June 17, 2026 | The contest to see who will acquire mortgage REIT Two Harbors (TWO) seems to have ended in a defeat for United Wholesale Mortgage Corp (UWMC) and a win for CrossCountry Mortgage, the #2 retail lender in the US behind Rocket Companies (RKT). The TWO Board of Directors unanimously recommended a vote for the proposed transaction with CrossCountry Mortgage at the Special Meeting on June 23, 2026. TWO announced that UWMC did not submit a new proposal during the waiver period that TWO obtained to engage directly with UWMC on a potential transaction. The waiver period expired on June 12, 2026. In essence, TWO demanded that UWMC make an all cash bid because, as we've noted in previous comments, the UWMC stock is essentially worthless as an acquisition currency. Sad to say, UWMC does not have the cash nor the credit to meet this challenge. Since peaking above $6 in February UWMC has been falling steadily and closed at $2.45 on Tuesday. TWO demanded an all-cash offer from UWMC CEO Mat Ishbia because they knew that a significant number of shareholders would end up receiving the UWMC stock by default under the old offer. UWMC has been bleeding cash for years, but recently adjusted its pricing in the wholesale channel, leading a number of other lenders to re-enter that market. Hopefully UWMC is going to moderate their pricing for loans in the secondary market and end the practice of selling servicing assets below cost to offset operating losses. Our previous comments about TWO and UWMC are below: Who is the Next Countrywide Financial? PennyMac, Rocket & UWMC Countrywide II: UWMC + TWO = ? Loan Depot Flops, Again VA Finally Gets Partial Claim The Veterans Administration officially launched a new Partial Claim program to help veterans with VA-guaranteed loans avoid foreclosure. The VA program covers overdue payments by providing a zero-interest, subordinate lien (second mortgage) on the home, which is repaid only when the property is sold, refinanced, or the main loan is paid off. This program is similar to the partial claim program that the FHA has had for many years. The VA program officially opened for submissions on June 15, 2026. Mortgage servicers have until November 28, 2026, to fully integrate this program into their systems. Before receiving a partial claim, veterans must successfully complete a 3-month trial payment plan to prove they can stay current moving forward. The overdue amount generally cannot exceed 25% of the outstanding loan balance. If your loan is 61 days past due, the VA automatically assigns a technician to review your file. You can also call the VA directly at 877-827-3702 for assistance. While the FHA loan program is a subsidized scheme to assist low income and first time home buyers, the VA loan program is a benefit for people in uniform. It is nice to see that Congress, after years of acrimony and political kerfuffle, finally aligned the FHA and VA programs when it comes to serving veterans, who have half of the level of delinquency seen in the FHA loan program. People in uniform pay their bills. Source: MBA, FDIC Fed Paper on Mortgage Servicing Rights Last week the Federal Reserve Board published a research note, “Mortgage Servicing Right Valuations Under Stress,” which was authored by Ronel Elul, Karen Pence, Ben Ranish, and Michael Suher. The authors note correctly that mortgage servicing right (MSR) valuations: “Decrease when mortgage default and prepayment rates increase, as is generally the case when the economy enters into recession. To estimate how large these MSR valuation declines could be for the banking sector in a severe economic downturn, we project the potential increase in default and prepayment rates under the supervisory stress test models and scenarios for mortgages serviced by large banks.” They then conclude: "We estimate that the decrease in MSR valuations could range from 5% to 13%, depending on the scenario, as a result of the higher mortgage defaults. With respect to prepayments, we estimate that MSR valuations would fall by around 4% for each one percentage point increase in the prepayment rate (emphasis added). While this implied drop in MSR valuations is large, offsetting factors may make a prepayment-driven drop in MSR valuations less consequential for a bank than a default-driven drop." The idea that MSR valuations will fall 4x the rate of increase in loan prepayments is not supported by the data, even "under the supervisory stress test models and scenarios for mortgages serviced by large banks." The research comment is also remarkable because it goes directly against the spirit of the proposal by the Fed and other agencies to reduce the risk weight for MSRs under Basel III. The paper also perpetuates the focus on the market value of MSRs, an unfortunate development for which we share some of the blame. Years ago, we pointed out to our friends at Ginnie Mae the fact that some MSRs trade at very high valuations. We also noted that some of the more aggressive warehouse lenders would advance as much as 70% of the value of the MSR. But most MSRs never trade after the mortgage note is sold into the bond market. In fact, MSRs typically only trade once at the point of sale of the mortgage note into the MBS and then remain in place. Banks often don't trade or capitalize the MSR at all when the note is retained in portfolio. Distinctions like “fair value” under GAAP simply don’t matter to most issuers. On occasion, distressed holders of MSRs may try to sell the asset to raise cash (such as UWMC, as noted above), but generally speaking, MSRs move once and then remain in place for the full duration of the asset. Source: FDIC/WGA LLC We asked a number of people