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The Institutional Risk Analyst

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Christopher Whalen

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Charlatans, Imbeciles and Fed Governors

By: R. Christopher Whalen

Aug 8, 2019
5 min

Charlatans, Imbeciles and Fed Governors

Q: What is the duration of a security with a negative yield? Hold that thought. Noted financial author Nassim Nicholas Taleb has little patience for economists. “Charlatans & economists use logical flaw: because a pilot is expert, they are experts,” notes Taleb in a recent tweet. “But pilots are selected via skin-in-the-game mechanisms. Plumbers, dancers, dentists, mathematicians, snipers, pastry chefs are experts. Economists BS for a living.” Nowhere is this obvious distinc

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Maybe No Rate Cut in July?

By: R. Christopher Whalen

Jul 22, 2019
5 min

Maybe No Rate Cut in July?

Avalon | We caused a bit of a fuss last week on CNBC by suggesting that the Federal Open Market Committee will not cut the target for Fed funds this month. We suggested instead that the Federal Reserve Board will first end the runoff of the System Open Market Account (SOMA) and then “wait and see” about any change in the rate target. Readers of The Institutional Risk Analyst know that we tend not to follow the crowd, especially when the data suggests that the narrative is at

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Eisenbeis: The June FOMC

Robert Eisenbeis

Jul 4, 2019
3 min

Eisenbeis: The June FOMC

In this issue of The Institutional Risk Analyst, we feature a comment by Robert Eisenbeis, Ph.D., Vice Chairman & Chief Monetary Economist at Cumberland Advisors. We continue to believe that the Federal Open Market Committee (FOMC) will not change the target for Fed funds during 2019. When will the equity markets connect the proverbial dots? In the commentary leading up to the June meeting, I argued that some relaxation of the tariff issues with Mexico, combined with relativ

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Aftermath: Interview with James Rickards

By: R. Christopher Whalen

Jun 5, 2019
7 min

Aftermath: Interview with James Rickards

New York | Last week in The Institutional Risk Analyst, we gave you a taste of today’s interview with author and consultant Jim Rickards to talk about his latest book, “Aftermath: Seven Secrets of Wealth Preservation in the Coming Chaos.” As usual, Jim has a commanding view of the ebb and flow of the global political economy. His first chapter in which he describes the fateful role of former Fed Chairman Ben Bernanke in choosing the current monetary policy mix sets the sta

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Eisenbeis: Hope Is Not a Strategy

Robert Eisenbeis

May 10, 2019
4 min

Eisenbeis: Hope Is Not a Strategy

New York | In this issue of The Institutional Risk Analyst, we feature a market comment from Robert Eisenbeis, Vice Chairman & Chief Monetary Economist at Cumberland Advisors. Dr. Eisenbeis asks: Why is the stock market showing more volatility than bonds? Why indeed. He concludes with a typically concise summation: "The lesson here for stock market investors is that hoping for a rate hike as a substitute for considered analysis is not a good strategy." On Wednesday, the FO

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Bank Earnings and QE/QT

By: R. Christopher Whalen

Mar 24, 2019
5 min

Bank Earnings and QE/QT

New York | In the most recent edition of The IRA Bank Book, we note that the rate of increase in funding costs for US banks in 2018 was a bit over 70% year-over year. The rate of change in this key component of bank earnings is not particularly correlated to the broad swings in market interest rates and, by implication, investor confidence. But the normalization of bank funding costs is relentless. As we describe in some detail in the IRA Bank Book for Q1 2019, rising bank

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The Interview: David Kotok on GSIBs, Markets and Central Banks

By: R. Christopher Whalen

Mar 10, 2019
9 min

The Interview: David Kotok on GSIBs, Markets and Central Banks

San Francisco | In this issue of The Institutional Risk Analyst, we feature a conversation with David Kotok, Chairman and Chief Investment Officer of Cumberland Advisors in Sarasota, Fl. David is a savvy investment counsellor, a keen observer of the evolving American political economy and an experienced fly fisherman. David and his colleagues at Cumberland Advisors publish commentaries on the global financial markets and the world which may be found at www.cumber.com. David

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Welcome to Brazil

By: R. Christopher Whalen

Dec 26, 2018
5 min

Welcome to Brazil

Paris | Those of us who anticipated a quiet holiday break have been greatly disappointed. It is tempting to blame the electronic flatulence of the POTUS for the market selloff of the past few weeks, but in fact the credit for the great unwind must go to the members of the Federal Open Market Committee. First, the FOMC embraced unconventional policy after 2008, greatly expanding the liquidity in the US financial markets and thereby boosting valuations for stocks, bonds and rea

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Tight Money vs Tight Spreads

By: R. Christopher Whalen

Aug 14, 2018
5 min

Tight Money vs Tight Spreads

By any standard, credit spreads in the US bond and loan markets remain very tight. Now several years into a Fed interest rate tightening cycle, short-term interest rates are rising but spreads do not expand. A year ago the two year was yielding 1.35%, but today is 2.6%. The 10-year Treasury note, on the other hand, has barely moved in a year, 2.2% then vs 2.85% today. Last we looked, Treasury 2s vs 10s was 25bp compared to almost a point a year ago. What a flattening yiel

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Kotok: LOIS is Screaming

Apr 2, 2018
5 min

Kotok: LOIS is Screaming

In this issue of The Institutional Risk Analyst, we feature a comment from our fellow fisherman David Kotok, Chairman & Chief Investment Officer of Cumberland Advisors (www.cumber.com), which was published earlier this week. A number of people have asked about the widening spread between LIBOR and the comparable rate in the US. The short answer is that, yes, it is a structural problem and may be a warning of future contagion ahead. Questions? Join us Thursday at the Univer

