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August 27, 2025  | Premium Service  | A while back we wrote about the possibility of legislation banning trigger leads, lists of consumers who have recently applied for credit. Trigger leads are generated by credit bureaus like Experian plc (EXPGF)  and sold to other lenders and companies to market new products and services by using confidential customer data. The good news is that the legislation passed, but the bad news is that Experian et al spent enough money in Washington  to water down the prohibition of trigger leads to still allow some limited use. The legislation carries a prohibition on the Bureaus’ selling trigger leads (TLs) to anyone except in narrow circumstances: The buyer of the lead services an existing mortgage for that particular consumer, The buyer was the loan originator on the borrower’s existing mortgage, The buyer has a depository relationship with the consumer, OR The consumer opted in to receiving TL calls. Limiting access to trigger leads is bad news for independent mortgage brokers, who use these warm leads to find and acquire loans, which they sell to large aggregators such as United Wholesale Mortgage (UWMC)  and Rocket Mortgage (RKT)  in the broker or "wholesale" channel. Most big lenders don't actually lend but instead buy loans from smaller brokers. Limits on trigger leads may force a contraction in the wholesale market after a decade of growth. The broker channel has grown from 10% of total residential mortgage volumes to almost 20% in 2024, according to Inside Mortgage Finance . Notice in the chart below that most of the growth in the broker market over the past decade has come at the expense of retail. Brokers care about making loans, but the smart money in the mortgage industry is all about selling the loan and retaining the mortgage servicing rights (MSR).  Source: Inside Mortgage Finance. Used with permission We kicked out our position in Fannie Mae  last week in front of the Jackson Hole Fed boondoggle, pocketing a 20% gain for our trouble in less than 30 days. We also took similar gains in American Express (AXP)  and also took a small loss on Charles Schwab (SCHW) , which we bough far too late. When you make a mistake, take the loss and move on. But shares in the GSEs are clearly swooning because of a lack of love from the Trump Administration. Meanwhile, loan rates continue to rally even though market rates remain a big question mark. Since the end of Q2 2025, mortgage rates have fallen about half a point, proof again that lenders set loan rates and markets set rates for Treasury bonds and mortgage backed securities (MBS). Why would lenders push loan rates down, and lose even more money in the secondary market? Especially when the 10-year Treasury and MBS spreads over Treasury yields have barely moved? The MSR.  Below we provide some thoughts on the mortgage market based upon the changes in the loan production by some of the larger players in the industry. We also provide an update on our mortgage equity group. Suffice to say that the castle with moat model of asset management very visible today in so many industries also operates in mortgage finance. As we have noted before, its all about the network effect. That means protecting and growing your assets under management as measured by your MSR.

August 25, 2025  | It is only half way through the first year of the Trump presidency, but the special role of the dollar is ending ahead of schedule. The Treasury’s already ample borrowing is about to increase dramatically, giving foreign investors many more reasons to invest in assets other than dollars. Yet US equity and debt markets continue to absorb all of the available cash in the global markets even as the Fed continues to slowly shrink its balance sheet.       US equity valuations are at record highs and bank lending to nonbank funds and entities is also surging. We took a lot of alpha off the table in front of the Jackson Hole media fest last week, in part because we still don’t think there is a majority for interest rate cuts on the FOMC. Fed Chairman Jerome Powell could vote with the Republicans governors and still lose the vote. And Powell will laugh in the event. Margin credit in the US reached a new peak last week, FINRA reports. As of the second quarter of 2025, total margin loans in the United States reached a record high of $1.008 trillion vs just $850 billion in April. Our question: Why isn't margin debt even higher given the scale of the bubble? Source: FINRA Americans are trading crypto tokens and talking to themselves via the electronic parrot known as “artificial intelligence” or AI. Indeed, the entire US financial complex has been converted into a large game and AI sits atop the great pile. Since games are not securities, hucksters can say whatever they like about future performance of tokens. As the US seemingly heads to a climatic market blow off, the rest of the world is migrating back to gold as the chief reserve asset. At the core of the economic debate in Jackson Hole, hopefully, is why the dollar remains so strong given the libertine behavior of the national Congress and the equally erratic behavior of the US Treasury and central bank. White House Council of Economic Advisers Chair Stephen Miran argues correctly that the dollar's status as the international reserve currency makes it overvalued, forcing the U.S. to run current-account deficits and hindering U.S. manufacturing.  Miran's proposed solution to the strong dollar involves "outside-the-box" policy options, such as the "Mar-a-Lago Accord," aimed at lowering the dollar's value to make the dollar more competitive by selling US gold stocks. Miran’s point about the inflated dollar is very valid, but demand for dollars is not just about trade.  And no, we sell paper to devalue the currency, not gold Stephen. In addition to current account deficits, the US also now tolerates higher inflation. Why? The combination of huge public deficits and equally large foreign investment flows. It is the financial use of the currency drives the dollar’s chronic overvaluation. Given the federal debt, Miran and his master Donald Trump should be glad of the strong dollar. The way that we ought to deal with this real problem of a bloated dollar, as we discuss with author Jim Rickards in Inflated: Money, Debt and the American Dream , involves letting go of the reserve status of the dollar. The US should aggressively buy gold and sell fiat dollars.  Turn the logic of former Texas Governor and Treasury Secretary John Connally to a new purpose. In 1971, for the younger members of the audience, Treasury Secretary Connally famously remarked how the US dollar was "our currency, but your problem," referring to how the US dollar was managed primarily for the US' interests despite it being the currency primarily used in global trade and finance. Not much has changed in 50 years except the size of the dollar market. Gold won the battle for reserve asset preeminence in 1969, when the Treasury withdrew from the London Gold Pool. Final surrender came in 1971, when President Richard Nixon closed the gold window to other countries. After Nixon’s capitulation, Paul Volcker and other US officials tried to shift the world's monetary system away from gold altogether, but ultimately failed with the reemergence of gold in Asia and Russia. Jim Rickards notes that Americans “no longer know what money is” and have replaced “money with moneyness.” He then describes why Americans may lose the privilege of issuing the global reserve currency sooner than many think possible: “Money’s value springs from trust, and trust itself depends on some institution—a central bank, a rule of law, a gold hoard, an AI algorithm—to sustain it. When institutions break down, and trust is lost, the value of money is lost as well, only to await the rise of new institutions and new forms of money so the cycle begins again.” It needs to be said that FDR did not need to seize gold in 1933 for economic reasons, it was all about the socialist politics of the time. From 1913 onward, the Fed's ability to grow liquidity was never constrained by gold. President Trump’s embrace of crypto sponsors and deficit spending is more of the same political self interest at work a century later. In the wonderfully sarcastic book, “The New Dealers,” published anonymously in 1934 by Simon & Schuster, the “Unofficial Observer” described the FDR devaluation and repudiation of gold: “On the one hand, you have the good old traditional way of doing business, which required the entire population of the country to ‘walk home’ at twenty-year intervals in the name of God and the Gold Standard. On the other hand, you have the new technique of the financial sheik who claims that you can use buttons instead of money. The old school claims that buttons belong in button-holes, the new school asks what is the Gold Standard between friends. The times are on the side of the new school, for the financing of a revolution—even an unconscious one—takes a lot of money, and a lot of buttons.” The progression from the antediluvian word of gold as money, to various forms of fiat paper tokens issued by nation states and protected by legal tender laws, to the brave new work of crypto tokens and “stable coins” pegged to fiat currencies, illustrates the rise of financial repression in the modern age.  