Chris Whalen: Fed Independence Is A Crock – The Truth About Rate Cuts
Summary
Market Outlook: The guest sees no imminent crisis, with financials and banks rebounding since mid-November and likely to continue.
Fed and Rates: Expects a cautious quarter-point cut with political overtones, aiming to push mortgage rates toward ~5.5% to support housing and the election backdrop.
Mortgage Rates: Lenders are likely to price aggressively ahead of cuts, fueling a profitable refi wave and potentially lifting 2025 mortgage volume toward $2.5–2.75T.
Crypto Enablers: Prefers playing tokens via enablers like SoFi (SOFI), Robinhood (HOOD), and LendingClub (LC), citing strong stock moves and robust retail options activity.
Commercial Real Estate: New assets in prime locations attract capital, while older office properties face steep write-downs and costly conversions; names cited include Brookfield and Paramount Group.
Private Credit: Highlights illiquidity and valuation risks, with some sponsors using payment-in-kind and a rising probability of forced acknowledgments of underperformance.
Bank Preferreds: Anticipates major banks buying back expensive preferreds as capital needs ease; selective current-coupon issues may be appealing but redemptions are likely (mentions JPM, WFC, C).
Risks: Biggest unpriced risk is a surprise default from CRE or a leveraged non-bank, though consumer credit trends and bank underutilization argue against imminent recession.
Transcript
But I don't think there's any crisis on the horizon. You've seen the people talking about how the Treasury market's in trouble or how stocks are going to sell off dramatically and neither one of these things has happened. Most of the financials have been coming back uh since about the second week in November and I expect that to continue. Hey everyone, welcome back to another episode of the rap with Chris Whan. Chris Whan, chairman of Whan Global Advisors, author of the institutional risk analyst blog, the very best independent analyst that you will find on Wall Street and a friend of the show. So great to see you again, Chris. I it we missed last week because of the holiday and a lot of folks missed you, so I'm just thrilled to have you back. >> Oh, good. Well, good morning, Julia. We got to take holidays. That's why we have them. >> That is true. Um, and the fans certainly love you and they are loving this uh weekly uh recap that we're doing here. Okay, let's start with the Federal Reserve. Um, because we have the FOMC coming next week and I guess where I want to start with you is it seems like most folks are now expecting Kevin Hasset to be the next Fed chair pick. I know you've been talking about Hasset for a while, so I'd love to get your latest thoughts there. Um, how do you see that playing out? >> Well, Kevin Hasset, I think, has had this in the bag for a while. The Trump administration and uh, Treasury Secretary Bessant, I think we're just teasing the possibility of others. But really, you know, Fed chairman tend to go through the White House, either the Council of Economic Advisors or the NEC. And they also have to be uh on a good basis with the president. The president has to believe at least that they will be loyal to him once they go in. Uh we have many examples where that's not the case. Probably most famously uh with Harry Truman and William Machznney Martin. But I think you know Kevin Hassid is known as a very uh smart uh very politically astute guy. He's been in operating in Washington for decades at American Enterprise Institute. And you know I expect him to be a good Fed chairman. Is he going to give Donald Trump everything he wants? No. because as soon as he's confirmed and he walks through the door into the uh the Fed, uh things change and he will have to operate by consensus the way all Fed chairman do. Uh Fed chairman don't like to lose votes on the FOMC. So he always wants to be in the majority and I think that right off the bat he's going to have to figure out how to work with Mickey Bowman who's turning out to be a very strong vice chair for bank supervision and uh you know there are other players on the committee. What's interesting Julia is whether or not the Trump administration is going to allow reserve bank presidents to be re upped in February. They all end their terms at the same time. It's one of the quirky aspects of the Federal Reserve Act. And if they want to withhold that approval, then the FOMC would just be seven governors. >> Well, sorry, that is a quirky dynamic. Explain that. That's interesting. >> When the boards of directors of the Federal Reserve banks around the country, there are 12, um, nominate a new president, they have to get that decision approved by the board of governors. This was one of the uh reforms that Franklin Roosevelt put in place in 1935 when he centralized the central bank in Washington. There wasn't originally a board of governors in Washington. You just had the 12 reserve banks. And I kind of would like to see us go back to that. I've got an article coming out soon in the International Economy magazine that talks about this. But the politics here are interesting because if the Trump White House doesn't like a Reserve Bank president who's nominated, then they don't have to approve them. >> Would it make sense though to go back to like go to seven? I'm not I mean I'm not so familiar with like the inner workings or like if this has happened before, but >> No. No, it hasn't. Remember during Trump won when they didn't fill some of the governor spots and the board didn't have seven members? This is a little different because the reserve bank presidents rotate uh as voting members of the FOMC. So what you could see happen is if they don't like the candidate that's proposed by one of the reserve banks then you know Kevin Hassid could say no. Now Powell will still be in office in February so he can reapprove most of them. But the politics of this get to be very interesting. >> Yeah. The Trump people want rates to come down before the midterm elections. There are a lot of questions about whether the Republicans can hold the House. The Supreme Court just approved the new redistricting uh law in Texas, by the way, which was a big win for the Republicans. So, you know, they the whole dynamic here is different from the general election when Trump was clearly the favorite. Now you've got a lot of issues like affordability and immigration and all the rest of it. Even the World Cup next year is getting thrown into the mix. So there's much more uncertainty about how the midterm elections are going to go. And I think that's going to put even more pressure on Hasset and the Fed to give the president what he wants in terms of interest rates because, you know, the economy is okay. But if they could get mortgage rates down to five and a half or five and a quarter, that'll make a big difference in the election. You know, right now we're at about six and a quarter. So, it gives you a sense of how far we have to go. >> Yeah. Gosh, it's so interesting. Like, you know, they often talk about like the Federal Reserve being independent, but like what I'm hearing is very much political. It is a political entity. It matters a lot. >> The Fed can't be independent, Julia. the the you know the governors of the Fed are basically the bankers for the treasury. The Treasury is the borrower. The Fed is the lender and the Fed sets the rates at which Treasury ultimately operates in the marketplace. You know, the fact that the president appoints the governors of the Fed means by definition that they're not independent politically. And and the real issue of course is that the Fed cannot be independent of Congress. Congress authorizes the Fed and and the Fed is really the alter ego of the Treasury. It's kind of the opposite of the Treasury. The Treasury issues liabilities, Treasury bonds, and the Fed treats those as assets. It's kind of a cool leisure demand, right? So the, you know, the Fed is essentially a screen behind which the federal government operates and it's a buffer that provides liquidity to the market. That's why we have it. You know, we had three quarters of a century when we didn't have a central bank in the US and the Treasury was the only game in town. We could do that again, but it would be it would be very disruptive to the economy. >> Yeah. Just going back to like the notion of like Fed independence and Hasset, you also draw a parallel um to Truman and William uh Mcchznney Martin Martin as well. So, I guess your your take here is that Hasset would pivot from being like a Trump loyalist to prioritizing his legacy once he's confirmed. >> I think he'll do a little of both. Hasset is