in the mortgage industry about the paper. Most of the responses were anonymous. Several mortgage executives who commented on the paper had no argument with the 5-13% decrease in MSR values related to certain default scenarios, which seems to be a fairly reasonable general assumption given the high current valuations for MSRs. The Fed research note barely mentions the role of hedging and recapture in protecting MSRs from fluctuations in value, and seems to ignore these factors in its quantitative conclusions. For example, as noted above, the Fed research note assumes a 4% decrease in MSR value per 1% increase in prepayment speeds, an assumption that seems at odds with the voluminous data available on MSR price performance. One veteran observer told The IRA that the 4:1 assumption about the link between prepayments and fair value was ludicrous: “I would argue that 1:1 (1% increase in prepayment rates = 1% decrease in value) would be a closer generalization.” It is worth reminding readers that loss given default on $3 trillion in bank owned 1-4 family mortgages is currently averaging around zero. Source: FDIC/WGA LLC Another point that jumped out at us is that the Fed research comment seems to focus almost exclusively on the downside impact of falling interest rates and/or rising delinquency to existing MSR cash flows without giving much consideration to the natural offsets that many bank and nonbank servicers have in place. Of note, a special FASB task force voted on March 12, 2026, to recommend that lenders include recapture rights when valuing MSR portfolios. For example, for independent mortgage banks and other active originators, rising prepayments do not necessarily translate into a dollar-for-dollar loss of franchise value. Many banks and nonbank firms have established recapture platforms that can retain a meaningful percentage of runoff through refinances, which naturally is reflected in the valuation. Recapture effectiveness varies by servicer, product mix, borrower profile, and market conditions, yet it can materially offset the reduction in MSR value that will otherwise result from higher prepayments in a static analysis. The Fed comment also appears to largely ignore the benefit of new production. In the same environment where lower rates increase prepayments on existing MSRs, they also tend to stimulate refinance and purchase mortgage origination activity, creating opportunities to originate new loans and replenish servicing portfolios with lower coupon assets. The paper notes that “nonbanks also are less likely to hedge the rate-driven fluctuations in their MSR valuations,” which is untrue especially for public issuers. For example, market leaders like Freedom Mortgage don’t hedge the MSR in the capital markets, but instead use robust recapture and new originations as an effective business hedge. If you're interested in learning more about MSRs, we still have a few signed copies for sale in The IRA store of “Seeing Around Corners: Achieving Success in Business and Life,” our 2024 biography of Freedom Mortgage founder and CEO Stan Middleman. For many mortgage market participants, the MSR is only one component of a broader mortgage franchise. Evaluating the servicing asset in isolation may overstate the economic impact of a declining rate environment. One mortgage executive noted that today's servicing portfolios are very different from those that existed prior to 2022. A significant percentage of outstanding MSRs were originated during a period of historically low mortgage rates. For much of the pre-2023 collateral, it would likely take a very substantial decline in rates before refinance incentives became large enough to materially accelerate prepayments, even before considering recapture opportunities. As a result, the relationship between lower rates and higher conditional prepayment rates (CPRs) may not be nearly as linear as some stress scenarios imply. This is reflected in MSR pricing for different coupons. The Fed analysis may accurately quantify the sensitivity of a static MSR portfolio, but it does not necessarily capture the economics of a functioning mortgage platform that can recapture borrowers, generate replacement servicing assets, or the reality that much of today's outstanding servicing book remains deeply out of the money from a refinance perspective. More, the portion of a servicing book that is owned by third parties represents a significant source of fee income during periods of rising delinquency. But as Silicon Valley Bank illustrates, not all banks are able to manage MSRs and other variable duration assets like loans and MBS. Fed Vice Chairman Michele Bowman noted in February of this year: “MSRs is not the right choice for every bank. Successfully managing the volatility in MSR valuations as interest rates change requires sophisticated hedging capabilities or an effective borrower retention strategy during refinancing waves. Servicing can also carry substantial operational risk and compliance responsibility. Banks that engage in mortgage servicing must have sufficient expertise and resources to manage these risks and the associated responsibilities in a safe and sound manner.” The authors of the latest Fed research paper are right to be concerned about MSRs. As we noted in our comments on the Basel III proposal, the regulatory agencies ought to adopt a very tough policy to vet the management, systems and controls of banks that choose to be involved in mortgage lending and the retention of MSRs. Variable duration securities have been involved in many of the financial crises of the past half century, most recently with Silicon Valley Bank. The plain fact is that few banks or