And the value of gold remains a function of the yield available on paper. The chart below shows the portion of bank gross interest revenue that goes to equity rather than deposits and other debt. During COVID, the index was over 90%. Source: FDIC/WGA LLC Some Americans believe that artificial intelligence creates actual understanding instead of an electronic parrot. Others believe that crypto tokens represent value instead of a ponzi scheme. And you cannot tell fully entitled Americans that they are mistaken. Meanwhile, today the Trump Administration is hurtling forward with a fiscal agenda that will see the public debt grow by $3-4 trillion in calendar 2025.  Under President Donald Trump, Americans face a return to the financial repression seen during the zero interest rates of 2019-2021 and hyperinflation caused by uncontrolled federal spending. Even as Americans dive down the crypto rabbit hole, around the world gold is being increasingly substituted for dollars as a reserve asset.  As more and more nations around the world sell dollars and buy gold, the American confusion about the nature of money and many other things will come more sharply into focus.   Top Posts Silver Surges? Waller Wants Lower Reserves & Tighter Policy https://www.theinstitutionalriskanalyst.com/post/theira734 Should the Federal Reserve Pay Interest on Bank Reserves? https://www.theinstitutionalriskanalyst.com/post/theira735 The Cost to Housing of Donald Trump https://www.theinstitutionalriskanalyst.com/post/theira737   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.

August 20, 2025  | Premium Service  | What New York area banks could take big losses or even fail if the Ugandan born Marxist Zohran Mamdani is elected Mayor of New York City? This telegenic cartoon character is riding a wave of public angst over, you guessed it, inflation, and he offers consumers nothing but empty hopes. Zohran wants to freeze the rent on all NYC recent stabilized apartments , an idiotic but popular idea that may sweep him into office. As we’ve noted in past missives, NYC is the biggest slum lord in the world, operating more than 500,000 publicly owned, rent controlled apartments built before 1947, where residents typically pay less than half of the cost of maintaining public units. As a result of the massive operating losses borne by the city, these aging units are poorly maintained and slowly becoming dilapidated and unsafe.  The whole stock of rent controlled housing should be demolished and redeveloped, but the City of New York is paralyzed by progressive politics. New York City public housing, managed by NYC Housing Authority, faces significant challenges in maintenance and repair, with many century old buildings suffering from disrepair and neglect. This has led to hazardous living conditions for residents and substantial degradation in property values, but the progressives who control New York City care not. It's all about today. Mamdani is merely the logical progression in a century of socialist construction in Gotham going back to Robert Moses and Tammany Hall. Two million more New York residents live in privately owned rent stabilized apartments that amount to half of all apartments built after 1974. The 2019 rent control law passed by the New York State Assembly already makes it impossible for landlords to recover the cost of renovating these units. Specifically, the 2019 law, among other provisions, repealed the vacancy bonus and longevity bonus, which allowed a property owner to raise rents as much as 20% each time a rental unit became vacant. Today, when the older rent-stabilized units come vacant, they are typically gutted and then locked since private landlords cannot rent – or insure – older units that are not brought up to tough NYC building codes. This means that the owner must increase rents on the market priced units to make up any shortfall from rent stabilized units that cannot be renovated and safely leased. The 2019 NY rent legislation is slowly reducing the supply of rent-stabilized units and has made many private multifamily rental properties impossible to finance. But more important, political opportunists like Mamdani offer no solutions to the very real issue of affordability because the cost of building new “low income” housing is astronomical. Affordable housing is really not even possible in New York City and definitely not if NYCHA and/or the State of New York are involved. Only by encouraging cooperation between private developers and public agencies can the supply of new housing be increased. But the Democrats have used their monopoly on political power in Albany to make New York investors the bad guys. And no surprise, these established national property investors now build anywhere but New York. Multifamily loans are the new subprime asset class because of political risk. The obvious question is what is going to happen to the banks, the GSEs like Fannie Mae and Freddie Mac, and U.S. Department of Housing and Urban Development (HUD), when Mamdani is elected Mayor? At a minimum, the valuations for all rental multifamily rental properties in New York City are likely to suffer.  Banks will be even less willing to lend on these assets,especially with the Trump Administration cutting back on HUD programs. Source: HUD/FHFA/FDIC (2024) HUD exposure to rent-stabilized apartments primarily occurs through its involvement in various housing subsidy programs. These programs, such as Section 8 Housing Choice Vouchers (HCVs) and project-based Section 8, can be used in rent-stabilized buildings. Additionally, HUD oversees the Public Housing Assessment System (PHAS), which includes rent-stabilized units that are part of public housing or have been converted under the Rental Assistance Demonstration (RAD) program. The Trump budget cuts HUD subsidy programs in half and imposes time limits on rent vouchers, for example. The GSEs (Fannie Mae and Freddie Mac) have significant exposure to NYC rent-stabilized apartments through their multifamily lending activities. This exposure is a growing concern for federal regulators, as rent stabilization laws can impact property values and potentially lead to loan defaults. The GSEs have roughly $500 billion in multifamily exposures. While the exact percentage of rent-stabilized units within the GSEs' portfolio is not explicitly stated, a substantial portion of their multifamily lending supports buildings with rent-stabilized units. US banks own about $650 billion in mostly prime multifamily loans in portfolio. The inferior assets are in commercial mortgage backed securities, while the real crapola subprime assets are held by the GSEs and HUD. Earlier this year, news reports indicated that the Securities and Exchange Commission was scrutinizing New York bank exposure to multifamily properties  affected by rent stabilization laws, raising concerns about the risks to investors. The banks specifically targeted by the SEC included Dime Community Bancshares (DCOM) , The Delaware National Bank of Delhi, NY, and Flagstar Financial (FLG) , but this is only a partial list of banks with significant multifamily exposure in the New York area.  Below we use the powerful analytics of BankRegData , EDGAR and the FFIEC to provide a comprehensive list of banks above $1 billion in assets in the New York area and our comments on the public information available for some of the banks with the largest exposures.