going to give a Republican president what he wants. There's no question. But the question to me is how do you get there? >> Do you do it, you know, like tomorrow, the way Donald Trump would like it, or do you take a more gradual approach that won't disrupt the markets? because you've already got the talking heads yammering about Hasset and how he's going to be a disruptive factor in the bond market and and the the stock market and all the rest. I don't think that's true. Kevin Hassid is a very smart guy and he's an extremely uh skilled and veteran political operative. He's been in Washington most of his career. So, I think you know he'll do the right thing by Donald Trump and he'll help the Republicans win that election. Fed chairman always do this. Remember Ronald Reagan, okay? Paul Vulkar waited to fight inflation to make sure that Ronald Reagan won the election in 1980. So this whole notion of Fed independence to me is a a croc. I've always laughed every time people say this because I grew up in a house with my dad who was a advisor to Fed chairman. You know, they came to our Christmas party. So I I just think, you know, you can't ignore politics in any aspect of Washington. It's just a given. >> Yeah. Um, okay. So, we had the FOMC next week. I think the last couple of times you and I had spoken. The Fed minutes had just come out. There was it was showing like the lack of consensus, the gridlock amongst the members. And now, like that we've had a bunch of Fed speak since then. The odds of a rate cut, they're pretty high now. I think it was last I checked on Fed watch, let's see, like 87% I think is >> Don't quote me on that, but it's most likely I think folks are now the market's certainly pricing in a rate cut. Curious how you're thinking about the Fed. Um, >> does a rate cut make sense? They have been on the fence a bit, but I think the jobs numbers and um some of the reports of layoffs that have been coming along in the media are making members of the board a little more, I think, supportive of a rate cut because they're worried that the next job number they get is going to be sharply down and they don't want to be criticized for being late to the party. uh the Fed always has this risk which is that you know the month-to-month statistics that they rely on to make policy can sometimes be quite volatile. So for example after COVID you saw the board maintain purchases of securities and keep policy very loose for too long and that created problems. Now they've been through a period of tightening and everybody's saying well you got to loosen up now. We need to get mortgage rates down at least a point from where they are today. Think of that as the most important political measure of the Fed. Where are 30-year mortgage rates? Because they, you know, nobody knows what Fed funds is. That market barely exists anymore. But everybody definitely knows where 30-year mortgage rates are. And consumers, Julia, are so sensitized to price. They are so sensitized to whether or not they can go out and refinance and save a couple hundred bucks a month on their mortgage payment that it's become an extremely important political issue. So that's why I think you'll probably see a quarter point cut. The board is going to move slowly. They don't want to lose credibility. If you gave Donald Trump a half point, I think everybody would criticize him for that. So they have to kind of walk a very narrow line that maintains their credibility on the one hand and also buys a little bit of insurance uh to make sure that we don't see bad job numbers at the end of the year and in the first quarter and then everybody would turn and say, "Oh, you know, you guys waited too long." So it's a tough thing that they have to balance. >> Hey there. I just want to take a quick moment to thank you for watching this video and I would really love for you to subscribe to this channel if you like this content. Over 70% of our viewers are not yet subscribed and we are on a mission to hit 100,000 subscribers. So, if you could just take a quick moment, hit subscribe. Thank you so much for your support. We appreciate you. And back to the video. As you mentioned, like the mortgage rates are what's really important to pay attention to um not the Fed funds. And earlier in the conversation you were saying um to get to 5 1/2 from where we are 6 and a quarter right now a little bit north um that's a big difference. So I would love to just maybe hear a bit more on the importance of the mortgage rates. Do you see a a viable path to get to five and a half? What happens if we get there? Um what would that mean? Um, yeah. I would just love to hear more on the mortgage rate side of things cuz I I feel like you're the guy to talk to to about this, but I don't really see it in the regular financial media. Exactly. >> As we've talked about before, Julia, lenders set coupons on mortgages. So, most lenders today are looking forward to a Fed rate cut and they believe that that's going to help the Treasury market come down in terms of yields, which in turn is going to make their production more profitable. If you think about a mortgage lender today, when they take an application from a customer, they're not going to close that mortgage for three or four weeks. So, they're not going to be able to sell that loan into the secondary market, which is obviously governed by the yield on the 10-year Treasury bond. And the spread between mortgage rates and the yield on that 10-year Treasury determines to a large degree what the profitability is for those loans for that lender or or really in many cases how much money they're going to lose because lenders will often lose a little bit of cash when they sell a mortgage after they've closed your your purchase. Say you're buying a house. Um but they make it up because they keep the servicing asset that goes with the mortgage and over time they make money. So the key thing is how aggressive are lenders going to be today and going into the end of the quarter in terms of anticipating that Fed rate cut next week and then perhaps future cuts in the first quarter of next year. If they believe that that's what's going to happen, they're going to push rates down right now because they want to capture those loans. It's it's a very competitive market today in mortgages. A tiny fraction of a few basis points can be the difference between you getting a loan and your competitor getting a loan. So if you look at people like Penny, United Wholesale Mortgage, Rocket, they're all head-to-head. Now, what's interesting to your question is that refinance mortgages have been coming back as rates have fallen and people see an opportunity to save a little money. They're willing to refinance. If we get a quarter or a half point decline in mortgage rates, you're going to see the volume of refinances start to jump. Those are much more profitable loans for lenders than a purchase mortgage for a firsttime home buyer. The cost could be less than half. So that's why they love that business. When rates fall, the portion of the total volumes that are attributable to refinance as opposed to a purchase loan start to increase very rapidly. You know, we're going to do $2 trillion worth of mortgages this year in 2025, but if rates fall, we could get that number up to 2.5 or 2 and 3/4 trillion. And that means the industry is going to make a lot of money. Realtors are going to make money. And guess what? That's good for the economy. >> I was going to say it's a huge part of the economy and that's good for the Republicans for the midterm elections. >> Yeah, that's a really good point. Okay, so let's talk about the economy. There has been a lot of discussion lately about the state of the economy, this K-shaped economy, >> just from where you sit and what you're looking at. And I should also note normally Chris, we would have a jobs report today. The schedule's definitely off right now, but usually you and I would be talking after like the NFP number would come out on a Friday. Um, right. >> But yeah, just >> what's what's the state of the economy from where you sit today? What are you paying attention to? What's concerning? That's actually maybe more of a rosy outlook for you. I >> I think it's more of the same. Most of the economy is doing well. The bottom quartile is still getting beat up and that's what you hear the Democrats complaining about. Um but I don't think there's any crisis on the horizon. You've seen the people talking about how the Treasury market's in trouble or how stocks are going to sell off dramatically. And neither one of these things has happened. In fact, as we noted in the rap that we put out this morning for our