IMBs have the leadership, personnel and systems to be successful as mortgage lenders and owners of MSRs. Most banks that want to expand into 1-4 family assets will likely outsource the servicing function, but retain the MSR and the mortgage note in portfolio. But even without the operational risk of servicing, banks must still have sophisticated systems for managing the credit and market risk of these variable duration assets. Bottom line is that we are not surprised by the Fed research paper, but we are a little disappointed. The fact that federal regulators still no not accept the benefits of MSRs in 2026 seems rather remarkable given the popularity of the asset class with large institutional investors. The large group of banks and nonbanks that do invest in MSRs and profit as a result suggests that there are significant benefits to these naturally occurring negative duration intangible assets. MSRs posess identifiable cash flows and other benefits, including the relationship with the borrower. 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.

June 15, 2026 | In this edition of The Institutional Risk Analyst, we return to our friend John Dizard to update readers on the evolution of the global energy markets since our April 1, 2026 interview (“John Dizard: Watch for Rationing of Oil, Gas & By-Products”). The discussion was one our most read articles ever. Sadly, since April Fool’s Day, the situation in the energy markets and in Washington has not improved – even with the announcement of “peace” this weekend by President Donald Trump. Indeed, virtually no one in the Trump Administration or the big media is talking about the inevitable prospect of energy shortages or rationing as a result of the war with Iran. The IRA: John, thanks for talking the time from your busy schedule, what with the Iran war and also your great love, electricity and data centers. So. How was your day, sir? Dizard: Oh... you know, finding people, talking to chemical engineers, you know. Your basics. The IRA: So, since we spoke and did that wonderful interview a while back, things have kind of tracked exactly as you expected. This war was not ending, as you can tell. Hezbollah basically said no to a truce as recently as this past week. But now President Trump has announced a peace deal with Iran. How do you assess things, you know, almost two months since we did our last interview? Dizard: A complete lack of preparation by the government as a whole for what we're going to face. Cluelessness. I think that the Trump Administration and the rest of society are living on hope. Commercial people and corporations, even energy companies, have just accepted the government's guidance that this will be settled soon. What else can they say? So as a consequence, unlike, say, in Japan or Korea, certainly in China or even India, there just haven’t been any preparations for actual supply shortages. We already have diesel prices that are going to be going up. If not hyperbolically, you know, very, very aggressively. And in the case of the Group III lubricants and even Group II lubricants that I've been obsessing about, we have an availability problem starting now. The IRA: Despite your earlier comments, which were very specific, most people we know in the financial world are not predicting shortages. And these shortages are a fact whether the Iran conflict ends now? Dizard: Yes. Consider high-end lubricating oil. You take what's called a base oil, which comes from a refinery, and then you put in additives for, say, winter or to avoid corrosion and oxidation. But they're simply not there. The shortages are hitting the formulators, the blenders right now. They just simply can't get supplies of high-end lubricating oil. It'll hit consumers over a lack of availability by the end of this month or beginning of next month. Group III base oil is already, when you can get it, it's at least $10 a gallon, but really, it's on allocation. In other words, if you have a special arrangement with refiners, for example if you're an auto OEM— original equipment manufacturer of autos or trucks— you'll get some factory fill supply. But retail gasoline or retail diesel distributors just won't have what they need. Now, this means that the auto and truck manufacturers are already saying to customers, "Well, you can stretch out your oil changes." The IRA: How long can we extend the period for oil changes before it does damage to engines? Dizard: Up to maybe from, say, 6,000 miles to 12,000 miles or even longer. But that depends on the quality of the lube that's already there. I think this will start creating serious problems for consumers by next month. They already have been seeing this indirectly because their grocery prices and prices of all kinds of goods that incorporate petrochemicals prices and incorporate diesel prices. The IRA: Diesel is the fuel of the global economy. So you are predicting both higher prices for diesel and lubricants peace or no? That will almost certainly force the FOMC to hike interest rates. Dizard: Correct. The diesel price increases that have happened so far are enough to increase prices all kinds of consumer goods already. That will now accelerate over the summer. People will be unable to do scheduled oil changes. You're a very informed and responsive consumer who likes fast cars. But a lot of people leave their oil changes until the little light goes on. The IRA: So my idiot light goes on and I go to my auto parts store or dealer for five quarts of synthetic. What happens? Dizard: They're not going to be able to get it. If you run synthetic in a truck or a car, you're basically SOL. That's a problem. The U. S. has become highly dependent