Chris Whalen: The Trump Administration Is Going to End in a Financial Crisis
Summary
Private Credit Risk: Extensive discussion of hidden leverage, valuation opacity, and liquidity risk in private credit, with concerns about runs and markdowns indicating systemic stress.
Private Equity Stress: PE-sponsored companies face liquidity challenges, growing PIK usage, and conflicts of interest as managers defend fees, signaling rising default and restructuring risk.
Asset Managers: Firms like BlackRock (BLK) and Apollo (APO) face reputational and liquidity risks, especially where insurance balance sheets back riskier assets such as private credit.
Insurance & Annuities: Using illiquid private assets to back annuities is flagged as inappropriate, with life insurance versus annuity liquidity needs contrasted and policyholder risk highlighted.
Banks & Valuations: Cautious stance on financials as large-cap banks remain expensive relative to book; expectation of further contagion argues for patience before adding exposure.
Precious Metals: Bullish on gold and silver amid Western exchange delivery issues and stronger Asian pricing, preferring physical exposure over ETFs that may cash-settle.
Rates & Fed: Anticipates rate cuts due to contagion and geopolitical stress, with markets broadly short interest-rate volatility and credit costs normalizing higher.
Geopolitics & Housing: Middle East tensions seen as a persistent market overhang, while the housing market faces an eventual correction after years of monetary excess.
Transcript
But I think the Trump administration's going to end in another financial crisis. We're going to have a correction in residential housing prices. And uh I also think that the financial markets may see a substantial correction simply because we've had a period of craziness of monetary excess. And then the private sector has taken that monetary fuel and they've gone off and done even sillier things with it uh in the hope of earning big fees. >> [music] >> Welcome back to this week's episode of the rap with Chris Whan where we break down what's happening in markets and the economy. Chris, great to see you as always. >> Always a pleasure, Julia. Been an interesting week. >> It has been an interesting week and I got to say, I read the rap, your latest edition of the rap, and it is quite a banger, Chris. There's a lot in there. Let's start with We got to start with like just the environment that we are in. You called this one of those classic riskoff periods that financial professionals will painfully remember for many years. Okay, let's break that down. You think this is going to be one of those periods we're going to remember for years? I want to elaborate on that. >> Well, I think you've got a perfect storm. you had a really uh bizarre year last year, the year of magical thinking. Uh we called it and that's when we kind of discarded all the rules and pretended that crypto is really money and you know all of these other things that are going on in Washington. Washington has been in another place all year really uh since Donald Trump came into office and they've been doing things that really don't matter. Nobody talks about the budget deficit. Nobody talks about the dollar. Uh, and now all of a sudden we're back at war with Iran. Um, I think you have that plus this thing called private credit which everybody and anybody was trying to sell to retail investors last year. Why? So they can earn fees. I mean this is a very classic example of how the opportunity grows big enough until it can fulfill the fee expectations of investment bankers. So, [snorts] you know, you have this and retail investors are not suited for private equity because they have no tolerance for liquidity risk. They have no tolerance for market risk. As soon as they think the price is going down, they're going to get out. And that's what we're seeing right now. That's what's happening. Classic run. You probably saw former Goldman Sachs CEO Lloyd Blankfines's comments and made a bunch of headlines um saying that private credit smells like 2008 due to the hidden leverage. Um do you think he's going to be right? Like are we headed toward like a similar reckoning? >> Well, what we've been saying for years now is that this time around it's on the commercial side of the ledger. So whether it's private credit or uh you know commercial real estate or private equity is another component of this. You have a lot of private equity sponsored companies, private companies that can't go public and they have to somehow liqufy these investments so they can give all these endowments and pension funds back their money. Uh you have a big problem with a number of state pension funds around the country that invested in private equity and they can't get their money out. So, you know what they're doing, Julia? They're borrowing money from banks so that they can cover their obligations. This is a disaster. So, I think private equity is a big deal. I think it probably scares Lloyd Blankfine a little bit because when he was running Goldman Sachs, we still had rules. You know, for the past year now, as Donald Trump has been, you know, in Washington, we've kind of thrown the rule book away. So you have people doing anything and everything they can uh in order to go out and make a buck and that may not be a good formula. You know, for example, having a insurance company that writes annuities, buying private credit and private equity for their portfolio is not a very good idea. Uh that's totally unsuited. You need short-term liquid assets to pay out on an annuity. It's different with a life insurance company. you can go buy long duration assets and swing for the fences because that event may not occur for 30 or 40 years. That's what life insurance is all about. They buy different stuff. >> So, I think there's a lot of layers to this that people are going to get into. And, you know, one of the questions we had from the readers this week that we're going to talk about is whether or not you should be worried if a private credit shop owns the insurance company that is writing your annuity for your retirement. M and I can't wait to get into the viewer mail. Uh you know, okay, one of the headlines um that you flagged this week, too. Black Rockck marked down a $25 million loan from 100 cents to zero in just 3 months. So, it makes me wonder like how how is one how is that even possible? Like who can get away with that? Why hasn't someone like lost their job? Maybe they have, but you go from just 3 months ago 100 cents and now zero. Like what does that say about uh what does that markdown say about valuation lags? What does it say about the underwriting standards? I mean it's a huge space. The private credit space is what was 1.8 trillion >> trillions. Okay. Does that is that just a taste of what's to come then? >> Well, it it just shows you that private markets are inferior to public markets. People like private equity, Julia, because you know, if you're a big pension, you wanted to buy something that was going to give you a home run, but you didn't want to have to hear about it every day. And when you own stock every day, we vote on that stock up or down, right? That's the whole point of public markets. But the problem is with private equity, you're relying on the manager to tell you what it's worth. And so when these companies start going bust and they can't pay their debts, they pay you with stock. and and the banks have been accepting this and people like Black Rockck have been accepting situations like this. So when they suddenly decide they can't play that game anymore, it goes from 100 cents on the dollar to zero. That's what you're seeing here. The lack of transparency that's naturally part of private equity also forces the manager to sometimes make a tough decision. That's what happened here. But the problem is these these stories keep dribbling out one at a time. And as you know, having worked in the media as long as you have, that's bad because it's going to make everybody think, well, what are we going to hear about tomorrow? Uh I think it was so funny when the head of Apollo, Mark Rowan, said that this was, you know, just a bit of uh an opportunity. Yeah. But an opportunity for him to basically take over. I think he's talking about himself. He and the rest of these guys better be careful because they just got burned horribly on an insolveny in the UK on uh residential mortgages and the unit of Apollo Atlas SP is the predecessor of credit Swiss. Those are some of the smartest people in the mortgage business and the fact that they got stuffed by a bunch of UK mortgage bankers I think is extraordinary. I I was a MD of a PLC in the UK which is no fun. And there's a lot of liability if you're an officer director of a UK company. So this is a unfortunate situation. But I couldn't believe that the guys at Atlas were the ones who missed this and suddenly they get stuffed with essentially people committing fraud. It's like First Brands. They were pretending they had more collateral than they really did. They pledged it on multiple debt. We did that with Bear Sterns. You remember Bayer like to double pledge collateral, too. [laughter] >> Oh, whoopsie. And remember when Jamie Diamond talked about first brands, he said, you know, when there's a couple cockroaches, there are more. And I think you're going to see more fraud and more transactions where