The Julia La Roche Show Sep 19, 2026 34m 22m saved
With Chris Whalen, Chairman of Whalen Global Advisors and author of The Institutional Risk Analyst
More than half the houses in the United States fell in price over the past 12 months, Chris Whalen said, and he expects the correction to run until 2028.
The week's market story was the Federal Open Market Committee's quarter-point rate rise. Whalen called the move symbolic and said the number that decides inflation is the federal deficit, which he put at $2 trillion a year.
"So, how can the Fed even talk about a 2% inflation target when we're doing a deficit each year that's 6% of GDP or more?"
Whalen is chairman of Whalen Global Advisors, publishes The Institutional Risk Analyst, and wrote the biography of Freedom Mortgage founder Stan Middleman. He also names the bank and mortgage positions he holds himself, which he did again here.
The full interview is covered here so you can skip it. 34 minutes of audio, 12 minutes of reading.
Here are the 13 calls that matter.
Key Takeaways
The rate rise was mostly symbolic — the Fed had to move or become irrelevant, and it changes nothing at the long end of the yield curve
A $2 trillion annual deficit, over 6% of GDP, is what sets inflation now, and the Fed will not tell Congress so
Treasury is the dog and the Fed is the tail — the biggest borrower in the market now moves prices, not the central bank
The Fed will be forced back into buying government debt, and the inflation-target conversation ends there
More than half of US houses fell in price over 12 months, and all 150 million-plus units are turning
He expects a significant correction in home prices between now and 2028
Private credit has used insurance companies to make money faster than the business allows — a normal life insurer earns 12–15% on equity
Some annuity holders "may lose part or all of their money"
Bank stocks have been dead this year, and deposit costs are rising after six straight quarters of falling interest expense
The AI trade is slowing against the first half of the year, and bank capital-markets revenue is being guided down
He owns Schwab, Flagstar and Annaly, has been adding gold and silver for six months, and holds no Treasury bills
Bank of America's $800B bond book yields a point and a half below the market average, and nobody will take the hit to fix it
He calls crypto "a polite form of fraud" and says tokens belong with state gaming commissions
On Annaly, it is spreads that matter, not the level of rates — his cost basis is about 0.9 times book
1. A Symbolic 25bp Hike
Asked for his reaction to the FOMC's quarter-point increase, Whalen said the Fed moved to stay in the conversation rather than to change anything.
The Fed acted to avoid irrelevance, not to fix inflation
Well, first off, the Fed had to do something or they would have been completely irrelevant. There's not much the Fed can do about the inflation we're facing.
Chris Whalen
He said the Fed could have raised its target for the federal funds rate by a full percentage point without moving the long end of the yield curve — the yields on longer-dated Treasury debt that set mortgage and corporate borrowing costs. He described the move as the Fed catching up to the narrative.
The larger story, he said, is the unwinding of 15 years in which the central bank held interest rates down and borrowers adapted to that. He told Rob Chrisman, who writes a daily mortgage newsletter, that the industry should stop waiting for rates to fall.
Housing is where the reset lands first
But I can tell you in the housing sector, we're going to see death and destruction this year and next. Companies are going to go out of business. We're going to see higher default rates and it's going to be a return to normal.
Chris Whalen
The host said a rate of seven is not high by long history but is high measured against anything since the 2008 financial crisis, and that it is causing stress in private equity and private credit. Asked whether Kevin Warsh's focus on inflation is pointless, Whalen said Warsh is not trying to change perceptions, so rates keep rising. One countervailing signal is that credit spreads, the gap between corporate bond yields and Treasury yields, have narrowed, which means investors are still buying corporate paper.
The constraint is elsewhere. Private equity portfolio companies, mortgage companies and other non-bank borrowers are having a hard time raising money at all, and he said that will matter more than the spread.
2. $2T Deficit Sets Prices
The host read one of Whalen's own notes back to him, that the quarter-point hike is "pretty lame" when the deficit is $2 trillion, and asked whether the FOMC is relevant at all. Whalen said the rate rise will not slow inflation, because oil and diesel prices are going higher regardless.
Monetary policy is being run with 1980s tools against a fiscal problem
And they don't realize that the large deficit, $2 trillion a year, come on. That is the defining factor right now. What the Fed does is almost irrelevant.
