Chris Whalen — Age of uncertainty: falling home prices, cracks in private credit & a sidelined Fed
The weekly "Wrap" after the Fed's 25bp hike. Whalen calls the hike "pretty lame": with a $2 trillion deficit (6% of GDP) the Treasury is the dog and the Fed the tail, and Warsh will eventually be forced to monetize the debt. Housing is resetting through 2028, private credit is the fuse and life insurers the bomb, oil stays above $100 as refining redeploys away from the Persian Gulf, and bank stocks are dead money. His own book: Annaly (most of his liquidity, basis ~0.9x book), AGNC, Schwab, Flagstar, and gold and silver.
One-line take: a fiscal-dominance, credit-reset view with a boring, income-first book. The 25bp hike is symbolic — inflation is driven by a $2T deficit and $100+ oil, and the Fed "could have raised a point and it wouldn't matter" to the long end. Seven percent mortgages are not high historically, but after 15 years of suppressed rates they are breaking housing (more than half of US homes fell in price in the last 12 months; Stan Middleman's "misery on the eights" correction runs to 2028) and stressing private equity, private credit and non-bank mortgage lenders. He agrees with Gundlach that private credit is the fuse and insurers the bomb (777, Guggenheim; "the Apollos" controlling annuity carriers). Positioning: he owns Schwab and Flagstar, has added gold and silver for six months, took profits in cyclicals, and holds Annaly as a top position — "it's not about rates, it's about spreads." Crypto is "a polite form of fraud"; prediction markets are gaming.
1. Stocks & names mentioned
| Ticker | Name | Research | View | What he said | At |
|---|
| NLY | Annaly Capital Management | QT · SA · STK · FA | Positive | Owns — one of his biggest positions, basis about 0.9x book, and he put most of his liquidity into it instead of T-bills. "It's not about rates, it's about spreads": MBS vs 8–10-year Treasury spread, a large MSR book, prepayments at 4–5%. "The best managed REIT in the industry"; would buy more if it trades off. Owns the common, not the preferreds. | 30:04 |
| AGNC | AGNC Investment Corp. | QT · SA · STK · FA | Positive | Owns — "I also own AGNC," alongside Annaly; the agency-MBS REIT case is the same spread-and-prepayment argument: "as long as they're able to maintain that dividend, I'm very happy with it." | 30:24 |
| SCHW | Charles Schwab | QT · SA · STK · FA | Positive | Owns, hasn't lightened up — "I own Schwab because they keep growing"; one of the more interesting plays in the bank complex because it takes little credit risk. Its risk is the investment portfolio: restructuring the bond book could pick up "a point in yield" that would "drop right down to the bottom line." | 25:08 |
| FLG | Flagstar Financial | QT · SA · STK · FA | Positive | Owns, hasn't lightened up — one of his two bank positions: "I own Flagstar. That's the turnaround situation." | 24:17 |
| Gold | Gold (commodity) | — | Positive | Adding — "I've been adding to gold and silver both over the past 6 months." Gold "doesn't track the normal markets"; Asian buyers take delivery and "put it in the sock drawer." You made money in gold last year "and you will again." | 24:17 |
| Silver | Silver (commodity) | — | Positive | Adding — bought alongside gold over the past six months; "you can't think about gold and silver the same way you think about stock prices." | 24:17 |
| WFC | Wells Fargo | QT · SA · STK · FA | Neutral | Cited as evidence, not a stance — one of the banks saying deposit rates are going up "after six quarters of falling interest expense. That's a remarkable turn." | 20:44 |
| FITB | Fifth Third Bancorp | QT · SA · STK · FA | Neutral | Cited as evidence, not a stance — named with Wells Fargo and Huntington as banks flagging rising deposit costs. | 20:44 |
| HBAN | Huntington Bancshares | QT · SA · STK · FA | Neutral | Cited as evidence, not a stance — named with Wells Fargo and Fifth Third as banks flagging rising deposit costs. | 20:44 |
| RITM | Rithm Capital | QT · SA · STK · FA | Neutral | Named only as a peer — the hybrid-REIT comparison (owns both loans and securities) against which Annaly is "by far and away the best managed"; no view on Rithm itself. | 31:06 |
| BAC | Bank of America | QT · SA · STK · FA | Negative | "Very, very badly managed bond portfolio" — about $800 billion of bond investments yielding "a point and a half below the market average," which management won't restructure to avoid admitting a COVID-era mistake. "Shareholders don't control companies... managers control companies." | 25:50 |
| APO | Apollo Global Management | QT · SA · STK · FA | Negative | Named as the face of the problem, not analysed as a stock: when annuity holders find "the go-go crowd in private credit on Wall Street, the Apollos and the rest of them, are controlling these companies, that doesn't make you feel good." Private-credit-owned insurers are the "bomb" in Gundlach's framing, which he endorses. | 15:19 |
| Guggenheim | Guggenheim Partners (private) | — | Negative | An example of private-credit managers "in a hurry" piling leverage and "dubious assets" into insurance companies that then fail; notes existing litigation with Mark Walter at Guggenheim and "litigation on this going on forever." | 13:45 |
| 777 Partners | 777 Partners (private) | — | Negative | Cited as evidence, not a stance — named with Guggenheim as a case where leverage and dubious assets pushed into an insurer ended in failure. | 13:45 |
Not tabled: crypto referenced generically ("a polite form of fraud", tokens should be regulated as gaming; no coin named) and prediction markets (no platform named); Monetary Metals is the show sponsor (sponsor read, not Whalen's view); Ladbrokes appears only in a Bear Stearns anecdote.
