#421 Chris Whalen: Double-Digit Inflation, Falling Home Prices & a Fed Forced to Hike

UWM Holdings

• Chris Whalen · Whalen Global Advisors LLCBearish

  United Wholesale Mortgage faces falling volumes and heavy debt payments; it is not a stock to buy.

  Whalen says United Wholesale Mortgage is in a tough spot because volumes are falling. He acknowledges it is one of the most efficient and largest lenders in the country, and that it works almost exclusively through the broker channel. The question is how it can pay about $165 million in dividends to Oaktree this year on the rescue capital, and whether it can raise about $1.5 billion to pay Oaktree off. He doubts it can. He credits the new CIO hire, Vandy Vartaj, as a positive change, but says he would not buy the stock at about $1.

  “They're in a tough situation because volumes are falling. They're one of the most efficient lenders in the country.”at 22:48

Bank of America

Across the shows: 1 speaker in other episodes, 0 bullish and 1 bearish calls, past 30 days

• Chris Whalen · Whalen Global Advisors LLCBearish

  Bank of America is underperforming on returns and holding low-yield assets; its board needs to act.

  Whalen says Bank of America ranks at the bottom of the top seven US depositories on return on assets, and that there is no excuse for this. He says the board needs to make a change and install an operator to run the institution. He also cites a $1.5 billion OCC anti-money-laundering fine, the largest the OCC has ever imposed. On the balance sheet, he says the bank earns only about one point more on its assets than it pays on funding, before operating costs. It is still holding 2% COVID-era mortgages whose coupons sit below its cost of funds. He says he would not short the bank, since it is his own bank, but he is critical of management.

  “But the board needs to make a change. We need an operator running that institution. There is no excuse for having them at the bottom of the top seven depositories in terms of return on assets.”at 25:37

The Charles Schwab

Across the shows: 1 speaker in other episodes, 0 bullish and 1 bearish calls, past 30 days

• Chris Whalen · Whalen Global Advisors LLCBearish

  Schwab is leaving billions on the table by not restructuring its bond portfolio since COVID.

  Whalen says Schwab has not restructured its bond portfolio since COVID. He argues this leaves billions of dollars that should go to shareholders on the table. He puts this down to management not wanting to be embarrassed or take short-term pain. He says he held Schwab until September and exited with a double-digit gain, so he no longer has a position.

  “But frankly, you could say the same thing about Schwab. Schwab has not restructured their bond portfolio since COVID, and they're leaving billions of dollars on the table that should be going to shareholders.”at 25:53

Annaly Capital Management

Across the shows: 1 speaker in other episodes, 1 bullish and 0 bearish calls, past 30 days

• Chris Whalen · Whalen Global Advisors LLCBullish

  Annaly is a solid income holding; he is still very positive and would buy more below book value.

  Whalen owns Annaly for income, and it is his largest position. He says REITs exist to provide income, and that they must pay out about 90% of income to keep their tax-exempt status, so they are poor vehicles for speculation. Annaly has fallen about 20% from its highs and now trades near book value, which he sees as fair. He says his cost base is a bit below book because he has held it for a long time. He would buy more if it fell below book. He calls Annaly one of the best-run mortgage businesses in the industry and says he remains very positive on it.

  “So that's why, you know, for me, I own Annaly for income purposes. ... It's currently my largest position, though.”at 32:23

Banks

• Chris Whalen · Whalen Global Advisors LLC

  Bank credit costs will rise after bottoming mid-year, hitting the broader financial sector.

  Whalen says most people expect bank credit costs to rise after bottoming out in mid-2026. He says this will matter beyond the banks, for the whole financial sector. He also expects credit expenses and delinquencies to rise in rental property lending. He ties this to the slowing economy and expects the rise to be meaningful for lenders.

  “Credit is another question. You've already seen this from the banks with earnings this week. But I think most people are anticipating their credit costs are gonna rise after bottoming out at the middle of this year.”at 14:49

• Chris Whalen · Whalen Global Advisors LLC

  Bank results will normalize as the AI-driven margin lending boom cools.

  The Wall Street side of bank businesses is slowing, and Main Street lending is still weak. The biggest area of loan growth was margin loans and securities lending tied to the boom in AI stocks. Whalen expects bank results to return to something like normal as AI slows. He notes that JPMorgan missed analyst estimates, which he says is unusual. He also says the whole bank group traded off even though many banks posted strong or record earnings. He is short a couple of bank names and says he will wait and watch.

  “The big area of loan growth was margin loans, securities lending for the boom we saw in AI stocks. So I think as AI slows down, Julia, you're gonna see bank results also get back to kinda sorta normal.”at 23:47

• Chris Whalen · Whalen Global Advisors LLC

  Banks face rising unrealized losses on low-coupon mortgages and bonds; they should restructure portfolios.

  Whalen argues that loans and securities with low coupons fall in value as rates rise. Banks that must sell them will take losses. Current funding costs are above the coupons on 2% COVID-era mortgages. He cites Bank of America, where liability costs are over 3% while many assets still earn about 2%. He says the banking sector will see unrealized losses rise again. He argues that banks should aggressively restructure their portfolios toward current coupons. He expects the 10-year and 30-year yields to stay roughly where they are, with only a possible modest rally.

  “it's gonna be a problem for the industry. You're gonna see unrealized losses for the entire banking sector going up again. And what the industry should do is aggressively restructure their portfolios”at 30:56

US rates & the Fed

• Chris Whalen · Whalen Global Advisors LLC

  The Fed will likely be forced to raise rates another quarter point, despite Yellen's call to wait.

  Whalen expects the Fed to hike another quarter point because producer prices are rising and energy costs will not fall in the near term. He disagrees with Janet Yellen, who said the Fed should hike once and then wait because the factors are transitory. He argues that the increase in energy costs from 2026 will keep feeding through the system into consumer and producer prices. He also expects the October vote to be close, with Chair Warsh possibly in the minority, and says a hike could easily pass.

