fbpx

How to Protect and Grow Wealth in Today’s Volatile Markets with Christopher Whalen

Listen Here


Today’s episode features a powerhouse guest in the world of finance and economics, Christopher Whalen. Chris is the chairman of Whalen Global Advisors, a seasoned consultant to leading lenders, and a widely-respected analyst with decades of experience advising institutional investors, commercial lenders, and regulators. As a prolific writer and the author of “Ford Men and How Money and Debt Built the American Dream,” Chris brings a rare combination of deep industry knowledge and sharp, no-nonsense analysis.

In this dynamic conversation, host Dave Wolcott sits down with Chris to pull back the curtain on some of today’s most complex financial dynamics. Chris lays out clear, practical insights on the forces shaping our economic future—from Federal Reserve policy to commercial real estate trends and the evolving global role of the US dollar. Whether you’re a business owner, investor, or simply want to understand what’s going on behind the headlines, this episode is packed with valuable takeaways.

Chris doesn’t shy away from the tough questions. He gets straight to the point on why the Fed’s actions still pose systemic risks, how multifamily properties are wrestling with losses, and where he thinks investors should focus to protect and grow their wealth in uncertain times.

In This Episode

  1. Why Fed policies may still risk systemic shocks and how banks are absorbing losses
  2. The real story behind commercial real estate and multifamily distress
  3. The future of the US dollar, gold, and the distractions of crypto
  4. Portfolio allocation strategies and where to find opportunity amidst market volatility

Jump to Links and Resources

So by the end of the year, you’re going to see a lot of consolidation in the industry. And if that 10-year, like I said, we start seeing a 4 and 3-quarter or 5% yield on the 10-year, that’s when you’ve got to start worrying about banks.

Welcome to the Wealth Strategy Secrets of the Ultra Wealthy podcast, where we help entrepreneurs like you exponentially build wealth through passive income, enabling you to live a life of freedom and prosperity. Are you tired of paying too much in taxes, gambling your future on the stock market, and wanting to learn about hidden strategies for making your money work for you? And now your host, Dave Wolcott, serial entrepreneur and author of the bestselling book, The Holistic Wealth Strategy.

Hey everyone. Welcome back to another episode on Wealth Strategy Secrets of the Ultra Wealthy. I’m your host, Dave Wolcott, and today’s guest is someone I’ve been eager to bring on the show, Christopher Whalen. One of the sharpest minds in the financial world. Chris is the chairman of Whalen Global Advisors and a veteran analyst with decades of experience advising institutional investors, commercial lenders, and financial regulators. He’s a member of FINRA, a widely published columnist at National Mortgage News, and the author of Ford Men and How Money and Debt Built the American Dream. When it comes to understanding the Fed credit markets, banking stability, and real estate cycles, Chris brings unmatched clarity and conviction. In this episode, we pull back the curtain on why the Fed’s normalization policies may still trigger systemic risk.

The real story behind multifamily distress, and how banks are quietly absorbing losses. How to evaluate alternative assets in today’s liquidity-challenged world. The future of the US Dollar, gold, and why crypto may be more distraction than a solution. And finally, portfolio allocation advice from a Wall Street insider who sees what most investors miss. Chris doesn’t sugarcoat his insights. He delivers the hard truths you need to hear to protect and grow your wealth in 2025 and beyond. If you get value from today’s episode, please take a second to subscribe to the show. Like leave a review and share it with a fellow investor or entrepreneur who needs to hear this message.

That’s how we continue growing this community of conscious capitalists. And now onto the show. Chris, welcome to the show.

Oh, thank you, Dave. It’s great to be here. I appreciate the invitation.

Yeah, pleased to have you on the show and hope to help dispel some of the things that are going on in the marketplace today and ideally help investors make sense of all the different dynamics that are going on in the market, you know, whether it be geopolitics, you know, interest rates, the Fed, everything that’s kind of going on right now, we certainly live in interesting times and we are going to ask you to bring your crystal ball and kind of, you know, give us some of your forecasts and things like that. But, but really from a macro perspective. So why don’t we begin, Chris, and just, you know, for the listeners who may not have read your books or heard of you before, tell us a little bit about your background and kind of how you got where you are today

Well, thank you, Dave. I’m Christopher Whalen, chairman of Whalen Global Advisors. I’m a consultant to a lot of big lenders. I’m a member of FINRA. I’m affiliated with Cohen & Co. In New York. We finance mortgage loans. The secondary market for mortgages is the second-largest market in the world after the U.S.