subscribers, uh most of the financials have been coming back uh since about the second week in November and I expect that to continue. The banks the same way. They sold off kind of right after Halloween. You had all the kurluffle with Bitcoin and the rest of it. But, you know, the the the leaders in the group are coming back pretty strongly. So, I think everyone who's waiting for some kind of, you know, economic break or market break are probably going to be disappointed. >> Okay. So, they're they're probably going to be wrong then. Um, you mentioned crypto. >> Disappointed. Not necessarily wrong, right? You don't want to get too personal. >> Okay. That's true. That's true. Um, let's let's talk about Bitcoin and uh, you know, get some uh, commenters on X and in the comment section um, talking about crypto. We we have seen Bitcoin kind of come back. Um I don't know where it is right now, but the last I checked yesterday, I think it was above where are we today? I don't even know. Um it was above uh 90. Climb back above 90. Oh, we're right at 90. Yeah, it's a little down today. Okay. So, I want to hear your latest there because I thought it was interesting in your note. You're kind of playing the crypto trade through SoFi and Robin Hood in a way. Well, I've always believed, Julia, that if you want to play the the token game, you want to buy the stock of the enablers because the firms who are making money on this are the guys who facilitate the activity. There are winners and losers in Bitcoin every day. That's the by definition, that's what it is. In order for you to make money, you have to take advantage of someone else because there's no intrinsic value in this market. It's just greater fools. So, you know, if you look at Hood, if you look at SoFi, if you look at many of the other players, they've done well. Uh, Circle, not so much. The stable coin game is still kind of a big question mark in my mind. But I I think what really is going on here is that the novelty of Bitcoin and some of these other tokens is wearing off. And the only people who really care about it now are Wall Street. You know, the the ones who've been doing the IPOs and everything else. the rest of the crowd is, you know, moving on because they always chase the shiny object. And if you look at some of these stocks, they're moving very, very nicely. I mean, SoFi has been the best performing bank stock in the US. Lending Club caught up with them, which I thought was very interesting. And again, you look at that and say, are we talking about an economic recession here if people are buying Lending Club? No, absolutely not. You know, when you're buying Robin Hood, you're looking at their options volume, which is probably the most important part of their business. And again, they're small investors trading options. That to me is a bullish sign. So, you know, again, I I don't see evidence of a terrible uh cathartic kind of economic uh downturn here anywhere soon. U the margin credit and the rest of the measures for you know, non-bank financial institutions that we've written about. Okay. But again, I don't know that that's going to be a source of some kind of systemic break. I doubt it. >> Okay. Separate. Totally separate. Like you're saying like the kind of retail consumer investors, they're fine. Like when you look at what's happening with us, you mentioned SoFi, Lending Club, Robin Hood, those things. But it's the commercial side. That's what we've talked about that kind of silent crisis. >> The gift that keeps on giving. >> So we should talk about a few areas in commercial. I actually this time I'm going to start with the commercial real estate. maybe more of like a reality check there. Um it seems like there kind of has been this recovery narrative out there. I don't know. Um but what's Okay, what's the latest on the commercial real estate? Like what's the real story? >> New assets that are located in attractive uh locations are doing quite well. They're attracting new money. But then you go down to Florida and you look at some of these projects that have been underway for a couple years and what's happened is inflation in terms of costs to build are starting to really hurt them because you know they came out they talked to their bankers and investors 2 three years ago and said this is what it's going to cost to do this project in Miami and this isn't just northern Florida this is all over the state. you probably have half a dozen or more significant projects down there that are going to go to foreclosure and that means the banks are going to end up owning the deal. Uh likewise, if you look around the country, the big cities are still getting shellacked when it comes to some of these existing office properties that have been marked down 50 60 70% in some cases. We mentioned one in in Los Angeles, the Wells Fargo. >> Yeah. my god, you know, the half billion dollar default on the mortgage. Um, they're going to auction that property off for a third of what it was valued at five, six years ago. So, there's really two different stories here with commercial real estate. The new stuff, everybody wants new, right? Whether it's single family homes or commercial, but the existing assets where the use case is kind of a question mark, you got to be real careful with those. And I think you're going to continue to hear about this. Brookfield is one of the bigger players. You have Paramount Group that was acquired by uh Rhythm Capital. These guys own beautiful properties in major cities around the country, particularly New York, Chicago, San Fran, Los Angeles. But the question is, what are we doing with these assets, Julia? What what's the use case for an office building? You know, imagine the office buildings around JP Morgan's new headquarters on Park Avenue. This, you know, beautiful building, right? He's been renting space in the buildings all around that property. So, as he moves his team into his new building, what are we going to do with the old ones? Okay. You know, I I used to work for Bear Sterns 245 Park. A lot of square footage in that building. What are we going to do with it? So, there's still a big question mark about what do we do with these older assets and can we, for example, turn them into residential? Uh, yes, in some cases, but you got to be very imaginative. You know, think of a a building with X amount of square footage. To turn it into resi, you've got to bring windows and >> windows. Yeah. >> Oh, yeah. So, you could end up losing a third of the square footage of the original building. >> All that plumbing and stuff, too. Yeah. >> No, but you got to put light shafts. You got to do things that allow you to put residential occupants in that building, and it changes the nature of the building, and it's expensive. >> Mhm. >> So, that's that's really the bottom line. I think commercial is going to be, you know, a hodgepodge. Some of it's going to be good, some not. And you see the same thing in private equity and private credit. Everybody is trying to put lipstick on that pig. And it's it's tough because, you know, it's probably 15% of private equity companies in the US today have been paying in kind instead of, you know, paying money on their debt. They're basically insolvent. Uh, and eventually the the funds that control these assets are going to have to admit that they're not working. >> Okay. On the private credit side, who's right? I mean, there have been a lot of folks kind of coming out and tried to dispel some myths um, in private credit, who's right? And what is that what's the actual data show? >> Well, the actual data shows what we've always known, Julia, you worked in the business. Public markets are public for a reason. They're they're they offer investors liquidity and information. When you have private markets, well, you don't have liquidity, do you? And those assets ought to trade at a discount, but they don't. There was such a crowd of people piling into that trade over the last 5, 10 years. Endowments, pension funds, everybody thought that they were going to get a better return on their private assets than they would from public assets. And they were wrong. I just spoke with a a pretty goodsized pension fund last week that owns shares in a you know interesting little community bank. The bank's not going to go public for a couple of years and they wanted to sell their stock and there's just no way to do it. You know they contacted the bank and said, "Hey, can you help us?" But the answer is no. So, you know, when you go into a private equity, you always have to remember that it's private and you may end up sitting with that position for a long time before you can liqufy it. You