Chris Whalen
The job the Fed will not do, he said, is a public one: telling Congress the deficit has to come down. He named President Trump as absent on fiscal policy and said the bond market reacts badly to what it hears from the President and from Treasury Secretary Scott Bessent.
The inflation target cannot survive the arithmetic
So, how can the Fed even talk about a 2% inflation target when we're doing a deficit each year that's 6% of GDP or more? And the Fed still, Kevin Warsh, the rest of the people at the Fed still do not want to do what they need to do, which is to lecture Congress and say, "Hey, we need to have a smaller deficit."
Chris Whalen
3. Treasury Dog, Fed Tail
Asked directly whether the FOMC can do anything against fiscal policy, his answer was no, and he gave a reason about market structure rather than about policy.
The Treasury now moves the market and the Fed follows
No, they can't. And the Fed is the dog — or excuse me, the Treasury is the dog. The Fed is the tail.
Chris Whalen
Investors used to watch Fed decisions for immediate market effect. Now, he said, they watch Treasury refunding announcements, because Treasury is by far the largest borrower in the market. That leaves one route by which the central bank regains influence.
Debt monetization ends the inflation conversation
You're going to see the Fed monetizing the federal debt because they're not going to have any choice, and then this discussion about inflation is going to be just dispensed with entirely.
Chris Whalen
Asked whether Warsh wants to restart quantitative easing, the central bank buying government bonds with newly created money, Whalen said no, the opposite, and that he will be forced into it anyway.
4. A Manager for Congress
The reason he gave is that Congress will not act. He said members treat the job as a public profile rather than as budgeting and oversight, and that a bad enough fiscal crisis forces a change in how the country is governed.
He would put one manager in charge of the federal purse
We're getting to the point where if we have a sufficient fiscal crisis, we're going to have to take a page from the 1930s and essentially appoint a manager to run fiscal policy in Washington and do away with Congress when it comes to the power of the purse.
Chris Whalen
The host stopped him there and said the comment section would react, asking whether he meant abolishing Congress. Whalen clarified that he meant a single decision-maker in place of a body that cannot decide.
535 members who will not take an unpopular vote
No, have a manager instead of 535 people that can't make up their mind and who have no courage.
Chris Whalen
His precedent was 1933. Franklin Roosevelt told Congress what to pass, he said, and Glass-Steagall and the rest went through without debate. The host restated the position, a manager to direct Congress rather than to replace it, so that it would not be read as a call for a dictator. Whalen did not soften the forecast: "But when things get bad enough, when the fiscal situation gets problematic enough, that's what you end up with."
5. Home Prices Fall to 2028
Asked to frame what he has been calling the age of uncertainty, Whalen started with prices. When households and businesses cannot forecast what things will cost, they raise their own prices in advance, which is why central banks treat expectations as a core input.
Housing is the clearest case.
The whole US housing stock has turned
Now, as we've discussed, more than half the houses in this country went down in price over the last 12 months. The entire stock of houses, 150 plus million units, are slowly starting to turn and they are going to correct downward in price over the next couple years.
Chris Whalen
He said Stan Middleman, the Freedom Mortgage founder whose biography he wrote, will be proven right, and that Middleman has just listed his own Florida house for sale — something the mortgage industry has noticed. The host named the call: the "misery in the '8s." Whalen said he first heard it from Middleman 10 years ago.
The era of automatic asset gains is over
We're going to see an environment where we're going to see real defaults. We're going to see a cost of credit that is real. And I think you're also going to see a significant correction in home prices between now and 2028.
Chris Whalen
He contrasted that with last year, when he said it was almost impossible to lose money in the stock market.
6. The Insurance Bomb
The host raised Jeffrey Gundlach's appearance on the show earlier that week, recounting his line that private credit is the fuse and insurance companies are the bomb. Whalen agreed and explained the mechanism.
Private credit uses insurers to compound faster than the business allows
Unfortunately, the private credit industry has used insurance companies to accumulate wealth much faster than is normal. Your typical insurance company will have equity returns somewhere in the low to mid-teens. So, figure somewhere between 12 and 15% a year. That's if you do everything right. You don't cheat.
Chris Whalen
The failure pattern he described is leverage plus poor assets inside a regulated carrier.
