#413 Chris Whalen: Bonds, Gold, Energy, & the Coming Food Shock

Julia La Roche (0:01)

Hey, everyone, welcome back to another episode of The Wrap with Chris Whalen. We'll be breaking down what's happening on Wall Street, Washington DC and everywhere in between. In this episode, we talk about why long rates have structurally reset and it's not about the Fed. We also talk about what's happening in energy and why we could see energy prices translate into a grocery store crisis. And Chris has a contrarian call. While the Fed hikes right now, he makes the case for why we could actually see cuts sooner than anyone realizes. And we do a dive into what Chris is doing with his own portfolio and the recent changes that he's made there.

We really enjoy doing The Wrap for you all every single week. So I hope you all enjoy this one as much as we did.

Hey everyone, welcome back to another episode of The Wrap with Chris Whalen, where we break down what's happening on Wall Street, Washington DC and everywhere in between. Chris, great to see you.

Chris Whalen (1:13)

Hello, Julia.

Julia La Roche (1:15)

Wow, what a week it's been, Chris. I feel like there's so much to dig into. And before we get into it, I got to give a shout out to our partners over at Monetary Metals. You can head over to monetarymetals.com/thewrap to learn more. And we appreciate their support and making this possible.

Chris Whalen (1:33)

Yes, we do. I've been going back and forth with Keith Weiner, the founder of Monetary Metals on X. We have a lot of fun.

Julia La Roche (1:39)

I love it. I love it. All right. I mentioned there's a lot to get into. Where to even start? I think I want to start with what's going on in the bond market with yields, because we had the 30-year treasury print its highest yield since 2004 We had the 10s go through 5%.

So question for you, Chris. Is this just an air pocket or is the market telling us long rates have structurally reset?

Chris Whalen (2:08)

I think it's the latter, Julia. I think the rise in long-term interest rates is about the credibility of the United States and also the noise that's coming from the Trump administration. A lot of what President Trump and Secretary of Treasury Scott Besson have to say about interest rates and policy generally, doesn't make a lot of sense. And I think this kind of scares people. So the reality is it has nothing to do with the Fed. The Fed is, as I said on X yesterday, Redunsel. That's a Frank Zappa term, by the way.

And, you know, what are we going to do?

I don't know how to make these people be quiet, but I don't think they're being helpful right now.

Julia La Roche (2:50)

And obviously this has dominated the conversation.

One of the areas that a lot of folks are talking about, and this is a great area for you, Chris, is mortgage rates above 7 percent. New normal?

Chris Whalen (3:05)

Yeah, this is the new normal. They've been above 7 for a while. People track the averages that are reported by Fannie Mae and Freddie Mac.

But the reality is, you take basically the 10-year treasury and add two points, and that kind of tells you where mortgage rates are, because lenders have to try and recover their fees when they sell that loan into a security. They're usually down on cash when they close your mortgage. So they try and recoup some of that, and then they get the rest of their money back with the servicing fees every month. So, you know, we're kind of there depending on your credit score and other factors, but if you're doing an 80% loan, 20% down, yeah, we're well over 7%.

Julia La Roche (3:49)

So how do you think that one's ultimately going to affect, like, just more of the market dynamics for housing?

Chris Whalen (3:56)

People are going to have to get used to the fact that we're back to where mortgage rates were 15, 20 years ago. We had a period from the great financial crisis until COVID, you know, a couple years after COVID, when the Fed was heavily subsidizing the market.

Quantitative easing was not just about rescuing the Treasury market, which was the primary reason that they did it, but it was also a subsidy for housing. Because when you're buying long-term Treasury securities and you're forcing yields down, again, that's how we price mortgages. So it was an effective subsidy for the industry. And I think you're going to see a lot of structural changes. You're going to see a lot of consolidation in the industry. We've already seen it, but we're going to see more.