Bloomberg Audio Studios, podcasts, radio news.
Chris Whalen is definitive on the American financial system. I'm standing or surrounded by dinosaurs in Houston, and I'm going I think I got Chris Whalen in a couple of days.
Musclessen for Global Wall Street. He joins us.
Now I can't say enough about his value to the American financial system, his history, his books, and also his work at Whaling Global Advisors.
Chris, I'm just going to cut to the chase. First Brands try collar.
Have are we living two thousand and six Chris Whalen.
Yeah, and we're kind of repeating the same mistakes. You know, if you don't have a trustee to hold the paper, then you have double pledges of collateral. Remember Bear Stearns. Yeah, I'm familiar, same same thing. So it's called fraud. And you know, the terms on a lot of deals in the past ten fifteen years have loosened in favor of the issuers to the disadvantage of investors, and First Brand is a case in point.
Chris Waelan, there was no other question at my CFA meeting in Houston, no other question. What's the contagion you're expert at the history of this. Come on, Is it like Continental Illinois? Is it like bear Stearns As you mentioned, what's a contagion factor in October of twenty twenty five.
It's brewing. We won't really see it until we do. So. The commercial side of the equation is where the problems are for the banks right now. They are trying to hide them as best they can. We've just changed the accounting rules for loan modifications, by the way, so if it pays for twelve months, we pretend the loan was never modified. How cool is that? And I think that the industry, the regulators are all walking past the graveyard
because private eq. Commercial, real estate, all of these sectors are still having significant problems. On the other hand, consumer is quiet. We've been releasing reserves and reducing provisions for loan loss on the consumer side because there's nothing happening yet that may come next year. But the commercial side is where the action is right now.
Tom Chris, I've learned a new term, I guess in the last few weeks, and that is the basement trade. Where is my understanding is investors are saying, I'm worried about all this government spending around the world. So maybe I don't want to own government securities like currencies, maybe even the government debt, and that includes the US stuff. Maybe I'll buy some other stuff like gold. What do you make of that.
I've been telling my readers to put at least ten to fifteen percent of their total allocation in the gold for most of this year, and I think it's solely beginning to start for the simple reason that there isn't a lot of deliverable supplying gold. People are worried about deficits. They are worried about the dollar, and I think they're right to do so. The dollar is probably going to continue to go down. We have structural problems in this country.
You notice Chairman Powell is talking about continuing to shrink the balance sheet. Why. As Bill Nelson at Bank Policy Institute wrote this week, the Fed funds market may collapse thanks to the big balance sheet. So we have a lot of issues. In the background. The markets look great AI. Everybody's still making tons of money. But in the background, people are worried because when you have these old time highs one after another, they tend to not be confirmed after a while.
For Global Wall Street worldwide on YouTube, across.
All of our audio product Christopher Whalan joins us his one volume on the American financial system, My book of the Year ages ago were begging him, he's going to put a book. DiCaprio's scheduled.
Oh I got him signed up.
Continue with Chris Whaley about.
Liquidity in the marketplace, and I'm thinking about not so much as stock market, but just kind of across the fixed income space, maybe the currency space.
Is that a worry for you, Yes.
Very much so. It's it's almost like we're back to December twenty eighteen when Jerome Powell almost ran the ship aground. You recall they pivoted very quickly in January nineteen and started easing. That's when they went to this ample reserve policy that they've had since then. And I think that what we're worried about is that the model that the FED uses to judge whether liquidity is adequate or not is based on GDP, which has nothing to do with anything.
Liquidity is highly compartmentalized. It does not flow one way and another, so you really don't know until there's not enough. I think that's where we are today.
Chris, I got to get two things in here. It's too important. Sweeny's lined up. Sweeny's got notes this morning for Chris Whalen. I have Christopher Waller tomorrow. What is Chris Whalen's question for Governor Waller? A presultive chairman. What's your question? Whalen?
He was very bullish on shrinking the balance sheet earlier this year. Ask him how he feels now? Ask him where round is now?
I don't have to work.
We're landing in the fog. We don't have an altimeter. Okay, where is the ground? Does he know? That's the key question?
Brill Yeah, we'll try to get to that again. You're going to see that in the nine o'clock hour tomorrow.
With Christopher wall in his speech at.
The Council and Foreign Relations, and then I will grill him as best I can. He's really quite He's a prodigious intellect, folks, particularly in the game theory of central banking.
Okay, Chris, let's go to it right now.
I suggest that the major banks led by JP Morgan and Bank of America.
Literally are hiding how profitable they are. In the Whalen history, back to.
Great great Grandpa whyaland was with Alexander Hamilton a few years ago. Chris Whalan describe the profitability of this modern era of ginormous big banks.
I'm not sure that they're that much more profitable today than they have been in the past. Asset returns are barely one percent. They are giving back capital because they're underutilized. Why are they lending all this money to non bank, non depository institutions because loan demand otherwise is pretty slack. You know, deposits are growing twice as fast as demand for loans. So hopefully when rates fall, we'll see volumes
pick up a bit like last September. This September two, by the way, is going to turn out to be a very good month for banks and non banks. But you know, the bottom line is that there are so many alternatives to traditional banks now that have been spawned in the equity markets and are funded with actity and debt, that you have plenty of places to go spawn.
Yes, ec way, they would say spawn, private credit was spawned exactly.
Heany here's something to get your thoughts on the housing market. Broady defined here that affordability issue continues to be a huge, huge issue for people, particularly young people. I got a mortgage rate, still got a six handle out there, and I've got housing costs that are fifty percent since twenty nineteen. This is a problem, isn't it.
It is, But it's a problem that's going to be fixed. Donald Trump is going to goos to housing market with his friend Bill Poulty. They want to support homebuilders at a time when the homebuilders have already got too much inventory. Supply has caught up with demand. And remember the prediction of my good friend Stan Middleman, the founder of Freedom Mortgage Misery on the eighths, I think we see a
maxi home price reset in twenty twenty eight. If you've got that high coupon mortgage, wait a little bit and maybe go into a floater, and then you'll be able to refinance it much lower in a couple of years.
So, Chris, I guess the question. There seems to be a housing shortage in this country. I'm not sure how we got there. How do you think that happened in.
Some parts of the country, not everywhere here in New York in the Blue States where we don't build. Yes, it's astounding to me because this is a market that had very poor volumes before COVID, but the prices keep going up because nobody's building houses down south. We have the opposite problem. Chris Carolina is in Texas, Florida. We are up to our ear lobes and support.
Michael Barrowe's equal time. Chris Whalen quickly here. Every Brady undergraduate wants to know when's the new book come out?
Well, the second edition suld have inflated is out of course, and I did that for you. David Kotok did the introduction, by the way, very cool, and we're working on a gold book for next year, which will be very good.
You'll probably talk to Ike. Agreed.
That's the way Chris Whalen rules. Christopher Whalen, thank you so much. I can't say enough, folks the importance of his skepticism about some of the verbiage of our financial system.