Managers in a hurry put weak assets into the insurer
But then you look at situations like Triple-S or like Guggenheim, where the managers are in a hurry and they pile on the leverage, they put a lot of dubious assets into the insurance company, and then the insurance company ends up failing. That's what we're seeing a lot of.
Chris Whalen
He said the question for these carriers is whether they can pay their annuity holders, and that the answer will be no. Litigation follows, and he pointed to the suits already filed involving Mark Walter at Guggenheim. That will run for years, he said. Because insurance is regulated by the states, the cleanup falls on the surviving carriers in each state, which "are essentially going to have to pass the hat and take over the failed carriers."
That does not make policyholders whole.
Annuity and life policyholders can lose the money
Will that save the investors and the annuity holders and people with life insurance? No. In many cases, they may lose part or all of their money.
Chris Whalen
Calls about this come in regularly, he said, and he refers people to specialists in the industry. The host said the show's inbox carries the same question.
A boring industry has been handed to private credit
So when you start finding out that 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.
Chris Whalen
7. What Life Insurers Buy
Asked whether rising rates mean more of this to come, Whalen said much of the damage is already done, and then explained what a life insurer is supposed to hold.
The asset side is built to match a 10- to 15-year liability
Usually insurance companies buy stocks, investment grade bonds, that sort of thing, because they're trying to match up the asset side with a liability that usually has a 10 or 15 years.
Chris Whalen
A life insurer knows roughly when it will have to pay, so it can buy assets that mature on the same schedule. A property and casualty insurer cannot, he said, because it is underwriting hurricanes and other events that arrive unpredictably. The problem appears when a life insurer holds the debt of a private equity portfolio company that then goes bankrupt: the insurer takes a loss it does not have the capital to absorb.
Most carriers are run properly; a few large ones are not
you have some very big companies who've been starting to cheat, and that's a problem. And that makes people who have annuities worry, and they should be worried.
Chris Whalen
8. The Red Sea Reroute
The host credited Whalen and John Dizard with flagging diesel and energy costs before the market did. Whalen said people preferred not to look, and that there was no leadership from President Trump because, in his account, Trump agreed to a war a previous president would have declined.
Control of the Red Sea changes where refining capacity sits
Well, you can see now the Houthis have started to take control of the Red Sea.
Chris Whalen
The consequence he drew is physical and slow. The oil and refining industries will have to move assets away from the Persian Gulf, which he called the most efficient producer of oil and its byproducts and the source of Asia's fuel. Rebuilding that capacity elsewhere takes years.
Asked whether this supports his view that inflation stays, he said the situation is broader than the oil crises of the 1970s.
Europe will be short of heating oil this winter
Think about heating oil in Europe this winter. They are not going to have enough supply.
Chris Whalen
He said Ukrainian strikes had hurt Russian oil and refined-product output badly, and that Trump's instruction to Ukraine to stop attacking Russia has had a large effect on supply. He does not expect the war to end, because he thinks Vladimir Putin neither knows how nor wants to.
Iran has no reason to negotiate
There is no incentive for the Iranians to negotiate peace. I listen to analysts talking about this like, oh, if they negotiate peace — they don't want to. The Iranians think they're winning.
Chris Whalen
9. Bank Stocks Went Dead
Asked how this spills into markets, Whalen went to the banks, where he does most of his research.
No large-cap bank is leading the market this year
As I noted yesterday in our notes, bank stocks have been pretty much dead this year. The top 25 or group of banks — you barely recognize. None of the large caps are in a leadership position right now.
Chris Whalen
The turn he flagged is on the funding side. After six straight quarters in which banks paid less for deposits, several have now told investors that is reversing.
Deposit costs are rising again after six quarters of decline
You had a couple banks already, Wells Fargo, Fifth Third, couple others, Huntington, all talking about the fact that their deposit rates are going up after six quarters of falling interest expense. That's a remarkable turn.
Chris Whalen
The host asked what rising deposit rates signify — whether people are pulling cash out of markets. Whalen said it is not a cash shortage; deposit pricing follows the bond market, and Treasury is the biggest borrower competing for that money. Corporate bond issuance has had a good 12 months but is slowing.