know, this is kind of preaching to the choir for me because when I learned about the securities market years ago, there was a reason we have public markets. It's because retail investors need liquidity and uh unfortunately uh a lot of firms have been out there telling people a different story and I think they're they're mistaken. >> Yeah. Chris, do you want to uh go through what's in the viewer mailbag? >> Oh, sure. >> Okay. All right. viewer Greg, he wants to know uh what you think of the major bank preferred stocks. Uh he says Chris stated not long ago that he thought they would go away because the banks would no longer need them. >> I own a lot of preferreds. Um and they are buying them back. They don't need them. One of the things that Mickey Bowman is doing on the Federal Reserve Board is addressing capital requirements for banks. So over time you are going to see the major banks, you know, think of the top 10 to 15 that had to issue preferred because they needed additional capital. They're going to buy them back because it's expensive. They could raise money in the equity markets much cheaper. So what I would say is shop around. You want to look at some of the current coupon and preferred and hope that you can keep them. That's really the the bottom line. I own a preferred from I have two different preferreds from uh JP uh one from Wells. I own the old trucks from City that they're never going to redeem because they use that for funding their credit card business. Those are grandfathered in as what we call tier one capital for the banks. But I think that, you know, like I say, the banks aren't going to need as much capital. They don't have a lot of demand for loans right now. So, you know, if you're Jamie Diamond, you're going to have record share repurchases next year. And if you're buying back your own stock, you really don't need those preferred securities, do you? >> Okay, the next question for you, this is a long one, so bear with. All right, this is from viewer Daniel. Um, >> and I feel like you're probably the guy for this. According to my research, between 1992 and 2000, CPI averaged at or above 2.5% inflation, 2.6 6 to be precise. Setting aside the dotcom bubble and the global financial crisis, 2000 CPI 2002 through 2008 averaged 2.8%. The notion of 2% inflation was a product of fears of deflation post global financial crisis during heavy regulation and anemic Obama era growth. With federal debt rising, officials felt it incumbent not to let deflation accelerate the cost of debt. And so they targeted 2% as an aspirational in an otherwise deflationary environment. Fast forward to 2017, the Tax Cuts and Jobs Act, deregulation and a businessfriendly growth environment, an aspirational target of 2% was no longer a concern. In fact, it's one of the reasons Pal messaged so poorly in 2018, leading to the sell-off in Q4 2018. My question, why are we, the Fed, stuck on a 2% target when the growth and regulatory environment is not the same as it was in 2009 to 2016 when deflation was the concern? In other words, why does the Fed um not recognize that a two to 2.5 to 2.9% CPI is in line with the modern eras of e economic expansion, including the '9s and post.com 2000s? Well, I think the short answer is that the board understands that this economy needs a little inflation. If you actually had deflation, imagine what would happen. We were just talking about commercial real estate. They assume that assets are going to go up a couple percent in value every year. That's the only way it works. So, when you talk to Americans about inflation, they love inflation when they talk about their their home or a building that they own. And I think the 2% target was in a way the board being honest with everybody and saying if we get down to 2% that's okay. Now your your viewers right about deflation. That's what they were worried about in the past because we were resolving a lot of bad debt. We were taking homes that had been foreclosed. We had commercial real estate default levels up around 10% at one point. So that was the problem was deflation. Now not so much. I think they're really just worried about having things like home prices rise by 50% in 5 years. That certainly hasn't been helpful. And then everything else, as you know, health care, food, uh you know, the $12 pound of bacon, what do you know what what do you say? Homeowners are in shock still when they go to the grocery store and they see where prices are. >> So, I think that's the flip side of this. Uh Powell would have liked it if the central bank could have been helpful there. But central banks don't set prices, Julia. The participants in this economy set prices. Look at rental costs in in the major cities are still going up dramatically. There's nothing that the new mayor in New York City can do about it either. >> Yeah. Yeah, I think you're right. Okay. Um for folks watching and listening, you can send your questions in every week for Chris. Uh we love them. So shoot me a note. Uh, these are so fun to ask. All right, Chris. Um, let's do a wrap-up question here. You and I in the last couple of weeks, we've talked about liquidity concerns heading into year end. Talked about divided Fed policy, struggling private credit, mixed um, commercial real estate signals, crypto volatility. So, a question for you is, what is the biggest risk entering 2026 that markets aren't pricing in or maybe is not getting enough attention? The risk is always a surprise. Uh Jerry Corgan, my old boss at the Fed in New York, said markets suffer systemic risk when they are surprised. So if we get a large default coming out of the commercial space, if you see a hedge fund or a non-bank company that's overleveraged getting into trouble, that's the kind of thing that can cause a sell-off. But having said that, we just went through a sell-off in the middle of November. And after a couple weeks, everybody got happy again and they took prices back up. So, I'm not really that concerned about market risks. I am a little worried about what we're going to see coming out of the credit sector on the commercial side. But, you know what? Third quarter earnings, most credit costs for consumers, auto loans, credit cards, we're going down. That's why we talk about a K-shaped economy because everybody keeps worrying about something bad and then they turn around, they look at the banks and the banks are underutilized and their credit expenses are falling. So that's not exactly a scenario for a recession, is it? >> No. Well, okay, just real quick on the Kshape, is it possible to fix that? So it's not so cuz I think a lot of people like if you're on that bottom part, you're you're definitely feeling it. So is there like a path forward to kind of just fix the economy, reinvigorate so it doesn't feel so divided? >> That's why they're hoping for lower interest rates. You know, typically housing is one of the more important parts of the economy when you're talking about growth and housing's been kind of in a funk for the last several years. So if you get mortgage rates down into low fives, you're going to see a lot of happy home builders and realtors. Remember, the homebuilders are discounting their uh inventory right now by subsidizing your mortgage. They'll buy your mortgage down by a point or more to move that house that's sitting there. We you and I have talked about the amount of inventory that's sitting in the in your uh neck of the woods. And all throughout the South, there's been a lot of overbuilding. So, you get mortgage rates down, we're going to clear out those inventories, and then everybody's going to go build more houses, which is what they want. Chris, um it's always a treat doing this with you. I love um our weekly rap with you. Before I let you go, um let folks know where they can find you, support more of your work, um find more of your work, and any parting thoughts, anything that you would like to leave them with, to think about as we head into next week for our next uh um wrap with you. Um the floor is all yours. >> Well, no, thank you, Julia. Um I published the institutional risk analyst. You can find me on X and LinkedIn at RC Whan. And I also publish a column for National Mortgage News, which is great fun. Um, we just put up a new paper on the Social Science Network, something really geeky about how uh mortgage lenders finance their uh their operations and their assets that uh some people may find of interest. And I look forward to our next conversation. Julia, >> too. Chris Whan, chairman of Whan Global Advisors, author of the institutional risk analyst. Really, really appreciate you and I can't wait to see you next week. Thanks again, Chris.