people are playing fast and loose with collateral. So that's what's going on there. >> More war frats. Wait, when you were saying a policy was talking about himself, like what are you what are you kind of getting at like industry? >> I think all of these these big firms are all at risk. Even the Black Rockcks, I mean Black Rockck is a huge firm. they have a lot of income from their investment management business. But, you know, if you take enough hits to your reputation as well as the financial part of it, that can really undermine the uh the solidity of the firm. So, these guys have to be careful. They're not banks. These are non-banks that have to access the capital markets to raise their money. And mostly they raise money with investor cash. That's how they make most of their money. But you know, Apollo in particular, Julia, they studied the Warren Buffett model. They got an insurance company, which is a balance sheet for them, and they've been putting all sorts of stuff on the asset side of that balance sheet, but the liabilities are annuities to retirees. So, that's why this is such a vital question. >> Tensions in the Middle East have officially come to a boiling point. The recent strikes in Iran have taken global conflicts to the [music] next level. So, what does this mean for your savings? And if you're close to retirement, how does this impact your plan? Well, the truth is it's up to you to make sure your savings are safe [music] from any potential blowback. That's why I want you to reach out to my partners over at Gold Co. They are the number one gold and silver company in the country. They have over 8,000 five-star reviews. Plus, they have the best gold and silver offer in the business, hands down. Go over to goldco.com/therap and get your free 2026 gold and silver kit. [music] Learn how to protect your savings from global chaos, inflation, market uncertainty, and much, much more. You can also get up to 10% in bonus gold or silver just for getting started. But it's only while supplies last. Head over to goldco.com/therap or click the link below. Okay. Um you've written about this um for a while but you in this latest edition of the rap uh you flagged that the loans are increasingly moving to the payment in kind moving to payment in kind uh pik and what you called poop structures [laughter] >> that's [clears throat] my friend Victor Hong he he has an imagination >> um it's a great anacronym but is that just kicking the can or are we at the beginning of a real default default wave. Like how like how exposed are banks holding these non-reourse loans? Like where are they? >> Well, you figure 15% of the private equity industry is reportedly in Pik, which means that the company's busted. So they're giving the debt investors equity to make up for it. And the question is how long are the debt investors who really own the company? If you think of it, whenever a company has debt, the creditors own the company. If if they get into trouble, they're going to end up with the equity. So, you know, there's literally hundreds of companies like this and the managers are taking the additional equity and pretending that the valuation is going up. >> That that's what poop means. So, you know, there are so many uh private equity shops out there that don't want to admit what Black Rockck just had to admit with that loan you mentioned earlier. [snorts] >> And because they want to earn their fees, they get paid management fees. If they have to shut this stuff down and write it off, then they're out of business. So, there's a huge conflict of interest here between the private equity managers, the creditors, and also the investors, the original investors in the the private equity company. looking at those incentive structures. Yeah. Fees. Yeah. Okay. >> Um what do you make of >> like when these private um private credit chiefs say like let's say like some of these folks are going to think that they're going to benefit from the turmoil or maybe there's opportunity or maybe there's a way to spin it. I think you don't buy the argument. But what do you make like what do you make when you hear that kind of language? Are there things where you're like just >> Yeah. What do you make of it when you hear that? >> My uh my former colleagues and and dear friends at Bear Sterns used to talk that way and also a lot of our friends at Lehman Brothers, you remember, used to talk that way and now they're not here. Those companies failed and they went away. So none of these non-banks have any kind of promise of support from the US government. And if they get into trouble, even something as big as Black Rockck could get seriously damaged uh by revelations about more mistakes in their their investment book. So I I think you've got to be very careful making comments like that if you work for one of these big firms. You know, humble is good at times like this and you want to be talking to your lenders and making sure you've got the liquidity you need. Black Rockck has had to take money out of their own pockets and the pockets of their employees to pay redemptions to investors. So that tells you what's going on here. They're maximizing liquidity any way they can. And I think it's inappropriate for these guys to be making comments like that, Julia. >> Mhm. Yeah. You've seen you've seen uh you've seen that movie before. >> Yes, we have. And it it always ends the same. You know, it's like all the remakes. doesn't matter how many times they do it, you know, total recall, whatever you want to look at. >> Yeah. So, let's um let's kind of look at it also from an investor lens. Um a lot of folks are always going to be interested in how you want to be allocated position, how you're thinking about these things. Um you said in the letter or the the rep um you're not inclined to go long any financials at this stage. like maybe just talk to me like how you're thinking about it from the investor lens. >> Well, I I bought some more gold this week. Uh I bought some physical silver. You know, it's it's that kind of weak. I I have taken some money off the table. I think, you know, we talked about before the fact we're buying a house down in Florida. So, I thought I would like to have the cash I need right now to go to that close instead of waiting to see where the market is in, you know, the beginning of May. Uh, so that kind of tells you what I think about this market right now. Um, I I don't like financials because they're still overvalued. If you really look at last year, that was an extraordinary year. And, you know, they haven't sold off that much. The whole group has certainly churned. We talked about this. JP and all the big large cap banks are down in the bottom quartile of our group, which is remarkable. the the best performing company uh in the bank group right now is a bank in Indiana, you know, a little wholesale regional bank. So, I I I think for me the uh finance companies, the non-banks have sold off the most. They're down 20 and 30%. Are they a deal at this level? I think I could wait for that one, too, cuz I I think I'll be able to buy any of those two months from now. At least at the price I see now. I think you're going to have more contagion and more revelations about mistakes by these companies. So, I see no reason to rush in. I bought some more income the other day. You know, I I've been growing my position in Anley. And um you know, things like that that throw off cash flow and don't have very high betas is kind of where I want to be right now. Low beta means it moves less in the market and that's good. >> Yes. Um, you quoted I actually don't know pron how to pronounce this guy's last name. The guy from Namura, Charlie, is it >> Miguelot? >> Melot Irish name. Yes. >> Miguelot. I should know that I'm married to a guy with an Irish name, but he Americanized it. It's Coughlin, but it should be Cochland. Um, but okay. >> All right. So, you quoted his letter um or his note that every asset class is short interest rate volatility. So with commodities, inflation and rates all repricing simultaneously, >> how should investors rethink uh risk management right now? >> Well, last year we had a lot of risks, market risk and credit risk, understated. And this is kind of a hangover from the Fed. When the Fed throws a lot of money around and and makes money cheap, they tend to push up asset prices and that causes default rates relatively, right, uh to fall. uh net defaults on one to four family homes right now is still around zero incredibly enough and that's because home prices went up a lot. It's hard to lose money when you make an 80LTV loan, right? The borrower puts down 20%. And in three or four years from now it's 50 because the price of the house went up so much. So, you know, it it's been an extraordinary time. Credit has been as low cost as I've ever seen it in my experience as an analyst going back 40 years. And I think most financial professionals know that this was an extraordinary time. So I think many institutional people, risk professionals are getting ready for a time when credit is going to have a higher cost. And that's why I think part of the volatility we see today with these revelations and the related selling and the war in the Middle East is is partly reacting to today, but it's also partly a little bit of people looking over their shoulder and thinking about the past year, year and a half and what it's really