The trade that carried the market is petering out
The AI trade is slowing compared to the first half of this year. You've already got banks warning on the capital market side — they're not going to make as much money on trading and issuance and advisory activities for their clients.
Chris Whalen
He added the consumer side, citing Adam Josephson's writing on how much cost increase consumer products companies are absorbing rather than passing on. The result, he said, is that managers and executives face decisions they did not have to make in a stable market.
10. Gold in a Sock Drawer
Asked where an investor puts money when no clear narrative exists, Whalen said last year large-cap banks returned double digits to anyone who simply stayed invested, and that this year they will not. Gold also worked last year, and he expects it to again.
Gold does not trade like a stock, and Asian buyers treat it differently
You can't think about gold and silver the same way you think about stock prices. Western traders, that's what they want to hear. But if you talk to people in Shanghai or India or any of the Asian countries, they think about metal in a very different way. They want to take delivery and put it in the sock drawer.
Chris Whalen
He credited the point to the show's interview with David Kotok a few weeks earlier.
11. What He Owns Now
Asked what he is doing with his own allocation, Whalen listed positions.
Two bank positions, both held
Sure. I haven't lightened up on my two bank positions. I own Schwab and I own Flagstar. That's the turnaround situation. I've been adding to gold and silver both over the past 6 months.
Chris Whalen
His largest single holding is Annaly, a mortgage real estate investment trust. He said it will be among the survivors of the coming consolidation in mortgage because it buys assets, borrows against them and manages the spread rather than taking credit risk. He has taken profits in some cyclical positions over the past few months and is positioning for a market with no strong trend.
On Schwab, he likes that it keeps growing and takes little credit risk, but said its bond portfolio could be restructured.
A restructured bond book would add a point of yield straight to profit
I think they could still do better if Schwab restructured their bond investments. They could probably pick up a point in yield, which would be very nice. That would drop right down to the bottom line.
Chris Whalen
Management will not do it, he said, because it means admitting a mistake made during COVID. He gave a larger example.
Bank of America's bond portfolio yields a point and a half below average
Bank of America is another case in point. Very, very badly managed bond portfolio. It's a point and a half below the market average. How does that happen? It's a huge bank, $800 billion worth of bond investments.
Chris Whalen
His conclusion was about who decides.
Shareholders do not control these companies
Shareholders don't control companies
Chris Whalen
12. Crypto as a Gaming Bet
The host raised the Securities and Exchange Commission's innovation exemption, released days after the CLARITY Act failed to advance in Congress. Whalen said firms had begun letting customers trade stocks synthetically through unregulated futures contracts, and that the SEC's answer gives companies a veto.
Issuers can refuse to have their stock traded off-exchange
What Paul Atkins at the SEC is going to do, though, is he's going to allow the issuers of securities to opt out of that
Chris Whalen
He said he had worried about Atkins, whom he has known a long time: "He's a great conservative, but he was a little bit too much bought into this whole crypto thing." His own position is that US markets have to protect issuers or issuers will leave them, particularly where trading moves to offshore platforms.
He also said he had not celebrated the CLARITY Act's failure, because he doubted much of the crypto industry could have met its know-your-customer and anti-money-laundering requirements. With Congress unable to legislate, he expects the SEC and the Commodity Futures Trading Commission to write the rules themselves. Asked whether Congress could legislate after the midterms, he said a Democratic House would pass something more restrictive.
He would regulate tokens as gambling, not as securities
I view it as a polite form of fraud. I still think crypto tokens should be regulated by the gaming commissions in the various states, because that's what it is. It's a form of gaming. Same thing with predictive markets.
Chris Whalen
His analogy came from his own career as a trader at Bear Stearns in London, where the desk ran a football pool and called the bookmaker Ladbrokes to lay off risk when it was overweight one team. He sees no difference between that and a prediction market contract.
13. Annaly Is About Spreads
A viewer asked whether a flattening of rates would change his view on Annaly. It would not.
The position is a spread trade, not a rate call
Not right now. No. Because remember, it's not about rates, it's about spreads.
Chris Whalen
The comparison he watches is the yield on eight- to 10-year Treasury debt against the yield on mortgage-backed securities. The second component is Annaly's mortgage servicing rights — the contractual right to collect payments on a loan and keep a fee, which loses value when borrowers refinance early.
