Chris Whalen: Private Credit Is Unraveling, Consumer Credit Is Cracking, and Silver Surges
Summary
Private Credit: The guest argues private credit is unraveling, unsuitable for retail due to volatility and illiquidity, with fee conflicts and insurance-linked funding (via FHLB) elevating systemic risk.
Liquidity: A major theme for the year as investors rotate from private to public markets and away from speculative assets, prioritizing cash flow visibility and tradability.
AI/Tech Selloff: Despite beating estimates, NVDA sold off as 2023’s exuberance fades; software and big tech have given back gains amid valuation resets and investor fatigue.
Banks & Consumer Credit: Bank earnings rose but stocks sold off; deterioration is expected first in subprime-heavy consumer finance, with heightened caution around banks’ lending to non-bank financials.
Mortgage Market: Rates dipped below 6% with aggressive lender pricing tied to the 10-year Treasury; UWMC posted strong volumes but raised questions by skipping Q&A, while refi activity needs sub-5.5% rates to unlock.
Payments/Processors: Legacy payments player FI sold off sharply despite no fundamental blow-up, reflecting institutional de-risking after a hot prior year.
Precious Metals: A secular shift sees Shanghai and India setting prices as COMEX/LME relevance wanes; constrained mine supply and strong Asian buying support a long-term bullish stance on gold and silver.
Transcript
But I think the markets aren't necessarily going to go down in a broad sense because you're still a der of assets. You have people migrating out of private back into public Julia, which I think is a trend that's going to continue this year. Why? Because they want liquidity. Hey everyone, welcome back to another episode of the rap with Chris Whan where we break down what's happening in markets and the economy every single week. Chris, great to see you as always. >> Hey, good morning Julia. >> Good morning. Okay, Chris, um let the topic that we covered last week was incredibly popular with this audience. Um, we did a deep dive into private credit and you wrote in this week's edition of the rap that the world of private credit is unraveling pretty much as we predicted. I want to give you that credit. So the question is, do you think we are now at the point where retail investors will start running like they did with Silicon Valley Bank? Are we there yet? >> Yes. Uh one of the things we noted in the the blog uh uh today is that you know retail investors were never suitable for private credit uh investments and the reason is they have no tolerance for volatility or a lack of liquidity. If you're a big pension fund or, you know, an investor, an institutional investor, and they tell you that there's something wrong with a portfolio company and you have to wait for a while before you get your distributions, that's one thing. But you can't say that to retail investors, and that's why it was always wrong to put retail investors in these private credit trades. They're just totally unsuitable. Uh you have big people, the head of Apollo and some of these other companies telling everyone that private is better than public. No, that's wrong. Public markets are always better. And now these same companies are being punished because they are public. They have stock like Blue Owl. Uh all of these companies have been selling off dramatically in the uh portfolio that we maintain. And the reason is again, you know, retail investors look at this and they're not sure what's going to happen, so they get out. This is what retail investors do. And of course, we reminded everybody of Silicon Valley Bank where 40% of the deposits of the bank walked out the door in a day. Uh, everybody's got a cell phone, right? The big smartphone, you move your deposits. So, you know, in in this day and age, it's really unreasonable, I think, for professional investors to put retail uh people into these investments. >> I guess like it makes me wonder like why why did they do that? Because it maybe there's maybe there's like a short-term near-term benefit, but it sounds like it's a lot more painful on the way out. >> Well, they did it because they want to earn fees. you know, many of the private equity funds that are illquid today that can't pay their investors back are still earning fees. They get a fee every year. So, you know, there's a bit of a a conflict of interest here, if you pardon my saying, uh, which basically is that these investments have gone bad, but the managers of the investments, whether it's for retail or institutional clients, are still getting paid. And I I have a problem with that. If people make mistakes, the manager should not be paid for that. Uh and so, you know, this is just part and parcel of Wall Street. If they can get away with it, they will. >> Gosh, they love the fees, don't they? Um >> two and 20. That's right. I >> I had another question on um fees because I'm still trying to wrap my head around it. um the the insurance side of things like some of these kind of like these insurance I don't know if you want to call them what's what's the deal with like the private credit and the insurance kind of part of that and is that also is that just like another fee structure? >> No, what happened is many of these private credit shops studied the model first established by Warren Buffett. Warren Buffett went out and bought an an insurance company and it's a neat place to put assets because insurance companies carry everything at book value. They don't mark to market. So what's happened is Apollo and Aries and Brookfield even Blue Owl have either acquired or have access to insurance companies and what they do is they go out they buy annuities for retirees and they fund them with a variety of different assets and strategies. And one of the things we discovered in the past week, somebody reminded me of this the other day uh when I was down in Houston for a mortgage conference is that the uh the fact that these guys own insurance companies lets them borrow from the federal home loan bank. Can you imagine that? So you have Apollo and the rest of these guys getting funding that's financed and subsidized by the taxpayer to finance their strategies. And what's really weird about this, Julie, is that banks are the primary members of the federal home loan banks and insurance companies, too. They've been members going back to the beginning of the system, but they don't want independent mortgage banks. So, they'll fund Apollo, but they won't help fund a independent mortgage bank that's actually making people loans to buy a house. I find this extraordinary. I'm going to write about this some more. >> Oo, you definitely should and we should talk about it, but just that's interesting. they're allowed that lets them borrow um federal home >> loans the insurance company >> if they're the insurance company. >> All right. Um does does this create contagion? Like does it create worries around contagion? Then >> I think it does because you know the home loan banks are their business has been declining. Uh commercial banks are not using them as much as they used to. So obviously they're looking for ways to go out and earn money. uh and by banking these large insurance companies. That's one of the ways that they do it. Uh it's really quite extraordinary. But as I say, I'm going to do some more research on this and we'll probably do a piece in the blog which we can talk about next time. >> Yeah, we'll definitely look forward to that, Chris. All right. Um while staying on the topic of markets, let's move on to the acceleration that we've seen with this AI selloff. We had Nvidia B estimates this week. Um >> y They had a fine quarter. >> So, >> but you know what? People don't care anymore. Uh, a year ago, you know, Nvidia was the really the top of the heap and when they reported big earnings, the stock