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Wells Fargo & Co Gets No Respect

By: R. Christopher Whalen

Feb 21, 2018
7 min

Wells Fargo & Co Gets No Respect

"Al", retired Wells Fargo stagecoach pony New York | Wall Street more than bounced last week as the secular shortage of stocks quickly snapped investors out of their collective funk. But one once stellar performer in the large cap financials, Wells Fargo & Co (NYSE:WFC), hung back from the surging crowd. In years gone by, Wells was the quiet exemplar of operating efficiency among large banks, but no more. Today WFC is the bank that everyone loves to hate. But while WFC may

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Dollars, Deficits and "Duh" in Davos

By: R. Christopher Whalen

Jan 25, 2018
5 min

Dollars, Deficits and "Duh" in Davos

New York | With the global punditry assembled in Davos this week, the topic of the dollar seems to have bubbled to the surface again. Down more that 10% from the December 2016 peak, the greenback has started to sag at just the time when Treasury deficits are climbing and the Fed is paring back its purchases of US government debt and agency mortgage bonds, as shown in Chart 1 below. With the 10-year Treasury back over 2.6% yield, gravity seems to have been restored to the gl

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The Interview: Bob Eisenbeis on Seeking Normal at the Fed

By: R. Christopher Whalen

Dec 10, 2017
7 min

The Interview: Bob Eisenbeis on Seeking Normal at the Fed

In this issue of The Institutional Risk Analyst, let’s first ponder last week’s revelations that the European Central Bank is taking a loss on its purchase of bonds issued by Steinhoff International, the high flying (and highly levered) South African-based home retailer that was struck down by an accounting fraud scandal. This event illustrates how central banks have distorted the credit markets and allowed inferior borrowers access credit at investment grade spreads. This n

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Banks and the Fed's Duration Trap

By: R. Christopher Whalen

Nov 30, 2017
5 min

Banks and the Fed's Duration Trap

Atlanta | Is a conundrum worse than a dilemma? One of the more important and least discussed factors affecting the financial markets is how the policies of the Federal Open Market Committee have affected the dynamic between interest rates and asset prices. The Yellen Put, as we discussed in our last post for The Institutional Risk Analyst, has distorted asset prices in many different markets, but it has also changed how markets are behaving even as the FOMC attempts to norma

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Is Multifamily Lending a Threat to US Banks?

By: R. Christopher Whalen

Nov 20, 2017
6 min

Is Multifamily Lending a Threat to US Banks?

Trump Pavilion from the Van Wyck Expressway New York | Q: Besides stocks, what asset class has benefitted the most from the radical monetary policies of the Federal Open Market Committee? A: Multifamily real estate. And what asset class most worries federal bank regulators today? Same answer. By means of introduction, multifamily real estate in major urban areas has been one of the most popular and solid asset classes for US banks historically going back to WWII. Family for

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CDO Redux: Credit Spreads & Financial Fraud

By: R. Christopher Whalen

Oct 1, 2017
7 min

CDO Redux: Credit Spreads & Financial Fraud

“The great wheel of circulation is altogether different from the goods which are circulated by means of it. The revenue of the society consists altogether in those goods, and not in the wheel which circulates them” Adam Smith, 1811 Southport | This week in The Institutional Risk Analyst, we return to one of our favorite topics – namely credit spreads – as we consider the most recent statement from the Federal Open Market Committee. Fed Chair Janet Yellen made a presentation

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Citigroup: Expanding Multiples, Flat Margins

By: R. Christopher Whalen

Sep 25, 2017
5 min

Citigroup: Expanding Multiples, Flat Margins

New York | We start the week in downtown Manhattan with a presentation to the International Association of Credit Portfolio Managers in New York (click here to download slides). We’ll refer to some of the slides in the comments below. And we appreciate the feedback about last week’s comment about the role of Equifax and the other consumer credit agencies in the mortgage market. Of note to one reader’s question, lenders do not need a FICO score to submit a mortgage to the fe

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Fed Chairs & Credit Bubbles

By: R. Christopher Whalen

Aug 29, 2017
5 min

Fed Chairs & Credit Bubbles

New York | Fed Chair Janet Yellen’s defense of the benefits of regulation last week in Jackson Hole probably killed her chances for reappointment, but the more pressing reason to see Yellen return to the private sector is visible in the US real estate market. Chair Yellen and her colleagues have created large bubbles in many assets classes from residential homes to commercial real estate to construction lending. As in the 2000s, this latest bout of asset price inflation wil

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Mortgage Finance Update: Winter is Here

By: R. Christopher Whalen

Aug 22, 2017
6 min

Mortgage Finance Update: Winter is Here

New York | After several weeks on the road talking to mortgage professionals and business owners, below is an update on the world of housing finance. We hope to see all of the readers of The Institutional Risk Analyst in the mortgage business at the Americatalyst event in Austin, TX, next month. The big picture on housing reflected in the mainstream media is one of caution, as illustrated in The Wall Street Journal. Borodovsky & Ramkumar ask the obvious question: Are US hom

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By: R. Christopher Whalen

May 31, 2017
5 min

The Profile: Capital One Financial (COF)

Financials swooned this week as investors now seem to accept that much of the Trump program is in doubt – at least for 2017. No surprise then that yesterday large-cap financials actually closed down for the year. In our last edition of The Institutional Risk Analyst, "Macro-Prudential Delusions: Bank Credit Outlook 2H 2017," we referred to how in April the forward guidance from Capital One Financial (NYSE:COF) caused financials to begin their swoon six weeks ago. The bank’s

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