This is politics. The Fed is the most political organization in Washington. >> Oh gosh. Yeah. Yeah. Um the last few times you and I spoke, you had talked about taking like your ac your acorns off the table out of the markets. Like how do you feel right now about where you want to be? Like what are your kind of high conviction ideas? >> I have I'll just talk about my own portfolio because I don't make recommendations. I have been spending a lot of time in the metals market as you know. >> Yes, >> I am very focused on some of the junior miners. I have a really cool interview coming up uh coming out next week that I think you'll enjoy. Um I'm buying bargains. I bought some Flagstar. Okay. >> Uh which is the old New York Community Bank. It's a bit of a punt on my hand on my part because I know uh the management team uh Lee Smith who used to be the head of mortgages at Flagstar Bank before they merged with New York Community is one of the best bankers I know. If anybody can save that bank, it's him. So, I took a bit of a punt on that. Uh but other than that, I've just been very carefully, you know, putting income on the books along with gold. Uh I own a couple of minor stocks that uh I've gotten into. Uh they're very small, very speculative, but the whole sector, if you look at the majors versus the junior minors, the majors are going to have to go out and buy all of the juniors. Yeah. >> Because they don't have any productive capacity. >> People want to get China out of the global supply chain. How do you do that? You got to go create some new mines. So the Canadians are 100% focused on this. all of the big export uh finance agencies in Canada are looking at ways that they can increase production and you see other uh countries doing the same. >> When you're assessing junior miners, do you look at like the management team's like track record? Is that one I Yeah, I kind of have heard it described as like venture capital is like hard hats basically. I'm like um I don't know how accurate that is, but >> No, it is. And it's you got to look for management teams that have done this before. remember we had a very quiet period when the industry was not investing in dirt. >> Yeah, >> there was years when nothing was going on. Uh but now I think uh because people want to balance away from China. China was filling that demand during that period. >> You you have to look for experienced teams that have the financing usually with a lot of government and strategic financing. Um, and you have to be patient because it takes a long time to go from proving that there are deposits in the ground to drilling the tests, getting the permits all in place with the governmental agencies. You know, Canada, for example, it probably takes three or four years and then [snorts] you have to start producing ore and you have to refine the ore. So, you're talking about a decade. >> Yeah. >> At least. But on the other hand, I think long-term whether you're talking about gold, silver, any of the other major metals, copper, nickel, you know, China and Indonesia are the two suppliers of nickel. America actually built nickel mines in Cuba 50 75 years ago. We have to go out and start redeveloping that uh resource as well. >> H okay. So on gold um [clears throat] what do you make of like the debasement trait? suddenly I feel like in between our last conversation it got a name the debasement trade. Um yeah but >> I I think it's a long-term trade. I I have >> a weaker dollar trade or what is the >> it's partly a dollar trade people you know it was funny Kathy Wood was going on about how the dollar is going to rebound and everybody's going back to a you know dollar dominance sort of trade. I think you'll see that the dollar is going to rally off of the bottoms clearly, but long-term you want to own gold because every central bank in the world has decided that that is going to be their primary reserve asset. They're not going to stop holding dollars because dollars have financing along with it. The dollar market is unique in the world. you the Europeans don't have it, the Chinese don't have it because you can go into dollars, raise capital, and then swap it into another currency, go out and buy assets, whatever. So the the the financing market in dollars is the greatest strength of the currency. Is it a store of value? No. >> Mhm. >> It's a means of exchange. So you always have to remember both in a medium to long-term sense that while you want to use dollars short-term, you want to enjoy speculative gains in the dollar market and stocks and everything else, you always have to think to yourself, how much is that dollar going to be worth five or 10 years from now >> because remember that 2% inflation rate over 20 years will take half of your money. >> That's right. You write about that in the book, too. You do the math in there. >> Do the math. >> So I've owned gold for 14 years. I have no intention of selling it. I'm not like like an investor, so I'm not an expert, but I'm just saying I just kind of hold it for like almost like an insurance policy, if that makes sense. >> Uh, yes, it does make sense. >> And I let me tell you, 14 years ago, not the best time to buy gold because it didn't do so hot for a while. >> I got to introduce you to my buddy Henry Smith. We did an interview with him over the summer. And I remember Henry had worked at HSBC, had worked in Switzerland, you know, really knowledgeable about the gold market. Nobody cared. 