screamed. Now, I think people have a different attitude and even though Nvidia had a great quarter, even though they're beating the hell out of a couple of their competitors, uh, the market reaction was to sell the stock. So it was very different uh reaction this year versus last year. >> Do you think it's a is it just a valuation reset or do you think it's something more structural? >> I think last year was such an extraordinary year it would be really hard to replicate it. Also there's been a lot of selling in the software sector and much of this is financed with private equity of course. Uh so you know I think there's a combination of overvaluation that we saw last year and just investor fatigue. You know they will only run so hard and so high and then these stocks trade off. So Nvidia all of them have traded off dramatically. Microsoft you know if you go down the list of the big tech companies all of them have given up a lot of the gains from last year. And I think that's going to continue. It's probably going to bottom out at some point in the next couple of weeks. Uh but there's other sectors, banks, uh business development companies, obviously the credit companies we were just talking about that have all sold off and not just the new ones. Uh one of the more remarkable things we noted in the blog is that Fiserve, which is a big legacy payments company, was the bottom of our group of finance companies. Uh it was really quite astounding. 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. Okay. So when you look at the sell-off across those parts of the market like tech in particular, SAS stocks, why do you think the broader market has still held up? Like what do you think's going on? >> People are moving out of the more speculative stocks into uh consumer durables and things that are, you know, have more cash flow and less volatility. So, I think the markets aren't necessarily going to go down in a broad sense because there's still a der of assets. You have people migrating out of private back into public, Julia, which I think is a trend that's going to continue this year. Why? Because they want liquidity. >> Uh liquidity is a very valuable asset. And when people realize a lot of these uh private strategies do not have liquidity, then they're going to get out. Uh we also have some interesting things going on in the mortgage market because there's been a boom in private lending especially big loans that you can't sell into the agency market and everybody's kind of wondering if that's going to keep going on because again that market has a liquidity issue. Uh it's not like you can just sell them into a pool next month the way you can with a loan from Fanny May. uh the agency and the government markets have an outlet for loans whereas in the private market you got to sell a loan to an investor or a bank and that's a very different proposition. So I think liquidity this year if you want to just pick a theme is going to be something you and I are going to talk about for the entire year because last year nobody worried about liquidity. you never heard about it >> and whether you look at crypto or you look at the software sector or you look at any of these other really hot sectors that had moved a lot double digits right I think you're going to give a lot of those gains back this year >> okay so liquidity is going to be the theme for the year um okay let's go on to the banks um okay I don't know if you would call >> we're just doing our quarterly I've been staring at the numbers this morning It's very interesting. Uh banks made more money this uh quarter. Their earnings from assets are up. Um nothing really going on in terms of credit. It's the same old same old, right? Consumer credit is very quiet. Um but again, you're probably going to see that change this year. I would anticipate that consumer credit is going to start to deteriorate. We're already seeing it at the bottom of the stack. One of the things I watch very closely is the FHA market because those are lowincome borrowers with relatively low credit scores and they are already seeing a big jump in delinquency. So you're going to probably see that ripple through the whole stack as we go through the year. >> Okay. So consumer credit that's an area to also watch if that starts to deteriorate because it it seems like it had been holding up quite well, right? >> Oh yeah. Last year the loss rates were going down and banks were actually reducing the amount of money they put aside for future losses which is is quite remarkable. Um but I think this year as I say you know if you want a company or a couple companies to watch watch Synchrony watch Capital One uh watch City Group because all of them have relatively subprime uh portfolios and they will turn first. you know, the JP Morgans and the Bank Americas have pretty pedestrian consumer profile. Uh so you look for the the market leaders in terms of default rates, especially synchry, that'll tell you what's going on. If you see their loss rates go up in the first quarter, that's going to be a very interesting sign for the year. >> Okay. Um, in one of your pieces on the institutional risk analysts this week, you said you said that Cityroup leads the money center banks, but there's more risk than reward in large bank stocks right now. Where specifically do you see the most danger than or risk? >> Well, they all had fine earnings and they all sold off in the fourth quarter. Uh, almost every one of them sold off. This was partly, I think, because people are wondering what they're going to hear next quarter. and they also see what's going on on the commercial side, software stocks, private credit, private equity. We saw a 7% increase in loans by US banks to non-depository financial companies. These are basically funds and and uh you know the Aries and Apollos of the world. So people are worried that the banks are going to take losses on those loans down the road. And I think you're going to see managers much more careful about which banks they buy. If you look at our group right now, all of the big banks are in the middle. These guys were the leaders last year. And what you see is story uh stocks, midcaps, small caps in the top 20 25 names that we follow. So it tells you that there's been a lot of churn in this group, Julia. And I think, you know, equity managers are lightening up on large cap stocks and they're looking for places to hide right now because they're not really sure what to do next. >> Okay. So, they're looking for places >> even though we're going to we're talking about Fed rate cuts, right? But even with that, the narrative of AI, the narrative of tech has broken versus last year. So until we come up with a new story from Wall Street, and I'm sure they're working on it right now, um you know, there it's going to be hard to get the herd to move back into some of these stocks. >> That's a good point, Chris. Um okay, so you you you track like this list of like I guess financial services companies, banks, and whatnot. >> A few minutes ago, you made a brief mention about um Fiserf being at the bottom. Wait, what were you saying about Fiserve and is that >> an opportunity? >> It's a legacy payments company. They were historically involved in the mortgage market. They still have an involvement there. Uh there's nothing wrong with the stock per se, but it's sold off rather dramatically. When you see it at the bottom of the list along with Hood and Owl and all of these newbies, it's kind of uh remarkable to see that. uh this is a large cap stock and yet for a variety of reasons I think institutional investors have decided to lighten up on it. It had been doing very well last year but it's an example of a stock that ran really hot in 2025 but has cooled off pretty dramatically. >> Mhm. Yeah. Okay. Um I want to move on to mortgages. The mortgage market housing um you saw the 30-year