Chris Whalen: Fed Independence Is A Crock – The Truth About Rate Cuts
Summary
Transcript
But I don't think there's any crisis on the horizon. You've seen the people talking about how the Treasury market's in trouble or how stocks are going to sell off dramatically and neither one of these things has happened. Most of the financials have been coming back uh since about the second week in November and I expect that to continue. Hey everyone, welcome back to another episode of the rap with Chris Whan. Chris Whan, chairman of Whan Global Advisors, author of the institutional risk analyst blog, the very best independent analyst that you will find on Wall Street and a friend of the show. So great to see you again, Chris. I it we missed last week because of the holiday and a lot of folks missed you, so I'm just thrilled to have you back. >> Oh, good. Well, good morning, Julia. We got to take holidays. That's why we have them. >> That is true. Um, and the fans certainly love you and they are loving this uh weekly uh recap that we're doing here. Okay, let's start with the Federal Reserve. Um, because we have the FOMC coming next week and I guess where I want to start with you is it seems like most folks are now expecting Kevin Hasset to be the next Fed chair pick. I know you've been talking about Hasset for a while, so I'd love to get your latest thoughts there. Um, how do you see that playing out? >> Well, Kevin Hasset, I think, has had this in the bag for a while. The Trump administration and uh, Treasury Secretary Bessant, I think we're just teasing the possibility of others. But really, you know, Fed chairman tend to go through the White House, either the Council of Economic Advisors or the NEC. And they also have to be uh on a good basis with the president. The president has to believe at least that they will be loyal to him once they go in. Uh we have many examples where that's not the case. Probably most famously uh with Harry Truman and William Machznney Martin. But I think you know Kevin Hassid is known as a very uh smart uh very politically astute guy. He's been in operating in Washington for decades at American Enterprise Institute. And you know I expect him to be a good Fed chairman. Is he going to give Donald Trump everything he wants? No. because as soon as he's confirmed and he walks through the door into the uh the Fed, uh things change and he will have to operate by consensus the way all Fed chairman do. Uh Fed chairman don't like to lose votes on the FOMC. So he always wants to be in the majority and I think that right off the bat he's going to have to figure out how to work with Mickey Bowman who's turning out to be a very strong vice chair for bank supervision and uh you know there are other players on the committee. What's interesting Julia is whether or not the Trump administration is going to allow reserve bank presidents to be re upped in February. They all end their terms at the same time. It's one of the quirky aspects of the Federal Reserve Act. And if they want to withhold that approval, then the FOMC would just be seven governors. >> Well, sorry, that is a quirky dynamic. Explain that. That's interesting. >> When the boards of directors of the Federal Reserve banks around the country, there are 12, um, nominate a new president, they have to get that decision approved by the board of governors. This was one of the uh reforms that Franklin Roosevelt put in place in 1935 when he centralized the central bank in Washington. There wasn't originally a board of governors in Washington. You just had the 12 reserve banks. And I kind of would like to see us go back to that. I've got an article coming out soon in the International Economy magazine that talks about this. But the politics here are interesting because if the Trump White House doesn't like a Reserve Bank president who's nominated, then they don't have to approve them. >> Would it make sense though to go back to like go to seven? I'm not I mean I'm not so familiar with like the inner workings or like if this has happened before, but >> No. No, it hasn't. Remember during Trump won when they didn't fill some of the governor spots and the board didn't have seven members? This is a little different because the reserve bank presidents rotate uh as voting members of the FOMC. So what you could see happen is if they don't like the candidate that's proposed by one of the reserve banks then you know Kevin Hassid could say no. Now Powell will still be in office in February so he can reapprove most of them. But the politics of this get to be very interesting. >> Yeah. The Trump people want rates to come down before the midterm elections. There are a lot of questions about whether the Republicans can hold the House. The Supreme Court just approved the new redistricting uh law in Texas, by the way, which was a big win for the Republicans. So, you know, they the whole dynamic here is different from the general election when Trump was clearly the favorite. Now you've got a lot of issues like affordability and immigration and all the rest of it. Even the World Cup next year is getting thrown into the mix. So there's much more uncertainty about how the midterm elections are going to go. And I think that's going to put even more pressure on Hasset and the Fed to give the president what he wants in terms of interest rates because, you know, the economy is okay. But if they could get mortgage rates down to five and a half or five and a quarter, that'll make a big difference in the election. You know, right now we're at about six and a quarter. So, it gives you a sense of how far we have to go. >> Yeah. Gosh, it's so interesting. Like, you know, they often talk about like the Federal Reserve being independent, but like what I'm hearing is very much political. It is a political entity. It matters a lot. >> The Fed can't be independent, Julia. the the you know the governors of the Fed are basically the bankers for the treasury. The Treasury is the borrower. The Fed is the lender and the Fed sets the rates at which Treasury ultimately operates in the marketplace. You know, the fact that the president appoints the governors of the Fed means by definition that they're not independent politically. And and the real issue of course is that the Fed cannot be independent of Congress. Congress authorizes the Fed and and the Fed is really the alter ego of the Treasury. It's kind of the opposite of the Treasury. The Treasury issues liabilities, Treasury bonds, and the Fed treats those as assets. It's kind of a cool leisure demand, right? So the, you know, the Fed is essentially a screen behind which the federal government operates and it's a buffer that provides liquidity to the market. That's why we have it. You know, we had three quarters of a century when we didn't have a central bank in the US and the Treasury was the only game in town. We could do that again, but it would be it would be very disruptive to the economy. >> Yeah. Just going back to like the notion of like Fed independence and Hasset, you also draw a parallel um to Truman and William uh Mcchznney Martin Martin as well. So, I guess your your take here is that Hasset would pivot from being like a Trump loyalist to prioritizing his legacy once he's confirmed. >> I think he'll do a little of both. Hasset is going to give a Republican president what he wants. There's no question. But the question to me is how do you get there? >> Do you do it, you know, like tomorrow, the way Donald Trump would like it, or do you take a more gradual approach that won't disrupt the markets? because you've already got the talking heads yammering about Hasset and how he's going to be a disruptive factor in the bond market and and the the stock market and all the rest. I don't think that's true. Kevin Hassid is a very smart guy and he's an extremely uh skilled and veteran political operative. He's been in Washington most of his career. So, I think you know he'll do the right thing by Donald Trump and he'll help the Republicans win that election. Fed chairman always do this. Remember Ronald Reagan, okay? Paul Vulkar waited to fight inflation to make sure that Ronald Reagan won the election in 1980. So this whole notion of Fed independence to me is a a croc. I've always laughed every time people say this because I grew up in a house with my dad who