The Institutional Risk Analyst

How long will the wave of energy inflation coming towards the industrial nations last? Will this unanticipated surge inflation event cause consumers, companies and even nations to default? Below we ponder some asset allocation themes for subscribers to the Premium Service of The Institutional Risk Analyst as we prepare for our quarterly call on Thursday after the market close.

So bitcoin is paid for two things: disorder, and inclusion. It is not paid for order that excludes it. That is a very different claim from the ones usually made for and against bitcoin. Its supporters say it wins because governments fail. Its critics say it loses because governments prevail. Both miss the most likely case, in which governments prevail and choose gold.

When we consider the track of interest rates during the term of President Donald Trump, it is hard to make the case that the Powell FOMC was not giving the White House everything they wanted and more. Now, however, the US central bank seems to be headed for a policy stance that is closer to neutral than accommodative.

If you look at the abysmal poll numbers for President Donald Trump in terms of his handling of the economy, you can seen why all banks and particularly the consumer lenders are trading so weakly at present. Most of the banks in this group and, indeed, the whole WGA Bank 50 group have reported excellent earnings, but it does not matter. Mr. Market is focused on year-end 2026 and 2027, one reason why we think the FOMC will be cutting the target for federal funds by Spring.

Iran has not been defeated. We have to admit that. We have to admit, oh, actually, they've done very well. And it has to be admitted by people in authority. So those people in authority can then negotiate with their Gulf counterparts, including the Saudis. That’s how this thing gets fixed. Now, doing this before the October 27 Israeli election is going to be difficult to impossible, and also before the U.S. midterms, which means that before the U.S. midterms, things are going

Coming out of Q2 2026 earnings, JPMorgan (JPM) was the leader in all respects, toping $5 trillion in assets and generating net income that has pushed the bank over 1.5% return on assets (ROA). Following JPM was PNC Financial (PNC) and USB, both of which are showing solid growth in terms of asset returns and stock prices. But the fact is that the top seven banks are going nowhere in terms of the equity market, as shown in the chart below.

We received a number of comments on our discussion with David Kotok last week (“David Kotok: China, the Dollar and Bretton Woods 2.0”), but one of the most interesting observations came from veteran Bahamas-based gold fund manager Henry Smyth, who we interviewed last May (“Interview: Henry Smyth on the Return of Gold as Global Reserve Asset”):

When the short end obeys and the long end shrugs, that is not policy talking. That is premium, charging by the day. And the plan carries a twist it did not price: the investment boom that is supposed to pay the mortgage is, for now, bidding against the Treasury in its own bond market, hundreds of billions of buildout raised from the same institutional pool that must absorb the wall. The exit ramp charges a toll on the road that leads to it.

The first point to make is that neither of these banks is a particularly good financial performer. WAFD is a bottom quartile performer vs Peer Group One and has reported a lot of noise of late in areas like securities losses. WAFD makes its way in life as a small regional bank by keeping low expenses. When we visited the bank years ago during our time leading bank ratings at KBRA, the CEO talked about his predecessor turning off every other lightbulb in the bank’s Seattle of

The difference between the Western markets that settle predominantly in cash and Asian markets where physical delivery is the norm is fundamental. A growing number of global central banks are moving their physical gold out of the US because of the erratic behavior of Donald Trump. They fear expropriation of their gold by a future government in Washington.

When the price of gold rises what is really happening is that the value of fiat currencies is falling. The rout ongoing in the bonds of the various industrial nations suggests that the dollar and all of its subsidiary currencies are in big trouble. Yet none of these democratically elected governments are willing to take steps to arrest the decline in their credit standing, namely raising taxes and reducing public spending.

Bank of America CIO Michael Hartnett notes that it is imperative for the Bessent/Warsh combo to stop higher US Treasury yields, since long duration trades are working ”too well.” We view such talk as wishful thinking from the Sell Side of the market. There is no way for the Treasury to force LT yields down, thus the only alternative is for the Fed to 1) raise ST interest rates and 2) restart quantitative easing (QE), an eventuality that will signal surrender on the fight aga

Federal Housing Finance Director William Pulte reappeared on X this past week, promising “decisions” on highly technical areas like loan level pricing adjustments (LLPAs) for Fannie Mae and Freddie Mac. But could director Pulte expound further on just why LLPAs need to be changed at this point in the home price cycle? After all, most home prices are falling.

The fact that Secretary Bessent felt the need to make an announcement of increased bond buybacks in front to the 20-year auction suggests that the Treasury is expecting more weak auctions going forward. How else do we explain Bessent’s behavior? But more important, when will President Trump and Secretary Bessent stop pretending that the situation in the Treasury debt market is not a problem?

As the war with Iran continues to fester, we suspect that there will eventually be a majority on the Federal Open Market Committee to raise short-term interest rates – whether or not Warsh joins the majority or even votes for the move. With the Treasury running a fiscal deficit of 6% of GDP, we think the FOMC has little hope of slowing inflation but may soon be dealing with a slowing economy -- this despite the massive fiscal stimulus.

Some observers think that United Wholesale Mortgage Corp (UWMC) collapsed into the arms of Oaktree Capital Management because they erroneously hedged Two Harbors, a company they ultimately did not buy. But this is wrong. UWMC collapsed because the CEO, Mat Ishbia, extracted hundreds of millions of dollars in cash from a company that was never really profitable. UWMC was run for volume, not profits. Indeed, his aggressive strategy compressed profits across the entire mortgage

People in the private credit trade will tell you that raising new money is almost impossible. Why? Because there are growing signs of contagion in the insurance sector after years of dubious business practices by insurers controlled by private credit firms. As details of some of these situations emerge, we suspect that the mainstream media will become more engaged.

Over the past 30 days, both gold and silver prices have experienced a notable upward trend, recovering from mid-July dips to close higher in early August near $4,340–$4,400/oz for gold and $63–$64/oz for silver, driven by shifting Federal Reserve policy outlooks and economic data. As rising inflation pressures LT interest rates, we expect to see both gold and silver prices recover from the July lows. As attention increases to the deteriorating fiscal situation of the US...

We think the board of UWMC has a duty to ask for the resignation of the current CEO Mat Ishbia, should ask Howard Marks, Chairman of Oaktree, to chair the board, and should commence a search for a replacement CEO or pursue a sale. The magnificent loan funnel created by some refugees from Flagstar for Mat Ishbia has enormous value, but the current management instead seems intent upon destroying value at every turn.

Banks face a market in 2H 2026 where inflation is going to rise and prices for on-the run securities will likely fall. But the wall of money that has been manipulating individual technology stocks with impunity for months is going to go somewhere. In a world where the US Treasury is actively manipulating ST interest rates and arguably selling volatility, where do you hide?