on imported lubricants. For the higher end lubricants, Group III. as they're called, or Group IV, the U. S. imports about 70% of its requirements. Of that. 40%, between 40 and 50% has come—- until March—- from the Gulf, from refiners in the Gulf, and about 30% has come from South Korea. Neither of them are shipping product to the United States now. The Koreans have redirected their production to either domestic use and domestic OEMs, or maybe to some Korean OEM assemblers in the States. The IRA: You mentioned earlier that the Iranians attacked the three key facilities in the Persian Gulf for producing synthetic lubricants. Dizard: Yes. The Gulf producers simply aren't producing lubricants and other refined products. It's almost as if the Iranians knew what the precise pressure point to strike because they knocked them all out. The Iranians seem to be better informed than the US government. The IRA: You said that Iran specifically went after three major facilities in the Gulf perhaps knowing that that this would bring the pressure to bear. But there's nothing we can do about this in the short term, is there, John? Let’s say that Trump’s peace deal sticks, will this solve the supply problem? Dizard: No. We're going to be on allocation this year and into 2027. The trouble is that nobody we know— at the supplier level— is receiving any guidance from Washington. There's no coordination of how that's to be done. But the shortfall in supply is so severe, it looks as though it could impact the auto manufacturers as well. The IRA: Well that is good news. Could we see interruptions in production by the global automakers? Dizard: Yes. These high-end lubricating oils are required for hybrid engines and many other products. For CVT transmissions, for compressor lubricant. For turbine lubricant. Aircraft engines. Where you have aircraft, where you have high temperatures, high pressures, continuous use. If you use a less pure oil, you could get deposits and malfunctions. You'll get, well, certainly decreased fuel economy and you'll reduce engine life. And this becomes most evident most quickly to fleet operators. Most trucks, though, use slightly less refined or slightly less processed Group II lubricants, but the shortage pricing will be passed through to them as well. The IRA: How have the global producers of these lubricants responded to the war and price increases? Dizard: Production has actually been reduced in the past couple of months globally, even after the knockout of the Gulf suppliers, because refiners have seen such a rapid increase in diesel prices that they committed to producing diesel and jet fuel rather than other products. The Koreans, for example, committed their feedstock supplies to producing diesel rather than producing lubricants. The IRA: That is an obvious choice right? You want to keep the trucks rolling. The price of fuel "at the pump," for example, is a political issue in any country, but especially in the US. Dizard: Well, yes. You’d feel the shortage of diesel or gasoline, petrol immediately, whereas you might be able to postpone the lubricant use, but not forever. The immediate headline issue was a shortage of diesel. It's life-threatening in Africa, of course, and in Asia, too. But the lubricant shortage now compounds that because you you're going to see a tradeoff between diesel supply and the slightly heavier lubricant supply required for most trucks. The IRA: And you’ve said that the shortages are happening now, today? Dizard: Yes. For hybrids and higher performance engines, not enough supply is going to be available. Somebody's going to have to not drive their car. Manufacturers may have to slow or stop production because they can't do the fill at the factory. I think this will happen slowly. General Motors (GM) has been probably the slowest to react to the shortage. The Japanese manufacturers have already responded by stretching the limits of substitutes or how far they can go in stretching out recommended oil changes. They've advised dealers to tell customers to change their oil at twice the mileage that they did before. And so they're already doing that, but that might not be enough. The IRA: There are some very smart people in the Trump Administration. Why are they ignoring this reality? Dizard: The judgment of the government is: we're only a couple of days away from a solution and then prices are going to fall like a rock. This is not true. Part of the reason they think or even repeat this nonsense with such conviction, is that they only keep track of what their political advisors tell them to say. The voting public looks at prices of gasoline at the pump and the oil price. The IRA: And oil prices have been falling. Dizard: Well, no. The problem is when they look at the oil price, they're looking at the near-month futures that's not the same thing as what's actually physically delivered. The price for prompt delivery in Asia is far higher, especially for the grades that are in short supply. So, the political advisors are looking at the wrong indicators. And also, I think diesel is where we'll have a serious increase in prices. Diesel and jet fuel are both going to be problems. The government and the Trump administration has been taking credit for our high oil exports. Those export numbers include both oil and oil products. We've been exporting not only our excess sweet light crude and condensate from shale oil. We've also been exporting our inventories of diesel and diesel, and jet fuel in particular. The IRA: Will the US be forced to curtail energy exports? Dizard: Perhaps. These shortages are coming to us. The Europeans already have changed their jet fuel specifications to match