The Wrap: AI Stocks Swoon, Warsh Sets Tasks & Private Credit Festers
- 11 hours ago
- 5 min read
This week in “The Wrap,” we feature the top events in Washington and on Wall Street over the past week. And please 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.
June 19, 2026 | After weeks of false starts, the Trump Administration cut a concessionary deal with the government of Iran to end hostilities in the Persian Gulf -- for now. You can bet that Israel will look for the first opportunity to restart hostilities. Vice President JD Vance had to warn Israeli officials to stop attacking the United States and President Trump over the newly struck peace deal with Iran.
The accord comes as supplies of crude oil in the US are at the lowest levels in decades. More important, as we discussed with John Dizard earlier this week, the US and the world are facing a prolonged shortage of fuel and refined products in the second half of the year and thereafter. Washington is still not talking about shortages, but President Trump did note that the US is running short of crude oil.
Even as the global supply of crude oil and refined products tightens, Ukraine launched one of its largest drone offensives of the war with Putin's Russia, hitting a major oil refinery in the Kapotnya district of Moscow in a massive multi-wave attack. The intense blasts sent massive plumes of thick black smoke and fireballs into the sky over the capital and forced the closure of regional airports.
The tightening supply of oil comes as liquidity in the financial markets continues to ebb as well. After peaking on June 2nd, the S&P 500 Index has moved sideways even as some prominent AI stocks have slipped lower. Can AI stocks continue to appreciate if market liquidity is falling? The tech-heavy Nasdaq index surged nearly 2% yesterday to close at 26,517.93, but remains below its record closing high of 26,683.94 set on June 15.
“The stock market’s supports are falling away as liquidity tightens and rates become increasingly restrictive,” writes Simon White of Bloomberg. “Kevin Warsh presided over a surprisingly hawkish Federal Reserve rate-setting meeting yesterday, his first as chair. But the FOMC is just catching up to the decidedly hawkish direction the market has already been heading in this year, as financial conditions experience their most significant tightening since the pandemic induced inflation shock.”
We have sold most of our AI-related stocks and continue to add to gold and silver positions as the metals display weakness. Will Anthropic and the other AI bubble names be able to price IPOs before the equity market cracks? We’ve been adding to our income producing assets like Annaly (NLY) and a new position in PennyMac Mortgage Trust (PMT), but also adding exposure to silver as well.
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 medium term. Models being renovated, personnel evaluated. Maybe the end of the idiotic dot plots is in sight? No guidance will be forthcoming from the Chairman.
"The bond market thinks it's more likely the Fed is going to increase rates this year. And why do they think that? The Dot plot,” Goldman Sachs Vice Chairman Rob Kaplan told Kathleen Hays this week, noting there were nine members looking for rate increases this year. “And Kevin Warsh, as he should have, was very clear that we intend to meet our 2% inflation target, and he didn't provide any other interpretation.”
Warsh followed the Trump line with no rate hike in June due to "transitory" war inflation? Only problem with the no rate cut strategy is that prices will continue to rise into 2027. So, if we take Chairman Warsh at face value when it comes to defending the 2% inflation target, we'll just have to change the definition of inflation to keep peace with the White House.
Indeed, liquidity pressure is already growing on the credit markets, as the de facto tightening already visible in the bond market is creating a perfect storm for corporate obligors and private credit sponsors. Moody’s this week published a research comment that warned that distressed transactions are on the rise and noted that “private equity – backed issuers will continue to lead [distressed debt exchange] activity, which has accounted for more than 70% of US defaults since 2022.”
Despite the growing evidence that the bloom is off of the AI rose, credit spreads remain very stable and are, indeed, are back down to the lows. The public interest in the private credit mess forced spreads higher in April but the subsequent market rally has pulled bond spreads over Treasury paper down. Why are spreads so tight? More buyers than sellers.
The crowd of equity and credit managers need to buy duration in order to generate fees. The rule of two and twenty still prevails on Wall Street in private equity and credit, although public markets abandoned these fees long ago. Why are private credit managers bidding above par for distressed residential assets being sold by HUD? Call it a bet on home price appreciation. Meanwhile, the software stocks that caused the upsurge in worry regarding private credit back in April have gotten slaughtered since June 1st.
This week Bitcoin extended its slide back toward the $60,000 level, a decline driven by mounting concerns over Strategy’s (MSTR) liquidity and shaky funding mechanism. MSTR has been the sole large buyer of bitcoin in recent months, begging the question about this ersatz market. False rate-hike fears are dampening demand for all risk assets, including crypto and precious metals.
Over the past five trading days, gold and silver experienced downward pressure, dropping significantly from mid-week onward. Gold fell roughly 2.5% to $4,227 per ounce, and silver declined over 3.5% to $66.28 per ounce. Market comments attribute this dip to a hawkish Federal Reserve signaling potential interest rate hikes to combat inflation. We also think that selling pressure in New York and London will only offset structural shortages of both metals for a limited time.
Recent Posts
John Dizard: Energy Shortages Loom Despite Peace Deal
Mortgage Notes: UWMC Loses Two Harbors; Fed Researchers on MSRs
The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.