June 5, 2025  | Bridgewater founder Ray Dalio  has been warning us about debt and deficits for some time, and on one level he is entirely right. In fact, CNBC has created a whole theme park of Dalio market wisdom  that makes for a nice reference resource for historians. For example, Dalio said at an event for the Paley Media Council in New York: “I think we should be afraid of the bond market. It’s like ... I’m a doctor, and I’m looking at the patient, and I’ve said, you’re having this accumulation, and I can tell you that this is very, very serious, and I can’t tell you the exact time. I would say that if we’re really looking over the next three years, to give or take a year or two, that we’re in that type of a critical, critical situation.” American leaders like Dalio correctly assess the fiscal mess in Washington, yet somehow we all seem incapable of looking at the situation globally, from the perspective of Europe, Japan or China. For 75 years since WW II, the other nations of the world have benefitted from American excess – so much so that they have no immediate incentive to change anything. When President Trump uses the threat of tariffs to start a long overdue conversation about the role of the US in the global economy, he is asking the right question. As Dalio and other market mavens warn about impending catastrophe in the bond market, we are unimpressed because we know that markets underestimate just how bad things can get. Even as the US heads for fiscal insolvency and hyperinflation, the latter comes via the Fed’s quantitative easing (QE) BTW, the rest of the world will continue to use dollars as a means of exchange and also for financing. Why not? After all, as we note in our new book " Inflated: Money, Debt and the American Dream ," the global dollar is a free good created in the aftermath of war. Naturally, the fee-driven inhabitants of the financial ghetto known as Wall Street have no incentive to cry foul. If major investment funds sold stocks to protest the lack of deficit reduction in Trump’s big beautiful bill, the original document would be in the trash the next day and House and Senate conservatives would be driving the bus. Instead, Wall Street professionals pretend that things can continue pretty much as normal despite the very specific warnings of billionaire sages like Dalio.  If the going gets tough, the Fed will just drop interest rates to 2020 levels, right? But hyperinflation, not fiscal collapse, is the real danger. How is our collective delusion possible? First and foremost, the narrative used to describe the US economy, Fed policy and factors like inflation and employment, is entirely domestic in focus. We almost completely ignore the offshore market for dollars and dollar financing. Yet no matter what ridiculous policies come spinning out of Washington, the 10-year Treasury note and longer dated issues somehow seem to grind back down in yield. Even with the slow deterioration in the functioning of the Treasury market, somebody seems to be buying dollar paper. Could this be because much of the world is already dollarized? The simple answer is that demand for dollars and dollar-denominated, “risk free” assets like Treasury debt and Ginnie Mae passthroughs, remains brisk. Notice that the debt of Fannie Mae and Freddie Mac are no longer considered risk free assets by global central banks. More, the need for risk free collateral in dollar financings and currency swaps is vast and serves to boost demand. Nobody on the FOMC ever talks publicly about the global market for dollars because the Federal Reserve Act is silent on external factors. It's as though the global role of the dollar as a reserve currency created 75 years ago by Bretton Woods is somehow not relevant to US monetary policy.  The dollar is on one side of 80% of all currency transactions. Also, the strong economic growth coming from the emerging markets means that demand for dollars and dollar collateral is likely to grow.  Or to put it another way, none of the other global currencies can begin to absorb the demand for dollars – at least without stoking huge internal inflation. Just as there was not sufficient physical currency to meet the demands of 19th Century American, today the needs of the global economy may outstrip even the rapid currency inflation being engineered by the Federal Reserve Board via QE to keep pace with the growth in federal debt. When Ray Dalio says to be afraid of the bond market, he is asking a question that belongs in the mid-1970s, when the dollar still competed with other currencies and US interest rates were actually affected by interest rates in other nations. But today, with many of the other industrial nations led by Japan, China and the EU literally drowning in public debt, the US is still the leader of the hideous fiat currency parade. As all global central banks march toward a day of reckoning and hyperinflation, the fiat paper dollar remains the global standard -- for now. Notice the huge increase in the total assets of US banks since 2020 vs the total Fed SOMA portfolio , as shown in the chart from FRED below. “The rise in longer-term US and developed-market bond yields risks becoming entrenched as fiscal largesse becomes a feature of economies, rather than a temporary bug,” writes Simon White of Bloomberg . “It’s easy to forget it’s not just the US — in its third year of running deficits of more than $1.5 trillion — that has abandoned fiscal restraint. Also across Europe and Japan, the list of what electorates expect from their governments is expanding, in the sovereign version of the Fed put: the fiscal put.” The good and bad news of sorts is that the US bond market will continue to function, even though we have annihilated most of the primary dealers of Treasury debt since 2008 and especially since 2020. US banks will be forced to purchase more ST Treasury debt, one reason that Treasury Secretary Scott Bessent will soon drop government debt from The Supplementary Leverage Ratio (SLR) . Source: FDIC If the Trump Administration prevails and wins trillions of dollars more in unfunded tax cuts to support Republican hopes in the midterm elections next year, then the next step for the Federal Open Market Committee will be to restart QE to ensure that the Fed’s balance sheet keeps pace with the burgeoning federal debt. But this time, rather than falling interest rates, QE may resume in the context of rising wages and prices, and higher short-term interest rates, as the Fed makes a last futile effort to control inflation. Get used to it.   We'll be describing the forward risks facing US investors in a future Premium Service issue of The Institutional Risk Analyst. 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.