the American ones, which have allowed them to import American jet fuel and use American jet fuel. The IRA: When do the Americans stop exporting? Do you think that's going to come? When? Dizard: The White House political advisors figure it's a crisis when they start hearing from people. I thought that the DOE was preparing for this. They have one engineer in a remote location who's studying it. They don't have a contingency plan for energy rationing. Seriously. That's the secret. That's the secret plan. There is no plan. The IRA: Well based on what you are saying, they can't get to the midterm, John, obviously. So, by August, September, is this going to be on the front of most newspapers? Dizard: Oh, absolutely. Well before Labor Day. Not only due to the lube oil shortage, but also the impact of inflation on the back-to-school season or the autumn season, of the impact on product pricing, products throughout the economy, food. Anything that has to be transported by truck. It'll be expensive, more and more expensive. It's not good. The IRA: This seems like the oil crisis of the 70s redux. Gasoline and diesel fuel has been very cheap for decades, especially if you discount prices for inflation. The inflation rate has been pretty brisk but nominal energy prices have been stable. But now we're going the other direction. We're going to have very significant increases in the real cost of energy. And that's going to wallop this economy because we've been subsidized by the fact that energy prices were relatively low. Dizard: Right. And the fact is that the US economy really is part of the global supply chain. We can't only use West Texas Intermediate or light shale oil for refining into diesel. We need medium or heavy crude, which we have to import. Now, we can import a bit from Venezuela, but not that much. Their infrastructure is not in great shape. We can't substitute what we were importing directly or indirectly, from the Gulf. And the gradual collapse, really, of these supply chains is going to become completely clear by the end of the summer. The IRA: Can the US increase domestic production of diesel and lubricants to address these shortfalls? Dizard: Unfortunately, there won't be time to do that much about it. There are new lubricating plants coming online in the States, one at the Chevron (CVX) Pascagoula, Mississippi refinery in the first quarter of next year, and the other, larger edition, really, in an expansion of facilities at Exxon's (XOM) Baytown Refinery, at the end of next year. And after that, there’s another new synthetic lubricant plant being prepared in North Dakota. That's going to come online way too late to be helpful here. Lots of people want to get lots of new plant built very quickly. The IRA: And we cannot begin to repair the Gulf facilities so long as the war continues? Dizard: You can't even really start on rebuilding facilities like, say, Shell's gas-to-liquids synthetic lubricant plant in Qatar, or repairing the Bahrain refinery or the Adnoc’s Abu Dhabi refinery, until you know the missile and drone attacks have really stopped. The Gulf States have set up— you know, warehousing for parts, and they've done surveys, they've done ordered parts, but to really start repairing these vast plants, they can't even start yet. It’s at least a $50 billion to $60 billion repair bill. Again, it's almost as if the Iranians knew more about our oil supply and our, you know, our oil product supply chain than the Trump Administration. The IRA: Oh, I'm sure they did. They have very good people in the oil industry in Iran. Dizard: I was, you know, making a rhetorical point. No, they definitely knew what they were doing to knock out specifically the key gas-to-liquids plant in Rastafari. That will take a long time to fix. And they left one train of the gas-to-liquids plant intact, which the Qataris have not restarted, just as a way of saying, 'Oh, by the way, we can knock that one out too.' The IRA: The Economist put out a piece recently talking about how global GDP is going to be impacted by the war, but they didn't really talk about a prolonged shortage of fuels and lubricants at all. Dizard: Well, there is a continuing focus on the crude prices or different crude prices like Brent or WTI. But I've never consumed a barrel of oil in my life. I only consume oil products. And what was really destroyed in the Gulf, it's not just a matter of escorting ships to the Strait of Hormuz. It's the disruption of the productive plant. And that's the problem. The Korean refiners can get up and running again with maybe four months delay. But the Gulf plants are offline until they get fixed. I think that supply disruptions of fuel and lubricants is going to be an acute issue going into the Fall elections. The lack of lubricants will create problems for a lot of consumers who were right at the end of their lubricant life cycle. For higher and higher emission standards and higher and higher fuel economy standards, you have tighter and tighter tolerances in engines. And those engines require high viscosity lubricant such as the Group III or Group IV or polyalphaolefins that have been affected by these disruptions. You simply cannot run those engines on lower quality oil without affecting their life or performance. The IRA: What should the Trump Administration be doing to prepare? If you were advising President Trump, what would you tell him? Dizard: Well, I'd say that Washington ought to set up some priorities, let industry carry them out, because even the DOE isn't particularly well equipped to do this. But I'd say you want to make sure you have enough turbine lubricant. You want to allocate lubricant so that there's not