  “And it's gonna force the issue with the Fed. The Fed's probably gonna have to raise rates another quarter point.”at 10:35

• Chris Whalen · Whalen Global Advisors LLC

  The Supreme Court's Lisa Cook ruling was wrong, and Trump's push to control Fed governors is a real threat.

  Whalen calls Trump's effort to remove Lisa Cook silly, but he says the Supreme Court's temporary protection of Cook was clearly wrong. The Court said the president can fire other executive branch appointees but not Fed governors. He says the Court avoided the issue by citing historical cases such as the First Bank of the United States. He argues that the unitary executive theory his conservative contacts developed gives the president power to remove anyone in the executive branch. He expects the Fed to keep its independence in practice, with Chair Warsh unlikely to resign even if he loses a vote.

  “You've seen president Trump continuing to try and force Lisa Cook out, which I view as kind of silly. But what's fascinating about that is the supreme court decision that protected Lisa Cook temporarily was clearly wrong”at 19:40

US elections & politics

• Chris Whalen · Whalen Global Advisors LLC

  Republicans are in for a bad midterm, especially in the House, as Democrats match their fundraising.

  Recent political contribution data show Democrats have caught up with Republicans on fundraising, which contradicts the expectation of a big Republican advantage. Whalen says this suggests Republicans could take a heavy loss, particularly in the House, while the Senate is less clear. He points to historical swings of 50-60 seats in the biggest wave elections. He cites Joe Costello's view that money has limited utility, using the example of Susan Collins in Maine. He ties the expected result to affordability, especially gasoline prices, and to Trump's gimmicks, such as the $5,000 dividend promise. He notes Democrats remain unpopular and have no clear presidential candidate.

  “the latest political contribution figures show that the Democrats have caught up with the Republicans in terms of fundraising... So I think it just indicates again that the Republicans could be in for a pretty good licking, particularly in the house.”at 2:57

Oil & fuels

• Chris Whalen · Whalen Global Advisors LLC

  Fuel prices will keep rising into late 2026 as Gulf refineries stay damaged while the Iran war continues.

  Gulf states cannot repair the large facilities that make diesel, gasoline and sulfur until there is at least a truce with Iran. Both sides are holding out, so supply stays constrained. Whalen expects fuel prices to rise further in the latter part of the year because refiners shift output from gasoline and diesel to heating oil for winter. He also says Europe is short of product to get through the winter. He treats the high fuel costs as a driver of the affordability problem that will shape the midterms.

  “neither side wants to give. So that's kinda where we are. And I think what's gonna happen is fuel prices are gonna go higher as we go into the latter part of the year.”at 5:15

US inflation

• Chris Whalen · Whalen Global Advisors LLC

  US inflation is already at double digits, and producer prices show where it is heading.

  Whalen says the US is already at double-digit inflation, depending on how it is measured, with the 12-month rate around 20%. He prefers producer prices to the CPI because he considers the CPI heavily adjusted and modified by government agencies. He argues PPI leads consumer prices by about six months. He points to diesel as an early signal that was visible well before people acknowledged it. Energy costs are now showing up in consumer-products earnings. The September PPI reading, the highest since late 2022, supports his view.

  “Well, we're there. If you look at diesel fuel. I tend to look at producer prices more than the CPI because the CPI is so heavily adjusted and modified by the government agencies to gather this data. I think producer prices really tell you what's gonna happen six months from now.”at 9:40

Agriculture & food commodities

• Chris Whalen · Whalen Global Advisors LLC

  High fertilizer prices will cut next year's fertilizer use, leading to less food and higher prices.

  Fertilizer prices are so high that farmers are not buying it. Producers will stop making it as a result, so fertilizer use will fall next year. Whalen says this means less food and higher food prices. He presents it as one of the ways the energy shock spreads through the whole food chain.

  “You see this very much in the farm sector, Julia, where fertilizer prices are so high that farmers just aren't buying it. And so the producers are gonna stop making it, and you're gonna see less fertilizer use next year, which means we'll have less food and prices will go higher.”at 12:27

US housing

• Chris Whalen · Whalen Global Advisors LLC

  Home prices will soften for about three years, with local declines of 5-10% and more in some markets.

  Whalen says the industry expects softness in home prices next year, the year after, and for about three years after that. Stan Mittleman of Freedom Mortgage expects prices to fall 5-10%, which is less than the 20-30% reset they once discussed. Whalen says prices are falling much more in some areas, like the Carolinas and Florida, while New York is holding up. He says homebuilders are cutting prices and moving inventory into rentals, and pricey Miami homes are coming to market. He also argues that construction inflation, with materials and labor costs, creates a floor for existing home prices. Real estate is local, so the averages hide the real picture.

  “the anticipation by the NBA, by people like Stan, who's a very astute observer, that we are gonna see softness in home prices next year, year after, really for the next three years.”at 14:49

AI bubble & tech valuations

• Chris Whalen · Whalen Global Advisors LLC

  AI valuations will come down because the sector's revenue and earnings do not justify current prices.

  Whalen calls AI financing circular, or Ponzi-style. Companies raise money, and the firms that invested then buy their services to boost reported revenue. He calls this largely illusory and says AI is not yet generating the revenue or earnings needed to support current valuations. He says the sector has seen manipulation, and that AI and broader tech stocks have been trading off as a result. He expects a reset in technology, with AI stocks continuing to decline, and he sees this as the end of the current trade.

  “what we've seen with AI is what I call circular or Ponzi finance... So to me, this is largely illusory. We don't really see that AI is generating the kind of revenue, the kind of earnings to justify these valuations.”at 26:40