Treasury bonds. And it’s extremely important for the economy. So that gives you kind of a bird’s eye view of really what the Fed thinks about in terms of short-term markets. We’ve had an interesting five years, and you know, now we’re kind of normalizing things again. But that has some significant implications. So I advise several different, mostly institutional and commercial clients. And then, of course, I write the blog and I publish a column, Financial Mortgage News, if you really like housing. So we have fun.

Yeah, that’s fantastic. So I’d like to, I guess first, why don’t we start with just, I guess, you know, the, the Fed’s kind of position here, you know, 2025. Right. So we have a lot of investors who are invested very heavily in commercial real estate. And the unprecedented rise in interest rates, you know, frankly, I think is just, you know, taking the industry really on its back foot right now. And a lot of that, all of those deals that were underwritten in 2020, 2021, right? At that lower debt rate, you know, with floating-rate debt, those loans are coming due right now. So a lot of people are scrambling, and that’s in multifamily, it’s in office space, it’s in other spaces.

And I know there’s been a big, you know, push-pull between the current administration and the Fed right now. So. So why don’t we begin and try to unpack that one a little bit?

Well, the Fed is coming out of an extraordinary period, you know, going back to 2019 when Chairman Powell had just barely taken over at the Fed. He panicked and he started driving interest rates down. Well, before COVID, by the time we get to March of 2020, all of a sudden, COVID-19 explodes on the scene. The Treasury bond market stops, and the Fed has to come in and buy it. Now, a guy named Donald Trump, at the very end of his term, had declared an emergency because of COVID, and he told Americans that they didn’t have to pay their rent or their mortgage. And then off he went. No one did any follow-up to say what happens next, you know, what happens to the $10 trillion for the mortgage-backed securities that are guaranteed by the United States, but nobody’s paying their mortgage. So that meant that all of the servicers in the industry, from the Rockets on down, essentially had to come up with the cash to advance to take care of your house.

Right? They have to advance principal, interest, taxes, and insurance. Well, thank God the Fed dropped rates to zero. And that circuit of cash, that wave of cash that they created, refinanced two-thirds of the residential mortgage market. So today, still, well, more than half of the market is below 5% in terms of the annual percentage rate on the loan. That does some things to the market, and it also does some bad things to banks. We wrote a piece in our blog this morning about Bank of America, and you know, essentially, we’re still getting over this date. You know, here we are in 2025, middle of the year, almost, and we’re still getting over the radical actions taken by the Fed and also Congress, they threw trillions of dollars on the table during the Biden administration. So, Donald Trump is reversing a lot of things that were done during COVID. Immediately after student loans, for example, they’re going to start collecting student loans and garnishing wages.

All of these things are going to have a disruptive or negative effect on the economy. So what you’re seeing with the Fed is that they were almost ready to cut rates last year. Remember, in the third quarter, rates fell in the markets. We had a boom quarter for lenders that carried through the end of the year. But since the first quarter has been much quieter and I think now the Fed is facing a market that’s not slowing down. We don’t see a recession in terms of credit; only the bottom quarter of consumers are, I think, under a lot of stress. The other three quarters of the stack in terms of credit are stock. Banks have been lowering their reserves for losses for the past three, four quarters.

We’re all waiting for this recession, you know what I mean? But it doesn’t materialize. So I think where the Fed is now, they don’t feel under pressure to cut, and they point to Trump and his tendency to change his mind every other day as a factor that is making them wait. And so for the markets, this is tough. You know, your clients who are involved in commercial real estate, I do a lot of work in that space, too. I write about it. And nobody talked about them during COVID, did that. There were no kind words for landlords. There were no kind words for the mortgage service that took care of all these loan forbearance programs.

So, you know, we’re feeling the aftereffect of that. And you know, by the way, multifamily, especially government-supported multifamily, that’s the new subprime. That’s what I tell my clients. Losses that you’re seeing on these assets are rather striking. 50 cents on the dollar.