was a advisor to Fed chairman. You know, they came to our Christmas party. So I I just think, you know, you can't ignore politics in any aspect of Washington. It's just a given. >> Yeah. Um, okay. So, we had the FOMC next week. I think the last couple of times you and I had spoken. The Fed minutes had just come out. There was it was showing like the lack of consensus, the gridlock amongst the members. And now, like that we've had a bunch of Fed speak since then. The odds of a rate cut, they're pretty high now. I think it was last I checked on Fed watch, let's see, like 87% I think is >> Don't quote me on that, but it's most likely I think folks are now the market's certainly pricing in a rate cut. Curious how you're thinking about the Fed. Um, >> does a rate cut make sense? They have been on the fence a bit, but I think the jobs numbers and um some of the reports of layoffs that have been coming along in the media are making members of the board a little more, I think, supportive of a rate cut because they're worried that the next job number they get is going to be sharply down and they don't want to be criticized for being late to the party. uh the Fed always has this risk which is that you know the month-to-month statistics that they rely on to make policy can sometimes be quite volatile. So for example after COVID you saw the board maintain purchases of securities and keep policy very loose for too long and that created problems. Now they've been through a period of tightening and everybody's saying well you got to loosen up now. We need to get mortgage rates down at least a point from where they are today. Think of that as the most important political measure of the Fed. Where are 30-year mortgage rates? Because they, you know, nobody knows what Fed funds is. That market barely exists anymore. But everybody definitely knows where 30-year mortgage rates are. And consumers, Julia, are so sensitized to price. They are so sensitized to whether or not they can go out and refinance and save a couple hundred bucks a month on their mortgage payment that it's become an extremely important political issue. So that's why I think you'll probably see a quarter point cut. The board is going to move slowly. They don't want to lose credibility. If you gave Donald Trump a half point, I think everybody would criticize him for that. So they have to kind of walk a very narrow line that maintains their credibility on the one hand and also buys a little bit of insurance uh to make sure that we don't see bad job numbers at the end of the year and in the first quarter and then everybody would turn and say, "Oh, you know, you guys waited too long." So it's a tough thing that they have to balance. >> Hey there. I just want to take a quick moment to thank you for watching this video and I would really love for you to subscribe to this channel if you like this content. Over 70% of our viewers are not yet subscribed and we are on a mission to hit 100,000 subscribers. So, if you could just take a quick moment, hit subscribe. Thank you so much for your support. We appreciate you. And back to the video. As you mentioned, like the mortgage rates are what's really important to pay attention to um not the Fed funds. And earlier in the conversation you were saying um to get to 5 1/2 from where we are 6 and a quarter right now a little bit north um that's a big difference. So I would love to just maybe hear a bit more on the importance of the mortgage rates. Do you see a a viable path to get to five and a half? What happens if we get there? Um what would that mean? Um, yeah. I would just love to hear more on the mortgage rate side of things cuz I I feel like you're the guy to talk to to about this, but I don't really see it in the regular financial media. Exactly. >> As we've talked about before, Julia, lenders set coupons on mortgages. So, most lenders today are looking forward to a Fed rate cut and they believe that that's going to help the Treasury market come down in terms of yields, which in turn is going to make their production more profitable. If you think about a mortgage lender today, when they take an application from a customer, they're not going to close that mortgage for three or four weeks. So, they're not going to be able to sell that loan into the secondary market, which is obviously governed by the yield on the 10-year Treasury bond. And the spread between mortgage rates and the yield on that 10-year Treasury determines to a large degree what the profitability is for those loans for that lender or or really in many cases how much money they're going to lose because lenders will often lose a little bit of cash when they sell a mortgage after they've closed your your purchase. Say you're buying a house. Um but they make it up because they keep the servicing asset that goes with the mortgage and over time they make money. So the key thing is how aggressive are lenders going to be today and going into the end of the quarter in terms of anticipating that Fed rate cut next week and then perhaps future cuts in the first quarter of next year. If they believe that that's what's going to happen, they're going to push rates down right now because they want to capture those loans. It's it's a very competitive market today in mortgages. A tiny fraction of a few basis points can be the difference between you getting a loan and your competitor getting a loan. So if you look at people like Penny, United Wholesale Mortgage, Rocket, they're all head-to-head. Now, what's interesting to your question is that refinance mortgages have been coming back as rates have fallen and people see an opportunity to save a little money. They're willing to refinance. If we get a quarter or a half point decline in mortgage rates, you're going to see the volume of refinances start to jump. Those are much more profitable loans for lenders than a purchase mortgage for a firsttime home buyer. The cost could be less than half. So that's why they love that business. When rates fall, the portion of the total volumes that are attributable to refinance as opposed to a purchase loan start to increase very rapidly. You know, we're going to do $2 trillion worth of mortgages this year in 2025, but if rates fall, we could get that number up to 2.5 or 2 and 3/4 trillion. And that means the industry is going to make a lot of money. Realtors are going to make money. And guess what? That's good for the economy. >> I was going to say it's a huge part of the economy and that's good for the Republicans for the midterm elections. >> Yeah, that's a really good point. Okay, so let's talk about the economy. There has been a lot of discussion lately about the state of the economy, this K-shaped economy, >> just from where you sit and what you're looking at. And I should also note normally Chris, we would have a jobs report today. The schedule's definitely off right now, but usually you and I would be talking after like the NFP number would come out on a Friday. Um, right. >> But yeah, just >> what's what's the state of the economy from where you sit today? What are you paying attention to? What's concerning? That's actually maybe more of a rosy outlook for you. I >> I think it's more of the same. Most of the economy is doing well. The bottom quartile is still getting beat up and that's what you hear the Democrats complaining about. Um but I don't think there's any crisis on the horizon. You've seen the people talking about how the Treasury market's in trouble or how stocks are going to sell off dramatically. And neither one of these things has happened. In fact, as we noted in the rap that we put out this morning for our subscribers, uh most of the financials have been coming back uh since about the second week in November and I expect that to continue. The banks the same way. They sold off kind of right after Halloween. You had all the kurluffle with Bitcoin and the rest of it. But, you know, the the the leaders in the group are coming back pretty strongly. So, I think everyone who's waiting for some kind of, you know, economic break or market break are probably going to be disappointed. >> Okay. So, they're they're probably going to be wrong then. Um, you mentioned crypto. >> Disappointed. Not necessarily wrong, right? You don't want to get too personal. >> Okay. That's true. That's true. Um, let's