2. Talking points
01:18 The 25bp hike: catching up to the narrative
- Oil above $100, the 10-year above 5%. The Fed "had to do something" or look irrelevant, but a full point "wouldn't really matter, especially to the long end."
- Upcoming interview with John Dizard on energy — "everybody has discovered the energy crisis now."
02:01 A reset from 15 years of suppressed rates
- Housing will see "death and destruction this year and next" — companies failing, higher defaults, "a return to normal."
- Persistent inflation means the Fed may not ride to the rescue; told Rob Chrisman's mortgage audience "we may not see lower rates." Seven percent isn't high historically but is relative to post-GFC — "huge stress in private equity and private credit."
03:43 Spreads tight, but non-banks can't raise money
- Corporate spreads coming in — "the dogs are still hungry." But PE portfolio companies and mortgage companies in the non-bank space struggle to raise capital.
04:28 "Pretty lame" — a symbolic hike vs a $2T deficit
- Inflation keeps rising with oil and diesel; economists still use "the tools of the 1980s." A $2T-a-year deficit, 6%+ of GDP, is "the defining factor" — what the Fed does is "almost irrelevant."
- Warsh and the Fed won't lecture Congress on the deficit; Trump is "AWOL" on fiscal issues and the bond market reacts to Trump and Bessent.
06:25 The Treasury is the dog, the Fed is the tail
- Markets now watch the Treasury refunding — the biggest borrower "by far." The Fed only matters again if it restarts QE, "which eventually they will have to do" — monetizing the debt.
- Warsh doesn't want QE, "but he will be forced to do it because Congress is totally dysfunctional."
07:39 A 1930s-style fiscal manager
- In a severe enough fiscal crisis the country may "appoint a manager to run fiscal policy" rather than 535 members "who have no courage" — FDR handing Congress Glass-Steagall in 1933 as precedent. Clarifies he is not proposing to abolish Congress.
10:55 The age of uncertainty — housing resets to 2028
- Uncertainty about prices drives people to pass increases forward — why expectations matter to the Fed.
- More than half of US homes fell in price over the past 12 months; the 150M+ unit stock will correct over the next couple of years. Stan Middleman "is going to be proven correct" (he just listed his Florida house) — the "misery on the eights," first discussed 10 years ago and which La Roche says Whalen has written about in the book Seen Around Corners.
- Last year it was "almost impossible not to make money"; now expect real defaults and a real cost of credit.
13:01 Private credit is the fuse, insurers the bomb
- Agrees with Gundlach. A clean insurer earns 12–15% on equity; 777 and Guggenheim piled on leverage and dubious assets and failed. Some carriers won't be able to pay annuity holders; principals get sued (litigation with Mark Walter at Guggenheim).
- State guaranty mechanisms mean surviving carriers "pass the hat"; policyholders may still lose part or all of their money.
15:19 Why life insurers break: duration mismatch and PE debt
- "The Apollos and the rest of them" controlling annuity writers. An insurer that buys a PE portfolio company's debt eats the loss when it goes bankrupt — without the capital to absorb it.
- Life companies should match 10–15-year liabilities with investment-grade assets of similar duration (unlike P&C, which insures idiosyncratic risks like hurricanes). "Most of the industry... is frankly very well-managed," but some very big companies "have been starting to cheat."
17:24 Energy: a war nobody is prepared to finish
- Blames Trump for greenlighting the Israeli-led conflict. The Houthis are taking control of the Red Sea; refining will have to redeploy away from the Persian Gulf, the most efficient producer and Asia's supplier — "it's going to take a long time to fix this."
- Reminds him of the 70s "but this is much broader": Europe short of heating oil this winter; Ukraine's strikes on Russian refining; no incentive for Putin or the Iranians to negotiate.
20:19 Banks dead this year; deposit costs turn up
- No large caps in the leadership group. Wells Fargo, Fifth Third and Huntington say deposit rates are rising after six quarters of falling interest expense — "a remarkable turn."
- Deposit costs follow the bond market; the Treasury is the biggest borrower.
21:35 The AI trade petering out
- Corporate issuance slowing; banks warning on capital-markets revenue. The AI boom "that really carried this market for the past couple years is kind of petering out."
- Consumer durables and products squeezed by input-cost inflation (citing Adam Josephson).
23:20 Gold doesn't track the normal markets
- Asian buyers think about metal differently — take delivery and "put it in the sock drawer."
24:17 His own portfolio: boring, quality, income
- Kept both banks (Schwab, Flagstar); adding gold and silver for six months; Annaly a top position; took profits in cyclicals; set up for "a period where there may not be a very strong trend."