Yeah. What’s your fundamental viewpoint on the Fed’s role and reach?

I think they’ve gone way too far. I’m a big fan of Kevin Warsh. I think that we need to box the Fed in a little bit. I was going back and forth with Judy Sultan on X the other day about this, and basically what I think we got to do is tell the Fed that they can’t price their assets, in other words, their reserves, above the Treasury. They have to always be inside the treasury market. And the other side of this is that we have to tell them we don’t want to see any reverse repurchase agreements because not only did that generate a lot of losses for the central bank, but it is also my indicator. If I had a benchmark for doing too much, that’s it. You remember the movie Fantasia, the Walt Disney movie, and he had Mickey Mouse, he turns the machinery on, and the next thing you know, there’s water all over the floor.

Well, when the Fed had to issue their T-bills, which are essentially what reverse repurchase agreements are, what they’re telling you is that they put too much cash in the system, and the economy is still feeling it today. It’s like we juiced up the patient with a lot of adrenaline and, you know, unnecessary liquidity. And so you see it in inflation, and you also see it, I think, in the markets. Markets have kind of normalized inflation expectations, which are higher. They’ve kind of normalized their expectations for volatility in the market. So you see mortgage rates over 7% now, and it’s a function of the spread between treasury bonds and mortgage-backed securities widening. And why? Because banks don’t want to buy it. They don’t see any deposit growth.

The Fed’s been shrinking its balance sheet. That’s the other side of the equation. Right. And as long as the Fed is in that shrinking mode, mostly treasury bonds are running off. You know, they’re not adding to deposits. When the government is in deficit, there’s a vicious kind of mechanics that prevails, which is that if the Fed expands its balance sheet, bank deposits grow because you’re creating a new asset, essentially. On the other hand, when the Fed is shrinking its balance sheet, you’re destroying bank deposits. Because as soon as the treasury redeems that T-bill that the Fed owns, they have to go out and issue a new one.

And when they do issue that new T-bill, who buys it? An investor. Because the Fed’s not buying anymore. Right. So the difference between these open market operations that we’ve seen from the Fed and a normal market where the treasury is not the dominant borrower it’s just night and day. We’re living in an inflationary environment, bottom line, because of the federal debt.

“We’re living in an inflationary environment, bottom line, because of the federal debt.”

Debt, yeah. Speaking of that debt, how do you think we’re going to solve this 36 trillion in debt that’s, you know, due in the relatively short term?

Well, I think we have to have different leadership, frankly. Donald Trump doesn’t want to talk about the deficit. He wants to add to it. It’s not an insoluble problem, though. I don’t want people to think the end is near. It’s not. $36 trillion compared to the assets of the United States is trivial. I think what we’ve got to do is force Congress to slow spending and give the President what Ronald Reagan asked for years ago.

Why not in veto? It’s either that or we have to just displace Congress entirely and hire a manager. I mean, they have not even been able to pass a budget in years. So what do they do every year? They pass a continuing resolution, and they raise spending 10% across the board. That is not going to work. You have to keep spending increases less in GDP growth. Okay. Not frozen. But, you know, you’ve got to tamp it down.

And you’ve got to give the executive branch, OMB, and the other agencies of the federal government the ability to manage the process, identify programs that don’t work, identify programs, enable money, and use that and the input from members of Congress to manage this thing like a business. You know, we were hoping Donald Trump was going to do that. And they are making a lot of good changes in Washington, I must say, compared to the Biden years, which were, you know, fantasy land. But, you know, everybody has a political agenda, and the big agenda for Donald Trump, especially now that he lost his battle on the tariffs, is going to be tax cuts. So, you know, it’s politics. Unfortunately, until we have a crisis and you put a gun to the head of all these members of Congress, I don’t think they’re going to change. I talk about this. Americans don’t like paying taxes, and this goes back to the inception of the republic.

So, you know, Abraham Lincoln created paper money, and from there on, it’s been downhill ever since.

Yeah. Do you think the Doge’s efforts have made any impact on the deficit?