yeeha right? Okay. 30-year rates, they dip below 6%. So, does that last or do we see the Treasury volatility just push them back up? >> I think lenders are getting more aggressive. Again, remember, we've talked about the fact that lenders set coupons on loans and the bond market is determined by uh institutional investors. Um, people are anticipating another rate cut. They're not quite sure when that's going to come. They have to keep their eye on that 10-year Treasury, though, because that's where we price mortgages. And as I was saying to one of my colleagues this morning, when you see lenders get aggressive, it's not so much that they, you know, are going to make a lot of money on the loan. They usually are down a point or two on cash when they sell the note to an investor in the bond market, but they want to keep that servicing asset. And if you looked at earnings, we just had earnings from Rocket, really good, great volumes. uh a very very good uh earnings report. Uh we also had a report from United Wholesale Mortgage. Again, good volumes. They didn't take any questions though, which kind of shook people up a little bit. Uh the CEO of United Wholesale is known for loving to, you know, get up and mix it up with investors and analysts on their call. So, when he didn't take questions this quarter, that really made some people wonder. Uh but overall, you know, the industry is doing well, but there's still not that much volume out there, and they're fighting for every loan. So, when you see rates come down, what that tells you is that the lenders are getting more aggressive. Um, as I told you, Julia, we're buying a house down in Florida. Uh, I'm not going to price that loan until we close. Uh, and the reason is I expect rates to fall further. >> Oh, interesting. Okay. So new you're thinking a rate cuts uh coming then >> well we'll see we'll see uh there's there's no clear catalyst in terms of the economic data one way or another um if they have Kevin Wars seated as chairman I anticipate that he's going to push for another quarter point rate cut in the target for Fed funds. We'll see if that happens. I'm I'm still not sure he has a majority. Uh there's a lot of governors who actually wanted to raise rates at the last meeting if you go through the minutes. That's right. >> You know, it it's it's kind of an unclear picture >> and you know, everybody's got to look over their shoulder at the Treasury and the budget deficit because every few weeks they go in and they raise 3/4 of a trillion dollars and you know, guess what? The tenure goes back up. Let me see where are we this morning? Yeah, 10 are 3975. So, they've rallied a good bit through um through 4%. As long as they stay underneath 4.1 or so, rates will stay below six. If you see that 10-year rate go back up over four and start to really back up, then mortgage rates are going to follow. >> Where what would be like ideal for you for your mortgage rate? Like what would make you happy or like >> three I mean I'm I'm G >> I'm giving up a three and I'm be you know if I could get a five and 3/4 or five and >> uh 78 that would be fine. >> Do you think >> and I'll sit with that loan for a year or two but if we see rates go lower I'll be ready to flip it and refinance it. >> Yeah, refinance it for sure. But do you think um do you think we'll see like a pickup in activity and housing? Like are you anticipating that >> if rates fall further we got to get down to below 5 1/2 even 5 and a quarter cuz remember uh more than half of all the loans in the US today the existing loans have coupons below 5%. >> Mhm. >> So in order to talk to those people about a refi or coke into selling their home uh you've got to see rates fall further. >> Yeah. Because like if you have that three, why make >> Listen, President Trump is right when he says that rates are still too high. If you look at where interest rates were going back to 2010, 2012 when the Fed was using quantitative easing all the way through to today, we're still a good point and a half above where we were during that period. Now, you also have inflation is an issue, right? But just in general, if you look at market rates and if you look at spreads, remember we wrote about the the spread between the 2-year and the 10ens as one of the more important indicators. Uh rates are still pretty high. So, I think uh Kevin Worsh is going to be able to make the case for another rate cut. The only question is when. And if he could do that before I close the mortgage, that would be great. >> Yeah. And I guess like you think he could get the consensus for it? >> I think so. um when you have a new chairman sitting at that table, the other governors are going to try and work with him uh simply because they do work on consensus. And if you had a a very wide difference between uh different governors and by the way, we may still have Governor Powell sitting at that table. And you know, he he could end up as the leader of the opposition against a new chairman. So, you know, nobody wants to see the Fed gridlocked. And my suspicion is they would give him another quarter point if he asked for it. >> Okay. The last time you and I were recording, a few hours afterward, we had the Supreme Court um ruling on the tariffs. Maybe just a week later now. Um I don't know, game changer or just noise. just noise. You know, last year when uh President Trump first announced his tariff campaign, uh we told our readers to ignore it. That's right. Focus on uh the markets. And that's my advice today. >> I know media and economists and talking heads love tariffs. They love to talk about tariffs and try and calculate the impact, but I don't think it's easy to figure it out one way or another. Is it inflationary? Perhaps. Uh, but I think we have more important things to focus on to be honest with you. >> Yeah, it seems like the market kind of shrugs it off anyway. Like you said, it was a distraction. Yeah, >> I remember that. >> Well, a long time ago, I helped my dad write a book called Trade Warriors when everybody was worried about Japan. And we interviewed members of Congress and talked about their states and the industries and their states and all the rest of it. >> But today, I think this is mostly noise. It's mostly politics. Mhm. When you say the market has more important things to focus on, like if you had to like list them off, what would be like the most important things right now? >> Uh long-term interest rates. Um getting them down. Uh the spread between short-term and long-term is still only about, you know, half a point, a little more. Uh during COVID, it was a point and a half, which is why people were making so much money. Uh I think structurally it's going to be hard for us to get mortgage rates down because of the Treasury. They have to borrow a lot of money. So that's the stuff I worry about. I am worried about credit uh you know surprises uh if we get a surprise coming out of private credit or any of these non-bank companies that could be very bad for the markets. >> Mhm. All right. We have to talk about precious metals because this is just an area area you're becoming so well known for and writing about it and covering it and I know you you even have your um Whailing Global Advisors list. I don't know the exact title for um >> for the space. >> It's basically metals. Uh we're going to price it every month and just show people where each of the uh stocks are funds miners. We've been putting this list together by talking to a variety of uh of managers both here in the US and around the world. But the key thing we wrote about this week, Julia, is that the ComX and the London Metals Exchange are losing their role as the price setters. uh the Indian government just came out very similar move to what we talked about in China and they're basically telling people to price their silver using domestic markets instead of the comx in London. That's that's a big deal. >> Okay. Because you've talked about this, you wrote about this as like a seismic shift that's underway in the global market for silver. >> How close are we to a real break in comx pricing? Yeah. How close do you think we are? >> Well, the key thing is they don't have enough metal to deliver against their futures contract. So, if they have to declare force majour and then net everybody out in cash instead of delivering metal to the longs, uh I think the comx is done. I think they're going to be forced out of this business. >> Wa. um you know there is a der of deliverable metal in both the gold and silver markets which is one of the reasons I've been cautioning our readers and saying look you know yes you've seen volatility in these metals especially if you look at the US prices but frankly Shanghai and India are going to become the price setters as we go forward and I think people have to be very careful about where they look for prices because you know the complaint with the comx has been that the price is not following the actuals in the far east and I think the far east markets are frankly a better indicator of price. >> Okay. What are the far east markets showing then in terms of price? Like what is the implication here? >> Higher. >> Higher. Oh prices. >> Yeah. >> How much higher? >> Uh significant you know singledigit percentages. Okay. >> And if you're a seller of physical silver, if you produce silver, you want to go where the price is uh is real, where the price is higher. So that's the problem with the Comx. They have not been tracking global prices. >> Okay. Is this a secular shift? Um or is it something just temporary? Do you think this is like a >> No, this is a long-term secular shift. If you read the interview we did last year with Henry Smith on on our website, Henry is a long-term investor in metals going back decades. I've known him for many years. And you know, he set the stage. He talked about how the Chinese had reintroduced the world to gold as a monetary asset by opening the Shanghai exchange. And I think all of the major producing countries also you know countries like India where silver is extremely important uh for jewelry and other uses are are going to look to the Asian markets more than they're looking to the western markets. The western markets you know have become irrelevant. And I think that's the big change Julia. This is a secular change that's been coming for many years. And it supports our thesis. I think that the uh metals are a long-term uh buy in in terms of portfolios. I've been increasing my exposure to both gold and silver. Yeah. >> Even with the volatility. >> I was going to ask you then like where does this fit into your portfolio and your outlook for gold? And obviously >> we own gold, silver, we own a couple vehicles that invest in in the junior miners. Why? Because there's not enough productive capacity out there. It takes years to create a mine and get it qualified not just for gold and silver but copper, nickel, all of the major strategic minerals. So when you look at that, when you look at the Chinese purchasing of these metals, which is very aggressive, um it's hard to come up with a short strategy. You know, I think in most cases you want to be long these markets. >> Okay, Chris, we did get a viewer question. And I know you also addressed it in the um the rap itself, the blog. >> I'm going to put the questions in the in the blog. I love it. >> Okay. Well, can I'm going to ask it here for you as well. Um all right. So, this viewer writes, "Julia, can you ask Christopher Whan about Basel 3 when he comes back on your show? It is my understanding that under Basel 3, central banks can hoard as much gold as they want. In contrast, commercial banks tier one may hoard gold but must encumber their gold with 85% in cash or cash equivalents. Is that correct? >> Uh, no. There have been some published reports that alluded to a risk weight like your reader described for gold, but the truth is is that going back to 2012 when Basel 3 was first adopted, it's always been considered a tier one asset. It has a zero risk weight under Basil, so they don't have to put any capital up for it. More recently, last summer, you had a major change, which is that the Basel committee went even further and they said you may invest your capital in gold. And they also uh along with ISTA, the the the uh interest rate and currency swap organization that sets standards for swaps, they said you could use gold as collateral in a swap. So, you know, the whole effort by the United States going back to the 1930s to discourage people from using gold as a monetary asset, as an investment asset, I think has been pretty much defeated. And what you're seeing is that gold is not only an asset that central banks are pursuing very aggressively, but banks too. Why not? You know, if you were the Fed, think of our central bank for a minute, and you didn't have all of your investments in US Treasury securities, uh you would have done a lot better. I think the Fed ought to be adding gold to their portfolio simply as a symbol of solidity and the ability to meet obligations. And that's how other central banks look at it. It's not like they're going to come up with gold back currencies tomorrow. Uh but it does, I think, provide a a stability on a balance sheet that is very different from holding fiat currencies or securities. >> And for folks, you can send your questions in. You can leave them in the comment section. You can email me. That's right. >> Um Julia juliar ro.com. Um Chris is obviously going to write about them in the rap as well. So reach out to us with your questions. We love hearing from our viewers. It's been amazing uh seeing the show grow already. Chris, what are you looking at for next week? Like what are you thinking about? What are you going to be writing about? What are you think What are you paying attention to? >> Well, uh we're publishing our bank quarterly on Monday. I'm going to be busy over the weekend uh looking at numbers. Uh and then we're going to continue to look at earnings. There's still a few companies uh that haven't reported yet. a lot of mortgage companies, a lot of non-bank financial companies. Um, we mentioned the fact that one of our favorite portfolio holdings, Annalie, had done very well when they reported their earnings back in January. Uh, at year end, companies have more time to report than they do with their quarterlys. So, that's why this process can take two months. They have uh 60 days. And that's uh, you know, the ones at the end are always kind of interesting. You know what I mean? the last ones to report and then we'll be getting some other data for the Fed on the large banks and we're going to be writing about them as well. Uh but we like to go, you know, cover all the bases. We're going to get to medals again uh in the first week in March. We'll uh value the uh the test group we have and that's going to be very interesting. >> I love that. Well, for folks um who can't get enough of this show, we are leaving a link and a coupon code to the institutional risk analyst, Chris was kind enough to give a 25% off your first year for the viewers and listeners of this show. So, I will leave that code in the comments and in the show notes for anyone who's interested. Um we encourage you to subscribe, of course. Chris, I love doing this with you every week. It has been so much fun. Chris Whan, chairman of Whan Global Advisors, author of the institutional risk analyst blog, author of multiple books, friend of the show, the very best independent analyst you'll find on Wall Street. Thank you so much for being so generous with your time, all of your knowledge, your wisdom, helping all of us learn and get better. We really appreciate you, Chris. >> My pleasure, Julia. Have a great weekend. YouTube.
Chris Whalen: Private Credit Is Unraveling, Consumer Credit Is Cracking, and Silver Surges
Summary
Transcript
But I think the markets aren't necessarily going to go down in a broad sense because you're still a der of assets. You have people migrating out of private back into public Julia, which I think is a trend that's going to continue this year. Why? Because they want liquidity. Hey everyone, welcome back to another episode of the rap with Chris Whan where we break down what's happening in markets and the economy every single week. Chris, great to see you as always. >> Hey, good morning Julia. >> Good morning. Okay, Chris, um let the topic that we covered last week was incredibly popular with this audience. Um, we did a deep dive into private credit and you wrote in this week's edition of the rap that the world of private credit is unraveling pretty much as we predicted. I want to give you that credit. So the question is, do you think we are now at the point where retail investors will start running like they did with Silicon Valley Bank? Are we there yet? >> Yes. Uh one of the things we noted in the the blog uh uh today is that you know retail investors were never suitable for private credit uh investments and the reason is they have no tolerance for volatility or a lack of liquidity. If you're a big pension fund or, you know, an investor, an institutional investor, and they tell you that there's something wrong with a portfolio company and you have to wait for a while before you get your distributions, that's one thing. But you can't say that to retail investors, and that's why it was always wrong to put retail investors in these private credit trades. They're just totally unsuitable. Uh you have big people, the head of Apollo and some of these other companies telling everyone that private is better than public. No, that's wrong. Public markets are always better. And now these same companies are being punished because they are public. They have stock like Blue Owl. Uh all of these companies have been selling off dramatically in the uh portfolio that we maintain. And the reason is again, you know, retail investors look at this and they're not sure what's going to happen, so they get out. This is what retail investors do. And of course, we reminded everybody of Silicon Valley Bank where 40% of the deposits of the bank walked out the door in a day. Uh, everybody's got a cell phone, right? The big smartphone, you move your deposits. So, you know, in in this day and age, it's really unreasonable, I think, for professional investors to put retail uh people into these investments. >> I guess like it makes me wonder like why why did they do that? Because it maybe there's maybe there's like a short-term near-term benefit, but it sounds like it's a lot more painful on the way out. >> Well, they did it because they want to earn fees. you know, many of the private equity funds that are illquid today that can't pay their investors back are still earning fees. They get a fee every year. So, you know, there's a bit of a a conflict of interest here, if you pardon my saying, uh, which basically is that these investments have gone bad, but the managers of the investments, whether it's for retail or institutional clients, are still getting paid. And I I have a problem with that. If people make mistakes, the manager should not be paid for that. Uh and so, you know, this is just part and parcel of Wall Street. If they can get away with it, they will. >> Gosh, they love the fees, don't they? Um >> two and 20. That's right. I >> I had another question on um fees because I'm still trying to wrap my head around it. um the the insurance side of things like some of these kind of like these insurance I don't know if you want to call them what's what's the deal with like the private credit and the insurance kind of part of that and is that also is that just like another fee structure? >> No, what happened is many of these private credit shops studied the model first established by Warren Buffett. Warren Buffett went out and bought an an insurance company and it's a neat place to put assets because insurance companies carry everything at book value. They don't mark to market. So what's happened is Apollo and Aries and Brookfield even Blue Owl have either acquired or have access to insurance companies and what they do is they go out they buy annuities for retirees and they fund them with a variety of different assets and strategies. And one of the things we discovered in the past week, somebody reminded me of this the other day uh when I was down in Houston for a mortgage conference is that the uh the fact that these guys own insurance companies lets them borrow from the federal home loan bank. Can you imagine that? So you have Apollo and the rest of these guys getting funding that's financed and subsidized by the taxpayer to finance their strategies. And what's really weird about this, Julie, is that banks are the primary members of the federal home loan banks and insurance companies, too. They've been members going back to the beginning of the system, but they don't want independent mortgage banks. So, they'll fund Apollo, but they won't help fund a independent mortgage bank that's actually making people loans to buy a house. I find this extraordinary. I'm going to write about this some more. >> Oo, you definitely should and we should talk about it, but just that's interesting. they're allowed that lets them borrow um federal home >> loans the insurance company >> if they're the insurance company. >> All right. Um does does this create contagion? Like does it create worries around contagion? Then >> I think it does because you know the home loan banks are their business has been declining. Uh commercial banks are not using them as much as they used to. So obviously they're looking for ways to go out and earn money. uh and by banking these large insurance companies. That's one of the ways that they do it. Uh it's really quite extraordinary. But as I say, I'm going to do some more research on this and we'll probably do a piece in the blog which we can talk about next time. >> Yeah, we'll definitely look forward to that, Chris. All right. Um while staying on the topic of markets, let's move on to the acceleration that we've seen with this AI selloff. We had Nvidia B estimates this week. Um >> y They had a fine quarter. >> So, >> but you know what? People don't care anymore. Uh, a year ago, you know, Nvidia was the really the top of the heap and when they reported big earnings, the stock screamed. Now, I think people have a different attitude and even though Nvidia had a great quarter, even though they're beating the hell out of a couple of their competitors, uh, the market reaction was to sell the stock. So it was very different uh reaction this year versus last year. >> Do you think it's a is it just a valuation reset or do you think it's something more structural? >> I think last year was such an extraordinary year it would be really hard to replicate it. Also there's been a lot of selling in the software sector and much of this is financed with private equity of course. Uh so you know I think there's a combination of overvaluation that we saw last year and just investor fatigue. You know they will only run so hard and so high and then these stocks trade off. So Nvidia all of them have traded off dramatically. Microsoft you know if you go down the list of the big tech companies all of them have given up a lot of the gains from last year. And I think that's going to continue. It's probably going to bottom out at some point in the next couple of weeks. Uh but there's other sectors, banks, uh business development companies, obviously the credit companies we were just talking about that have all sold off and not just the new ones. Uh one of the more remarkable things we noted in the blog is that Fiserve, which is a big legacy payments company, was the bottom of our group of finance companies. Uh it was really quite astounding. 