Chris Whalen: Powell Stays, Warsh Waits, and Trump Has Nobody to Blame But Himself

Summary

• Private credit unwind is spreading to consumer credit funds (e.g., Stone Ridge), exposing retail investors and causing severe reputational damage to sponsors like Ares, Apollo, BlackRock, and Brookfield.
• Big banks (Goldman Sachs, Bank of America, Citigroup) are now offering ways to short private credit sponsors, but significant downside may already be priced in after 40-60% stock sell-offs over three months.
• Quality of private credit deteriorated as the market grew, leading to liquidity issues, fraud (e.g., payment-in-kind tricks, double-pledging assets), and opaque disclosure; banks use special purpose entities to hide risk.
• Retirees and pension funds (e.g., State of Oregon) will bear the brunt of losses, impacting annuities and retirement systems, necessitating investor due diligence on underlying exposures.
• Fed Chair Jerome Powell could remain chair for three more years if Trump doesn't cease attacks; Senate Republicans won't confirm nominee Kevin Warsh until the White House stops its legal campaign against Powell.
• Oil prices likely to stay above $100 due to Middle East war (Israel-Iran conflict), a political problem not monetary; deploying Marines in the Persian Gulf could effectively end Trump's presidency.
• Fed is late in cutting rates despite a weakening economy, widening credit spreads, and rising loan yields; inflation from oil may persist, complicating policy.
• Economy is K-shaped: bottom half in recession, with luxury hotels booming while budget hotels struggle (e.g., Marriott rooms under $100), reflecting stark income disparity.
• Chris Whalen is buying gold and silver on dips due to fundamental supply constraints and a growing pricing gap between Western markets and Asia where physical delivery is demanded.
• Mortgage REITs like Annaly (NLY), AGNC, and PennyMac Mortgage Trust (PMT) are trading above book value, indicating high demand for income, but require careful analysis of portfolio holdings.
• Two Harbors (TWO) merger with United Wholesale Mortgage (UWMC) failed due to shareholder opposition; a cash offer over $10/share emerged, suggesting the company is undervalued.
• FHFA rolled back climate risk insurance rules for Fannie and Freddie, correcting regulatory overreach that was more about scoring political points than addressing market needs.