meant because we've had an easy time in finance. We've had a very easy time in risk and I think people are starting to wonder if that's not coming to an end. >> Yeah. Um, >> and that's why I think the Fed's got to cut rates ultimately. >> Do you think they're going to be Do you think they're going to though? >> Yes. I I think they are going to see some things that are going to give them great pause and when they pause long enough, they're going to meet and they're going to cut interest rates. >> Do you think it's Do you think it's uh the March meeting or further out? >> Uh, it could be March could be March and then uh a couple months and another one. But I just think that when you see contagion and when you see American soldiers uh in battle overseas, the Fed tends to lean into the market at times like this. Uh I think arguments about uh the economy and inflation are going to kind of go to the foreground in a sense because credit you know especially when banks are involved is a lot more of a problem. If you start seeing banks reporting losses on these private equity and private credit exposures in the first quarter, that's going to get the attention of regulators cuz to be honest, they've been sound asleep. You know, the federal bank regulators have done nothing to react to the increase in exposure by banks uh lending to private equity funds and the rest of them. You and I have talked, you and I, you and I have talked about this like a lot of folks, investors, they still don't understand the level of risk um that's been taken in private credit by the banks. And you also point out that nobody in the Trump administration is talking or thinking about financial market contagion. So the question is, should they be and who should be sounding the alarm? >> [snorts] >> Well, in theory, it should be the chairman of the Fed, but Jerome Powell is a strange doc. He doesn't want to talk about the budget deficit. He doesn't much want to talk about the markets, even though he clearly understands it. He's made some comments in the past to indicate he does very much understand market risk. So, I don't know, Julia. It's just it to me it's really strange. I talked about Paul Vulkar today on X in a couple of posts because he would have been screaming. Uh he would have been pounding the table because when you see risk growing as fast as it's been growing uh to these non-bank financial companies, the question is why? You know, if you take current loans, which is about 1.5 trillion, and then you look at the amount of unused credit that banks have offered to these companies, it's like $4 trillion. That's a pretty big number. Uh that's more than the capital of the entire banking system that's at risk with non depository financial institutions. I think that's kind of inappropriate and it's a big piece. You know, it's more than uh 6% of total assets now. So that's why it's important to look at this. Whenever something moves a lot in in risk management and finance, you always want to know why. Why is that thing moving so much compared to everything else? And this is the fastest growing asset class of the banks right now. >> Yeah, it does make me kind of wonder like you mentioned Paul Vulkar like his style of intervention. It sounds like that's what's missing today then at the Fed. >> Yeah, there you know in the old days they would just pick up the phone and call whoever they needed to speak to, speak to them, put the phone down. I remember I asked the Fed governor once. I said, "Why did you let Wells Fargo uh you know linger for so long before you crack the whip and you know impose sanctions on them for their various problems operationally, right?" He said, "Oh, we don't do that now." Well, you see, that's the problem. Everybody is afraid to uh commit. Everybody's afraid to take action. We become so oified and bureaucratic that we don't get anything done. Uh but, you know, there's some hope. I I I'm a big fan of Mickey Bowman at the Fed. She's now the the head of bank regulation really in the United States and I think she ought to pay more attention to non-bank risk. I'll tell you that. Hey guys, thank you so much for watching this video. If you can just take a quick moment and hit that subscribe button, we are trying to hit our next goal of 100,000 subscribers. Really appreciate you. And back to the video. Let's bring up tariffs real quick because you did call the tariff refund story a huge nothing. Yeah, >> even tariffs have just been a total distraction. Like I >> I feel like no one's talking about it anymore. >> No, there's nothing to say. I mean, you know, it's trade. I covered trade for many years. I It's just not relevant to an investment discussion. Having to refund $175 billion is not a big deal. Uh the Trump administration's already moved on. And I think if we're talking about what do we do with our money, then I'm not really sure we want to spend a lot of time on trade. Uh I know economists love it, some people love it, but we should move on. >> Mhm. And um just to go back to the precious metals point, you said you're more confident than ever on your precious metals longs. >> Oh, why? >> The Western exchanges in London and Chicago are are losing it. they they don't have enough metal to deliver. Their pricing is no good. And what you're seeing is that the Asian exchanges in India and China are basically using local pricing now which is significantly higher than the western benchmarks. Uh I think it's just a matter of time before uh the comx is going to have to stop trading gold and silver because they just are not they're not competitive anymore. And when you see countries like India basically telling their citizens not to use western uh benchmarks as a pricing reference, I I don't know what else to say. Uh there's a big shortage of metals in the Far East. All kinds of metals, by the way, Julia, not just gold and silver. Uh but there are a lot of commodities that are in relatively short supply. And of course, the Chinese are are the big buyers in many cases. They're the ones that are pushing this. But they don't even have adequate supply to deliver metals in Shanghai. Think about that. Uh that's now the price leader in gold and silver in the world. So I think there's a fundamental supply issue with both metals and that's why I'm pretty confident to keep our positions and grow them. In fact, >> so there's a supply demand thing here where okay with the physical delivery then I have a random question then. What does that kind of mean for the ETFs where if you own the ETF you it's a way to play the price of it but you you don't actually own gold like you don't have the physical gold like in your safer >> you settle in cash and this is what people have been worried about with respect to the comx is that they were worried that the comx wouldn't be able to deliver metal on their futures they would just cash you out you know they'll declare force majour and say at a certain point they would just cash you out >> and that you know that's not the point when people are long metal they want to receive yeah they want the metal >> so that's a big breakdown in the market structure in the west and London has the same problem so I I think that we're seeing the continued movement of the epicenter of precious metals trading going to Asia you know the Middle East too Middle East is a huge component of the gold market when all of the hostilities erupted this It impacted Dubai. It impacted many other markets in that region. So, you know, how markets function, especially with gold and silver, includes delivering the goods. Uh, many other markets just settle in cash electronically, right? So, you don't have to worry about that. When you're talking about gold and silver, people oftenimes want the metal. >> They want it delivered. >> Yeah, they do. I know things move so fast. Um even gosh with with within a day of even talking to you we had um the escalations in Iran may I just want to focus more of like an investor perspective like how are you thinking about it and how much of an overhang do you think it will have on the markets? >> Oh it's going to be a continuing negative. Uh there's you know uncertainty about what's going to happen. Uh I don't think there's an endgame here. People keep asking if Donald Trump has an endgame or Benjamin Netanyahu and I think no. They don't believe that they can negotiate with the government of Iran. They want to, you know, somehow affect regime change. I don't think that's a realistic goal. So, we've started this, you know, this war, but I'm not sure there's a clear way for either Israel or the United States to come to an end point that's satisfactory to them because ultimately they want to deprive Iran of the ability to use nuclear weapons. That's what it comes down to. Um, before we move on to the viewer questions in your piece and again Chris, I learned so much from you and I know you as like a financial historian as well, but maybe even a historian more broadly. I remember this from high school history, so don't like make fun of me. I I remember the teapot dome. I don't remember the details. I know it was around corruption and Warren Harding, but you draw an analogy or parallel between Trump and Warren Harding with a reference to the teapot dome. Can you explain that? >> Well, during uh the the Harding administration, the Interior Secretary took some bribes and he let a bunch of private