The Institutional Risk Analyst

The FOMC meeting this week with Chairman Kevin Warsh was about what we expected. Less is more in terms of forward guidance, maybe pivot to even less talk MT. Models being renovated, personnel evaluated. Maybe the end of the idiotic dot plots is in sight? No guidance will be forthcoming from the Chairman.

This week in “The Wrap,” we feature the top events in Washington and on Wall Street over the past week. The IRA is fishing in Maine this week, but please do watch “The Wrap with Chris Whalen” on The Julia LaRoche Show next Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. This week we address some reader questions at the end of this comment. June 12, 2026 | Yet another week has gone by and there is still no peace a

In a system where tax avoidance is a national aspiration, the currency must inflate continuously and at varying rates to accommodate the Treasury’s cash needs. Last week in "The Wrap," we noted that real gasoline prices, adjusted for inflation, are actually quite low. We also predicted that inflation could touch double digit rates later this year as a result of the US-Israeli war with Iran, but the big driver of inflation remains the federal debt.

“Since the start of the Iran war, base rates are up 48 bps and spreads (the six rates I use) are up 80 bps, for a total impact of 128 bps. The impact on EBITDA to support equity is roughly $5 billion per bp. At an EBITDA multiple of 8-1, each bp reduces equity valuations by $40 billion. SIMPLY STATED, the “cost” of the war now stands at $5.12 trillion in reduced “fair value” of US investments. ARE WE HAVING FUN YET?”

Institutional investors can and do abide by limits on redemptions for private equity and credit, at least for a while. Retail investors cannot and do not, and will run when there are clear signs of distress and illiquidity. Remember the deposit run at Silicon Valley Bank.

The equity of many banks traded off in January following Q4 2025 earnings. The earnings were not bad by any means, but some investors seemingly decided to take profits after a remarkable run in banks stocks going back to last October.

And as we predicted several months ago, Fannie Mae and Freddie Mac are at the bottom of the list now instead of the top, reflecting the fact that release from conservatorship has been shelved in favor of the GSEs buying back their own debt. Using the balance sheets of the GSEs to buy MBS basically makes them instruments of public policy, but this does not preclude President Trump from directing an equity offering after the midterm elections.

Only the Fed under Janet Yellen was dumb enough to buy $3 trillion in MBS, costing the taxpayer hundreds of billions in losses without really affecting mortgage rates. A mere $200 billion from Donald Trump is a rounding error, pure populist political pulp -- another progressive political display that will have zero impact on LT interest rates. In fact, the childish suggestions coming from the White House on housing may continue to push LT interest rates up.

PFSI trades on a trailing P/E of 14x vs ~ 8x for RITM. PFSI trades around 1.6x book vs 0.9x for RITM. Case closed? We have long believed that RITM should spin off its manager to create a comp for PFSI and then externally manage the RITM REIT. Like PFSI, in this scenario the new RITM manager would need to retain the Ginnie Mae MSRs.

If we were to select one characteristic that describes the financial markets today it would be confirmation bias. The human tendency to interpret new evidence as confirmation of one's existing beliefs or theories is among the most powerful and dangerous trends in financial markets, especially when the predominant passive investment strategies favor a net-long position. Nowhere is confirmation bias more apparent than the market for private-equity backed IPOs.

As and when the home price correction finally arrives ~ 2028, many of the conventional loans written since 2020 are likely to be underwater vs the collateral. The GSEs will be looking for reasons to reject loans. After all, FHFA Director Bill Pulte is in the loan insurance business.

The majority of the actual cash profit generated from residential lending is found in the mortgage servicing rights (MSRs).

We look for lower prices for legacy MBS and MSRs as new allocations are used up and P&Ls sink deeper into the red...

It seems obvious that the reported book value metrics coming from many commercial banks, REITs and mortgage banks are a tad inflated...

We see an at least equal chance that margins will get squeezed for agency and MSR investors before they expand via higher interest rates

No amount of computer power can really, really enable you to predict when Fred and Wilma are going to sell or refinance their home.

magine if the Fed started margin calling the big banks in response to the April market selloff rather than supporting the system!