only enough for new cars, but also... some supply for consumers doing oil changes. You need to have trucks taken care of. You need to do it in a systematic manner rather than a haphazard manner. And it’s not enough to ration— to do price rationing here. Because... even manufacturers, even users, or blenders of these oils are already on allocation. The IRA: Should the industry be getting together themselves? Because you know the way Trump is, he's going to want private industry to do this. Dizard: Yes. The Trump Administration ought to get an antitrust waiver for the industry through Congress now. Cooperation would be a combination and restraint of trade, no doubt, legally. But it's also one that is required, I think, for the public's well-being. The government has to get involved to avoid this kind of antitrust liability or any other liability. Liability, for instance, for violating warranties. There's some legal consequences here where the industry does need the blessing of Washington, if not the organizing genius of the government. Because the energy industry, they can't really talk to each other. I mean, they can gossip, but they can't coordinate. The government must facilitate private industry cooperation and coordination. That would work. I mean, if it's done in a manner that's visible to at least the government, visible so that we can see that it's not simply a price-fixing deal, it can be done. But it has to be done. The IRA: Thanks John. 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 week in “The Wrap,” we feature the top events in Washington and on Wall Street over the past week. The IRA is fishing in Maine this week, but please do watch “The Wrap with Chris Whalen” on The Julia LaRoche Show next Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. This week we address some reader questions at the end of this comment. June 12, 2026 | Yet another week has gone by and there is still no peace agreement between the US and Iran. The Strait of Hormuz remains effectively closed and much of the world’s capacity for producing key refined products is damaged and offline, yet officials in Washington refuse to acknowledge the obvious consequences of this war, namely higher prices and shortages of physical supplies of fuels, lubricants and chemicals. Leen's Lodge, West Grand Lake (06/11/26) In fact, the US resumed military strikes on targets in Iran earlier this week. Then, President Donald Trump again dumped then pumped the US equity markets by threatening then canceling military action. It is remarkable nobody seems to get the joke on Trump’s public statements on the Iran war negotiations. Hint: FHFA Director Bill Pulte used to pump and dump the stocks of the GSEs in the same fashion. Hello. Meanwhile, "President Donald Trump said Thursday he will nominate Jay Clayton, the Manhattan U.S attorney, to be the next director of national intelligence," Politico reports. Clayton’s nomination comes after a bipartisan uproar on Capitol Hill over FHFA Director Bill Pulte serving in the important role in an acting capacity. The rejection of Pulte marks the latest political reversal for President Trump. Miraculous Rebound On Wednesday, the New York Knicks delivered one of the greatest comebacks in sports history at Madison Square Garden. A team led by three Villanova NCAA champion team alumni eliminated a 29-point point deficit to win against the San Antonio Spurs 3-1 in the NBA championship. The Spurs only scored 30 points in the second half. After the epic collapse, Charles Barkley ripped the Spurs, calling them the 'Dumbest basketball team in the history of civilization.” A New Inflation Indicator? Again? This week U.S. inflation came in at 4.2% for May, the highest level in three years. Middle East war tensions push energy and consumer prices higher. This is the third straight month of price increases and supports our view that we’ll see double digit inflation by year-end. Confirming this, Fed Chairman Kevin Warsh is reportedly pondering a shift to “trimmed-mean inflation” for the Fed's target. Economist Komal Sri-Kumar writes: “Incoming Federal Reserve Chairman Kevin Warsh has made clear that he favors a new way of measuring inflation — one that differs from the headline and “core” measures that policymakers and the public have relied upon for decades. During his Senate Banking Committee confirmation hearings on April 21, Warsh referred to his preference for “trimmed-mean” inflation, a term that is likely to become increasingly common in the weeks ahead.” In 2012, the FOMC adopted an explicit inflation target, the conclusion of years of secret internal discussions by the FOMC. In January 2012, the Committee released the Statement on Longer-Run Goals and Monetary Policy Strategy which officially announced the 2% inflation target. The statement explained the benefits of such a target: “Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant economic disturbances.” Ben Emons, Chief Investment Officer at Fedwatch Advisor, reportedly views Federal Reserve Chair Kevin Warsh's push to shrink the $6.7 trillion balance sheet as a restrictive policy compromise. We have written similarly, but we need to be more precise in our description. Emons notes that persistent inflation will likely force Warsh to put active quantitative tightening on the table, ultimately necessitating future rate hikes. But Ben and Kevin, reducing reserves does not reduce inflation per se. It's what the Fed does or does not do via open market operations that matters. Bill Nelson at Bank Policy Institute reminds us that the size of reserves has no direct connection to inflation. Reducing reserves does not mean lower inflation, but does imply a