August 18, 2025  | Premium Service  | As the financial markets speculate about whether the Federal Open Market Committee cuts the target for overnight money rates in September, we ponder whether the global financial markets are going to rise on a sea of rising liquidity regardless of what the Fed does or does not do next month. In our letter to the Financial Times  over the weekend , we warn that the next risk shock to global markets may come from another surprise a la FTX in the market for crypto tokens. H/T to Brendan Greeley . Our former employer, Federal Reserve Bank of New York President Gerald Corrigan, said that systemic events occur when markets are surprised. Why do we worry about a crypto market break and the possibility of another systemic event coming from this sector? Because crypto tokens large and small are just another Ponzi scheme. First and foremost because the rate of increase in crypto prices is slowing and the sector seems increasingly focused on locking participants into various coins to support the ceiling on prices. As we noted last week in our new media interview with composer Michael Whalen (“ Michael Whalen: Will Streaming Kill Big Media? ”), for many industries it’s all about the network effect.  In this regard, readers of The Institutional Risk Analyst  ought to peruse the February 2025 article on the $100 billion per day market in perpetual futures contracts published by Cornell University . Qihong Ruan and Artem Streltsov write in that paper that there are several benefits of using "perps" in crypto. Our comments are in [ ]: Increased trading activity : Since perpetual contracts allow 24/7 leveraged trading, they dramatically boost [apparent] market participation Higher trading costs : The funding rate mechanism and leverage increase trading expenses, making markets more liquid but also costlier [the opposite of traditional markets] Enhanced informed trading : With access to leverage and short-selling, sophisticated traders can act aggressively on their information, influencing market efficiency [as well as artificially supporting prices]. If this sounds like a modern day description of a classical Ponzi scheme, you are absolutely right. And if we told you that Professor Robert Shiller  came up with this idea for perpetual futures three decades ago, would you laugh? See Shiller’s important 1993 NBER paper: “ MEASURING ASSET VALUES FOR CASH SETTLEMENT IN DERIVATIVE MARKETS: HEDONIC REPEATED MEASURES INDICES AND PERPETUAL FUTURES ”.  Next time you see Bob, smack him (nicely). As you read the Shiller paper, ask yourself why the crypto market wants or needs perpetual futures. The short answer is that off-chain volume in perpetual futures in Bitcoin and other crypto assets is an order of magnitude larger than the cash markets . Nobody really knows for sure because there is no crypto market, only a bunch of facilitators manipulating prices behind the curtain. Since the Republican Party hopes to use financial support from the Crypto Kings to finance the 2026 midterm elections, nobody will ask -- until the bubble bursts. Below we provide our thoughts on the Western Secondary Conference at Terranea , our latest views on the markets and an update on the WGA portfolio.  Market Notes & Western Secondary Conference

August 13, 2025  | In this issue of The Institutional Risk Analyst , we check in on media commentator, two time Emmy® Award winning composer and internationally known recording artist Michael Whalen . He has been a professor at four colleges, he founded Artist Expansion in 2016 and works as a coach for upcoming artists. Michael brings a ground level view of the brave world of new media and narrates the slow-motion consolidation of streaming as a business model for large public media companies. Our readers will recall that Michael predicted this very outcome eight years ago -- before COVID in 2017 (“ The Economics of Content: Michael Whalen ”). It’s nice to be right.  Michael Whalen The IRA : Michael, a lot has happened in the worlds of new and old media since we last spoke. Social media became the primary source of news in 2025, particularly overtaking traditional television. Local news is having a modest renaissance, but the aggregators of content seem like endangered species. As you predicted back in 2017, the owners of legacy TV content have been forced to consolidate down to Amazon (AMZN) , Disney (DIS) , Netflix (NFLX) , Apple (AAPL) TV+ and Paramount Skydance (PARA) .  What’s next for the big media conglomerates?  Michael Whalen : The so-called “streaming revolution” was never going to end with a dozen or more big platforms all fighting for a place on your monthly bill. The math never worked for a dozen platforms. The audience attention spans didn’t match the supply, and the economics of producing this much content hit a wall. Up until very recently, Hollywood has been trying to make the old mathematics of cable TV and the loss of home video sales work for the current world of streaming. We have always been heading toward consolidation. This explains the quiet desperation that many of the smaller streamers have felt from the beginning. And now, in 2025, it’s playing out exactly the way we discussed in 2017. We have fewer brands, content bundling, strategic mergers, and sports and live events as the glue that keeps the whole thing from coming apart. That said, Netflix is still very much in the lead but the positioning for second and third place is very much up in the air. The IRA : So DIS, AMZN, PARA and NFLX are the winners of the ecosystem wars? AAPL is a follower? Michael Whalen : For now. I should mention that the merger and now spin off with Warner Brothers (WBD) /Discovery is a consolidation that has gone badly . This was a bad idea at the beginning and it is still a bad idea despite the popularity of their reality TV shows or their Emmy winning prestige HBO shows. They are too small to battle Netflix and Disney and too big to be scooped-up by the likes of Google, Amazon or Apple. This odd marriage is OK in the short term but I predict more changes in their corner of the business.  The IRA : We are in a slow process of cord cutting at home. I turned off HBO and took our bandwidth back down to 300mp/s on Verizon (VZN) FiOS and nobody noticed. Cut the bill in half. We literally care about six channels in the FiOS bundle. How does this type of consumer behavior affect the survivors of “old media”? Michael Whalen : Let’s start by discussing what Disney is doing. At long last, Disney is folding Hulu into Disney+. This isn’t just a design choice—it’s the desperate reaction to end years of running two separate services that, frankly, should have been one a long time ago. The cannibalization has been extreme. The old model—two apps, two logins, two bills, two sets of recommendations—was a headache for consumers and a churn machine for Disney. Now, you get one login, one universal search, one set of parental controls, and you can go from The Mandalorian to The Bear without switching apps. For Disney+, it’s a way to keep people from cancelling when there’s a lull in Marvel or Star Wars content. For you, it’s one less reason to hop between services. And yes, like Netflix, they’re steering a lot of people toward “basic” ad-supported plans. In the new economics of streaming, your subscription fee is only half the story—the other half is the ad inventory they can sell. So, we will see a hybrid between commercial television and paid subscriptions. YouTube has pioneered the business model and now the rest of the industry is catching-up.  The IRA : We notice the increase in ads. Google’s YouTube is killing everyone with ads, but you can pay them to go “ad free” if you want. All of these models make you hate the content provider to one degree or another. The legacy “free” TV model was a different relationship, less friction. Now we have to hold the TV control to skip whatever the ad from YouTube. We deliberately record content so that we can skip over the ads. Whether it is sports or American Idol , recording is better.  Michael Whalen : Sports is really the glue holding keeping many consumers to legacy providers for now, but things are moving very quickly. Disney’s deal with the NFL changes the whole ESPN equation. The NFL is giving ESPN control over NFL Media—NFL Network, RedZone—in exchange for about a 10% equity stake in ESPN itself. That’s not just a rights agreement, that’s a partnership. And when ESPN’s full direct-to-consumer product finally launches, it’s going to feel like the complete package: Monday Night Football, NFL Network’s year-round programming, RedZone’s frantic whip-around coverage, and seven extra regular-season games. Sports is the last truly unskippable advertising vehicle, the last appointment viewing. This is the kind of vertical integration you need to make sports streaming not just possible, but essential. Netflix is finding with WWE that not all sports work in a streaming universe. Apple has struggled with their soccer (futbol) partnership just as they have been flexing their muscles with a huge slate of prestige television offerings.  The IRA : We still have a Netflix subscription, but the content creation machine seems to have slowed as you predicted. The NFLX inventory is stale. I think Cory Doctorow coined the term "enshittification," where networks make a lot of promises to attract users and advertisers, then start squeezing both groups with ads and fees as the content quality degrades. What about the Paramount Skydance combo?  Michael Whalen : Paramount’s merger with Skydance is another move I’ve been expecting. Viacom/CBS/Paramount couldn’t keep going as a scattershot content company with a clunky app and too many half-measures in streaming. Skydance brings focus, discipline, and modern infrastructure. David Ellison is now CEO, Jeff Shell is president, and they’ve carved the company into Studios, Direct-to-Consumer, and TV Media. The payoff for viewers should be a faster, more reliable Paramount+ with a clearer sense of what it’s for, rather than trying to be “everything for everyone.” And by tightening the relationship between Paramount+ and Pluto TV, they can use free, ad-supported programming as a gateway to paid subscriptions—and vice versa. I’ve been predicting that kind of synergy for years. Ellison has already become THE most successful television (and film) producer in Hollywood. Paramount will build on the success that Tyler Sheridan has brought to them. “Mob Land” from Guy Ritchie is a personal favorite. The old CBS/Viacom/Paramount never would have greenlighted these shows.  The IRA : So sounds like you are bullish on the PARA merger. Are they a LT winner in the content wars?  How do you view PARA vs category leader Netflix? Michael Whalen : The changes at PARA and DIS are happening with Netflix still as the benchmark for global scale and engagement. Netflix is still the biggest in terms of viewership share, and its crackdown on password sharing actually accelerated revenue and user growth. Its one-brand simplicity works internationally, but domestically it now competes with Disney’s three-headed bundle: Disney+ for family and franchises, Hulu for general entertainment, and ESPN for sports. Hulu doesn’t exist abroad, so Disney+ has to carry more weight internationally, but in the U.S., that bundle is getting harder to beat. But the #1 streaming platform in terms of hours watched is YouTube -- by a lot. Their combination of user generated content and reformatted major media content is very hard to beat right now.  The IRA : So you predicted the early skirmishes very nicely, but where so we go from here?  Are there more mega mergers in prospect? Michael Whalen : We’re entering a new phase of the battle. The land-grab days are over. This is about ecosystems now—owning multiple parts of your viewing life in one login. The US streamers are putting major time and energy into expanding into foreign markets. In places like Brazil, India and Malaysia, the time for consolidation has come and there is a rush to supply the hundreds of millions who now have the ability to watch content. Another huge developing market is the continent of Africa but that is 5 to 10 years away from content consolidation I am talking about. Amazingly, Central Africa has one of the fastest and newest cell systems in the world and it is transforming their lives.  The IRA : Cellular networks in Africa and other "emerging" markets are used for everything, payments, banking, trade and also content. Michael Whalen : Over the next couple of years in the US, bundles will be the default, not the exception. The first company to make the ability to bundle these services in a easy-to-use turnkey way (are you listening Apple?) will get an advantage in the short term. In the meantime, free services like Pluto will work hand-in-hand with paid services instead of competing with them. Sports and live events will be the deciding factor in many homes, with Disney+ clearly ahead here. And the price hikes won’t be as obvious—they’ll come as restrictions on features that quietly nudge you into higher tiers. Consumers are already wary of the costs and how quickly it is changing. This is why ad supported content will be a crucial part of economics of how all of this will work.  The IRA : Well, the bundle is definitely not working in our household. We shot the HBO Max bundle without any fuss. VZN FiOS forces us to take Cinemax with the expanded TV channels, but we may just shut off the VZN TV entirely and get a static IP. As you said, we can subscribe to Disney+ for ESPN sports and get Hulu for the local channels. CNBC and Bloomberg we can stream. All I need to do is teach the family how to record on the home NAS and we are ready to cut the cord. How does the content market look in five years? Michael Whalen : We are seeing the maturation of streaming as a predictable and profitable business. One of its big frustrations to Wall Street is the lack of predictability in this sector. After this consolidation and emphasizing ads, these analysts will be able to track things easier and some of the stress should reduce. Second, the companies that survive won’t be the ones that spend the most on content—they’ll be the ones that give you the fewest reasons to cancel. By 2026, I think we’ll see just four or five dominant streaming ecosystems in the U.S., each a mix of scripted entertainment, sports, and free tiers, each powered by cross-platform tech. The fight won’t be over which show you watch on which night—it’ll be over which service you open first without even thinking about it. It appears that the survivors will be YouTube, Netflix, Disney+, Paramount and Apple TV+. I have written and said many times that Apple TV+ is running as a loss leader as a way of keeping people inside of their hardware and software ecosystem. The extent of that loss is finally being revealed by Apple who said this year that they are losing “a billion dollars a year” on Apple TV+.  The IRA : Exactly. In our family, grabbing the VZN control was learned behavior. But now everyone knows that they can get Netflix or Disney or YouTube by simply turning on the TV.  Michael Whalen : Even in a modern tech-fueled business like streaming, the importance of creating value for the consumer is the most important. In this conversation, value for the consumer is a combination of reasonable price, choice and feeling like the content you are being offered is part of the conversation of popular culture. “Winning” was never about creating the most content - Netflix has certainly learned that lesson. It is a balance of making great programs that are affordable. That is what this new era of streaming is about and it will be exciting how things begin to shake out in 2026, 27 and beyond…  The IRA : Thank you for your time Michael.  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.

August 9, 2025  | Updated | On Friday last week, the Wall Street Journal reported that the Trump Administration is considering an initial public offering for the government-sponsored enterprises, Fannie Mae and Freddie Mac, later this year. The WSJ cited Trump Administration officials close to the matter, probably one of the troika we discussed in an earlier missive (“ Update: Is GSE Release Really on Hold? ”).  We picked up some Fannie Mae common shares as the GSEs sold off recently. A lack of love in the financial media and from the White House is the proximate cause of the weakness in both stocks over the past 90 days. This was all a function of the total focus by the Trump Administration on taxes and the budget. A one month chart of Fannie Mae is below c/o YahooFinance . We are scheduled to appear on YahooFinance ~ 3:40 PM ET Monday August 11th to talk about the prospect for GSE release. And we'll be speaking from the Western Secondary Conference sponsored by the California Mortgage Bankers Association. Do come say hello. Now that the OBBB is signed into law, however, the White House is moving on to other matters in that daily quest to be top of the news, every day. The fact that the relevant players still have not been confirmed by the Senate does not quench the burning desire for media attention. Talking about an equity offering before a prospectus is even filed with the SEC is not a problem when your first objective is to dominate the media conversation, every single day. And speaking of media, we’ll be featuring a Summer Special as Artist Expansion founder Michael Whalen reports from the content trenches on the collapse of streaming as a business model for large public media companies. Our readers will recall that Michael predicted this very outcome before COVID , in 2017 (“ The Economics of Content: Michael Whalen ”). It’s nice to be right.  There was not a lot of really new material in the Friday WSJ  report, but it did move the market for two penny stocks a lot. Katy O’Donnell , now at Bloomberg  but then at Politico , gave us the basic outline of GSE release back in April.   WSJ did say the companies could be valued at $500 billion combined, again attributed to unnamed sources. The IPO could involve selling 5%-15% of the companies’ shares and raise $30 billion, the Journal reported. Perhaps SEC Chairman Paul Atkins  will ask who in the Trump Administration is speaking the media prior to a large public offering of securities? The $30 billion target for cash raised in a GSE IPO is pathetic and only confirms our view that the Treasury should repurchase the GSE voting common and issue new preferred to raise hundreds of billions in proceeds. If we keep the US Treasury as the majority common shareholder and finance the capital structure with new senior preferred, the Trump Administration could raise $500 billion easily and we don't need to discuss implicit guarantees. Remember, banks are retiring preferred shares and the Street is desperately short of quality duration. We have taken a flutter in Fannie Mae, this as several mortgage firms have blown past the GSEs in terms of 3 month market gains, but the thesis remains the same. This is a trade, IOHO, primarily because we still expect the common to be diluted heavily when 1) the government exercises its stock option, diluting existing shareholders and 2) the government issues even more shares to account for the liquidation preference, again diluting all of the existing holders.  In addition to the concerns about dilution, we still need a lot of detail about the business models going forward and possible asset sales.  Merging the two entities together and possibly selling the multifamily book ahead of the offering are two changes that would be positive for the enterprises, IOHO, but playing games with the residential  portfolio could be very negative for the valuation.  The big residential loan book and the implied ownership of the conventional servicing strip are huge positives for Fannie and Freddie. For the record, we believe that the GSEs managed astutely as private conduits for conventional mortgages, are worth more than the WSJ  reports. One of the big unknowns for the GSEs, however, is whether the Trump Administration will narrow the credit footprint of the GSEs, shedding any “mission lending” in favor of going up market in terms of loan quality.  What is the average guarantee fee for the GSEs going to be post-release?  Will Congress still be taking 10bp off the top? Indeed, we still think that Fannie and Freddie will explicitly retain their servicing asset (MSR) post-release to offset the cost of the GSE tax by Congress. And remember, so long as the US owns at least 50% of the common shares of Fannie and Freddie, we don’t have to talk about that other favorite Washington idiocy, implicit guarantees. Once we go below 50%, then Moody’s will rate Fannie and Freddie as private finance companies, not sovereign credits as today.  Indeed, our expectation is that a fully privatized GSE market will have an implicit guarantee for the secured MBS, but not for either issuer. Think “A” for post-release issuer rating for both GSEs and no more housing mission, period. We’ve always said that an honest LO will first take a low income borrower to the FHA market, where the execution can be half a point below conventional mortgage rates. The loan level pricing adjustments (LLPAs)  of the GSEs, which value loans based upon FICO score and loan-to-value (LTV) ratio, make it absurd for policymakers to pretend that the GSEs can perform a “housing mission.”  The FHA does not risk price loans. They just buy everything and let the good loans subsidize the bad.  Ginnie Mae only charges 6bp to guarantee an MBS. The GSEs charge issuers over 50bp to cover the loan and the MBS, including various “extra” fees for things like loan repurchase insurance.  How much will the GSEs charge issuers post-release? That is the question. The big risk to the GSEs is that the conventional market is being squeezed by inflation from above, while affordability pressures are forcing low-income borrowers back to the FHA market and Ginnie Mae. Banks led by JPMorgan (JPM)  and large investors in the credit and insurance sectors like Apollo (APO)  and PIMCO  are already buying larger loans above the conforming limit at prices where the private GSEs cannot compete. Meanwhile, the big competitive advantage of Ginnie Mae is pushing FHA/VA/USDA market share (28% today) towards 30% of all residential mortgages.  In fiscal year 2008, Ginnie Mae's market share rose to 18.8%. This was a significant increase from 4.4% in 2007. In 2008, Ginnie Mae also became the second-largest issuer of agency mortgage-backed securities as the big banks and GSEs stepped back from the conventional market. A couple of our past comments on the GSEs are below.  Update: Is GSE Release Really on Hold? https://www.theinstitutionalriskanalyst.com/post/theira740 Kamikaze GSE Release? Oh Yeah… https://www.theinstitutionalriskanalyst.com/post/kamikaze-gse-release Critiquing Bill Ackman Statement on GSE Release https://www.theinstitutionalriskanalyst.com/post/critiquing-bill-ackman-statement-on-gse-release 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.

August 11, 2025  | Premium Service  | This week The Institutional Risk Analyst is reporting from Los Angeles, where we are attending the Western Secondary Conference sponsored by the California Mortgage Bankers Association. Earlier in the summer, we noted that SoFi Technologies (SOFI)  was leading the bank group higher and that appreciation has continued unabated.  In fact, SOFI has outperformed Bitcoin by 3x over the past year even as other enablers of the coin craze soar. SOFI is up almost 300% while the Bitcoin futures traded on the Chicago Mercantile Exchange (CME) are up less than 100%.  As we told our readers some time ago, buying the enablers is more attractive than buying the tokens. Below we provide some thoughts on the banking group as we head into September.

August 7, 2025  | Premium Service  | Events over the past week make it pretty clear that the global economy is slowing down, this after several years of defying gravity. What is truly remarkable, however, is that the prediction of our friend Stan Middleman , founder and CEO of Freedom Mortgage, about a housing reset in 2028 following a cut in interest rates by the FOMC is looking more and more prescient.  Get a signed copy of " Seeing Around Corners " while they last! A reader of The IRA  named Daniel had this to say about our 2024 biography of Mr. Middleman, “Seeing Around Corners,” in an email last week: “What I found remarkable is the balance you achieved: it's a compelling and inspiring life story of Stanley Middleman—one of resilience, foresight, and overcoming adversity. At the same time, it's an insightful and technical dive into the mortgage industry and U.S. financial history. You manage to bring clarity to complex topics without losing the human side of the story. Most importantly, you convey the central theme—what it really means to “see around corners”. You show how Stanley’s life and business success was not just about hard work or technical expertise, but about his unique ability to anticipate the non-obvious, to sense what others didn’t see yet, and to act with vision and courage.” Below we update our Premium Service subscribers on the markets and some changes in our risk portfolio. Suffice to say that while the economy may be showing signs of growing stress, the bid for risk assets and particularly income-producing assets remains quite brisk. There are literally dozens of nonbank issuers accessing the debt markets well-below double digit yields.

August 5, 2025  | Last week’s negative jobs numbers caused a small rally in bonds and suggested that President Donald Trump may get his way on interest rates sooner rather than later. The resignation of Governor Adriana Kugler gives President Trump an open slot to appoint a new chair and completely changes the tactical situation vis-a-vis Chairman Jerome Powell . "Trump alleged without proof that Kugler resigned over a disagreement with Powell on interest rates," reports Jeff Cox of CNBC . "Trump added that he was 'very happy' about having a Fed vacancy to fill." One asset class greatly impacted by actual or perceived changes in interest rates is that naturally occurring negative duration  asset, mortgage servicing rights (MSRs).  Once upon a time, housing was the chief conveyor belt of monetary policy, but no more with the Treasury adding new debt at $500 billion per quarter. As the chart below suggests, the payment intangibles known as MSRs owned by banks are currently changing hands at 6x annual cash flow, but a change in short-term interest rates by the FOMC may change that – or not.  Notice where MSR multiples were in Q1 2020, almost half of today's bid side. Figure the fair value of the MSR is 2% of the UPB, in case you're wondering. But is a fair deal a good deal? Source: FDIC/WGA LLC If the FOMC drops the target for fed funds 50bp in September, as our friend Kathleen Hays  suggests in a recent interview, how should PennyMac Financial (PFSI)  and Bayview  et al manage their considerable portfolios of MSRs?  Should operators in the mortgage industry and their Buy Side partners lean into a bond market rally and sell before prepayments decimate asset values?  Or should we retain the servicing asset and merely amp up the long duration hedge on $9 trillion or so in unpaid principal balance (UPB) of MSRs owned by nonbanks?   Our guess is the latter scenario, BTW. We think LT interest rates may not follow fed funds lower, especially given yesterday's market action and the looming Treasury cash build. While MSR models may require mark-downs in valuations in Q3, say, after that 50bp rate cut, the actual prepays on these assets may underperform the model, causing mortgage firms to true up their ersatz financials in Q4 and 2026. The average APR for 30-year fixed rate conventionals, Inside Mortgage Finance  reports, was 6.8% last week.  “Given that rates have already declined following the softer jobs report, a surprise 50bp cut in September would likely have a more muted impact on the front end of the curve, though it could still drive short-term rates lower—particularly if the market views it as the beginning of a more aggressive easing cycle,” Mike Carnes at MIAC tells The Institutional Risk Analyst . He continues: “Long-term rates could move in either direction depending on how the cut is interpreted. If it's seen as a preemptive step toward a soft landing, we might see curve steepening. But if it signals deeper concerns about growth, long-end yields could decline further—and my guess is the market would lean toward the latter. From an MSR perspective, much of the value impact may already be unfolding, but a 50bp cut would likely push CPR expectations higher, especially for more recent originations.” The complicating factor in the analysis of interest rate movements is that the US Treasury is about to increase its borrowings rather considerably to regrow the government's cash position ( blue line in chart above, right scale). Treasury is going to put the cash balance in the TGA back to February 2025 levels ( red arrow). Notice that during the initial setup of Trump II, Treasury "allowed" its cash balances to drop dramatically, a pretty blatant (and pathetic) attempt at yield curve control that worked not at all. The dark red line at bottom of the wonderful chart from FRED is reverse repurchase agreement (RRPs), essentially a competitor to and substitute for Treasury bills illegally issued by the Fed. Given that the Fed rationalized the massive expansion of the balance sheet and attendant losses since, engaging in RRPs was an easy leap of faith. The Vatican-like expansion of the Fed's HQ should put to rest any doubt as to the location of the key agency in Washington. John Comiskey  notes on Substack that the Treasury's marketable borrowing will be $1 trillion in Q3 2025, half of which is new financing need. Treasury is adding almost $400 billion to the Treasury General Account at the Fed, which is fully collateralized by US Treasury bonds. Cash at the end of Q3 and Q4 will be over $800 billion held in the TGA at the Fed. And no, the Fed does not pay interest on the TGA, but it does remit the interest earned on the Treasury collateral back to Uncle Sam, net of the Fed's operating expenses and trading losses. The two charts below come from SIFMA and show fixed income issuance and trading volumes through Q2 2025. Imagine how these great SIFMA charts will look with Treasury adding $1 trillion in new issuance, and the Fed running off the system open market account a modest (SOMA) $15 billion per quarter.  But if we get that 50bp rate cut and the 10-year Treasury does rally say below 4% on 10s, then we get another sudden bull market in all manner of assets, from resi mortgages to high-yield securities to commercial mortgages. Some CRE managers may start to appear solvent again. A bull market in issuance will be a bear market for MSRs, especially if we see conventional loans fall down below 6% yield. FHA and VA loans, keep in mind, already have yields a half point or more below conventionals. In the event, we can expect a surge of prepayments on existing assets and an equal surge in the creation of new MSRs from that new issuance. Long hedging of MSRs will surge, margin calls will be made and met, and forward sales of TBAs will balance it all out. But more to the point, given the federal budget deficit and the debt, should not we assume that short and long-term interest rates are going to be managed down in a return to financial repression?   For the Fed, the challenge continues to be managing the floor of interest rates in a market where the Treasury is the largest issuer and the majority of new issuance is in short-duration assets. The preference for T-bills on the part of Treasury Secretary Scott Bessent  is essentially a given, thus we think that our readers should assume that the markets will see a substantial rally in short-term assets, even beyond the market move already seen. Fact is, at the close on Monday, the 10-year Treasury note was yielding 4.25%, a very modest rally from Friday given that a Treasury refunding looms.  Some observers have indicated that the growth of speculation in crypto assets will somehow benefit the Treasury. No, crypto rides on the carcass of the old world, like some exotic alien parasite out of the 2012 Ridley Scott film "Prometheus." The fact of stable-coin issuance is likely to boost demand for high-quality liquid assets, but many of the nouvelle issuers of coin are not averse to placing customer deposits with offshore banks. Take a look at the public filings of the listed coin enablers and look where they deposit client funds. Of course, it is one big global dollar market when you are pursuing yield. There are other aspects to the growth in stable coins that may be detrimental to demand for Treasury collateral. Bill Nelson from Bank Policy Institute: “In late April, the Treasury Borrowing Advisory Council briefed Treasury officials on the state of markets and on two special topics, one of which was how growth in stablecoins would affect the demand for Treasury securities. Unfortunately, the briefing missed half the story. While the TBAC told Treasury that growth in stablecoins would increase the demand for Treasuries, they neglected to account for the reduction in demand for Treasuries caused by the shift out of bank deposits, money funds, and currency. While the TBAC reported that demand would increase by about $900 billion, the offsetting shifts would be considerable, possibly resulting in a net decline in demand of around $100 billion.” If the FOMC is worried about defending the positive floor for short-term interest rates given the borrowing needs of the Treasury, the proponents of crypto assets are searching for new and innovative ways to support the ceiling on prices for a growing variety of crypto tokens. The fact that prices for crypto assets are being supported by new stock issuance via SPACs and other vehicles should be cause for concern. Cash is raised, worthless tokens are purchased, and the sponsors of the tokens take the cash and the carry on the fiat assets. Source: Backtest In the last 13 years, the Bitcoin index (in USD) had a compound annual growth rate of 99.25%, a standard deviation of 150.77%, and a Sharpe ratio of 0.82, Backtest reports That last metric is actually quite mediocre, but the holders of tokens don't care because they act within a self-reinforcing group. The fact that the standard deviation is larger than the annual growth rate is also indicative of a volatile asset with no intrinsic value. But if we focus on the period of quantitative easing, 2020 through 2022, notice that Bitcoin did very poorly in a low rate environment. And that is precisely where we are headed. Our worry for the future is not that the Treasury market is going to collapse or stocks will implode. Notice that the markets have been largely stable despite a pretty grim set of numbers from the BLS. No, our worry is that another financial debacle a la FTX will surprise the markets and send short-term rates falling as investors run for cover. The number of very late people including the Trump clan running into Bitcoin and other tokens over the past year only makes us realize that there is nothing new in the world of finance. Had great operators like Jim Fisk and Jay Gould traded crypto tokens like Bitcoin over the past decade, they'd have gotten out in 2014. 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.

