The Wrap: Inflation Sinks GOP, Citi & BLK Double Down on Private Credit
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This week in “The Wrap,” we feature the top events in Washington and on Wall Street over the past week. And do watch “The Wrap with Chris Whalen” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing.
May 22, 2026 | This week featured a lot of important developments in Washington and on Wall Street.
Citigroup (C) struck a deal with BlackRock’s (BLK) private credit arm HPS to make up to €15bn of loans to companies and leveraged buyout groups across Europe. Democrats released a draft of their autopsy report on Kamala Harris’s stunning 2024 defeat. And unregulated firms offered investors a way to speculate on the coming IPO of SpaceX outside the usual confines of US securities laws.
The stalemate with Iran over the Strait of Hormuz continued, raising increased pressure on prices for key industrial chemicals and fuels. John Dizard told The IRA this week that he expects to see rationing of fuel and lubricants in the US later this summer.
Of course, there is not a word from the Trump White House about shortages of key energy products as a result of the prolonged US-Israeli war with Iran. Even as rising energy prices undermine Republicans hopes for the midterm elections, President Trump continues to say and do things that are forcing members of the Senate to distance themselves from the President.
Then there is the new $1.776 billion “anti-weaponization” fund that Hill Republicans reportedly see as politically toxic and an immunity deal for the President and his family with the Department of Justice. These are merely the latest “surprises” from Trump for members of Congress. Readers should ponder why President Trump feels the need for an immunity deal with the DOJ.
Political commentator Mark Halperin suggests Trump would prefer to use taxpayer money for a "weaponization fund" to relitigate the 2020 election and January 6th, rather than focusing resources on the upcoming midterms. He warns that Republicans could see a "big wipeout" if voter sentiment on the economy doesn't improve.
Citi Doubles Down
This week Citigroup (C) struck a deal with BlackRock’s (BLK) private credit arm HPS to make up to €15bn of loans to companies and leveraged buyout groups across Europe. The timing seems a little off, but the surge of spending in and around AI continues to be the biggest area of growth -- and risk -- for bank loans.
“Citi-HPS joint venture is a regulatory-capital arbitrage, using non-recourse financing transactions which put Citi and taxpayers at contingent credit, liquidity, correlation, and market risks…..just like its “AAA” arbitrage in 2007/2008,” opines Victor Hong in a LinkedIn post this week.
“HPS earns AUM fees in a capital/liquidity/balance-sheet light manner……by borrowing such from Citi, via those non-recourse financing transactions. Citi eats the downside while HPS savors the upside. A 2007 “AAA” pig or a 2026 “Investment-Grade” Private Credit loan P.O.O.P.? Scant difference; similarly non-existent cashflows.”
Bitcoin Down, Interest Rates Up
Meanwhile, Michael Saylor, Executive Chairman of Strategy (MSTR), f/k/a MicroStrategy, stated that the company will "probably sell some Bitcoin" to fund dividends and "inoculate the market," after the firm (now holding hundreds of thousands of coins) faced consecutive quarterly losses. This change marks a stark reversal in Saylor’s public position regarding the value of bitcoin.
The war with Iran and the closure of the Strait of Hormuz caused Federal Reserve officials' concerns about inflation to intensify last month, with a growing number open to the possibility that they may need to raise interest rates. The change in inflation expectations drove the 10-year Treasury bond above 4.6% this week.
“Policymakers noted that resurgent price pressures—exacerbated by geopolitical conflicts and higher fuel costs—make achieving their 2% target take longer than expected, prompting many to consider further rate hikes,” reports the Wall Street Journal. So far, President Trump has not attacked his new Fed Chairman, Kevin Warsh but we expect the honeymoon to be short-lived.
The sharp increase in LT interest rates caused the value of loans and securities to fall, but boosted the value of negative duration mortgage servicing assets. The mark-to-market losses of banks have risen because of the increase in LT interest rates. The Fed is also likely to see an increase in unrealized losses on its $2 trillion portfolio of mortgage-backed securities. See our comment on the legacy of Jerome Powell on FT.com.
KPMG Chief Economist Diane Swonk stated earlier that a recent surge in oil and commodities prices has made it "harder and harder" to justify interest rate cuts from the Federal Reserve. In an interview with Kathleen Hays on Thursday, Swonk said she expects at least one rate hike this year and perhaps as early as July.
Silver and gold prices moved sideways over the past week. Nvidia (NVDA) reported good earnings and then traded off on the news. NVDA is down nearly 7% over the past five trading days, but our holdings in Advanced Micro Devices (AMD) continue to lead the AI group higher. Over the past year, AMD is up almost 300% vs just 60% for NVDA.
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