change in asset allocation by banks. He writes: “I’m no monetarist, but even if I were, I would have no reason to conclude that shrinking the Fed’s balance sheet will reduce inflation. When the Fed sheds assets, its liabilities, specifically reserves balances – deposits of banks at a Federal Reserve bank – decline. But reserve balances are not part of the money supply, at least not the one associated with inflation. As defined by Milton Friedman and pretty much every textbook, the money supply consists of currency in circulation and deposits of non-bank businesses and households at banks. Reserves are not in M1, M2, or M3. The “money” in the assertions that inflation is caused by “too much money chasing too few goods” and “inflation is always and everywhere a monetary phenomenon” is the money in public hands, which does not include deposits of banks at the Fed. While reserves are in “base money” or M0, that is not the money supply nor the kind of money associated with inflation.” The Entropy Trap Our latest post drew quite a lot of comments (“Mickey Maini: The Entropy Trap and Growing Market Stress”). Fred Feldkamp: “Jim Rickards should well understand Maini's point that, as one expands, the risk of event disruption grows--LTCM's 1998 demise was a great example. They watched long term rate spreads and assumed a rise of spreads was an "opportunity to buy" but when it happened because SEC blew up the money market balance mechanism (short-term funds), long-term spreads could not adjust and LTCM (as well as Russia) ‘died’.” AI Rotates Down Stocks experienced high volatility and a sharp rotation over the past five trading days, driven by cooling exuberance for artificial intelligence and semiconductor names alongside shifting inflation/rate expectations. Major tech giant stocks in particular faced losses, though the broader market staged a strong rebound on Thursday after the latest public comments from President Trump. Remember, pump and dump. The big news on Wall Street is that SpaceX sold 555.6 million shares at $135 a piece, raising $75 billion in the largest IPO on record.The company had already set the share price, giving investors a take-it-or-leave-it deal. SpaceX saw its debut on the Nasdaq Friday under the ticker symbol SPCX. Junior Bay, West Grand Lake, Maine (06/11/2026) Bank stocks traded up small this week, with JPMorgan (JPM) up 1% and the 24-stock KBWB ETF up less. Implied mortgage rates in the TBA market rose this week after newly released economic data strengthened the case for Federal Reserve rate hikes this year. The average 30-year fixed-rate mortgage was 6.52% in the week through Wednesday, up from 6.48% a week earlier, according to Freddie Mac survey data. Gold prices suffered a continuing bear market, plunging over 3.6% in a single session to settle around $4,133.30 per troy ounce on COMEX futures, the lowest levels since November 2025. Over the past 5 consecutive trading days, gold faced relentless liquidation, down over 6% amidst hotter-than-expected US inflation (PPI/CPI) data. Likewise Silver prices dropped approximately 8.63% over the past 5 trading days, falling to around $67.50 per troy ounce amid hotter-than-expected jobs data, fluctuating interest rate expectations, and shifting geopolitical tensions. We’ve been adding to our silver positions as the market has retreated. Why are we so bullish on silver? Global silver demand continuously outstrips mine production, resulting in a multi-year structural deficit. Driven by record industrial use in AI, solar photovoltaics (PV), and electric vehicles, the physical silver market faces cumulative shortfalls approaching hundreds of millions of ounces as inelastic supply struggles to catch up. Reader Questions Q: "A strong housing market has so many positive economic tentacles- how can we get that market get going again? A: The short answer is to drop LT interest rates, but that is unlikely in the near term. With the 10-year Treasury at 4.5% and 30-year mortgage rates at 6.5-6.75, the sector is likely to be in the doldrums for the rest of the year. Q: "Does Chris expect a blue wave at Midterms. What if after populist Trump comes populist from the left?" A: The Democrats are likely to take seats in both houses in the Midterm elections, but remember that most House and Senate seats are not competitive either way. We already have the progressive left in NYC Mayor Zohran Mamdani and the likes of AOC and Senator Elizabeth Warren (D-MA), but they offer no answers to problems like inflation and affordability in housing. Warren's true talent is destroying jobs and opportunity through pointless regulations. After four years of silly socialism under President Joe Biden, Democrats remain very unpopular and have weak national candidates. Q: "What is the thesis behind Chevron (CVX)? Chris mentioned that he got back into the stock." A: We've owned CVX for years and have doubled our money. Took profits this year to raise some cash, but CVX is one of the best run energy companies in the world IOHO and we like to have it in our portfolio. BTW, did you see that the folks at Annaly Capital Management (NLY) raised their dividend again? Like we said, we own NLY as a core part of our portfolio. Q: "How does Chris feel about the sourcing of funds to finance the AI buildout? Alphabet (GOOG) and others have raised a lot of debt finance. We we eventually see equity dilution from AI companies?" A: Good question. We've written about the mad amounts of debt behind the AI buildout bubble. It is a good bet that eventually GOOG, Oracle (ORCL), Meta Platforms (META) and Space Exploration Technologies Corp (SPCX), which we own, and other highly leveraged tech firms will be forced to issue new equity to pay down debt, especially since so much of AI seems to be a throw-away that will not result in significant revenue much less profits. The tech firms should be issuing equity now, before the AI bubble cracks further. The Julia La Roche Show Recent Posts Mickey Maini: The Entropy Trap and Growing Market Stress https://www.theinstitutionalriskanalyst.com/post/theira854 AI, Debt & the Death of Fear https://www.theinstitutionalriskanalyst.com/post/theira851 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.