let's talk about Bitcoin and uh, you know, get some uh, commenters on X and in the comment section um, talking about crypto. We we have seen Bitcoin kind of come back. Um I don't know where it is right now, but the last I checked yesterday, I think it was above where are we today? I don't even know. Um it was above uh 90. Climb back above 90. Oh, we're right at 90. Yeah, it's a little down today. Okay. So, I want to hear your latest there because I thought it was interesting in your note. You're kind of playing the crypto trade through SoFi and Robin Hood in a way. Well, I've always believed, Julia, that if you want to play the the token game, you want to buy the stock of the enablers because the firms who are making money on this are the guys who facilitate the activity. There are winners and losers in Bitcoin every day. That's the by definition, that's what it is. In order for you to make money, you have to take advantage of someone else because there's no intrinsic value in this market. It's just greater fools. So, you know, if you look at Hood, if you look at SoFi, if you look at many of the other players, they've done well. Uh, Circle, not so much. The stable coin game is still kind of a big question mark in my mind. But I I think what really is going on here is that the novelty of Bitcoin and some of these other tokens is wearing off. And the only people who really care about it now are Wall Street. You know, the the ones who've been doing the IPOs and everything else. the rest of the crowd is, you know, moving on because they always chase the shiny object. And if you look at some of these stocks, they're moving very, very nicely. I mean, SoFi has been the best performing bank stock in the US. Lending Club caught up with them, which I thought was very interesting. And again, you look at that and say, are we talking about an economic recession here if people are buying Lending Club? No, absolutely not. You know, when you're buying Robin Hood, you're looking at their options volume, which is probably the most important part of their business. And again, they're small investors trading options. That to me is a bullish sign. So, you know, again, I I don't see evidence of a terrible uh cathartic kind of economic uh downturn here anywhere soon. U the margin credit and the rest of the measures for you know, non-bank financial institutions that we've written about. Okay. But again, I don't know that that's going to be a source of some kind of systemic break. I doubt it. >> Okay. Separate. Totally separate. Like you're saying like the kind of retail consumer investors, they're fine. Like when you look at what's happening with us, you mentioned SoFi, Lending Club, Robin Hood, those things. But it's the commercial side. That's what we've talked about that kind of silent crisis. >> The gift that keeps on giving. >> So we should talk about a few areas in commercial. I actually this time I'm going to start with the commercial real estate. maybe more of like a reality check there. Um it seems like there kind of has been this recovery narrative out there. I don't know. Um but what's Okay, what's the latest on the commercial real estate? Like what's the real story? >> New assets that are located in attractive uh locations are doing quite well. They're attracting new money. But then you go down to Florida and you look at some of these projects that have been underway for a couple years and what's happened is inflation in terms of costs to build are starting to really hurt them because you know they came out they talked to their bankers and investors 2 three years ago and said this is what it's going to cost to do this project in Miami and this isn't just northern Florida this is all over the state. you probably have half a dozen or more significant projects down there that are going to go to foreclosure and that means the banks are going to end up owning the deal. Uh likewise, if you look around the country, the big cities are still getting shellacked when it comes to some of these existing office properties that have been marked down 50 60 70% in some cases. We mentioned one in in Los Angeles, the Wells Fargo. >> Yeah. my god, you know, the half billion dollar default on the mortgage. Um, they're going to auction that property off for a third of what it was valued at five, six years ago. So, there's really two different stories here with commercial real estate. The new stuff, everybody wants new, right? Whether it's single family homes or commercial, but the existing assets where the use case is kind of a question mark, you got to be real careful with those. And I think you're going to continue to hear about this. Brookfield is one of the bigger players. You have Paramount Group that was acquired by uh Rhythm Capital. These guys own beautiful properties in major cities around the country, particularly New York, Chicago, San Fran, Los Angeles. But the question is, what are we doing with these assets, Julia? What what's the use case for an office building? You know, imagine the office buildings around JP Morgan's new headquarters on Park Avenue. This, you know, beautiful building, right? He's been renting space in the buildings all around that property. So, as he moves his team into his new building, what are we going to do with the old ones? Okay. You know, I I used to work for Bear Sterns 245 Park. A lot of square footage in that building. What are we going to do with it? So, there's still a big question mark about what do we do with these older assets and can we, for example, turn them into residential? Uh, yes, in some cases, but you got to be very imaginative. You know, think of a a building with X amount of square footage. To turn it into resi, you've got to bring windows and >> windows. Yeah. >> Oh, yeah. So, you could end up losing a third of the square footage of the original building. >> All that plumbing and stuff, too. Yeah. >> No, but you got to put light shafts. You got to do things that allow you to put residential occupants in that building, and it changes the nature of the building, and it's expensive. >> Mhm. >> So, that's that's really the bottom line. I think commercial is going to be, you know, a hodgepodge. Some of it's going to be good, some not. And you see the same thing in private equity and private credit. Everybody is trying to put lipstick on that pig. And it's it's tough because, you know, it's probably 15% of private equity companies in the US today have been paying in kind instead of, you know, paying money on their debt. They're basically insolvent. Uh, and eventually the the funds that control these assets are going to have to admit that they're not working. >> Okay. On the private credit side, who's right? I mean, there have been a lot of folks kind of coming out and tried to dispel some myths um, in private credit, who's right? And what is that what's the actual data show? >> Well, the actual data shows what we've always known, Julia, you worked in the business. Public markets are public for a reason. They're they're they offer investors liquidity and information. When you have private markets, well, you don't have liquidity, do you? And those assets ought to trade at a discount, but they don't. There was such a crowd of people piling into that trade over the last 5, 10 years. Endowments, pension funds, everybody thought that they were going to get a better return on their private assets than they would from public assets. And they were wrong. I just spoke with a a pretty goodsized pension fund last week that owns shares in a you know interesting little community bank. The bank's not going to go public for a couple of years and they wanted to sell their stock and there's just no way to do it. You know they contacted the bank and said, "Hey, can you help us?" But the answer is no. So, you know, when you go into a private equity, you always have to remember that it's private and you may end up sitting with that position for a long time before you can liqufy it. You know, this is kind of preaching to the choir for me because when I learned about the securities market years ago, there was a reason we have public markets. It's because retail investors need liquidity and uh unfortunately uh a lot of firms have been out there telling people a different story and I think they're they're mistaken. >> Yeah. Chris, do