Prepayments have collapsed below the old modeling floor
Prepayments are below 6% a year, which used to be the lowest level we had for modeling. Now it's like four, five.
Chris Whalen
He gave his own terms: a cost basis of about 0.9 times book value, the common stock rather than the preferred shares, and no Treasury bills at all because his liquidity sits in Annaly, which owns government-insured securities. He also owns AGNC.
He rates it above the other hybrid mortgage REITs
I think if you compare them with, say, Rithm Capital or any of the other hybrid REITs out there that own both loans and securities, they're by far and away the best managed
Chris Whalen
A REIT is bought for income rather than share-price appreciation, he reminded the viewer, and he would buy more if the stock sold off.
Bonus Insights
His next published work is on the large money-center banks
Well, we're writing about the banks next week. We're going to be doing our update on the big money centers.
Chris Whalen
Next week he speaks at the University Club in New York, on the Tuesday, a solo talk with a book signing, and the show is running another interview with John Dizard on energy.
The bond market is the thing he is watching
I'm following the market, the bond market, very closely, because that right now is really what matters.
Chris Whalen
His closing point was a question about a CBS "60 Minutes" segment on the rescue of an American aviator in Iran, and the 95 people the program said were on the ground there.
He does not think 95 people were there for one pilot
Were they there just to rescue an aviator, or were they doing something else? And I think the people at 60 Minutes know.
Chris Whalen
Whalen's bottom line is that the deficit, not the federal funds rate, now sets US inflation, and that investors should expect real defaults, falling house prices through 2028 and a central bank that ends up buying government debt whether it wants to or not.
Products, Companies & Tools Mentioned
Whalen Global Advisors and The Institutional Risk Analyst (His firm and the research publication he writes; the bank and mortgage notes he cites through the interview come from it)
Annaly Capital Management (One of his largest positions, bought at about 0.9 of book; he holds the common rather than the preferred and calls it the best managed mortgage REIT)
AGNC Investment Corp (The other agency mortgage REIT he owns)
Rithm Capital (Named as the comparison hybrid REIT that owns both loans and securities; he rates Annaly above it)
Charles Schwab (A held bank position: keeps growing, takes little credit risk, and could pick up a point of yield by restructuring its bond portfolio)
Flagstar Financial (His other bank position, held as a turnaround)
Bank of America (An $800 billion bond portfolio he says yields a point and a half below the market average)
Wells Fargo, Fifth Third and Huntington (The banks that have told investors deposit rates are rising after six quarters of falling interest expense)
Guggenheim (Named as a case where leverage and weak assets were piled into an insurance company; he pointed to litigation involving Mark Walter)
Triple-S (Named alongside Guggenheim as an insurer failure of the same kind)
Apollo Global Management (Shorthand — "the Apollos" — for the private credit firms now controlling life insurers and annuity writers)
Freedom Mortgage (Stan Middleman's company; Whalen says Middleman has listed his own Florida house and that the industry noticed)
US Securities and Exchange Commission and Commodity Futures Trading Commission (The two agencies he expects to write crypto rules now that Congress cannot legislate)
Ladbrokes (The bookmaker his Bear Stearns desk in London called to lay off football-pool risk — his analogy for prediction markets)
Bear Stearns (Where he traded early in his career, in London)
60 Minutes (Its segment on the rescue of an American aviator in Iran, and the 95 people it said were on the ground)
The University Club (Where he is giving a solo talk and book signing in New York)
Books & Resources Mentioned
Seeing Around Corners – R. Christopher Whalen and Stanley C. Middleman (The book carrying Middleman's "misery in the '8s" housing call, which Whalen first heard from him 10 years ago)
Chrisman Commentary – Rob Chrisman (The daily mortgage newsletter; Whalen told its author the industry should stop waiting for lower rates)
As the Consumer Turns – Adam Josephson (Cited for its work on the cost increases consumer products companies are absorbing or passing through)
The SEC's innovation exemption (Paul Atkins' statement on the order that lets issuers opt out of off-exchange tokenized trading of their stock)
Listen to the full episode
🔴 YouTube | 🔗 Episode page
Watch the full episode:
More Chris Whalen interviews and podcast appearances
If this was worth your time, send it to someone who has to have a view on this.
Get the latest market chatter as it happens: