October 26, 2026 | On October 23, 2026, UWM Holdings Corporation (“UWMC)) issued a press release and posted an investor presentation announcing selected preliminary financial results for the quarter ended September 30, 2026. Several weeks earlier, UWMC had filed a free writing prospectus (FWP) related to the approaching $400 million rights offering. Source: EDGAR In this issue of The Institutional Risk Analyst, we provide some thoughts on the limited UWMC pre-release of Q3 earnings, both for what it says and what it does not say. Right off the bat, the FWP from September and the October investor presentation represent a tale of two companies, a radical change from the bad old days before June of this year. The UWMC stock bounced on Friday to $1.40 vs $1 a week before, but can the markets move to the key threshold of $2 given the limited disclosure and some inconsistencies that we discuss below? The contrarian in us thinks that there may be more upside in UWMC that many realize, as we discuss below, but remember that this is a loss leading non-bank mortgage issuer that is in the process of making significant operational changes. Under the rights offering, UWMC is offering 200 million Class A share rights at the great of $2 or 85% of the weighted average price for the previous 10 trading days. UWMC CEO Mat Ishbia has committed to exercise his rights with respect to 408,131 shares he owns in a personal capacity. The disclosure indicates that based upon the share price, “it appears that material subscription from outside investors is unlikely.” This means that assuming that Brookfield (BN) unit Oaktree Management does not participate, Ishbia’s holding company SFS must take up the rest of the offering or lose control of UWMB. The rights offering expires 11/12/26.

In this special edition of The Institutional Risk Analyst, we provide a setup for the latest episode of “The Wrap” with Chris Whalen” hosted by Julia LaRoche. Each week we ponder developments from Washington & on Wall Street and provide some badly needed context for our viewers. Pump & Dump: Treasury Secretary Scott Bessent told Mark Halperin in a 10/20/26 exclusive interview that “the Trump administration "will be tackling the ownership structure" of Fannie Mae and Freddie Freddie in "the next year [or] the year after." The stock prices of both GSEs soared briefly during the week and then retraced, providing a ST trading opportunity to hedge funds. Secretary Bessent continued: “It's unclear why homeowners or mortgage holders would benefit for a change in the arrangement of the shareholder structure. So whatever we do is going to be guided by making sure that the spread on mortgages ... does not increase; that's our North Star." Sounds like nothing is gonna happen despite the market kerfuffle. LT Interest Rates: The U.S. 10-year Treasury yield dropped this week, falling from roughly 5.15% down to just below 5% on Thursday amid mounting concerns over AI valuations and the Iran war. We wrote positively about the 10-year Treasury note and earnings reports from AGNC Investment Corp (AGNC) and Annaly Management (NLY) in The IRA this week. "Treasuries are set to keep falling out of favor as an equity hedge in 60/40 portfolios amid a return to a persistently elevated inflation regime," wrote Simon White in Bloomberg. "A few weeks ago I showed that when 10-year yields remain above 5.25%-5.50%, the correlation between stocks and Treasuries has almost always been positive." Gold vs Treasuries: Gold prices dropped by about $163.20 per troy ounce (-3.88%) over the past 5 days, falling from approximately $4,204.50 on October 16 to $4,041.30 on October 22, 2026. Investors continue to rotate toward U.S. Treasury paper and away from gold amid market flows. High interest rates weigh on mostly non-yielding assets like gold ahead of upcoming Federal Reserve meetings, yet precious metals and strategic commodities such as copper remain in short supply. Meanwhile, global central banks continue to add to gold holdings and are largely indifferent to price. Affordability: Oil prices surged to a five-month high as the US and Israel reportedly consider more strikes against Iran after the midterm elections. U.S. retail diesel fuel prices have jumped significantly since June 2026, rising from an average of roughly $5.06 to $5.35 per gallon in early-to-mid June to $6.276 per gallon by October, according to the U.S. Energy Information Administration (EIA). Grocery prices are up about 2% in the past 12 months, but restaurant prices are up twice that amount. Good news: Natural gas prices have dropped roughly 19% to 24% compared to the same time last year, and feature futures are trading around $2.78 to $3.58 per MMBtu (down about 40% from the high start of the year near $4.69–$7.72/MMBtu). Foreclosures: Auction.com shows foreclosure sales volume increased 25 percent from a year ago, rising to a new post-pandemic high but still 29 percent below the Q1 2020 pre-pandemic level. FHA-insured and recent-loan vintage (2022+) foreclosure auction volume both up 73 percent, Q3 FHA volume was 17 percent above its pre-pandemic level in Q1 2020 to the highest volume since Q1 2019, and bank-owned (REO) auction volume was up 18 percent from a year ago but is still 49 percent below its Q1 2020 pre-pandemic level. Money Politics: Media mogul and former NYC Mayor Michael Bloomberg sent about $80 million to Democratic causes in September and October, with at least $50 million aimed at House races and roughly $10 million more on the way, according to figures his team gave The New York Times. But veteran Democratic political operative Joe Costello opines that the NYT amusingly noted the one political entity in the country more unpopular than Donald Trump is the Democratic party. Whatever the upcoming election’s outcome, that fact will be a weight on the results. 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.

October 21, 2026 | This edition of The Institutional Risk Analyst is the 900th comment since we resumed publication in March of 2017. The Institutional Risk Analyst was founded in 2003 by Dennis Santiago and Christopher Whalen as the voice of Institutional Risk Analytics. The publication was served off a custom SQL engine on a terrestrial server cluster located in the back of an old semiconductor fab in Hawthorne, CA. In this issue, we start with a contribution from our friend Ralph Delguidice on a question that is top of mind with many people, namely is this time to be a buyers of Treasury bonds. Now that LT interest rates have seemingly peaked and equities are losing steam after a couple of years of supercharged performance, are bonds a buy? Then we take a look at the earnings from AGNC Investment Corp. (AGNC) and Annaly Capital Management (NLY). Ten Reasons to Like 10-Year Bonds The Wall Street narrative still says that the Fed is fighting inflation, but we continue to believe that a slowing economy will force the FOMC to ease ST interest rates next year. But how low can interest rates really go if the Fed is not buying notes and bonds for the system open market account (SOMA)? Ralph Delguidice offers these 10 reasons why the 10-year Treasury note is attractive. 1. Where else do you go? France? Japan? 2. Blue Wave coming. Bonds LOVE gridlock 3. There is no inflation 4. Energy is higher, along with food, but core is not. 2.6% today. No pass through 5. Wages are FALLING. No pass through 6. Shelter is 30% of the indexes, it is falling (in realtime). Ignore model lags 7. Warsh did his perfunctory freshman tightening, he is done 8. Hyperscalers are crowding high grades out AND suggesting deficit friendly growth, they are done 9. CCC spreads are exploding wider 10.Bessent is going to take a page from Yellen and shift issuance to the front end. EVERYBODY is short. We particularly appreciate Ralph's comment about the market being short, whether they know it or not. The obvious question is how low can Treasury 10s go in a rally? Ralph: “Back to reals of 1%. So 4% on 10’s seems about right.” To us, the range for a bond rally really depends on the reason for the rebound. If we see a steady but predictable correction in stocks and no systemic event appears on the horizon, then the answer is perhaps half the distance to the lows seen in early 2026. We priced a 30-year fixed rate mortgage with Freedom Mortgage at 5.875% in early March and 10s only lingered at those levels very briefly. If the reason for the bond rally becomes more pressing, however, then yields on 10-year Treasury securities could easily retrace back down to 4%, but also probably not linger at those levels for very long. The damage done to the Treasury market by the team of Trump & Bessent is considerable and inflation for energy, food and many other necessities is going to be an issue for consumers residing in the bottom of the “K” in 2027 and beyond. “As stated earlier, I do not believe that last week’s escalation in said “Momentum” / “Trend” -reversals was a capitulative narrative pivot into some sort of “Growth Scare / Recession” -outlook as “Chalk” / the base-case just yet,” notes Charlie McElligott at Nomura. “However, we could absolutely still get to that “Growth Scare” place in short-order, IF said higher Rates, wider Credit Spreads and sticky Energy prices / ongoing shortages in Refined product could suddenly lead to sharply more restrictive FCI, in-turn creating the dreaded “Demand Destruction” -scenario in the US Economy…” We think that demand destruction will ultimately make the FOMC pivot and ease in 2027 – even with a $2 trillion fiscal deficit. The Fed will ultimately restart QE to monetize the federal debt. AGNC & Annaly To get a sense for the kind of price volatility you can expect to see from Treasury 10s, take a look at the response to the earnings release this week from AGNC. The REIT reported a sizable decline in book value, which resulted from rising interest rates and an inadequate hedge.

October 19, 2026 | Last week, readers of The Institutional Risk Analyst doubtless noted that as the great circular Ponzi scheme known as “AI” was sagging, viola, LT interest rates fell. Some observers ascribe this phenomenon to a “flight to quality,” at least in relative terms, as prices for Treasury debt and other “risk free” assets rose due to investor demand. The charts below show the 30-year Treasury bond yield minus SOFR (h/t David Kotok). AI-related and technology stocks suffered steep declines during the week ending October 16, 2026, driven by rising borrowing costs, heavy debt loads from data centers which may never be built, and rapidly cooling profit expectations. The Philadelphia Semiconductor Index (PHLX) plunged 11.4% for the week after an eight-session losing streak—its worst weekly performance since April of 2025. All of this confusion says to us that the real risk from AI is not that a rogue computer will destroy the world or display your confidential financial data on X. The clear and present risk from AI is that the greed and stupidity of the promoters is literally crowding out other legitimate needs for capital, including financing the federal budget deficit. The chart below from SIFMA shows overall fixed income issuance through September. Notice that Treasury issuance is relatively flat but corporate debt issuance was surging. In classical terms, economists often worried that government debt issuance would “crowd out” legitimate private sector capital needs. The advent of AI, however, presents us with a different problem, where the unbridled avarice of the global investor class is allowed to run wild. Keep in mind that much of the promised “revenue” from AI is fanciful at best, thus the stock offerings and debt issuance predicated on these absurd projections of revenue and income are very probably tainted by fraud. The term "circular fraud" or "circular financing" in AI refers to an intertwined loop of investments, purchases, and revenue recognition where the same money moves in a circle between a small group of tech giants, chipmakers, and AI startups. Most legal and financial analysts note that these transactions are technically legal vendor financing rather than illegal "round-tripping" (as in the case of Enron or 777 Partners, for example). Critics call it a structural or functional fraud on investors because it manufactures the appearance of customer demand rather than organic, bona fide end-user profitability. We previously noted the example of private equity investors in AI ventures being compelled to purchases services from the target in order to bolster post-money valuations. This is simply a continuation of the incestuous habits of private equity bankers who buy loss leading portfolio companies from one another to window dress the "implied" valuations of their mistakes, this even as they continue to earn fees. When you see PE funds sprouting "continuation" vehicles, that is your signal to demand early redemption. “Imagine a company that sells you equipment, invests money in your business, and then rents back what you build with it. It’s your supplier, your investor and your customer all at once,” notes Ruipeng Liu in a post on Open Forum last week. “That’s known as circular financing. Many artificial intelligence (AI) companies, including Microsoft, Amazon, Google and Nvidia, have adopted a version of this opaque method of financing.” With the effective end of Trump II roughly two weeks away, the reason for the weakness in AI stocks is apparent. So long as the Grifter in Chief was in control of both houses of Congress, the promoters of AI investment schemes could misbehave with impunity. With the prospect of a Democratic win in one or both Houses of Congress, however, the political scales are tilting against AI. Indeed, the surge of cash into Democratic fund raising coffers over the past 30 days tells us all that we need to know. The good news of sorts is that the deflation of the AI financing bubble will probably see a continued decline in LT interest rates. If you work in banking or residential mortgages, the deflation of the AI bubble is very good news. For the past six months, LT interest rates have been pushed higher by the surge in financing for AI-build outs, both public and private, and also the interest rate hedging that finance providers have put in place to protect them from adverse market moves. As the AI craze has cooled, LT interest rates have fallen. Source: dataQollab Over the past 24 months, tech companies, data center operators, and infrastructure providers have raised hundreds of billions of dollars in debt to finance the artificial intelligence or AI boom. According to estimates from Goldman Sachs (GS), AI-related debt issuance reached nearly $500 billion in 2026 alone. But when we combine the sales of Treasury and other risk-free debt to hedge these exposures via interest rate derivatives, the numbers go into the trillions. Interest rate swaps written by GS and other major banks have surged since the end of 2025 as shown in the chart below. Notice that Bank of America (BAC) is leading the pack, but Wells Fargo (WFC) is sitting out the AI party. Source: FFIEC In 2025, Big Tech and AI-adjacent firms raised a record $108 billion to $220 billion in corporate bond and debt markets (more than triple previous historical averages). Major "hyperscalers" (such as Amazon, Alphabet, Microsoft, and Meta) account for roughly 40% of this debt-raising wave, while the rest comes from specialized AI infrastructure players, "neoclouds" (Don't you love these idiotic AI hype labels?), and project-finance special purpose vehicles (SPVs). To repeat, Mickey Maini, author of The Entropy Trap: What Physics Knows That Markets Don’t, noted in a September 2026 interview in Gulf Business, “the compute will outlast some of the balance sheets financing it…” AI is not going away, but a number of the organizations that have tried to acquire a pole position in the race to true commercial viability may be annihilated. Call it "creative destruction" but some investors could suffer significant losses in the process. It may still be too early to pick winners and losers in the great AI race, but the selloff in AI stocks over the past month promises to increase visibility into this Darwinian process. In less than a month between mid-September and mid-October 2026, several major AI-related or "ecosystem-adjacent enterprises" have publicly announced delays or withdrawals of their initial public offerings (IPOs) as investors push back against sky high valuations. Does the unwind of the AI bubble threaten global markets with a systemic event? That all depends on whether you are surprised or not. 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.

October 16, 2026 | In this special edition of The Institutional Risk Analyst, we provide a setup for the latest edition of “The Wrap” with Julia LaRoche and ponder the week of news developments from Washington & Wall Street. Bread & Circuses: Taking a page from the playbook of Mexico's ruling PRI, President Donald Trump repeated his promise to give adult U.S. citizens a $5,000 cash "dividend" during a campaign event on October 12, 2026. He reiterated that the payout is contingent upon Republicans maintaining control of the House and Senate in the midterm elections. Bank Earnings: The largest banks reported generally strong earnings this week, but the stock market was unimpressed and sold off on the news. Of note, trading revenue is fading and residential mortgage originations declined in the third quarter at Bank of America BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC). One exception to the positive earnings picture was Bank of America, which suffered a setback when the bank revealed a $1.2 billion fine by regulators for anti-money laundering (AML) violations. The $2 trillion asset bank missed analyst expectations even after excluding the AML fine. These actions represent the third-largest penalty in Treasury history and the largest enforcement action penalty in the history of the Office of the Comptroller of the Currency (OCC). Gina Heeb of the Wall Street Journal reported that “weak earnings coupled with a fine has analysts pressing executives about whether there is more pain to come" at Bank of America. The answer is most certainly yes. As we have documented over the past few years, BAC is the worst performing bank in the top seven depositories by assets (“Bank Stocks Battered by Trump, Inflation and Interest Rates | BAC, C, JPM, WFC, USB, TFS, PNC”). Private Credit: Josh Wander, 777 Partners co-founder, yesterday pled guilty in Manhattan federal court to charges including wire fraud, securities fraud, and witness tampering, with maximum penalties of 20 years per count. Prosecutors had alleged that Wander defrauded investors and lenders of almost $500 million by sending doctored documents, misrepresenting asset ownership, and pledging the same collateral multiple times, while personally misappropriating $13.7 million from a lender. Artificial Intelligence: AI and semiconductor stocks experienced heavy trading and a sharp market-wide sell-off since mid-October 2026), driven by rising inflation data, rising borrowing costs and bond yields and concerns about the prospect of regulation of AI. Nvidia Corporation (NVDA), CoreWeave (CRWV), Broadcom Inc. (AVGO), Advanced Micro Devices (AMD), Micron Technology (MU), and Sandisk Corp. (SNDK) all saw significant declines over the past week. Zero Hedge notes: "There are 20 project-finance data center bonds in the junk bond market for $45.6 billion backing just over 4GW of capacity across eight tenants, with CoreWeave the tenant on seven of them and many already yielding in the low-to-mid teens..." "China’s overall sentiment toward artificial intelligence is characterized by high public optimism, strong state integration, and national pride, standing in sharp contrast to the more cautious or dystopian views often seen in the West," writes Artificial Inquiry. One veteran China expert, however, suggested to The IRA this week that “the Chinese won't escape 2027 without a major AI incident, at which point their views will shift.” Mortgage Meltdown: We reported on the Mortgage Bankers Association Annual meeting in Chicago this week and predicted more trouble for the industry ahead (“Mortgage Notes: Falling Volumes, Rising Defaults; Will UWMC Survive?”) Significantly, several prominent attendees are predicting falling home prices in 2027 and 2028, though less than we had previously expected. Gold: Over the past five trading days, gold prices experienced volatile, two-way trading driven by U.S. inflation data, volatile bond yields, and currency fluctuations. Spot and futures gold prices are hovering around $4,146 to $4,173 per troy ounce. Inflation: The September Consumer Price Index (CPI) report, released by the Bureau of Labor Statistics, showed headline inflation rose 3.7% year-over-year and 0.6% month-over-month, driven largely by a spike in energy and gasoline prices. Diesel fuel prices average about $6.30 per gallon according to data from AAA, up roughly 66% to 70% since the start of the U.S.–Israel/Iran conflict. Prices vary heavily by region, with states like California seeing retail averages surge past $8.00 a gallon, while Florida sits closer to an average of $6.12 a gallon. Recent Posts Joe Costello on Top Down Democracy; WGA Precious Metals Top 25 Mortgage Notes: Falling Volumes, Rising Defaults; Will UWMC Survive? 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.

October 14, 2026 | In this edition of The Institutional Risk Analyst, we return to the world of mortgage finance after spending two informative days at the MBA Annual in Chicago. The good news is that mortgage bankers, as always, remain upbeat about the housing market and the economy. The bad news is that most of the attendees know that the industry is facing a double digit decline in business volumes, rising delinquency and will be continuing to shed headcount as the year grinds to a close. One question that we hear a lot from mortgage bankers is about interest rates. As we noted in our conversation with Joe Costello (“Joe Costello on Top Down Democracy; WGA Precious Metals Top 25”), with the Fed no longer buying bonds via “quantitative easing” or QE, yields must rise. In round numbers, the Fed bought $10 trillion in Treasury debt and MBS from 2008 through COVID. The chart below shows the system open market account (SOMA). The red line is holdings of US Treasury securities and the green line is mortgage backed securities. "The CBOT Bond future is negatively convex such that a further rate rise could create the equivalent of Scott Bessent selling $110 Billion twenty-year bonds into the market," notes Harley Bassman of the Convexity Maven. "Most bond investors are familiar with the Negative Convexity of Mortgage bonds (MBS), but I suspect many buyers of US Treasuries via the futures market do not fully appreciate this risk." Another related question that we have also heard about from our readers is the impact of rising interest rates on banks. Total unrealized losses on non-equity securities held by banks peaked at $516 billion in Q1 2024 and has declined since then to $325 billion in Q1, but the unrealized losses have started to rise again in Q2 2026. Given the move in the bond market, we’d assume that unrealized losses will be higher in Q3 2026. Source: FDIC Rising interest rates are also having a negative impact on mortgage volumes, causing analysts to lower estimates for future lending activity. Some observers are expecting a large reset in home prices, but our friend Stan Middleman, founder of Freedom Mortgage, now says that higher interest rates and inflation are likely to keep prices for homes and other assets flat for an extended period. That’s right. Stan no longer sees a housing reset in 2028, mostly due to higher inflation from the Iran war, but instead sees housing and asset prices moving sideways until the FOMC moves to drop interest rates. Of note, MBA chief economist Mike Fratantoni had this to say about home prices at the press briefing: “We are worlds different from where we were a couple of years ago in terms of supply conditions, where we now have 10 months of supply in the new home side, approaching 5 months of supply in the existing side, time in the market is the same thing. So it really is, at best, a balanced market and more of a buyer's market naturally. When I look at particularly sort of top-level home prices, we've had two patterns in the past, right? One would be home prices run up, and then you have a long period of time where home prices are flat as incomes catch up. I think that's the most likely path that we're on. And then you have a significant correction to get them more in line with pricing. And I think that's what we experienced through the financial crisis. I don't think that's a likely outcome here, but that's the other way you get valuations to correct. But I think the most likely path is instead you have a long period of time where all prices are stagnant and incomes are rising fast.” The Mortgage Bankers Association research team is projecting a modest decrease in home prices in 2027 through 2029, again confirming the perspective of Freedom's Stan Middleman. The chart below shows the latest projections from the MBA. Source: Mortgage Bankers Association The rate on 30-year fixed rate mortgages fell last week, proving yet again that lenders set mortgage coupons and markets set bond yields. But bond yields are going higher because of the war with Iran ℅ President Donald Trump and Israeli PM Benjamin Netanyahu, a conflict that will drive inflation into double digits this year. Primary-Secondary spreads bottomed in January of this year, when most issuers were expecting lower interest rates. Bond spreads are widening as a result of the Iran war and absurd actions and statements by the Trump Administration. The economic and political consequences of these many acts of stupidity will be felt for many years to come. The chart below from FRED shows the yield on 30-year fixed rate mortgages from Freddie Mac less the yield on the 10-year Treasury note. We suspect that a future decrease in the suggested target for federal funds may not be enough to push down long-term interest rates. The Fed may be forced to return to QE, perhaps after a market “surprise” tied to the incestuous behavior fueling the growing AI bubble. Many AI companies in and outside the mortgage market raise private money at absurd valuations, then require the private equity investors to purchase AI services from the same company. This is the same circular, Ponzi-style finance that has been pioneered by Nvidia (NVDA). Billionaire hedge fund manager Paul Tudor Jones has warned that AI-related debt and spending could push financial markets to a breaking point. FASB Proposal on MSRs Another interesting topic of discussion at the MBA Annual was the proposal by the Financial Accounting Standards Board (FASB). which is considering an update to US accounting rules that would specify that an entity should include the value attributable to the potential recapture of a borrower through the extension of a new loan when measuring the value of the right to service a residential mortgage loan. The FASB proposal was reportedly pushed by PennyMac Financial (PFSI) and Rithm Capital (RITM), who want to see higher valuations for MSRs to help them maximize liquidity, especially in a declining loan market. But on the other side of this issue are the largest banks, who vehemently oppose the FASB proposal and say that any increase in the fair value of MSRs due to the inclusion of speculative estimates of recapture will be met with lower lending thresholds. We hear that during a conference call sponsored by the MBA, one of the four largest banks went completely irate over the FASB proposal and made it very clear that they will not tolerate any support for the proposal by the trade group. One bank that was on the same call said that it is “extremely unlikely” that the MBA or other mortgage trades will publicly support the FASB proposal and that the change will have no impact on investor valuations. “At the end of the day, the valuation of an MSR is about duration, not some speculative estimate of possible recapture,” one veteran mortgage banker told The IRA. “All of this fuss about recapture will have no impact on what investors are actually willing to pay for an MSR.” The same source notes that purchase mortgages are extremely difficult to retain, but customers who refinance mortgages tend to stay with their existing lender. Purchase mortgages are currently 75% of total volumes, thus recapture rates are likely to undershoot the inflated estimates used by auditors. Under GAAP, the job of an auditor is to determine what a willing buyer would pay for the MSRs, not necessarily what they're worth to the current servicer. That means that auditors can't base recapture assumptions on how successful a particular servicer has been at retaining borrowers. Investors with no interest in recapture will be indifferent to the adjustment and lenders, at best, are likely to ignore any increase in fair value blessed by the FASB. DSCR Sector Rolls Over One of the key revelations that we heard at the MBA Annual was confirmation of our earlier report that business purpose loans for rental properties are likely to be a considerable source of problems for the industry (“Mortgage Notes: Desperately Selling DSCR; Can UWMC Pivot to Stability?”). Roughly 30% of all non-qualified loans are debt service coverage ratio (DSCR) loans and the pricing for these assets is rapidly falling as lenders become concerned about credit quality. Several bankers at the MBA Annual told The IRA that credit is likely to deteriorate rapidly as the year ends. “We started at 120% debt service coverage for DSCR loans, then we dropped to 115% and 110%, and now we are seeing loans at 100% or lower,” notes a veteran warehouse banker who has cut off several lenders in recent weeks. “Some DSCR issuers are surprised that lender valuations have fallen from 102 down to well below par.” The hidden risk with DSCR loans is that these are commercial loans, so your typical residential loan servicer has no idea how to resolve delinquencies. The non-QM loan securitizations that often contain an ample portion of DSCR loans are typically serviced by mainstream residential mortgage firms, who generally lack the personnel and experience to resolve a defaulted business loan. Hint: confession of judgement. According to S&P Global Ratings, delinquency and impairment levels among Debt Service Coverage Ratio and non-qualified mortgage (non-QM) loans have been rising due to higher interest rates and tighter vintage performance, though overall loss severities remain contained – for now. The levels of fraud in DSCR loans are significantly higher than traditional residential mortgages. “Non-QM rate-lock volume rose 8% from August, according to Optimal Blue’s September Market Advantage report, even while total lock volume fell 2.1% month over month and 26.1% from a year earlier,” National Mortgage Professional reports. The bubble in DSCR and non-QM loans continues to expand even as the broader market retreats. As and when banks start to pull back from the non-QM market, a considerable rout will result. Is there a Bull Case for United Wholesale Mortgage? We predicted the collapse of United Wholesale Mortgage (UWMC) last year when we noted that the firm was running an operating deficit and CEO Mat Ishbia was selling mortgage servicing rights (MSRs) below cost to raise cash. This unsustainable business model ultimately forced the largest lender in the US to seek a $1.65 billion financial rescue from Oaktree Management.

October 12, 2026 | In this edition of The Institutional Risk Analyst, we circle back with our friend Joe Costello, veteran political analyst and historian. We updated the WGA Precious Metals Top 25 over the weekend and discuss the results and several changes below for subscribers to our Premium Service. We also include an audio download of last week’s Quarterly Call with subscribers. We first met Joe Costello through our common friendship with author and journalist William Greider. Joe publishes a must read blog appropriately entitled Life in the 21st Century. He has decades of experience in political campaigns, energy, environment, and communications. Joe is long a student of democracy, its demise, and possible revitalization. We spoke to him last week from his home on the South Side of Chicago about the upcoming midterm elections. Joe Costello on Top Down Democracy The IRA: Joe, thanks for taking the time. What have you been focused on as we near the midterm elections? Costello: It's been interesting with this bond stuff, you know, and interest rates rising, all the alarm. They're dribbling up by one basis point at at time. It's a weird situation. I don't know. It's very weird. You remember Paul Volcker. He was raising rates a percentage point every month. The IRA: Well, there's no tolerance for that today. There's no tolerance for that at all. With the Fed no longer buying bonds via “quantitative easing” or QE, yields and inflation must rise. In round numbers, the Fed bought $10 trillion in Treasury debt and MBS from 2008 through COVID. William Greider Costello: I started paying attention to markets and the economy politically because my first campaign in 1980, inflation and oil were the big issues. That's when I got in and I followed both of them for 45 years. But this is the first time I've seen a situation where there's a big chunk of people saying there's a bubble but interest rates are just crawling up. Everybody's freaking out because its not the Fed doing this. I don't know what it means yet. The IRA: Markets are in a panic for reasons that we don't want to talk about. Nobody in Washington talks about the budget deficit. The FOMC met last month and nobody in the room, governors or staff, attributed the increase in bond yields to the fiscal situation. We just don't talk about it. We’ve had a series of Fed chairs who refuse to go up to Capitol Hill and pound the table about deficits because the Congress doesn't want to hear it. Costello: I remember after 2016 election, when all the Democrats were freaking out about Trump, and rightfully so, but they created him. I said look, you guys can work with this guy. Trump doesn't give a shit about deficits. He'll spend, spend, spend. So you can get anything you ever wanted if you want to work with him. But of course, the Democrats didn't want to do that. The whole structure of politics has changed. The IRA: How so? Neither party is particularly democratic, but Trump certainly took the GOP by storm in 2016. Costello: Right. Right. It's all very crazy. For over 30 years, I’ve watched the American political process just fall apart. It’s amazing how centralized it has become. There's nothing from the bottom up anymore. It's all coming from the top-down, especially anything with Washington. The Democratic Party organizations – DNC, DCCC, DSCC – 30 years ago were not big organizations, but now they control everything and they control all the money. They control politics through the money. The body politic is like dead inert matter, which isn't good. The IRA: Politics has gotten to be like a bad cartoon. We grew up watching the Republican side of the equation with Richard Nixon, Gerald Ford and Ronald Reagan. Tell us what you think is happening and what's going to happen in November. Costello: If it was 30 years ago, November would just be a washout for the GOP. The Republicans would be killed. But I was just looking at the polls yesterday, both the parties are amazingly unpopular. Each one with a certain segment of the other’s base, especially unpopular, but then also, just generally very unpopular. So I don't know how that's going to play out. Since 1974, there's been three 50-seat House swings. The IRA: The last time a political party lost 50 or more seats in the U.S. House of Representatives was in 2010, when the Democratic Party lost 64 seats during President Barack Obama's first midterm election. Is this what we’ll see in November? Costello: I would say this could be very easily a 50 seat swing for the Democrats. The correlation between the House and the Senate is different, but it should be at least like six or seven seats for the Democrats in the Senate. I can't really say that for sure because, again, the Democrats are very unpopular. So, I don't know what, how that ultimately works out. The IRA: President Trump is on the campaign trail, trying to get out the base. Is that a positive or negative for Republicans? Costello: I think a lot of Republicans are going to sit at home. One thing I know for sure about American politics is that we should focus on the things that unite us. One of the things that unite us is Americans hate high gas prices. I mean, they hate it more than anything else. Is anything going to bring the price of gas down between now and election? The IRA: No, the Trump/Netanyahu war with Iran will probably means higher energy prices for years to come, especially gasoline, diesel and other refined products and also food. Prices for fertilizer, for example, are up dramatically and will probably cause crop yields to fall in 2027. We’ve laid this scenario out in gruesome detail with our friend John Dizard. How does the issue of affordability impact the elections? Does the Republican advantage in cash matter? Costello: Money has limited utility. In 2020, the Democrats spent $60 million trying to unseat Senator Susan Collins in Maine. They ultimately left $10 million on the table because they couldn't buy any more commission-based advertising. They left $10 million on the table and they lost. The Democrats got 350,000 votes with $60 million. Last cycle, in 2024, with Senator Jon Tester in Montana, the Democrats spent $100 million on that election, got 250,000 votes and lost to Republican Tim Sheehy. The IRA: Those are two striking examples. Does money matter or is the decisive factor something else? Costello: That's the system. In the 1980s, the fundraising people never had a lot of political clout. Just go raise the money, don't tell us your political stuff. But now everything's run by who raises the money. Look what happened in 2024, there was a donor-coup against Biden. I always told people that you just got to raise enough money to do what you need to do. You don't need to raise any more than that. More money doesn't matter. Attack ads have limited impact. People get overloaded with this stuff. So it's very hard to kind of crush someone just with a bunch of 30 second ads. It's kind of like air-bombing Iran. But if you don't have enough money to do what you need to do, then the money advantage is really going to kill you. It's always nice to have more money than the other guy, but you don't need it to win. The IRA: Who do you think the Democratic Party comes up with in terms of a Presidential candidate? Do we see Rahm Emanuel? He’s one of the few centrist Democrats who might have a chance at the Presidency. Costello: I don't think Rahm will run if JB Pritzker runs and I think Pritzker is going to run. That cuts into a lot of Rahm’s money it's a lot of his Illinois based money. Rahm and Pritzker are both products of money politics. The IRA: Is Pritzker even viable? His chief accomplishment seems to be raising taxes and chasing the Chicago Bears to Indiana. Costello: Pritzker thinks he's viable, he's going to have a lot of money. But I think the door is open for someone from the outside to run against the Democratic establishment. We've talked about this before. The Republicans turned against their establishment in the 1990s. It was kind of an outgrowth of Reagan. And Pat Buchanan did what he could in 1996. He’s the one who first became aware how much the Republican base hated the party establishment. He correctly noted the Republican base had not long before that all been Democrats! The IRA: Reagan was a Democrat who switched to the GOP over taxes. Costello: Trump ran against the Republican establishment in 2016, following the path of Ross Perot and Buchanan. He ran against the whole Republican establishment. If you go back to 2016, I had been working in Africa, Nigeria and Tanzania, for a year and half before and got back and started watching those primaries. I would watch Fox News especially, because every time Trump won, their faces would drop. Everyone forgets that Fox was not for Trump in the 2016 primaries. And he kept winning. Trump was the guy from the outside who took over the Republican Party. The IRA: So is the opportunity on the Democratic side similar? We have a hard time seeing JB Pritzker as an insurgent. Costello: Right, no. I just brought up Pritzker because I can’t see Rahm running if Pritzker gets in, though none outshine Rahm’s narcissism. I think the opportunity is there in spades for someone in the Democrat Party, someone who nobody knows, who comes from the outside and just goes against them all, they could win it. The IRA: No, of course. The money comes from the same source. But Rahm is the only Democrat we can see with the potential to be a centrist and win the Presidency. Kamala Harris is a disaster. And then there is Bernie Sanders? Costello: Bernie poses as being from the outside, like the quote unquote "socialists," yet all have a hard time really going against the Democratic establishment. Once they win, they want to pal back with DC, that’s why Bernie Sanders is just a ridiculous figure. He's one of the most ridiculous figures in American politics, which is saying something these days. The IRA: But he's running against AI, you know? He wants to have a moratorium on AI to save our children and our jobs from AI, right? Costello: Bernie and Trump actually have a lot in common. Both offering people money for votes. Bernie's an old New Deal liberal, that's where I came from, not quite as old. He has some probably red diaper thing about not letting go of the word socialism. Bernie’s done a real lot of harm with it, especially in constraining the thinking of too many young people, when its imperative they be politically creative. Then you get Bernie talking about AI. It's like, give me a break. Bernie knows nothing about technology. He shouldn't be saying anything about it. God knows who Bernie has telling him what to say. What he said about AI was just beyond meaningless. The IRA: A lot of political candidates in both parties are running against AI. Costello: Correct. One of my sisters has a house in southern Michigan, just above South Bend. The county went 70% for Trump in 2024. All of a sudden this rumor started going around, and it wasn't a rumor, that a data center was supposed to come. I helped my sister organize her community. I advised don’t be adversarial, go to the township and say, “You’re our elected representatives, we don’t want this.” Get a 100 people at this next township meeting and they did. They got 150 at the second one, and 250 at the third meeting, where a one year moratorium was unanimously passed in a process that took not much more than three and half weeks. The IRA: That is impressive. Costello: Truly, for an old hack like me it was incredible experience, inspiring really. Just like that the data center was killed by ordinary citizens of all stripes, in a county that's majority Republican far and away. If we have any hope of restoring and reforming democracy in America this is how it’s going to happen, from the bottom-up, really the only way its ever happened. The IRA: So maybe affordability and data centers are the hot issues in November. Who do you think gets the Democratic nomination in 2028? Costello: Yes, AI is just exploding politically and its only going to get bigger, really an issue like I’ve never seen. Then you have inflation, oil, and Iran, so we’re back to 1980, how did the incumbent party fair then? Honestly, I don’t know about 2028 president, either party. I think it’s as wide open as it’s ever been. I think the money people will be split, so it opens the door for someone from outside. I can tell you what the message is, “Come home America.” Power needs to devolve from DC, and out Reagan, Reagan. Power needs to go not back to the states, but to the local. People need to reclaim being citizens. The IRA: Thanks for your time Joe. The WGA Precious Metals Top 25 We updated our previous metals surveillance group over the weekend. The latest results are on The IRA website on the Top Rankings page. An audio file download for last week’s Quarterly Subscriber call is below.

October 7, 2026 | How long will the wave of energy inflation coming towards the industrial nations last? Will this unanticipated surge inflation event cause consumers, companies and even nations to default? Below we ponder some asset allocation themes for subscribers to the Premium Service of The Institutional Risk Analyst as we prepare for our quarterly call on Thursday after the market close. Our latest discussion with Adam Taggart is below: We think that the inflation caused by the Iran war authored in early 2026 by President Donald Trump and Israeli leader Benjamin Netanyahu is going to create a significant and long-lasting period of inflation. The dislocation in relative terms in a highly-interconnected industrial society is comparable to some of the largest economic shocks in history going back to the Middle ages. In our upcoming book, entitled "Gold: The One Measure," we describe the vast inflation that occurred in Europe when the silver, gold and other treasure began to flow to the shores of Britain, Spain and France all the way to the markets of Asia: "The massive influx of precious metals from the New World —primarily silver, along with some gold— significantly contributed to a historic era of inflation in Europe. In Europe during the 1500s and early 1600s, commodity prices rose roughly four to six times over a span of just 150 years. But currency debasement by the warring kingdoms of Europe were also responsible for a great deal of the inflation." Inflation: Winners & Losers The new investment theme that most analysts have identified is inflation, but the financial community has still not come to a full realization just how bad the direct and indirect effects of inflation will be on public and private enterprises, and particularly consumers. This inflation wave comes at the end of half a century of steadily falling nominal interest rates, a trend that is now at an end. Note the sharp uptick in credit spreads for high-yield borrowers shown below. Businesses and sovereign borrowers that have become accustomed to ultra-low interest rates since 2008 are in for a particularly nasty shock. As we noted last week, the Fed's interest rate cuts in 2024 and 2025 gave President Trump and the markets all that they asked for and more. But now, the impact of rising junk spreads as shown above in particular suggests that marginal borrowers are losing access to the capital markets. Spencer Jakab at the Wall Street Journal summed it up nicely: “Banks’ profitability measures, such as return on tangible common equity, are at their highest in years for some large institutions. But rising consumer stress, problems bubbling up in private credit and a record borrowing binge by AI companies are all concerns.” The chip maker NVIDIA Corporation (NVDA) now has a market capitalization of $5.5 trillion, but this number says more about the plunging value of the dollar in real terms than it says about the inherent value of NVDA. One of the things we have worried about since 2008 and particularly since COVID is that players in the world of finance are in a big hurry and this tendency to move quickly often generates absurd investment predictions and outright fraud. We see the tendency to cut corners in the growing mess in private equity and credit, where financial sponsors have defrauded investors and broken laws in order to earn the big money. We particularly see this in events such as the bankruptcy of 777 Partners and the insurance fraud allegations against Guggenheim Partners CEO Mark Walter. But nowhere is the tendency to cut corners and call black white more pronounced than in the investment bubble around artificial intelligence or AI. The Bank for International Settlements (BIS) just published a research paper on AI entitled "Circular relationships among AI firms." The summary of the paper states: "Between 2021 and 2025, 28.7% of artificial intelligence (AI) firms’ investment deals (by deal value) involved a target company that was also an AI firm, while 55.2% of incoming investments in AI firms came from other AI firms. Of all the AI-to-AI investment deals between 2021 and 2025, 16.1% (by deal count) and 46.4% (by deal value) also involved commercial supply chain relationships between the investor and target firms. Circular investment relationships reflect key economic features such as the need to secure critical inputs and the presence of information asymmetries, yet they entail macroeconomic risks and increase opacity." Author Jim Rickards warns that an artificial intelligence bubble is deflating and predicts an 80% stock market crash driven by an impending AI industry meltdown. Ray Dalio, the founder of Bridgewater Associates, told Bloomberg Television that the increasing borrowing by A.I. companies could further tighten other types of credit, and that even some tech giants are starting to hit debt limits. Our collaborator Mickey Maini, in an interview with Gulf Business, explains why the compute of AI will outlast some of the balance sheets financing it and why machine-speed markets have quietly removed the time that economies assume they have to self-correct. What we can say about the credit stress from AI and private related debt is that it is causing significant increase in HY credit spreads. Other sectors like mortgage finance and even banking are seeing higher credit expenses. Investment grade spreads are also skewing to the upside, a troubling sign. Even some of the more reckless speculators in AI such as Masayoshi Son of Softbank have literally run out of cash to support the bubble. Trading Points

By Mickey M. Maini and R. Christopher Whalen October 5, 2026 | Bitcoin has had a strange year. It fell by half from its October 2025 high while gold rose to a record. Then it rose 40 percent from its June low while gold fell and the Federal Reserve raised rates. In the last week of September, the American spot funds took in more money than in any week for a year. Anyone looking for a single story in that has not found one, because there is not one. We come at this from different places. One of us has spent forty years in bank credit and has never been persuaded that bitcoin is money. The other has spent a career measuring how large systems move from one state to another, and treats bitcoin as a conditional asset, useful only while it stays outside anyone's control. We agree on three facts, and they matter more than the price. First, the dollar has taken bitcoin's rails. The new law on dollar tokens, the GENIUS ACT, has put about $320 billion of privately issued dollars onto public networks, backed mostly by Treasury bills. Machine to machine payments, the use case that bitcoin was supposed to own, now settle more than 99 percent in dollar tokens. Every new user of those rails is a new buyer of American government paper. The plumbing of the next system is being built, and it is dollar plumbing. Second, Wall Street has captured the coin. One fund issuer holds about 62 percent of all the bitcoin in American exchange traded funds. Two American entities, a fund issuer and a listed company, hold about 8 percent of all the coins that will ever exist. Most fund coins sit with one custodian. A strategic reserve is on the government's books. Nobody needed to ban bitcoin. Owning it was enough. That is good for the price and bad for the original idea, because the people who can freeze an account now hold the keys. Third, the states that will design the next monetary settlement are buying gold, not bitcoin. Central banks have added to their gold for nearly two years without a break, and a record share of them say they will add more. Official holdings are around 37,000 tonnes. Official bitcoin holdings are close to zero. When governments sit down to repair a system that no longer clears, they anchor it in something all of them already own. That is gold. Put those three facts together and bitcoin's future stops being a question about bitcoin. It becomes a question about how the dollar system crosses from here to whatever comes next. There are three roads. The first road is drift. Rescues continue, repricing is deferred, and nothing is redesigned. Bitcoin rises over years, because the number of holders grows and the number of coins does not, and it falls by half each time stored stress breaks through. This is the road we are on, and it is the most likely one. The second pathway is a managed transition. Governments revalue gold and settle between themselves in it, with dollar tokens as the rails. Gold rises a great deal. Bitcoin is not in the design and lags, because a large part of its price today is the chance that people will one day need a way out. A repair that works removes that chance. There is one exception. If the repair writes bitcoin into official reserves, bitcoin is inside the design, and then it rises the most. The same word, transition, produces opposite outcomes depending on who writes the design. The third road is a break. First comes the liquidity crash, in which bitcoin falls with everything else, as it did in March 2020 and again early this year. Then comes the response. If the response is controls on people's money, or printing while inflation is still high, bitcoin becomes the exit. In every country that has imposed capital controls, the local bitcoin price has traded above the world price by roughly the size of the restriction. A large economy reaching that point would be the biggest bitcoin event of the decade. So bitcoin is paid for two things: disorder, and inclusion. It is not paid for order that excludes it. That is a very different claim from the ones usually made for and against bitcoin. Its supporters say it wins because governments fail. Its critics say it loses because governments prevail. Both miss the most likely case, in which governments prevail and choose gold. There is one test that would change our minds. Bitcoin has sold off in every stress episode of this cycle. It behaves like a risk asset, not like a store of trust. The first day it rises together with gold while equities fall, it will have passed the test that gold passed long ago, and it will deserve a larger place in the conversation. Until then, treat it the way one of us has treated it in print: small, conditional, and behind gold. Mickey M. Maini is the founder of Solstice Laboratory and the author of The Entropy Trap. R. Christopher Whalen is an investment banker and author, and the editor 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.

October 1, 2026 | As the once torrid flow of new IPOs slows to a trickle, Wall Street firms that have benefitted from a huge surge of market activity over the past 18 months. Now Street firms must reposition for a decidedly less exciting environment and rising interest rates. Below we ponder the next steps for the Federal Open Market Committee and then, for subscribers to the Premium Service of The Institutional Risk Analyst, we set up the largest Wall Street investment banks for Q3 2026 earnings. Time for Opportunistic Deflation? We keep telling our readers that the past couple of years will long be remembered as one of the great bull markets in US history. Why? Because from 2024 onward through to the rate hike by the FOMC in September, credit spreads were falling and credit was expanding. When credit spreads fall, new financing activity goes up and markets and the economy surge. And all of this came about because the FOMC under Chairman Jerome Powell, again, panicked and provided fuel for higher inflation. Lets review the recent history of Fed pump priming. The spreads for “BBB” credit were close to 150bp over the Treasury yield curve at the end of 2023, then rallied down to about 1% in mid-2024, but spiked in August. when the U.S. Bureau of Labor Statistics released a weaker-than-expected July non-farm payrolls report. The unexpected jump in the U.S. unemployment rate triggered the "Sahm Rule," a historically accurate recession indicator, stoking intense fears among economists that the Federal Reserve had waited too long to cut interest rates and that the U.S. economy was headed for a hard landing. This turned out to be totally wrong and the Fed proceeded to do too much in response to a false indicator of recession. As readers of The IRA know very well, the hard landing in 2024 never materialized and credit expenses for US banks have been falling for more than a year and a half. Yet despite the fact that the July 2024 jobs number was a false positive, the FOMC cut interest rates three times in 2H 2024 and three more times in 2H 2025, stoking an extraordinary rally on Wall Street that just happened to coincide with the peak of AI hype. When we consider the track of interest rates during the term of President Donald Trump, it is hard to make the case that the Powell FOMC was not giving the White House everything they wanted and more. Now, however, the US central bank seems to be headed for a policy stance that is closer to neutral than accommodative, with real interest rates in positive territory. There is no political tolerance in the 21st Century for the Fed to keep people out of work to bring inflation down a la Paul Volcker in the 1980s, but today inflation is so high that a stance of studied neutrality may be tolerable. If we recall the views of Philadelphia Fed President Edward Boehne in December 1989, when inflation was 4.5%, perhaps it’s time for some deflation. Bill Nelson of Bank Policy Institute writes in his latest missive: “The time is almost ripe for the Fed to adopt “opportunistic disinflation,” the strategy it followed in the first half of the 1990s. ‘Almost’ ripe because the Fed’s current tactic of moving the stance of policy to neutral is sensible. Doing so enhances Fed credibility on inflation and prevents it from feeding the irrational exuberance in financial markets. Two things set the stage for the approach: (1) inflation is modest and seems to be trending down, and (2) a slowdown or recession could be coming.” Signs of a recession remain uneven, however, even though higher bond market yields are increasing pressure on private equity and credit portfolios. Analysis by Morningstar DBRS shows that 15% of actively rated private credit borrowers are receiving capital support or covenant relief, while the volume of firms looking to defer interest has nearly doubled to 6.8% in the past year. Yet the economy remains far from a recession, in part because of the $2 trillion federal deficit. “The Commerce Department revised up its reading for gross domestic product in the second quarter to 2.2%, well above the 1.5% that had previously been reported,” Matt Grossman at the Wall Street Journal relates. “Meanwhile, the inflation metric known as the personal-consumption expenditures price index rose by 3.4% over the past 12 months, the Commerce Department said in a separate report Wednesday, level from a month earlier.” Of note, David Zervos will serve as counselor to Treasury Secretary Scott Bessent in a previously unreported move, says CNBC. Zervos joins after more than 15 years at Jefferies and years covering Fed policy and financial markets. The unannounced hire, which does not require Senate confirmation, is a rare piece of good news in a widening policy mess created by the Trump Administration since the start of the Iran war. As the number of delayed IPOs grows, Wall Street firms are revising guidance downward due to shrinking backlogs and taking other steps to protect themselves from credit events. We noted in our comment about the major consumer lenders (“How Fast Will Consumer Credit Tank? | ALLY, AX, AXP, BCS, COF, HAPN, SOFI, SYF”), that the arithmetic of higher inflation will raise the levels of delinquency by a matter of simple mathematics. Politically, the fact of affordability as the chief political issue spells trouble for conservatives. The Investment Banks Below we provide a pre-earnings setup for the top investment banks, including Ameriprise Financial (AMP), Charles Schwab (SCHW), Goldman Sachs (GS), Morgan Stanley (MS), Raymond James (RJF) and Stifel Financial (SF). We also make reference to JPMorgan (JPM) and nonbanks Jefferies Financial Group (JEF) and Robinhood Markets, Inc. (HOOD).

September 28, 2026 | Was Q2 2026 the trough for consumer credit defaults in thee US? Some observers continue to warn that consumer credit is deteriorating, but the financial results from banks in Q2 show that consumer lenders in the bank group are still reporting lower defaults for the seventh straight quarter. Below for subscribers to The IRA Premium Service, we take a look at the Q2 2026 results for some of the top bank consumer lenders, including Ally Financial (ALLY), American Express (AXP), Axos Financial (AX), Barclays US LLC, CapitalOne (COF), Happen Bank (HAPN), SoFi Technologies (SOFI) and Synchrony (SYF). We also include for our Premium Subscribers our updated portfolio after making some significant changes in our quarterly rebalancing last week. As a reminder, our subscription rate will increase on October 1, 2026, but existing subscribers will retain their subscription rate. Use the coupon code "TheWrap2026" to get 25% off of your first year subscription. Whither Consumer Credit? Fitch Ratings reports that the 60-day delinquency rate for U.S. subprime auto loans reached an all-time historic high of 6.9%, exceeding the peak of the 2008 financial crisis which topped out around 5%. This is the highest level recorded since Fitch started tracking the data in the early 1990s. Credit corrections always come from the bottom up. When the economy shifts and credit tightens, defaults and financial strain almost always show up first among the lowest-rated borrowers and subprime consumers before eventually moving up to impact prime borrowers and corporate credit. This is why people talk about a "K" shaped economy, but that K is fast becoming an L. Subprime borrowers face growing stress, but prime borrowers remain highly resilient according to the Wall Street narrative. The delinquency rate for prime car loans has held incredibly steady at under 0.5%,suggesting that delinquency is concentrated among lower-credit borrowers. But will rising inflation and energy prices start to cause default rates for prime consumers to move higher? Will the "K shaped" distribution for consumer credit now become more lopsided as delinquency rises from the bottom of the consumer cohort? The chart below shows the Auto Indices for net loss from Fitch Ratings. Source: Fitch Ratings Bank auto loans are mostly prime credits but exhibit the same annual pattern as subprime loans. The chart below shows the level of net losses and delinquency on the $551 billion in outstanding bank-owned auto loans through Q2 2026. Source: FDIC Ally Financial ALLY saw improved results in Q2 2026, but managed to miss the relatively low bar for analyst earnings estimates. The $200 billion asset bank picked up 20bp in net interest margin, but the overall level of net income to average assets was still below 1% and the lowest among the eight banks in our consumer lender group. The chart below shows net income vs average assets, a/k/a return on assets (ROA) for the group and Peer Group One. ALLY is the yellow line at the bottom of the chart. ALLY is trading at a discount to book, which is appropriate given the bank's mediocre financial performance. The only real question is why so many professional equity managers own the stock. Source: FFIEC

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. 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