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. Okay. So when you look at the sell-off across those parts of the market like tech in particular, SAS stocks, why do you think the broader market has still held up? Like what do you think's going on? >> People are moving out of the more speculative stocks into uh consumer durables and things that are, you know, have more cash flow and less volatility. So, I think the markets aren't necessarily going to go down in a broad sense because there's still a der of assets. You have people migrating out of private back into public, Julia, which I think is a trend that's going to continue this year. Why? Because they want liquidity. >> Uh liquidity is a very valuable asset. And when people realize a lot of these uh private strategies do not have liquidity, then they're going to get out. Uh we also have some interesting things going on in the mortgage market because there's been a boom in private lending especially big loans that you can't sell into the agency market and everybody's kind of wondering if that's going to keep going on because again that market has a liquidity issue. Uh it's not like you can just sell them into a pool next month the way you can with a loan from Fanny May. uh the agency and the government markets have an outlet for loans whereas in the private market you got to sell a loan to an investor or a bank and that's a very different proposition. So I think liquidity this year if you want to just pick a theme is going to be something you and I are going to talk about for the entire year because last year nobody worried about liquidity. you never heard about it >> and whether you look at crypto or you look at the software sector or you look at any of these other really hot sectors that had moved a lot double digits right I think you're going to give a lot of those gains back this year >> okay so liquidity is going to be the theme for the year um okay let's go on to the banks um okay I don't know if you would call >> we're just doing our quarterly I've been staring at the numbers this morning It's very interesting. Uh banks made more money this uh quarter. Their earnings from assets are up. Um nothing really going on in terms of credit. It's the same old same old, right? Consumer credit is very quiet. Um but again, you're probably going to see that change this year. I would anticipate that consumer credit is going to start to deteriorate. We're already seeing it at the bottom of the stack. One of the things I watch very closely is the FHA market because those are lowincome borrowers with relatively low credit scores and they are already seeing a big jump in delinquency. So you're going to probably see that ripple through the whole stack as we go through the year. >> Okay. So consumer credit that's an area to also watch if that starts to deteriorate because it it seems like it had been holding up quite well, right? >> Oh yeah. Last year the loss rates were going down and banks were actually reducing the amount of money they put aside for future losses which is is quite remarkable. Um but I think this year as I say you know if you want a company or a couple companies to watch watch Synchrony watch Capital One uh watch City Group because all of them have relatively subprime uh portfolios and they will turn first. you know, the JP Morgans and the Bank Americas have pretty pedestrian consumer profile. Uh so you look for the the market leaders in terms of default rates, especially synchry, that'll tell you what's going on. If you see their loss rates go up in the first quarter, that's going to be a very interesting sign for the year. >> Okay. Um, in one of your pieces on the institutional risk analysts this week, you said you said that Cityroup leads the money center banks, but there's more risk than reward in large bank stocks right now. Where specifically do you see the most danger than or risk? >> Well, they all had fine earnings and they all sold off in the fourth quarter. Uh, almost every one of them sold off. This was partly, I think, because people are wondering what they're going to hear next quarter. and they also see what's going on on the commercial side, software stocks, private credit, private equity. We saw a 7% increase in loans by US banks to non-depository financial companies. These are basically funds and and uh you know the Aries and Apollos of the world. So people are worried that the banks are going to take losses on those loans down the road. And I think you're going to see managers much more careful about which banks they buy. If you look at our group right now, all of the big banks are in the middle. These guys were the leaders last year. And what you see is story uh stocks, midcaps, small caps in the top 20 25 names that we follow. So it tells you that there's been a lot of churn in this group, Julia. And I think, you know, equity managers are lightening up on large cap stocks and they're looking for places to hide right now because they're not really sure what to do next. >> Okay. So, they're looking for places >> even though we're going to we're talking about Fed rate cuts, right? But even with that, the narrative of AI, the narrative of tech has broken versus last year. So until we come up with a new story from Wall Street, and I'm sure they're working on it right now, um you know, there it's going to be hard to get the herd to move back into some of these stocks. >> That's a good point, Chris. Um okay, so you you you track like this list of like I guess financial services companies, banks, and whatnot. >> A few minutes ago, you made a brief mention about um Fiserf being at the bottom. Wait, what were you saying about Fiserve and is that >> an opportunity? >> It's a legacy payments company. They were historically involved in the mortgage market. They still have an involvement there. Uh there's nothing wrong with the stock per se, but it's sold off rather dramatically. When you see it at the bottom of the list along with Hood and Owl and all of these newbies, it's kind of uh remarkable to see that. uh this is a large cap stock and yet for a variety of reasons I think institutional investors have decided to lighten up on it. It had been doing very well last year but it's an example of a stock that ran really hot in 2025 but has cooled off pretty dramatically. >> Mhm. Yeah. Okay. Um I want to move on to mortgages. The mortgage market housing um you saw the 30-year yeeha right? Okay. 30-year rates, they dip below 6%. So, does that last or do we see the Treasury volatility just push them back up? >> I think lenders are getting more aggressive. Again, remember, we've talked about the fact that lenders set coupons on loans and the bond market is determined by uh institutional investors. Um, people are anticipating another rate cut. They're not quite sure when that's going to come. They have to keep their eye on that 10-year Treasury, though, because that's where we price mortgages. And as I was saying to one of my colleagues this morning, when you see lenders get aggressive, it's not so much that they, you know, are going