In terms of money? No. Maybe here and there. But I think the more important issue is just going through the entire federal government and finding out what we’re doing. Number one, in terms of outlays, is Social Security. We don’t need dead people on the Social Security rolls or any government payments. The federal government is very antiquated. They are not quite up in the cloud, if you know what I mean. They’re 20, 30, 40 years behind standard industry practice for technology.

So, in terms of governance and management of the assets of the United States, I think you’re seeing a lot of good things going on, and I expect that to continue. Also, they’re forcing all the independent agencies to report to the White House. Now, if you don’t have specific authority from Congress to do this and that, you have to report up. And I think that’s a good change. If you watch what happened under the Biden administration at the Consumer Financial Protection Bureau, for example, the director, the sole director. Right. They don’t have a commission, was doing whatever he wanted, imposing fines on mortgage companies that I work with for no reason. And what’s happening now is that Trump is reversing a lot of those actions. It’s a fascinating sea change.

Interesting. What is your viewpoint on basically the strength of the dollar and really know, just overall the dollar in just this world of creditism that we live in in this day and age? And, you know, it is there. Is there an impending bubble that we need to be thinking about?

What you’re doing is you’re going from a dominant system, the fiat dollar, which was essentially enshrined after World War II with Bretton Woods, and we’re seeing the reemergence of gold as a reserve asset. So that’s a very important phenomenon. I did an interview on the blog with a fellow named Henry Smith, who I’ve known for many years, who runs A gold fund out of the Bahamas. And you know, he kind of laid out the history of this, which is that FDR tried to get rid of gold. He seized it from the public and put us on a paper system. But after World War II, particularly the entire world said, “Okay, fine, we’re going to use dollars, not gold.” That’s changing. I think you’re seeing global central banks buying gold for reserves.

They are largely priced indifferent. Their target is volumes of purchases. So I think the gold trade is going to be a very good one. Island gold, and frankly, I add to my position every time we have a weakness. So, you know, I think you want to think of a bipolar world where you’re going to have dollars and other currencies, you’re going to have dollars in gold. I think Americans should have exposure to gold as part of their portfolio, and then, you know, the rest. I follow financials, so I publish an index of the top hundred banks. So, I cover the landscape pretty thoroughly in most of the financials.

That’s what I know. And I write about that for our readers. But, I let them see my portfolio, and in terms of me, they even buy things like in a video. Of course, you have to have some alpha, and you’ll laugh, but my best performing position over the last five years is Williams, the pipeline company. It just goes to show you, I think energy is the most interesting sector right now because it’s certainly not loved and there’s been a lot of, you know, with prices falling, you know, people are declaring the end of the shale oil boom. So we’ll see. But I think energy is always a good thing to have in your portfolio.

Yeah, that is one of our, in our thesis, energy, real estate, one of our core assets that are there. Because I mean, if you just look at the, I mean, look at the explosive growth in AI that’s happening all over the world. Doesn’t matter what industry you’re in, where you live, the demand is going to continue to grow. You know, sure, you’ve got some, you know, different manipulation, right, with the Saudis and different things. But I, you know, the US is a big producer, right, of oil and gas, and I think that’s going to continue to rise.

Particularly gas. You know, shale has to have a certain minimum price, and it could easily come back. But I think the world right now has an abundance of energy, largely because of conservation efforts. Yeah, I wrote a book about the Ford family years ago, and that’s such a tough business. Global autos, you can see what’s going on. We’re going through a consolidation right now. There are probably half a dozen different firms that could go by buying all of Stellantis. I hate to say, but you know, even if we did that today, we’d still have overcapacity.

So that’s the devil of this industry. It’s, you know, look at Ford. I love that company. I’ve been in and out of the stock, but I don’t own it right now.

Yeah. So, Chris, I mean, do you. Is there anything that investors should be thinking about right now? In terms of the dollar? Right. Because there are some really strong proponents. It seems like there’s more and more every day. You know, just talking about, you know, the BRICs, nations, the dollar just going away. Is that a reserve currency? I don’t know if that means everything is moving into, you know, crypto, and metals, or not.

But like, how are people to kind of think about this in terms of balancing their portfolio and risk in this type of environment?