This comment was originally published in The Daily Reckoning . August 4, 2025 | With the Trump Administration headed down the road to higher inflation and the political chaos that results, it is worth asking why there are “only” $4 trillion in notional crypto tokens, this according to the Financial Times . The rise of bitcoin and other ethereal instruments evidences a strong desire on the part of many Americans to escape a sinking ship, but also confirms the love for creating new games to enable speculation. Are the crypto tokens really a way to avoid the demise of fiat dollars? As we noted in a recent comment in The Institutional Risk Analyst , the best returns in crypto at present are found investing in the stocks of some of the enablers. The fact that these new companies may or may not be stable businesses long term does not matter in the speculative environment that currently governs Wall Street. We are particularly fascinated by the idea that a crypto firm can generate enough revenue to survive as a bank. Robinhood Markets (HOOD) , for example, is up almost 500% in the past year, proving that there is a lot more leverage for investors in the facilitators of speculation in crypto and stable coins than in the tokens themselves. Crypto laden “special purpose acquisition companies” (SPACs) and various new, “Level 2” token games linked to existing crypto “markets” are the hot ticket today. But the larger query, beyond the issues raised by bitcoin and substitutes, is the question about the nature of money. In my new book, “ Inflated: Money, Debt and the American Dream, ” author James Rickards notes that Americans “no longer know what money is” and have replaced “money with moneyness.” He then describes why money is one of the foundations of civilization. “Money is not the point of civilization and it’s far from the most important feature,” Rickards argues. “Still, it’s part of the bedrock and performs crucial roles. Money is an advance on barter. Money is an alternative to violence. Money facilitates commerce and investment, and acts as a store of wealth. Money is among the institutions, along with law, religion, and the family, that enable civilizations to be civil and avoid a Hobbesian war of all against all.” Despite the fact that President Trump wants to make America the crypto capital of the world, and even threatens to open retirement accounts to these speculative notions, the rest of the world is migrating away from dollars back to the only true form of money that is not some form of debt, namely gold. Perhaps the most significant trend is the increasing purchases of gold by global central banks. On July 1st, 2025, Basel III banking regulations officially reclassified physical gold as a Tier 1 asset, specifically a high-quality liquid asset (HQLA). This means that U.S. banks can now count physical gold at 100% of its market value towards their core capital reserves. Previously, gold was considered a Tier 3 asset, requiring banks to discount its value. But what is the proper discount rate for crypto and stable coins? A stable coin is a ridiculously expensive prepaid gift card. A stable coin, for example, backed by fiat dollars, does not change your fundamental economic and financial risk from holding dollar assets. You basically pay for the privilege of using a stable coin. The public mania around stable coins is the latest evidence that humans are incapable of making rational decisions when they are part of a crowd. Long-term, we should view stable coins as marketing tools for large advertisers to acquire and retain customers. A stable coin backed by yen or swiss francs, for example, is a very different proposition in terms of managing dollar risk, but such instruments also may fall afoul of state and federal securities laws. So how do individuals and countries protect themselves from the slow but inevitable decline of the dollar as the world’s primary money? Owning gold or at least having exposure to the price of gold are perhaps the best options, The physical metal is independent of the fortunes of state put, yet as we learned in the 1930s, gold is vulnerable to confiscation. More important to the analysis, however may be that fact that so few investors have yet to rebalance their portfolio to reflect the opportunity presented as gold resumes its role as the world’s primary reserve asset.How much is the current allocation to gold by global investors? “My rough guess, excluding central banks and physical gold in private hands, would be maybe 1% of portfolios globally and perhaps half of that amount for US investors,” notes Henry Smith , Director and Investment Manager, The Keep Fund Ltd. a Bahamas SMART Fund investing in the precious metals complex. “In your grandfather’s day, a trust portfolio would be 10% minimum in gold. We’re headed back there. That means we’re headed to five digit gold and three digit silver.” Other mainstream analysts agree with Smyth’s prognostication. “Earlier this year, we examined the structural shift in gold’s demand and geopolitically influenced pricing drivers fueling its rebasing higher, ultimately posing the question if $4,000/oz is in the cards,” said Natasha Kaneva , head of Global Commodities Strategy at J.P. Morgan, in a June 2025 research note. “To answer the question — yes, we think it is, particularly now with recession probabilities and ongoing trade and tariff risks. We remain deeply convinced of a continued structural bull case for gold and raise our price targets accordingly,” Kaneva added. The reason JPMorgan is right and, indeed still too cautious on their gold outlook is that the usage of gold as a reserve asset, legal tender in contracts and collateral for financial transactions is growing, yet this is a gradual process. The narrowing of the market for US Treasury collateral as central banks reduce their purchases in favor of gold is still not top of mind – yet – for US investors, but higher interest rates for LT Treasury paper will end that lethargy. One of the chief reasons to be bullish on gold and negative on the dollar is that there is so little deliverable gold available. A lack of deliverable gold supply can create upward pressure on prices, but other factors like demand fluctuations, market sentiment, and the role of gold as a financial asset significantly influence its short-term price. Even with limited physical supply, demand and overall market conditions can moderate price increases. “De-dollarization — a theme among foreign reserve managers and investment institutions who are typically slow to act — is a misnomer as it’s highly unlikely anyone is seriously considering of fully divesting themselves of US assets, argues Simon White of Bloomberg . “But the evolution of events this year has led many foreign investors to consider reducing their exposure to the US which had already grown imprudently large. This will take time to show up in the data.” Editor’s note: find more of Chris’ writing at his website, The Institutional Risk Analyst . Chris is also a frequent guest on financial shows and podcasts. Search him up on Youtube and you’ll find plenty of great content. 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July 31, 2025  | Premium Service  | When Pinnacle Financial Partners (PNFP)  announced an all-stock transaction last week to acquire Synovus Financial Corp. (SNV) , initially we were unimpressed. The markets sold off on the news and there then followed a series of stock downgrades and credit rating agency actions that were disconcerting to put it mildly.