to make a lot of money on the loan. They usually are down a point or two on cash when they sell the note to an investor in the bond market, but they want to keep that servicing asset. And if you looked at earnings, we just had earnings from Rocket, really good, great volumes. uh a very very good uh earnings report. Uh we also had a report from United Wholesale Mortgage. Again, good volumes. They didn't take any questions though, which kind of shook people up a little bit. Uh the CEO of United Wholesale is known for loving to, you know, get up and mix it up with investors and analysts on their call. So, when he didn't take questions this quarter, that really made some people wonder. Uh but overall, you know, the industry is doing well, but there's still not that much volume out there, and they're fighting for every loan. So, when you see rates come down, what that tells you is that the lenders are getting more aggressive. Um, as I told you, Julia, we're buying a house down in Florida. Uh, I'm not going to price that loan until we close. Uh, and the reason is I expect rates to fall further. >> Oh, interesting. Okay. So new you're thinking a rate cuts uh coming then >> well we'll see we'll see uh there's there's no clear catalyst in terms of the economic data one way or another um if they have Kevin Wars seated as chairman I anticipate that he's going to push for another quarter point rate cut in the target for Fed funds. We'll see if that happens. I'm I'm still not sure he has a majority. Uh there's a lot of governors who actually wanted to raise rates at the last meeting if you go through the minutes. That's right. >> You know, it it's it's kind of an unclear picture >> and you know, everybody's got to look over their shoulder at the Treasury and the budget deficit because every few weeks they go in and they raise 3/4 of a trillion dollars and you know, guess what? The tenure goes back up. Let me see where are we this morning? Yeah, 10 are 3975. So, they've rallied a good bit through um through 4%. As long as they stay underneath 4.1 or so, rates will stay below six. If you see that 10-year rate go back up over four and start to really back up, then mortgage rates are going to follow. >> Where what would be like ideal for you for your mortgage rate? Like what would make you happy or like >> three I mean I'm I'm G >> I'm giving up a three and I'm be you know if I could get a five and 3/4 or five and >> uh 78 that would be fine. >> Do you think >> and I'll sit with that loan for a year or two but if we see rates go lower I'll be ready to flip it and refinance it. >> Yeah, refinance it for sure. But do you think um do you think we'll see like a pickup in activity and housing? Like are you anticipating that >> if rates fall further we got to get down to below 5 1/2 even 5 and a quarter cuz remember uh more than half of all the loans in the US today the existing loans have coupons below 5%. >> Mhm. >> So in order to talk to those people about a refi or coke into selling their home uh you've got to see rates fall further. >> Yeah. Because like if you have that three, why make >> Listen, President Trump is right when he says that rates are still too high. If you look at where interest rates were going back to 2010, 2012 when the Fed was using quantitative easing all the way through to today, we're still a good point and a half above where we were during that period. Now, you also have inflation is an issue, right? But just in general, if you look at market rates and if you look at spreads, remember we wrote about the the spread between the 2-year and the 10ens as one of the more important indicators. Uh rates are still pretty high. So, I think uh Kevin Worsh is going to be able to make the case for another rate cut. The only question is when. And if he could do that before I close the mortgage, that would be great. >> Yeah. And I guess like you think he could get the consensus for it? >> I think so. um when you have a new chairman sitting at that table, the other governors are going to try and work with him uh simply because they do work on consensus. And if you had a a very wide difference between uh different governors and by the way, we may still have Governor Powell sitting at that table. And you know, he he could end up as the leader of the opposition against a new chairman. So, you know, nobody wants to see the Fed gridlocked. And my suspicion is they would give him another quarter point if he asked for it. >> Okay. The last time you and I were recording, a few hours afterward, we had the Supreme Court um ruling on the tariffs. Maybe just a week later now. Um I don't know, game changer or just noise. just noise. You know, last year when uh President Trump first announced his tariff campaign, uh we told our readers to ignore it. That's right. Focus on uh the markets. And that's my advice today. >> I know media and economists and talking heads love tariffs. They love to talk about tariffs and try and calculate the impact, but I don't think it's easy to figure it out one way or another. Is it inflationary? Perhaps. Uh, but I think we have more important things to focus on to be honest with you. >> Yeah, it seems like the market kind of shrugs it off anyway. Like you said, it was a distraction. Yeah, >> I remember that. >> Well, a long time ago, I helped my dad write a book called Trade Warriors when everybody was worried about Japan. And we interviewed members of Congress and talked about their states and the industries and their states and all the rest of it. >> But today, I think this is mostly noise. It's mostly politics. Mhm. When you say the market has more important things to focus on, like if you had to like list them off, what would be like the most important things right now? >> Uh long-term interest rates. Um getting them down. Uh the spread between short-term and long-term is still only about, you know, half a point, a little more. Uh during COVID, it was a point and a half, which is why people were making so much money. Uh I think structurally it's going to be hard for us to get mortgage rates down because of the Treasury. They have to borrow a lot of money. So that's the stuff I worry about. I am worried about credit uh you know surprises uh if we get a surprise coming out of private credit or any of these non-bank companies that could be very bad for the markets. >> Mhm. All right. We have to talk about precious metals because this is just an area area you're becoming so well known for and writing about it and covering it and I know you you even have your um Whailing Global Advisors list. I don't know the exact title for um >> for the space. >> It's basically metals. Uh we're going to price it every month and just show people where each of the uh stocks are funds miners. We've been putting this list together by talking to a variety of uh of managers both here in the US and around the world. But the key thing we wrote about this week, Julia, is that the ComX and the London Metals Exchange are losing their role as the price setters. uh the Indian government just came out very similar move to what we talked about in China and they're basically telling people to price their silver using domestic markets instead of the comx in London. That's that's a big deal. >> Okay. Because you've talked about this, you wrote about this as like a seismic shift that's underway in the global market for silver. >> How close are we to a real break in comx pricing? Yeah. How close do you think we are? >> Well, the key thing is they don't have enough metal to deliver against their futures contract. So, if they have to declare force majour and then net everybody out in cash instead of delivering metal to the longs, uh I think the comx is done. I think they're going to be forced out of this business. >> Wa. um you know there is a der of deliverable metal in both the gold and silver markets which is one of the reasons I've been cautioning our readers and saying look you know yes you've seen volatility in these metals especially if you look at the US prices but frankly Shanghai and India are going to become the price setters as we go forward and I think people have to be very careful about where they look for prices because you know the complaint with the comx has been that the price is not following the actuals in the far east and I think the far east markets are frankly a better indicator of price. >> Okay. What are the far east markets showing then in terms of price? Like what is the implication here? >> Higher. >> Higher. Oh prices. >> Yeah. >> How much higher? >> Uh significant you know singledigit percentages. Okay. >> And if you're a seller of physical silver, if you produce silver, you want to go where the price is uh is real, where the price is higher. So that's the problem with the Comx. They have not been tracking global prices. >> Okay. Is this a secular shift? Um or is it something just temporary? Do you think this is like a >> No, this is a long-term secular shift. If you read the interview we did last year with Henry Smith on on our website, Henry is a long-term investor in metals going back decades. I've known him for many years. And you know, he set the stage. He talked about how the Chinese had reintroduced the world to gold as a monetary asset by opening the Shanghai exchange. And I think all of the major producing countries also you know countries like India where silver is extremely important uh for jewelry and other uses are are going to look to the Asian markets more than they're looking to the western markets. The western markets you know have become irrelevant. And I think that's the big change Julia. This is a secular change that's been coming for many years. And it supports our thesis. I think that the uh metals are a long-term uh buy in in terms of portfolios. I've been increasing my exposure to both gold and silver. Yeah. >> Even with the volatility. >> I was going to ask you then like where does this fit into your portfolio and your outlook for gold? And obviously >> we own gold, silver, we own a couple vehicles that invest in in the junior miners. Why? Because there's not enough productive capacity out there. It takes years to create a mine and get it qualified not just for gold and silver but copper, nickel, all of the major strategic minerals. So when you look at that, when you look at the Chinese purchasing of these metals, which is very aggressive, um it's hard to come up with a short strategy. You know, I think in most cases you want to be long these markets. >> Okay, Chris, we did get a viewer question. And I know you also addressed it in the um the rap itself, the blog. >> I'm going to put the questions in the in the blog. I love it. >> Okay. Well, can I'm going to ask it here for you as well. Um all right. So, this viewer writes, "Julia, can you ask Christopher Whan about Basel 3 when he comes back on your show? It is my understanding that under Basel 3, central banks can hoard as much gold as they want. In contrast, commercial banks tier one may hoard gold but must encumber their gold with 85% in cash or cash equivalents. Is that correct? >> Uh, no. There have been some published reports that alluded to a risk weight like your reader described for gold, but the truth is is that going back to 2012 when Basel 3 was first adopted, it's always been considered a tier one asset. It has a zero risk weight under Basil, so they don't have to put any capital up for it. More recently, last summer, you had a major change, which is that the Basel committee went even further and they said you may invest your capital in gold. And they also uh along with ISTA, the the the uh interest rate and currency swap organization that sets standards for swaps, they said you could use gold as collateral in a swap. So, you know, the whole effort by the United States going back to the 1930s to discourage people from using gold as a monetary asset, as an investment asset, I think has been pretty much defeated. And what you're seeing is that gold is not only an asset that central banks are pursuing very aggressively, but banks too. Why not? You know, if you were the Fed, think of our central bank for a minute, and you didn't have all of your investments in US Treasury securities, uh you would have done a lot better. I think the Fed ought to be adding gold to their portfolio simply as a symbol of solidity and the ability to meet obligations. And that's how other central banks look at it. It's not like they're going to come up with gold back currencies tomorrow. Uh but it does, I think, provide a a stability on a balance sheet that is very different from holding fiat currencies or securities. >> And for folks, you can send your questions in. You can leave them in the comment section. You can email me. That's right. >> Um Julia juliar ro.com. Um Chris is obviously going to write about them in the rap as well. So reach out to us with your questions. We love hearing from our viewers. It's been amazing uh seeing the show grow already. Chris, what are you looking at for next week? Like what are you thinking about? What are you going to be writing about? What are you think What are you paying attention to? >> Well, uh we're publishing our bank quarterly on Monday. I'm going to be busy over the weekend uh looking at numbers. Uh and then we're going to continue to look at earnings. There's still a few companies uh that haven't reported yet. a lot of mortgage companies, a lot of non-bank financial companies. Um, we mentioned the fact that one of our favorite portfolio holdings, Annalie, had done very well when they reported their earnings back in January. Uh, at year end, companies have more time to report than they do with their quarterlys. So, that's why this process can take two months. They have uh 60 days. And that's uh, you know, the ones at the end are always kind of interesting. You know what I mean? the last ones to report and then we'll be getting some other data for the Fed on the large banks and we're going to be writing about them as well. Uh but we like to go, you know, cover all the bases. We're going to get to medals again uh in the first week in March. We'll uh value the uh the test group we have and that's going to be very interesting. >> I love that. Well, for folks um who can't get enough of this show, we are leaving a link and a coupon code to the institutional risk analyst, Chris was kind enough to give a 25% off your first year for the viewers and listeners of this show. So, I will leave that code in the comments and in the show notes for anyone who's interested. Um we encourage you to subscribe, of course. Chris, I love doing this with you every week. It has been so much fun. Chris Whan, chairman of Whan Global Advisors, author of the institutional risk analyst blog, author of multiple books, friend of the show, the very best independent analyst you'll find on Wall Street. Thank you so much for being so generous with your time, all of your knowledge, your wisdom, helping all of us learn and get better. We really appreciate you, Chris. >> My pleasure, Julia. Have a great weekend. YouTube.