I don’t see the dollar going away anytime soon. And I’ll tell you why. The world is happy to use our currency as a means of exchange because they don’t have to pay for it. We pay for it. We pay a very high cost for it. We have to keep it large. We run external deficits. We also have high inflation.

Now, as a result, these are the twin devils. So we didn’t anticipate early on. I write about this in the book Triffin’s Dilemma. Originally, it was named after a famous economist who was worried about external deficits. He said the whole Bretton Woods thing is untenable. And many Americans at the time said so. They said, “You know, this isn’t going to work. But you wind the clock forward, and the world is happy to use our money because they can.”

They use it for trade, they use it for financing. There’s no other currency in the world that can do this. I don’t see crypto as a replacement for anything. Because if you, if you look at it, if you and I do a crypto transaction, I give you my fiat paper dollars, you give me a token. Has the liquidity of the world economy changed? No, because on the one hand, you’ve got the Fiat, you’re going to put it in the bank. By the way, I have this thing that’s not an asset. It has no intrinsic value. So I have an option of selling it to somebody else if I’m able to.

To me, that’s the total of crypto. So what I tell people is I like to see them in gold, you know, 10, 20% of their portfolio. I like to see them in real estate. You know, we’re preaching from the same page of the hymn book here, right? But the trouble is, things have changed. When. When all of this technology came about, you had COVID. We had to send everybody home in the housing market while we increased headcount by 50% in 2020. We didn’t see some of these people for years, but they were working for us, okay? And it worked.

If we had tried to do this 10 years earlier, it wouldn’t have worked. So we sent everybody home, and suddenly they’re getting rid of office space left and right, they’re moving to Florida, they’re doing this and that. So the use case for a lot of commercial properties has changed. And you’ve got to be extremely careful when you’re shopping around, looking at properties like I work with, and know several very astute underwriters in that small commercial space. And I’m telling you, it’s interesting. But the problem is, if you’ve got a nice property in Florida or Texas and then somebody builds a new one down the road, the value of your property drops automatically. People like new things, the kids like new houses, right? So, existing homes trade at a very interesting discount in some markets versus new homes. So, you know, real estate’s not like it was after World War II.

You had banks that I covered. I. I worked at Kroll Bond Rating Agency for three years. Rating Financials Group. We have banks that invested in multi-family real estate in New York City, like the Trumps and like my old friend Dale Hemminger. It’s another great story. Came from Queens, moved to Manhattan. The equity in their properties only ever went up for 50 years.

Every seven years, they refinance it. They took the c, cash out. So now you have the opposite. Now you have a lot of commercial properties where the values are falling. As you said before, Dave, interest rates are up. And guess what else is up? Cap rates. So the expectations of investors and lenders in terms of when they get their money back are now much more aggressive than they were in COVID, when we were underwriting buildings at low interest rates with cap rates of 2 or 4, which made no sense at all. Today, cap rates are 8 or 10.

And that is a sea change for many of these properties. The last thing I’ll say is the most striking. You see, I live on the outskirts of New York City, you see, A fully let building that’s going to special servicing because it has too much debt. That’s the iconic example of New York. The volatility of interest rates, property values. Right. But developers have to build. If they don’t build, what are they going to do?

“We’re moving from a dollar-dominant world to a bipolar system of dollars and gold.”

Yeah.

Even in New York, you have guys who are buying moribund rent-stabilized properties, and they figure, well, maybe my kids will make money. It’ll be a money loser for years, I guarantee it.

Yeah, there’s a complete latency effect in terms of building. Right. I think that’s what we’re seeing in some of these hotter markets, you know, like the Southeast and Southwest, especially in multifamily. Right. Where they were trying to meet the demand, you know, three, four years ago. So now you’ve got so much product coming onto the market, and it’s just. And now people are kind of leaving the market. It’s kind of settling down.

So you are really in crisis. You’re stuff is not super affluent, kind of in the middle, but it’s as you say, it’s still sitting. Multifamily properties, single-family, you go down to single-family, you go down to Southern Virginia, Charlottesville area, you know, Delaware. These are all very attractive areas for retirees, too, remember? But a lot of the building capacity and financing capacity just went south. They got tired of being treated as the enemy in places like New York. I just had to join the New York Mortgage Bankers Association. So I can be useful, educate some of these people in Albany. But you know what? They don’t care.