companies exploit uh petroleum reserves on federal land. And for a while, President Harding pretended that he had known about this and it was okay. He actually sent written communications to the Senate indicating that this was okay. But it turned out it wasn't. And it was a horrible scandal. And it was also a precursor to the crash of 29, the roaring 20s, as you probably recall the phrase, right? >> Was a period after World War I when the country went into a speculative uh period that was really unparalleled. They were discovering all sorts of new things. You had investment trusts which were the new thing on the block, you know, kind of like private credit. So there were many innovations at that time that people didn't understand and you had speculation in real estate in Florida. People were selling little square inches of Florida real estate. Mr. Ponzi, when his first scheme collapsed, he went to Florida and he was selling Florida real estate. So the the point of this is that I think the Trump administration is going to end in another financial crisis. We're going to have a correction in residential housing prices. That's why Chris is hitting the bid this year, by the way, guys. Pay attention. And uh I also think that the financial markets may see a substantial correction simply because we've had a period of craziness of monetary excess and then the private sector has taken that monetary fuel and they've gone off and done even sillier things with it uh in the hope of earning big fees. So it's the same old story. We've seen this movie before, but it's different than 2008 that was about residential housing and finance related to that. This is much more of an institutional story. Commercial real estate, private equity, private credit. And you know, I think it'll end the same way, but the opacity of these markets is very different from the markets we had with residential housing. >> We should do a whole episode on but like, okay, if it ends on the commercial, >> we get a picture of Warren [clears throat] Harding. [laughter] >> Yeah. If it's the commercial side though, Chris, like do they get like a bailout? It's probably kind of hard to feel so sorry for the commercial side of things versus, you know, mom and pop on Main Street this time. >> Yeah. Well, the banks will get beat up cuz they made the loans. Uh bailing out these non-bank financial companies and Black Rockck, I don't think so. Uh the politics of that are pretty tough. So, you know, in the current political environment, especially if the Republicans lose the House, uh it would be difficult, I think, to get a bailout for a uh a private equity sponsor through the Congress. These guys make too much money, Julia. They're just not sympathetic figures. >> Mhm. Okay. We're going to do another episode on that. Let's do a a rapid fire round because we have quite a bit of viewer mail. And folks, you can leave your questions in the comments or email me. We love this. So, all right, Chris, you kind of referenced it, but Manish would like to know. Chris, if someone bought an annuity from Athen, would that be at risk if private credit blows up? >> Well, yes. The short answer is any of these insurance companies have been putting private equity related investments on the asset side of the ledger. Uh the liabilities is your annuity. So, you want to follow that very closely. uh many of these companies have moved the insurance uh liabilities offshore to some of the islands. So that's another factor. But yeah, I I think there's half a dozen different private equity uh sponsors that own insurance companies. And again, as we said earlier, it's really inappropriate to fund annuities with things like private credit and uh all sorts of debt that's tied to those strategies. You need something that's a little more liquid, a little more uh reliable to pay out on an annuity because that's an immediate liability that's not like a life insurance policy. >> Andrew would like to know, is there an MBS story to this private credit unraveling? >> Well, I think certainly, you know, it's a good question. when the markets are royd and you see uh yields going up even though there's supposedly a flight to credit which should uh help these markets um I think you know the the agency market the government market no private label securities yes because when the markets are upset liquidity disappears in the private loan markets even though these are secured assets as somebody's house but it doesn't have the same liquidity as Fanny May Freddy Minnie Okay? Because they have market access. They can sell securities easily. Uh uh whereas private loans, what we call the jumbo market, which is where banks buy loans, is is much less liquid. And it comes and goes. The the buyers there are big investors, insurance companies, the black rocks, that sort of thing. And when the markets are upset, then they'll pull back and they'll drop their prices. And that's why that's so important. >> All right. Finance a lot on X um wants to know your thoughts on the sudden spike in the Federal Reserve's balance sheet of T bills and how concerning it is that they weren't able to return the balance to zero. Currently, it has surged to 329 billion higher than the 2020 crisis levels of 325 billion. >> Well, good question. Um but finance law has this wrong and I'll tell you why. The Fed's idea is to kind of mirror the term structure of the Treasury market. So, they're always going to own T bills. The question is how much? During COVID, that number got really big. Uh, if you pull up what's called the H41 on Google, you'll see that's the weekly statement from the Fed on their balance sheet. And all of this information is there. So, my sense is that 329 number is kind of where the Fed wants it to be. They would like to get rid of their mortgage back securities as quickly as they can. And I think that when you see Kevin Worsh confirmed by the Senate to be the next Fed chairman, they're probably going to do a deal with the Treasury where the Treasury swaps the Fed uh Treasury securities, probably bills and notes uh for those mortgage back securities to get them off the books of the Fed. I've tried to tell Bill PY at the FHFA that they should be buying this low coupon stuff and repackaging it and selling it to insurance companies. Just get rid of these old bonds from co Julia cuz you know ironically low coupon loans and bonds like that the two and 3% coupons they actually make interest rates higher because nobody wants to hold that paper. It's a dead loss if you're a broker dealer and you're paying four or 5% for funding, right? and you're going to go out and buy a Fanny May 2. No, you're losing three points a year. So that that whole area of the market is is illquid. And same thing with the treasury market. All those notes that were issued during COVID are just totally illquid. Nobody wants them. So we should be buying that paper back and reissuing current coupons and that would help market efficiency a lot. It would force mortgage rates down too. >> And final question from viewer Horatio. So, could this organic movement back to commodities, especially gold and silver, create a metalbased monetary system again or maybe a hybrid? >> Well, great question. Um, people have been speculating about this a lot. What I would tell you is yes, we're kind of heading to a de facto uh goldbased monetary system anyway because central banks are buying gold. They don't need to back their currencies one to one with gold in order to have a gold standard. In fact, you could have a de facto gold standard with 20% metal behind your fiat currency. The big countries are not going to stop using fiat currency because they just don't have sufficient liquidity to to go in that direction. And also, I think they want the flexibility of being able to uh to vary the amount of currency they have in circulation. and we certainly do that in the United States. So, my sense is all of the major central banks are going to have gold as their backs stop and then they're going to have fiat currency. That's the day-to-day means of exchange for their people. >> All right, final parting thoughts and what are you looking at next week? >> What am I looking at? Same thing I was looking at this week, which is, you know, uh what's going to happen with these equity markets. I have been just fascinated by how little the banks have sold off even though the big guys have fallen relative to the rest of our group. We we know follow a little over 100 banks now that are above $10 billion in assets. So that's been fascinating. So is still at the bottom of the list even though they were the leader last year, Julia. So there there's a lot of churn in this group. I think there's some opportunities here but I think we want to wait. Let's wait for that rate cut and then it might be time to look at some of these stocks because they're still too expensive. JP Morgan at 2.3 four times a book. That's still kind of expensive. Uh they were over three. So, we'll see. I'm uh I'm I'm keeping my powder dry, >> but I uh I I think you know the Middle East is obviously going to be the big story next year uh next week. Mhm. Well, this has been another great episode of The RAP with Chris Whan and I want to thank our new partners, Gold Co. Head over to goldco.comthereap for more details or click the link below. Thank you so much, Chris, and thank you everyone for watching. Thank you, Julia.