- Schwab could gain a point of yield by restructuring its bond book; Bank of America's $800B book sits 1.5 points below market — "low-hanging fruit," but "managers control companies."
26:26 SEC innovation exemption; Clarity Act failure
- Paul Atkins will let issuers opt out of synthetic/unregulated trading of their stock — good; "we've got to defend our markets." Hopes SEC/CFTC rulemaking picks up parts of the failed Clarity Act, whose KYC/AML demands many crypto firms couldn't have met.
28:40 Crypto: "a polite form of fraud"
- A Democratic House would pass something more restrictive. Tokens and prediction markets are gaming and belong with state gaming commissions — like the Bear Stearns London football pool laid off with Ladbrokes.
30:04 Viewer question: Annaly with flatter rates?
- "It's not about rates, it's about spreads" — MBS vs 8–10-year Treasuries, then MSRs; prepayments now 4–5% vs the old 6% modeling floor. Also owns AGNC. Basis ~0.9x book; would buy more on weakness; no T-bills — liquidity parked in Annaly. Best managed vs hybrid REITs like Rithm.
31:58 What he's watching
- Money-center bank update next week; a University Club talk and book signing in New York; the bond market "is really what matters"; another John Dizard interview.
3. In plain English
NLY — Annaly Capital Management Positive
Annaly is a mortgage REIT: it borrows money cheaply and buys mortgage bonds, mostly ones guaranteed by government agencies, then pays most of the income out as a dividend. Whalen says people ask the wrong question when they worry about interest rates. What drives Annaly's profit is the spread — the gap between what its mortgage bonds yield and what 8–10-year Treasuries yield — plus how fast homeowners pay off their loans early (slow prepayments at 4–5% a year are good for it) and the value of its mortgage-servicing rights (the fee stream for collecting payments).
He treats it as a cash substitute: he owns no T-bills and parks most of his spare money in Annaly, bought at about 90 cents per dollar of book value. He thinks it will be one of the survivors as the mortgage business consolidates, calls it the best-managed REIT, and would buy more on a dip. He reminds viewers that REITs are for income, not for price gains.
AGNC — AGNC Investment Corp. Positive
AGNC runs the same business as Annaly — levered agency mortgage bonds paid out as a big dividend. Whalen owns it too. His test is simple: as long as the dividend holds, he's happy, and the same spread-not-rates logic applies.
SCHW — Charles Schwab Positive
Schwab is a brokerage that also runs a large bank holding customers' cash. Whalen likes it because it keeps growing and makes very few risky loans, so it has little credit risk in a period when he expects defaults to rise. Its weak spot is the pile of low-yield bonds it bought during COVID.
He thinks Schwab could sell and replace some of those bonds to earn about one percentage point more in yield, and that extra income would go straight to profit. Management is paying better attention to that portfolio, but hasn't fully fixed it.
FLG — Flagstar Financial Positive
Flagstar is a regional bank in the middle of a turnaround. Whalen owns it as one of only two bank stocks he holds and hasn't sold any, even while calling bank stocks in general "dead this year." He bought it as a recovery story, not as a bet on the banking sector.
Gold — the metal Positive
Whalen has been buying gold for six months. His reasons: government deficits of $2 trillion a year and oil above $100 keep inflation alive, and he expects the Fed eventually to print money to fund the government. Gold also moves on its own rather than with stocks, and in Asia people buy it to hold physically for the long term, not to trade.
Silver — the metal Positive
Bought alongside gold over the same six months and for the same reasons. He warns against judging precious metals the way Western traders judge stocks.
BAC — Bank of America Negative
Bank of America holds about $800 billion of bonds, many bought when rates were near zero. Whalen says that portfolio earns about 1.5 percentage points less than the market average — "very, very badly managed." The bank could fix it, but management won't take the reputational hit of admitting the COVID-era mistake. His point: shareholders don't run companies, managers do, and here that costs shareholders real income.
APO — Apollo Global Management Negative
Apollo is one of the big private-credit firms that also controls a large annuity and life-insurance business. Whalen doesn't analyse the stock. He uses Apollo as the leading example of a trend he thinks is dangerous: private-credit managers owning insurers and filling them with loans to private-equity-owned companies.
A life insurer is supposed to hold safe, long-dated bonds that match what it owes policyholders decades from now. If it holds risky company debt and those companies go bankrupt, it doesn't have the capital to take the loss. He agrees with Jeffrey Gundlach: private credit is the fuse, insurers are the bomb.
Guggenheim — Guggenheim Partners Negative
Guggenheim is a private firm Whalen names, with 777 Partners, as an example of managers "in a hurry" who added leverage and questionable assets to insurance companies they controlled. Normal insurers earn 12–15% a year on their capital by playing it straight. Pushing for more is how insurers fail, and he expects annuity holders to lose money and lawsuits (already under way with Mark Walter at Guggenheim) to drag on for years.
For personal study — not investment advice. Source material © The Julia La Roche Show. Views are Chris Whalen's own; he discloses his own positions in NLY, AGNC, SCHW, FLG and gold/silver.