Dave, the thing I find in Albany that’s really of concern is that they just don’t care. They’re going to pander to consumers. They’re going to tell them they can freeze rents, which makes no sense at all. Right. The cost of those buildings isn’t frozen, is it? But that’s the political environment we face. I think you’re going to see AOC go after Chuck Schumer in the primary. He watched.

Interesting. Chris, where do you see alternative assets?

Well, there are a number of private markets I follow. Alternative assets are fine, but you’ve got to remember it’s a private market and you’re depending on the manager to provide you with some kind of guidance about value. Private equity right now is a train wreck because a lot of portfolio companies, pensions, and other traditional investors, I would call them, got involved in, ended up not being ready for prime time in terms of IPOs. So they can’t liquefy them, and they can’t sell those assets to another fund, which is often what they do to get liquidity. Many of these funds will have a time limit, 5, 6, or 7 years, similar to the tenor of a commercial loan for a property. Right. So, ultimately, they have to get out. And what you’re seeing is people like BlackRock, for example, creating vulture funds to buy the equity pieces of these deals at a discount, which is not good.

A lot of annuities have been funded with these private strategies. So what I would tell you is, you know, use your common sense. You’ve got to do your homework if you’re going to look at any private transaction, and it’s a lot more work than you think. You know, you might be better off just buying an index ETF, given the amount of work you have to do on a private strategy. I mean, seriously, if you look at some of the mainstream ETFs over the last five days, seven years, and you look at the returns that people are getting on some of these alternative strategies, you’ve got to wonder if there’s value here or not. You know, when I was a younger banker, there were, you know, in the pioneer days of private equity, these guys had to work hard to make money, and they made a lot of money. I’m not, I’m not suggesting they didn’t, but this whole asset class has become so broad and so relevant. You have everybody selling it to retail now.

You know, my God, you have Vanguard and Lord Abbott selling people private credit strategies in very small denominations. I find that very, very disturbing. Just speaking as a general securities principle, I don’t think that it’s suitable. You know, it’s not the kind of thing a private individual can manage, much less a fund. Because I work in the mortgage space and believe me, the assets, the company’s mortgage servicing assets, loans, these are all complex, but they’re relatively benign compared to some of the alternative strategies I’ve seen. Yeah, you know, if it doesn’t make sense, dude, don’t do it.

Stay informed, stay strategic, and surround yourself with the right community-that’s how you build lasting wealth.

Yeah. That’s sage advice. Absolutely. So from a strategic perspective, then, let’s kind of talk about portfolio allocation a little bit. Any, you know, sectors that you’re kind of bullish on or just from a, you know, overall strategic perspective. Any focus areas for you?

My general thesis, because I’m a financials guy, I have about half of my book in Treasuries and bank preferreds, and the other half, I allocate the common shares ETFs. So, one of my funds, I picked up some American Express. When it got down to five and a half times, which was extraordinary. It was over seven. And then I own some mainstream tech and things like Nvidia and AMD. I mentioned Williams. That’s easily my best trade. It’s more than double.

Although I made a ridiculous amount of money with it. Nvidia, it kept getting so big, and I kept selling it, and I was like, oh my God. So, my attitude is I have about 20%, one portfolio in gold. I play macro short and long on the S&P 500. So, immediately after Donald Trump’s Liberation Day, obviously, we went short. Yes. And B made good money on that. But, you know, if you’re gonna do that kind of macro trading, you gotta watch it all day long.

You have to have the app open on your phone, and you’ve gotta, you gotta be a trader. You’re not comfortable with that, then what I would tell you is I look for opportunistic yield. I just bought some alien. Because they pay 15%. You’re gonna continue to see high yields in the mortgage space. But I will tell you, you know, we write about this a lot in the blog. You’re going to see brutal consolidation. When they announced that Rocket and Mr.