2015, he's making the rounds, going to see everybody. They had no allocation to gold. They thought Henry was crazy. Well, they don't think Henry's crazy now. >> Popular now. Yeah. >> Well, he runs a offshore fund. Unfortunately, it's not available to Americans. Uh but I think you're going to see more funds, more other types of offerings in the US that will enable gold. Uh a lot of states have indicated and and pass legislation allowing gold to be treated as legal tender. uh you still have the depression era restrictions on contractual requirements for gold, but we'll see over time. I think all of that's going to have to go. The question is, will the US government eventually be so threatened in terms of the fiat currency monopoly that they'll try and limit American gold holdings? >> That would be interesting. But also like like you said, all the central banks around the world have been adding it to their balance sheet. So yeah, um >> I think we're going the other way. You know, FDR did a terrible In 1933, he used the crisis to essentially install an authoritarian regime in this country. >> He feels so anti-American, too. >> Oh, totally. Totally. The Democrats have a lot to answer for. And I think, you know, for whatever reason, I doubt that will happen again because the reaction both in this country and around the world, I I think the dollar would crater if they tried to do that. Now, Governor Steven Mirren on the Federal Reserve Board thinks we should be selling gold and buying crypto. I I think crypto is going to go by the buy sooner or later. >> You think it's going to go bye-bye? I mean, I do own some I own some Bitcoin, >> but like I got to tell you, I don't do the alerts on it, so like most of the time I don't even know where it's trading. So, [laughter] fine. It doesn't it doesn't um doesn't bother me or impact my happiness one way or the other. So, I just leave it be. But, I've had it for a while. >> I I think >> so. I'm still I'm still very much in the blood. they've run out of buyers in terms of getting new participants. Stable coins to me is a dead end uh simply because again why why do I hold the stable coin instead of holding fiat? You've seen a couple of platforms actually go to the SEC and get a stable coin blessed with an explicit yield. So it's like a bank deposit. The banking industry is fighting that. By the way, there is all sorts of stuff going on in Washington right now [snorts] with >> Oh, they're lobbying hard. >> Oh my god. Yeah. The banky industry is is very And I thought it was funny that Jamie Diamond, you know, suddenly became uh positive about Bitcoin and other crypto. But, you know, ultimately, is that really a good idea? Because the whole thesis behind Bitcoin is to get rid of the banks. >> I just I I don't understand why he did that. >> Well, Wall Street probably co-opted it, so then it kind of loses that. Well, they see the revenue and they see the potential profitability, but I think the reputational risk is also significant. >> Yeah. Chris, is there anything I didn't bring up with you today that you wanted to discuss? Like, >> no, we can't talk about football in New York, although we have the Buffalo Bills. >> And the thing about New York is they all the teams are in New Jersey. How are they New York teams except for the Bills? >> Well, they are. >> And bless the Jets hearts. Matt, I know you love the Jets, but bless their hearts. Everyone loves the Jets, but you know, it's sad. >> I know that kid. >> This is a really weird season. You know, we're going to have a whole league of 500 teams. I don't know who's going to end up going to the Super Bowl, but >> you know. >> Yeah. I just can't wait for those Bills. >> I can't wait for football season to be over. >> Oh well. >> I mean, it's like eight what 18 weeks of that stuff. >> Well, it's okay. >> I just want my husband back on Sundays, you know, but >> Well, no. >> No, I let him do his thing on Sundays. I'm like, you do your thing. So, I'll go watch my like >> Look, I my wife has to go to a wedding in Uruguay and I said I'll stay home with the doggies to watch football. >> Oh, yeah. That's exactly what he's doing. Um, [laughter] it's great. Um, but you know what I do? I I get to watch the Bachelor and the Bachelorette. >> Absolutely. Season. Yes. The >> Garden. Look, and then we have American Idol starting in January, so that's always good. >> Well, [laughter] Chris, it is always so fun having you on the show. In person's actually even better. So Chris Whan, chairman of Whan Global Advisors, author of The Institutional Risk Analyst, also author of multiple books. Which one do we want to plug today? Inflated. >> Well, inflated. That's the book everybody needs to read right now just to figure out what's going on. >> Important. I will link it in the show notes. Always great to see you. Thanks again, Chris. Thank you, Julia.