you want to uh go through what's in the viewer mailbag? >> Oh, sure. >> Okay. All right. viewer Greg, he wants to know uh what you think of the major bank preferred stocks. Uh he says Chris stated not long ago that he thought they would go away because the banks would no longer need them. >> I own a lot of preferreds. Um and they are buying them back. They don't need them. One of the things that Mickey Bowman is doing on the Federal Reserve Board is addressing capital requirements for banks. So over time you are going to see the major banks, you know, think of the top 10 to 15 that had to issue preferred because they needed additional capital. They're going to buy them back because it's expensive. They could raise money in the equity markets much cheaper. So what I would say is shop around. You want to look at some of the current coupon and preferred and hope that you can keep them. That's really the the bottom line. I own a preferred from I have two different preferreds from uh JP uh one from Wells. I own the old trucks from City that they're never going to redeem because they use that for funding their credit card business. Those are grandfathered in as what we call tier one capital for the banks. But I think that, you know, like I say, the banks aren't going to need as much capital. They don't have a lot of demand for loans right now. So, you know, if you're Jamie Diamond, you're going to have record share repurchases next year. And if you're buying back your own stock, you really don't need those preferred securities, do you? >> Okay, the next question for you, this is a long one, so bear with. All right, this is from viewer Daniel. Um, >> and I feel like you're probably the guy for this. According to my research, between 1992 and 2000, CPI averaged at or above 2.5% inflation, 2.6 6 to be precise. Setting aside the dotcom bubble and the global financial crisis, 2000 CPI 2002 through 2008 averaged 2.8%. The notion of 2% inflation was a product of fears of deflation post global financial crisis during heavy regulation and anemic Obama era growth. With federal debt rising, officials felt it incumbent not to let deflation accelerate the cost of debt. And so they targeted 2% as an aspirational in an otherwise deflationary environment. Fast forward to 2017, the Tax Cuts and Jobs Act, deregulation and a businessfriendly growth environment, an aspirational target of 2% was no longer a concern. In fact, it's one of the reasons Pal messaged so poorly in 2018, leading to the sell-off in Q4 2018. My question, why are we, the Fed, stuck on a 2% target when the growth and regulatory environment is not the same as it was in 2009 to 2016 when deflation was the concern? In other words, why does the Fed um not recognize that a two to 2.5 to 2.9% CPI is in line with the modern eras of e economic expansion, including the '9s and post.com 2000s? Well, I think the short answer is that the board understands that this economy needs a little inflation. If you actually had deflation, imagine what would happen. We were just talking about commercial real estate. They assume that assets are going to go up a couple percent in value every year. That's the only way it works. So, when you talk to Americans about inflation, they love inflation when they talk about their their home or a building that they own. And I think the 2% target was in a way the board being honest with everybody and saying if we get down to 2% that's okay. Now your your viewers right about deflation. That's what they were worried about in the past because we were resolving a lot of bad debt. We were taking homes that had been foreclosed. We had commercial real estate default levels up around 10% at one point. So that was the problem was deflation. Now not so much. I think they're really just worried about having things like home prices rise by 50% in 5 years. That certainly hasn't been helpful. And then everything else, as you know, health care, food, uh you know, the $12 pound of bacon, what do you know what what do you say? Homeowners are in shock still when they go to the grocery store and they see where prices are. >> So, I think that's the flip side of this. Uh Powell would have liked it if the central bank could have been helpful there. But central banks don't set prices, Julia. The participants in this economy set prices. Look at rental costs in in the major cities are still going up dramatically. There's nothing that the new mayor in New York City can do about it either. >> Yeah. Yeah, I think you're right. Okay. Um for folks watching and listening, you can send your questions in every week for Chris. Uh we love them. So shoot me a note. Uh, these are so fun to ask. All right, Chris. Um, let's do a wrap-up question here. You and I in the last couple of weeks, we've talked about liquidity concerns heading into year end. Talked about divided Fed policy, struggling private credit, mixed um, commercial real estate signals, crypto volatility. So, a question for you is, what is the biggest risk entering 2026 that markets aren't pricing in or maybe is not getting enough attention? The risk is always a surprise. Uh Jerry Corgan, my old boss at the Fed in New York, said markets suffer systemic risk when they are surprised. So if we get a large default coming out of the commercial space, if you see a hedge fund or a non-bank company that's overleveraged getting into trouble, that's the kind of thing that can cause a sell-off. But having said that, we just went through a sell-off in the middle of November. And after a couple weeks, everybody got happy again and they took prices back up. So, I'm not really that concerned about market risks. I am a little worried about what we're going to see coming out of the credit sector on the commercial side. But, you know what? Third quarter earnings, most credit costs for consumers, auto loans, credit cards, we're going down. That's why we talk about a K-shaped economy because everybody keeps worrying about something bad and then they turn around, they look at the banks and the banks are underutilized and their credit expenses are falling. So that's not exactly a scenario for a recession, is it? >> No. Well, okay, just real quick on the Kshape, is it possible to fix that? So it's not so cuz I think a lot of people like if you're on that bottom part, you're you're definitely feeling it. So is there like a path forward to kind of just fix the economy, reinvigorate so it doesn't feel so divided? >> That's why they're hoping for lower interest rates. You know, typically housing is one of the more important parts of the economy when you're talking about growth and housing's been kind of in a funk for the last several years. So if you get mortgage rates down into low fives, you're going to see a lot of happy home builders and realtors. Remember, the homebuilders are discounting their uh inventory right now by subsidizing your mortgage. They'll buy your mortgage down by a point or more to move that house that's sitting there. We you and I have talked about the amount of inventory that's sitting in the in your uh neck of the woods. And all throughout the South, there's been a lot of overbuilding. So, you get mortgage rates down, we're going to clear out those inventories, and then everybody's going to go build more houses, which is what they want. Chris, um it's always a treat doing this with you. I love um our weekly rap with you. Before I let you go, um let folks know where they can find you, support more of your work, um find more of your work, and any parting thoughts, anything that you would like to leave them with, to think about as we head into next week for our next uh um wrap with you. Um the floor is all yours. >> Well, no, thank you, Julia. Um I published the institutional risk analyst. You can find me on X and LinkedIn at RC Whan. And I also publish a column for National Mortgage News, which is great fun. Um, we just put up a new paper on the Social Science Network, something really geeky about how uh mortgage lenders finance their uh their operations and their assets that uh some people may find of interest. And I look forward to our next conversation. Julia, >> too. Chris Whan, chairman of Whan Global Advisors, author of the institutional risk analyst. Really, really appreciate you and I can't wait to see you next week. Thanks again, Chris.