Cooper was getting together, that is, like another little castle with a moat around it. Lots of assets inside, lots of liquidity inside. And you know who they’re going to compete with? JP Morgan, which is the biggest Morgan service in the country. Jamie Dimon likes big, affluent borrowers. He doesn’t like little loans. So it’s a very different business. But still, you’re seeing people consolidate around assets. The Realtor piece lets them bring in new assets.

And it is obvious, Rocket is an amazing lender. They’re going to have $2 trillion worth of servicing when that deal closes. That’s quite something. 1.2 trillion they own, and then they serve third parties. The rest, that’s quite a business. And you’ll see the rest of them doing it more. I’m telling you, we’ll, we’ll consolidate the top 10 lenders in pretty short order. Maybe the top 20.

Yeah. Do you think there’s any risk of any bank failures going forward in the future? I mean, I don’t, I don’t know what the total count was. A couple of hundred. Right. So do you foresee that happening in the future, or have they been able to, you know, change, you know, some of the operating guidelines?

Terms of credit risk? I think the risk is pretty muted. The Only area where you see a lot of destruction right now is multifamily and commercial. And it’s idiosyncratic. We’re still at, you know, 15% of where we were in 2008. So I don’t want you to think it’s an alarming crisis, but it’s a big expense. Every time a bank has a default on a multifamily property, the loss given default, which is a Basel term, is over 100% of the loan amount. That’s the average. So you know that there are transactions there that are much, much higher than the loan amount.

That’s because there are expenses. That’s because the banks frankly don’t want the building. After all, the city won’t let them. After all,n it. Okay, so there are a lot of issues in blue states, urban areas for lenders. And if you look at the data, you’ll see they’re not taking the properties. The big risk for banks is interest rate risk. Silicon Valley Bank, we wrote a piece about that today, talking about Bank of America. Bank of America kind of took their eyes off the ball during COVID, and so they were sitting there making two and even one and a half percent mortgage loans to their customers. And they kept them.

Okay, so you wind the clock back forward from 2021. Here we are making 6.57% mortgages. Those existing loans that are sitting on Brian Moynihan’s book are trading in the 70s. So he’s looking at an unrealized loss on his book. That’s half of his tangible capital right now, just on the security side. Take his loan book and mark that to market. He’s probably insolvent. So right now it’s okay.

Bank of America is my bank, by the way, and I do business in Merrill Lynch. I love them. But you know, if the 10-year treasury goes to 5%, you’re going to start hearing screaming and yelling in the background because there are several banks that did not restructure their balance sheets and took their eyes off the ball. And you know, now they have these huge unrealized losses. So that’s the danger. As we normalize from COVID, we’re starting to see markets behave differently, right? So, for example, when Trump announced his tariffs, everybody fled the quality of Treasuries that lasted for about two or three days. And then the long and the 10-year, and the 30-year treasury started going up. Now, traders were surprised by this.

They did not expect that. So what I think we’ll see going forward, even if the Fed cuts its short-term rate target for Fed funds, we could see the long end of the curve go up. And that is a big danger for banks. So that’s, that’s what I would flag for your, you know, your listeners. It’s not an imminent danger, but it’s right in our face. And you know, when Trump talks about lowering interest rates, he doesn’t know how right he is because, you know, you talked about commercial real estate before. Banks, mortgage lenders, they’ve all been hanging on, hoping that the Fed was going to cut rates so they would see higher volumes and refinance opportunities. Right.

Hasn’t happened yet. We may not see a rate cut all year. So by the end of the year, you’re going to see a lot of consolidation in the industry. And if that 10-year, like I say, if we start seeing a 4 and 3 quarter or 5% yield on the 10-year, that’s when you’ve got to start worrying about banks.

Yeah, interesting. Anything else that investors should be keeping their eyes on, you know, in terms of this year, or, you know, how should they be positioned? Do we want to be? You know, there’s talk of a recession. Is it going to happen? I don’t know. It seems that Jamie Dimon said 50- 50, you know, chance the other day. Nobody seems to come to a kind of stance. But from what you’re seeing, you know, should investors be kind of, you know, conservative? Should they be looking for opportunities and deploying capital or, you know, what’s, what’s the overall stance?