Chris Whalen: The Trump Administration Is Going to End in a Financial Crisis
Summary
Transcript
But I think the Trump administration's going to end in another financial crisis. We're going to have a correction in residential housing prices. And uh I also think that the financial markets may see a substantial correction simply because we've had a period of craziness of monetary excess. And then the private sector has taken that monetary fuel and they've gone off and done even sillier things with it uh in the hope of earning big fees. >> [music] >> Welcome back to this week's episode of the rap with Chris Whan where we break down what's happening in markets and the economy. Chris, great to see you as always. >> Always a pleasure, Julia. Been an interesting week. >> It has been an interesting week and I got to say, I read the rap, your latest edition of the rap, and it is quite a banger, Chris. There's a lot in there. Let's start with We got to start with like just the environment that we are in. You called this one of those classic riskoff periods that financial professionals will painfully remember for many years. Okay, let's break that down. You think this is going to be one of those periods we're going to remember for years? I want to elaborate on that. >> Well, I think you've got a perfect storm. you had a really uh bizarre year last year, the year of magical thinking. Uh we called it and that's when we kind of discarded all the rules and pretended that crypto is really money and you know all of these other things that are going on in Washington. Washington has been in another place all year really uh since Donald Trump came into office and they've been doing things that really don't matter. Nobody talks about the budget deficit. Nobody talks about the dollar. Uh, and now all of a sudden we're back at war with Iran. Um, I think you have that plus this thing called private credit which everybody and anybody was trying to sell to retail investors last year. Why? So they can earn fees. I mean this is a very classic example of how the opportunity grows big enough until it can fulfill the fee expectations of investment bankers. So, [snorts] you know, you have this and retail investors are not suited for private equity because they have no tolerance for liquidity risk. They have no tolerance for market risk. As soon as they think the price is going down, they're going to get out. And that's what we're seeing right now. That's what's happening. Classic run. You probably saw former Goldman Sachs CEO Lloyd Blankfines's comments and made a bunch of headlines um saying that private credit smells like 2008 due to the hidden leverage. Um do you think he's going to be right? Like are we headed toward like a similar reckoning? >> Well, what we've been saying for years now is that this time around it's on the commercial side of the ledger. So whether it's private credit or uh you know commercial real estate or private equity is another component of this. You have a lot of private equity sponsored companies, private companies that can't go public and they have to somehow liqufy these investments so they can give all these endowments and pension funds back their money. Uh you have a big problem with a number of state pension funds around the country that invested in private equity and they can't get their money out. So, you know what they're doing, Julia? They're borrowing money from banks so that they can cover their obligations. This is a disaster. So, I think private equity is a big deal. I think it probably scares Lloyd Blankfine a little bit because when he was running Goldman Sachs, we still had rules. You know, for the past year now, as Donald Trump has been, you know, in Washington, we've kind of thrown the rule book away. So you have people doing anything and everything they can uh in order to go out and make a buck and that may not be a good formula. You know, for example, having a insurance company that writes annuities, buying private credit and private equity for their portfolio is not a very good idea. Uh that's totally unsuited. You need short-term liquid assets to pay out on an annuity. It's different with a life insurance company. you can go buy long duration assets and swing for the fences because that event may not occur for 30 or 40 years. That's what life insurance is all about. They buy different stuff. >> So, I think there's a lot of layers to this that people are going to get into. And, you know, one of the questions we had from the readers this week that we're going to talk about is whether or not you should be worried if a private credit shop owns the insurance company that is writing your annuity for your retirement. M and I can't wait to get into the viewer mail. Uh you know, okay, one of the headlines um that you flagged this week, too. Black Rockck marked down a $25 million loan from 100 cents to zero in just 3 months. So, it makes me wonder like how how is one how is that even possible? Like who can get away with that? Why hasn't someone like lost their job? Maybe they have, but you go from just 3 months ago 100 cents and now zero. Like what does that say about uh what does that markdown say about valuation lags? What does it say about the underwriting standards? I mean it's a huge space. The private credit space is what was 1.8 trillion >> trillions. Okay. Does that is that just a taste of what's to come then? >> Well, it it just shows you that private markets are inferior to public markets. People like private equity, Julia, because you know, if you're a big pension, you wanted to buy something that was going to give you a home run, but you didn't want to have to hear about it every day. And when you own stock every day, we vote on that stock up or down, right? That's the whole point of public markets. But the problem is with private equity, you're relying on the manager to tell you what it's worth. And so when these companies start going bust and they can't pay their debts, they pay you with stock. and and the banks have been accepting this and people like Black Rockck have been accepting situations like this. So when they suddenly decide they can't play that game anymore, it goes from 100 cents on the dollar to zero. That's what you're seeing here. The lack of transparency that's naturally part of private equity also forces the manager to sometimes make a tough decision. That's what happened here. But the problem is these these stories keep dribbling out one at a time. And as you know, having worked in the media as long as you have, that's bad because it's going to make everybody think, well, what are we going to hear about tomorrow? Uh I think it was so funny when the head of Apollo, Mark Rowan, said that this was, you know, just a bit of uh an opportunity. Yeah. But an opportunity for him to basically take over. I think he's talking about himself. He and the rest of these guys better be careful because they just got burned horribly on an insolveny in the UK on uh residential mortgages and the unit of Apollo Atlas SP is the predecessor of credit Swiss. Those are some of the smartest people in the mortgage business and the fact that they got stuffed by a bunch of UK mortgage bankers I think is extraordinary. I I was a MD of a PLC in the UK which is no fun. And there's a lot of liability if you're an officer director of a UK company. So this is a unfortunate situation. But I couldn't believe that the guys at Atlas were the ones who missed this and suddenly they get stuffed with essentially people committing fraud. It's like First Brands. They were pretending they had more collateral than they really did. They pledged it on multiple debt. We did that with Bear Sterns. You remember Bayer like to double pledge collateral, too. [laughter] >> Oh, whoopsie. And remember when Jamie Diamond talked about first brands, he said, you know, when there's a couple cockroaches, there are more. And I think you're going to see more fraud and more transactions where people are playing fast and loose with collateral. So that's what's going on there. >> More war frats. Wait, when you were saying a policy was talking about himself, like what are you what are you kind of getting at like industry? >> I think all of these these big firms are all at risk. Even the Black Rockcks, I mean Black Rockck is a huge firm. they have a lot of income from their investment management business. But, you know, if you take enough hits to your reputation as well as the financial part of it, that can really undermine the uh the solidity of the firm. So, these guys have to be careful. They're not banks. These are non-banks that have to access the capital markets to raise their money. And mostly they raise money with investor cash. That's how they make most of their money. But you know, Apollo in particular, Julia, they studied the Warren Buffett model. They got an insurance company, which is a balance sheet for them, and they've been putting all sorts of stuff on the asset side of that balance sheet, but the liabilities are annuities to retirees. So, that's why this is such a vital question. >> Tensions in the Middle East have officially come to a boiling point. The recent strikes in Iran have taken global conflicts to the [music] next level. So, what does this mean for your savings? And if you're close to retirement, how does this impact your plan? Well, the truth is it's up to you to make sure your savings are safe [music] from any potential blowback. That's why I want you to reach out to my partners over at Gold Co. They are the number one gold and silver company in the country. They have over 8,000 five-star reviews. Plus, they have the best gold and silver offer in the business, hands down. Go over to goldco.com/therap and get your free 2026 gold and silver kit. [music] Learn how to protect your savings from global chaos, inflation, market uncertainty, and much, much more. You can also get up to 10% in bonus gold or silver just for getting started. But it's only while supplies last. Head over to goldco.com/therap or click the link below. Okay. Um you've written about this um for a while but you in this latest edition of the rap uh you flagged that the loans are increasingly moving to the payment in kind moving to payment in kind uh pik and what you called poop structures [laughter] >> that's [clears throat] my friend Victor Hong he he has an imagination >> um it's a great anacronym but is that just kicking the can or are we at the beginning of a real default default wave. Like how like how exposed are banks holding these non-reourse loans? Like where are they? >> Well, you figure 15% of the private equity industry is reportedly in Pik, which means that the company's busted. So they're giving the debt investors equity to make up for it. And the question is how long are the debt investors who really own the company? If you think of it, whenever a company has debt, the creditors own the company. If if they get into trouble, they're going to end up with the equity. So, you know, there's literally hundreds of companies like this and the managers are taking the additional equity and pretending that the valuation is going up. >> That that's what poop means. So, you know, there are so many uh private equity shops out there that don't want to admit what Black Rockck just had to admit with that loan you mentioned earlier. [snorts] >> And because they want to earn their fees, they get paid management fees. If they have to shut this stuff down and write it off, then they're out of business. So, there's a huge conflict of interest here between the private equity managers, the creditors, and also the investors, the original investors in the the private equity company. looking at those incentive structures. Yeah. Fees. Yeah. Okay. >> Um what do you make of >> like when these private um private credit chiefs say like let's say like some of these folks are going to think that they're going to benefit from the turmoil or maybe there's opportunity or maybe there's a way to spin it. I think you don't buy the argument. But what do you make like what do you make when you hear that kind of language? Are there things where you're like just >> Yeah. What do you make of it when you hear that? >> My uh my former colleagues and and dear friends at Bear Sterns used to talk that way and also a lot of our friends at Lehman Brothers, you remember, used to talk that way and now they're not here. Those companies failed and they went away. So none of these non-banks have any kind of promise of support from the US government. And if they get into trouble, even something as big as Black Rockck could get seriously damaged uh by revelations about more mistakes in their their investment book. So I I think you've got to be very careful making comments like that if you work for one of these big firms. You know, humble is good at times like this and you want to be talking to your lenders and making sure you've got the liquidity you need. Black Rockck has had to take money out of their own pockets and the pockets of their employees to pay redemptions to investors. So that tells you what's going on here. They're maximizing liquidity any way they can. And I think it's inappropriate for these guys to be making comments like that, Julia. >> Mhm. Yeah. You've seen you've seen uh you've seen that movie before. >> Yes, we have. And it it always ends the same. You know, it's like all the remakes. doesn't matter how many times they do it, you know, total recall, whatever you want to look at. >> Yeah. So, let's um let's kind of look at it also from an investor lens. Um a lot of folks are always going to be interested in how you want to be allocated position, how you're thinking about these things. Um you said in the letter or the the rep um you're not inclined to go long any financials at this stage. like maybe just talk to me like how you're thinking about it from the investor lens. >> Well, I I bought some more gold this week. Uh I bought some physical silver. You know, it's it's that kind of weak. I I have taken some money off the table. I think, you know, we talked about before the fact we're buying a house down in Florida. So, I thought I would like to have the cash I need right now to go to that close instead of waiting to see where the market is in, you know, the beginning of May. Uh, so that kind of tells you what I think about this market right now. Um, I I don't like financials because they're still overvalued. If you really look at last year, that was an extraordinary year. And, you know, they haven't sold off that much. The whole group has certainly churned. We talked about this. JP and all the big large cap banks are down in the bottom quartile of our group, which is remarkable. the the best performing company uh in the bank group right now is a bank in Indiana, you know, a little wholesale regional bank. So, I I I think for me the uh finance companies, the non-banks have sold off the most. They're down 20 and 30%. Are they a deal at this level? I think I could wait for that one, too, cuz I I think I'll be able to buy any of those two months from now. At least at the price I see now. I think you're going to have more contagion and more revelations about mistakes by these companies. So, I see no reason to rush in. I bought some more income the other day. You know, I I've been growing my position in Anley. And um you know, things like that that throw off cash flow and don't have very high betas is kind of where I want to be right now. Low beta means it moves less in the market and that's good. >> Yes. Um, you quoted I actually don't know pron how to pronounce this guy's last name. The guy from Namura, Charlie, is it >> Miguelot? >> Melot Irish name. Yes. >> Miguelot. I should know that I'm married to a guy with an Irish name, but he Americanized it. It's Coughlin, but it should be Cochland. Um, but okay. >> All right. So, you quoted his letter um or his note that every asset class is short interest rate volatility. So with commodities, inflation and rates all repricing simultaneously, >> how should investors rethink uh risk management right now? >> Well, last year we had a lot of risks, market risk and credit risk, understated. And this is kind of a hangover from the Fed. When the Fed throws a lot of money around and and makes money cheap, they tend to push up asset prices and that causes default rates relatively, right, uh to fall. uh net defaults on one to four family homes right now is still around zero incredibly enough and that's because home prices went up a lot. It's hard to lose money when you make an 80LTV loan, right? The borrower puts down 20%. And in three or four years from now it's 50 because the price of the house went up so much. So, you know, it it's been an extraordinary time. Credit has been as low cost as I've ever seen it in my experience as an analyst going back 40 years. And I think most financial professionals know that this was an extraordinary time. So I think many institutional people, risk professionals are getting ready for a time when credit is going to have a higher cost. And that's why I think part of the volatility we see today with these revelations and the related selling and the war in the Middle East is is partly reacting to today, but it's also partly a little bit of people looking over their shoulder and thinking about the past year, year and a half and what it's really meant because we've had an easy time in finance. We've had a very easy time in risk and I think people are starting to wonder if that's not coming to an end. >> Yeah. Um, >> and that's why I think the Fed's got to cut rates ultimately. >> Do you think they're going to be Do you think they're going to though? >> Yes. I I think they are going to see some things that are going to give them great pause and when they pause long enough, they're going to meet and they're going to cut interest rates. >> Do you think it's Do you think it's uh the March meeting or further out? >> Uh, it could be March could be March and then uh a couple months and another one. But I just think that when you see contagion and when you see American soldiers uh in battle overseas, the Fed tends to lean into the market at times like this. Uh I think arguments about uh the economy and inflation are going to kind of go to the foreground in a sense because credit you know especially when banks are involved is a lot more of a problem. If you start seeing banks reporting losses on these private equity and private credit exposures in the first quarter, that's going to get the attention of regulators cuz to be honest, they've been sound asleep. You know, the federal bank regulators have done nothing to react to the increase in exposure by banks uh lending to private equity funds and the rest of them. You and I have talked, you and I, you and I have talked about this like a lot of folks, investors, they still don't understand the level of risk um that's been taken in private credit by the banks. And you also point out that nobody in the Trump administration is talking or thinking about financial market contagion. So the question is, should they be and who should be sounding the alarm? >> [snorts] >> Well, in theory, it should be the chairman of the Fed, but Jerome Powell is a strange doc. He doesn't want to talk about the budget deficit. He doesn't much want to talk about the markets, even though he clearly understands it. He's made some comments in the past to indicate he does very much understand market risk. So, I don't know, Julia. It's just it to me it's really strange. I talked about Paul Vulkar today on X in a couple of posts because he would have been screaming. Uh he would have been pounding the table because when you see risk growing as fast as it's been growing uh to these non-bank financial companies, the question is why? You know, if you take current loans, which is about 1.5 trillion, and then you look at the amount of unused credit that banks have offered to these companies, it's like $4 trillion. That's a pretty big number. Uh that's more than the capital of the entire banking system that's at risk with non depository financial institutions. I think that's kind of inappropriate and it's a big piece. You know, it's more than uh 6% of total assets now. So that's why it's important to look at this. Whenever something moves a lot in in risk management and finance, you always want to know why. Why is that thing moving so much compared to everything else? And this is the fastest growing asset class of the banks right now. >> Yeah, it does make me kind of wonder like you mentioned Paul Vulkar like his style of intervention. It sounds like that's what's missing today then at the Fed. >> Yeah, there you know in the old days they would just pick up the phone and call whoever they needed to speak to, speak to them, put the phone down. I remember I asked the Fed governor once. I said, "Why did you let Wells Fargo uh you know linger for so long before you crack the whip and you know impose sanctions on them for their various problems operationally, right?" He said, "Oh, we don't do that now." Well, you see, that's the problem. Everybody is afraid to uh commit. Everybody's afraid to take action. We become so oified and bureaucratic that we don't get anything done. Uh but, you know, there's some hope. I I I'm a big fan of Mickey Bowman at the Fed. She's now the the head of bank regulation really in the United States and I think she ought to pay more attention to non-bank risk. I'll tell you that. Hey guys, thank you so much for watching this video. If you can just take a quick moment and hit that subscribe button, we are trying to hit our next goal of 100,000 subscribers. Really appreciate you. And back to the video. Let's bring up tariffs real quick because you did call the tariff refund story a huge nothing. Yeah, >> even tariffs have just been a total distraction. Like I >> I feel like no one's talking about it anymore. >> No, there's nothing to say. I mean, you know, it's trade. I covered trade for many years. I It's just not relevant to an investment discussion. Having to refund $175 billion is not a big deal. Uh the Trump administration's already moved on. And I think if we're talking about what do we do with our money, then I'm not really sure we want to spend a lot of time on trade. Uh I know economists love it, some people love it, but we should move on. >> Mhm. And um just to go back to the precious metals point, you said you're more confident than ever on your precious metals longs. >> Oh, why? >> The Western exchanges in London and Chicago are are losing it. they they don't have enough metal to deliver. Their pricing is no good. And what you're seeing is that the Asian exchanges in India and China are basically using local pricing now which is significantly higher than the western benchmarks. Uh I think it's just a matter of time before uh the comx is going to have to stop trading gold and silver because they just are not they're not competitive anymore. And when you see countries like India basically telling their citizens not to use western uh benchmarks as a pricing reference, I I don't know what else to say. Uh there's a big shortage of metals in the Far East. All kinds of metals, by the way, Julia, not just gold and silver. Uh but there are a lot of commodities that are in relatively short supply. And of course, the Chinese are are the big buyers in many cases. They're the ones that are pushing this. But they don't even have adequate supply to deliver metals in Shanghai. Think about that. Uh that's now the price leader in gold and silver in the world. So I think there's a fundamental supply issue with both metals and that's why I'm pretty confident to keep our positions and grow them. In fact, >> so there's a supply demand thing here where okay with the physical delivery then I have a random question then. What does that kind of mean for the ETFs where if you own the ETF you it's a way to play the price of it but you you don't actually own gold like you don't have the physical gold like in your safer >> you settle in cash and this is what people have been worried about with respect to the comx is that they were worried that the comx wouldn't be able to deliver metal on their futures they would just cash you out you know they'll declare force majour and say at a certain point they would just cash you out >> and that you know that's not the point when people are long metal they want to receive yeah they want the metal >> so that's a big breakdown in the market structure in the west and London has the same problem so I I think that we're seeing the continued movement of the epicenter of precious metals trading going to Asia you know the Middle East too Middle East is a huge component of the gold market when all of the hostilities erupted this It impacted Dubai. It impacted many other markets in that region. So, you know, how markets function, especially with gold and silver, includes delivering the goods. Uh, many other markets just settle in cash electronically, right? So, you don't have to worry about that. When you're talking about gold and silver, people oftenimes want the metal. >> They want it delivered. >> Yeah, they do. I know things move so fast. Um even gosh with with within a day of even talking to you we had um the escalations in Iran may I just want to focus more of like an investor perspective like how are you thinking about it and how much of an overhang do you think it will have on the markets? >> Oh it's going to be a continuing negative. Uh there's you know uncertainty about what's going to happen. Uh I don't think there's an endgame here. People keep asking if Donald Trump has an endgame or Benjamin Netanyahu and I think no. They don't believe that they can negotiate with the government of Iran. They want to, you know, somehow affect regime change. I don't think that's a realistic goal. So, we've started this, you know, this war, but I'm not sure there's a clear way for either Israel or the United States to come to an end point that's satisfactory to them because ultimately they want to deprive Iran of the ability to use nuclear weapons. That's what it comes down to. Um, before we move on to the viewer questions in your piece and again Chris, I learned so much from you and I know you as like a financial historian as well, but maybe even a historian more broadly. I remember this from high school history, so don't like make fun of me. I I remember the teapot dome. I don't remember the details. I know it was around corruption and Warren Harding, but you draw an analogy or parallel between Trump and Warren Harding with a reference to the teapot dome. Can you explain that? >> Well, during uh the the Harding administration, the Interior Secretary took some bribes and he let a bunch of private companies exploit uh petroleum reserves on federal land. And for a while, President Harding pretended that he had known about this and it was okay. He actually sent written communications to the Senate indicating that this was okay. But it turned out it wasn't. And it was a horrible scandal. And it was also a precursor to the crash of 29, the roaring 20s, as you probably recall the phrase, right? >> Was a period after World War I when the country went into a speculative uh period that was really unparalleled. They were discovering all sorts of new things. You had investment trusts which were the new thing on the block, you know, kind of like private credit. So there were many innovations at that time that people didn't understand and you had speculation in real estate in Florida. People were selling little square inches of Florida real estate. Mr. Ponzi, when his first scheme collapsed, he went to Florida and he was selling Florida real estate. So the the point of this is that I think the Trump administration is going to end in another financial crisis. We're going to have a correction in residential housing prices. That's why Chris is hitting the bid this year, by the way, guys. Pay attention. And uh I also think that the financial markets may see a substantial correction simply because we've had a period of craziness of monetary excess and then the private sector has taken that monetary fuel and they've gone off and done even sillier things with it uh in the hope of earning big fees. So it's the same old story. We've seen this movie before, but it's different than 2008 that was about residential housing and finance related to that. This is much more of an institutional story. Commercial real estate, private equity, private credit. And you know, I think it'll end the same way, but the opacity of these markets is very different from the markets we had with residential housing. >> We should do a whole episode on but like, okay, if it ends on the commercial, >> we get a picture of Warren [clears throat] Harding. [laughter] >> Yeah. If it's the commercial side though, Chris, like do they get like a bailout? It's probably kind of hard to feel so sorry for the commercial side of things versus, you know, mom and pop on Main Street this time. >> Yeah. Well, the banks will get beat up cuz they made the loans. Uh bailing out these non-bank financial companies and Black Rockck, I don't think so. Uh the politics of that are pretty tough. So, you know, in the current political environment, especially if the Republicans lose the House, uh it would be difficult, I think, to get a bailout for a uh a private equity sponsor through the Congress. These guys make too much money, Julia. They're just not sympathetic figures. >> Mhm. Okay. We're going to do another episode on that. Let's do a a rapid fire round because we have quite a bit of viewer mail. And folks, you can leave your questions in the comments or email me. We love this. So, all right, Chris, you kind of referenced it, but Manish would like to know. Chris, if someone bought an annuity from Athen, would that be at risk if private credit blows up? >> Well, yes. The short answer is any of these insurance companies have been putting private equity related investments on the asset side of the ledger. Uh the liabilities is your annuity. So, you want to follow that very closely. uh many of these companies have moved the insurance uh liabilities offshore to some of the islands. So that's another factor. But yeah, I I think there's half a dozen different private equity uh sponsors that own insurance companies. And again, as we said earlier, it's really inappropriate to fund annuities with things like private credit and uh all sorts of debt that's tied to those strategies. You need something that's a little more liquid, a little more uh reliable to pay out on an annuity because that's an immediate liability that's not like a life insurance policy. >> Andrew would like to know, is there an MBS story to this private credit unraveling? >> Well, I think certainly, you know, it's a good question. when the markets are royd and you see uh yields going up even though there's supposedly a flight to credit which should uh help these markets um I think you know the the agency market the government market no private label securities yes because when the markets are upset liquidity disappears in the private loan markets even though these are secured assets as somebody's house but it doesn't have the same liquidity as Fanny May Freddy Minnie Okay? Because they have market access. They can sell securities easily. Uh uh whereas private loans, what we call the jumbo market, which is where banks buy loans, is is much less liquid. And it comes and goes. The the buyers there are big investors, insurance companies, the black rocks, that sort of thing. And when the markets are upset, then they'll pull back and they'll drop their prices. And that's why that's so important. >> All right. Finance a lot on X um wants to know your thoughts on the sudden spike in the Federal Reserve's balance sheet of T bills and how concerning it is that they weren't able to return the balance to zero. Currently, it has surged to 329 billion higher than the 2020 crisis levels of 325 billion. >> Well, good question. Um but finance law has this wrong and I'll tell you why. The Fed's idea is to kind of mirror the term structure of the Treasury market. So, they're always going to own T bills. The question is how much? During COVID, that number got really big. Uh, if you pull up what's called the H41 on Google, you'll see that's the weekly statement from the Fed on their balance sheet. And all of this information is there. So, my sense is that 329 number is kind of where the Fed wants it to be. They would like to get rid of their mortgage back securities as quickly as they can. And I think that when you see Kevin Worsh confirmed by the Senate to be the next Fed chairman, they're probably going to do a deal with the Treasury where the Treasury swaps the Fed uh Treasury securities, probably bills and notes uh for those mortgage back securities to get them off the books of the Fed. I've tried to tell Bill PY at the FHFA that they should be buying this low coupon stuff and repackaging it and selling it to insurance companies. Just get rid of these old bonds from co Julia cuz you know ironically low coupon loans and bonds like that the two and 3% coupons they actually make interest rates higher because nobody wants to hold that paper. It's a dead loss if you're a broker dealer and you're paying four or 5% for funding, right? and you're going to go out and buy a Fanny May 2. No, you're losing three points a year. So that that whole area of the market is is illquid. And same thing with the treasury market. All those notes that were issued during COVID are just totally illquid. Nobody wants them. So we should be buying that paper back and reissuing current coupons and that would help market efficiency a lot. It would force mortgage rates down too. >> And final question from viewer Horatio. So, could this organic movement back to commodities, especially gold and silver, create a metalbased monetary system again or maybe a hybrid? >> Well, great question. Um, people have been speculating about this a lot. What I would tell you is yes, we're kind of heading to a de facto uh goldbased monetary system anyway because central banks are buying gold. They don't need to back their currencies one to one with gold in order to have a gold standard. In fact, you could have a de facto gold standard with 20% metal behind your fiat currency. The big countries are not going to stop using fiat currency because they just don't have sufficient liquidity to to go in that direction. And also, I think they want the flexibility of being able to uh to vary the amount of currency they have in circulation. and we certainly do that in the United States. So, my sense is all of the major central banks are going to have gold as their backs stop and then they're going to have fiat currency. That's the day-to-day means of exchange for their people. >> All right, final parting thoughts and what are you looking at next week? >> What am I looking at? Same thing I was looking at this week, which is, you know, uh what's going to happen with these equity markets. I have been just fascinated by how little the banks have sold off even though the big guys have fallen relative to the rest of our group. We we know follow a little over 100 banks now that are above $10 billion in assets. So that's been fascinating. So is still at the bottom of the list even though they were the leader last year, Julia. So there there's a lot of churn in this group. I think there's some opportunities here but I think we want to wait. Let's wait for that rate cut and then it might be time to look at some of these stocks because they're still too expensive. JP Morgan at 2.3 four times a book. That's still kind of expensive. Uh they were over three. So, we'll see. I'm uh I'm I'm keeping my powder dry, >> but I uh I I think you know the Middle East is obviously going to be the big story next year uh next week. Mhm. Well, this has been another great episode of The RAP with Chris Whan and I want to thank our new partners, Gold Co. Head over to goldco.comthereap for more details or click the link below. Thank you so much, Chris, and thank you everyone for watching. Thank you, Julia.