What I do just with my portfolio is when there’s a lot of yelling and screaming in the media and people going on about tariffs, for example, I told my flock, I said, “This is a distraction. Go look at the things you couldn’t buy last year that were too expensive.” Do your homework. And if you find an opportunity to get into a quality name, and you know, banks, for example, I only care about the ones that are running tight operations. American Express, JP Morgan, Capital One. These guys are very serious about how they manage their business. And you’ll notice they don’t have a lot of unrealized losses from old bond portfolios that they forgot about. Right.

I like to see that because that tells me management is paying attention. So what I would say to you is be opportunistic. If you see these markets sell off, it’s an entry point. I’ve been waiting to get back into Nvidia because I keep thinking it’s going to go lower. I’m way below my exit point, though, and I’m like, okay. But it comes and it goes. You know, managers are like cattle or, or maybe buffalo. They come and they go.

They get excited about a name, and then they leave. So I keep telling my buddies in crypto, take your money off the table, play with somebody else’s money. Because this is one of those stories that, if you look at the charts, most of the game is already behind us. As it gets more and more relevant, it’s less interesting. And then I see Donald Trump getting into the market. So that’s not good because it’s all about him, right? So like I say, I tend to be fundamental in terms of holding gold and things of that nature. I have a fair amount of treasury collateral just for cash, pretty short term. I haven’t been attracted to tens or thirties.

The yields are high enough given the risk. But I do like cash flow. That’s why I got back into analytics. I’ve owned this stock on and off for years. How can you, you know, because it’s all treasury collateral. They go lever up their book 10 to 15 to 1, and then they use swamps to cut the ends off the risk curves. So that’s how they’re able to offer that yield. It’s a retail product, it’s an income product.

And let’s not forget, I haven’t mentioned this, but what’s the best-performing mortgage stock in the country? In fact, much better than any crypto asset. Fannie Mae and Freddie Mac are up 640% year over year. Be careful of that one. There are a lot of details involved in that trade. So I think it got Fanny got up $8 again yesterday because Trump was talking about it.

Interesting crypto.

If I own Fannie Mae, I mean, it’s a penny stock. I can’t even buy it on. On the Merrill lynch platform. It’s pretty funny. It’s considered deliquid.

Yeah. Chris, if you could give just one piece of advice to listeners about how they could accelerate their wealth trajectory, what would it be?

I would say stay away from the crowd. Look for things that people have missed. You know, we talked about energy before. I think you want to continue to have exposure to gold because it’s still not mainstream. It’s still the case where, yeah, some people have figured it out, others have not. And be careful of real estate. Everybody defaults into real estate because they think they’re automatically going to make money. You see this with high-end properties all the time.

You know, there was one in Florida that just hit the market, they paid 60 something for three years ago, and they put it on the market for 100. The upper end of real estate right now is compressing very rapidly, so be careful of that. I think we’re going to see a home price reset after the next set of Fed rate cuts, probably next year. So, figure 27, 28. We will see a significant reset in home prices. That’s not me, by the way. That’s my dear friend Stan Middleman, the founder of Freedom Mortgage. I published a biography of him last year and he’s, and he’s just a fabulous guy.

He’s a very smart man.

Stay away from crowd. If you want to win, you have to find what everyone else has missed.

Yeah, fantastic. Well, appreciate your insights today and sharing your wisdom and time with us. I know you’ve got some great books and a blog, and some other resources if people want to kind of check that out. Where can they learn more about you?

Well, I’m very active on X and LinkedIn under RC Whalen. My newsletter is the Institutional Risk Analyst. Very easy to find on Google. And then, of course, if you like real estate, which I think most of your crowd does, I wrote a column for National Mortgage News as well. I’m always very interested to hear comments from my readers.

Awesome. Thanks so much, Chris. We’ll make sure to link all of that in the show notes for you, and appreciate your time.

Yeah, likewise, Dave. Let’s do it again. I always like talking about.

Thanks for listening to this episode of Wealth Strategy Secrets. If you’d like to get a free copy of the book, go to holisticwealthstrategy.com. If you’d like to learn more about upcoming opportunities at Pantheon, please visit pantheoninvest.com

Connect with Christopher Whalen

Connect with Pantheon Investments

Leave a Reply

Your email address will not be published. Required fields are marked *