June 10, 2026 | In this issue of The Institutional Risk Analyst, we feature a discussion with Mickey M. Maini, founder of Solstice Laboratory and author of The Entropy Trap: What Physics Knows That Markets Don't. Maini spent decades operating across global markets — first as a senior investment banker, then as the CEO of an emerging-market business that scaled from roughly $100 million to over $5 billion in value, and later as a family-office investor and founder of Solstice Laboratory. His framework, developed first as a private instrument to manage capital and now published as The Entropy Trap with a forward by Jim Rickards, treats markets the way physicists treat complex systems under stress. It does not begin with a forecast. It begins with measurement: level, velocity, acceleration, correlation, feedback loops, and whether stress is rising or falling. The central claim is simple: we are not in another normal cycle. We are in a structural reorganisation in which the old equilibrium is no longer recovering. The IRA: Mickey, congratulations on the book and thank you for taking the time to speak with us today. Entropy is a word most people don’t understand, but it is a crucially important concept in science and also in history and finance. Entropy is a measure of disorder, randomness, or how spread out energy is within a system. In physics and chemistry, it explains why processes flow in one direction—like ice melting or hot coffee cooling—and dictates that natural systems naturally progress from organized states toward chaotic, more probable states over time. Tell us how you chose entropy as the title of your book, The Entropy Trap, and why you think that imagery is so relevant today for investors and policy makers? Maini: Every system drifts toward disorder unless something is actively working to keep it together. In a financial system, that energy is credit, trust, policy support, liquidity, regulation, institutional credibility and political cooperation. Early in a cycle, adding complexity helps. More credit, more institutions, more globalisation, more policy tools — they all make the system look stronger. But every layer becomes something you have to maintain. More debt needs refinancing. More regulation creates workarounds. More monetary intervention creates asset inflation and moral hazard. Each intervention solves one problem and creates the next one. Eventually the cost of maintaining the old equilibrium rises faster than the system’s ability to pay it. That is the trap. The IRA: You argue that we are not merely in another cycle today but are moving from stability to greater instability, a key aspect of entropy. Why does that distinction matter to investors and to markets, and what tells you which phase of the change process we are in at present? Maini: A normal cycle bends and mean-reverts. Stress rises, policy responds, the old structure survives. Most of the time, that is what happens. Conventional macro is built for that world, and it works most of the time. A transition is different. The equilibrium itself changes. The old relationships stop holding. Bonds stop hedging equities. Liquidity disappears when it is needed. Policy works for shorter periods. Geopolitics starts driving supply chains. Technology starts changing the physical economy. The distinction matters because the playbook inverts. The IRA: We have certainly have seen that phenomenon in the US economy since 2008. The use of aggressive interest rate policy and open market operations by the Fed to address policy issues has less and less impact. And the degree of speculation in the markets has grow greater and greater. We’ve actually adopted a barbell model to preserve value, on the one hand, but also maximize returns in the fiat world. When we talk to investors, the level of confusion is growing. How do you see the markets today? Maini: The big challenge for investors and policy makers is to understand that we are not in a normal situation comparable to say 20 or 30 years ago. We are in a major transition. In a normal cycle, you buy the dip. In a transition, the rally may be a false equilibrium. The asset that protects you in one environment can damage you in the other. Getting the regime wrong is more dangerous than getting the timing wrong. What tells me we are in the second phase? Policy effectiveness has been decaying on a measurable curve. Each intervention costs more and buys less benefit and time. Cross-asset correlations are elevated. Stress velocity has not produced a sustained healing phase since 2008. None of those readings is consistent with a clean normal cycle. The old equilibrium is no longer recovering. It is being reorganised. The IRA: Agreed. We see a level of confusion and dysfunction between economic sectors that were once strongly correlated. The companion observation is that many stock are driven solely by equity manager momentum, often in stark opposition to fundamental value and operating performance. We could make quite a list of idiosyncratic stocks from our WGA Bank Top 50 model portfolio. The link from the particular to the general seems to be broken. Conventional macro economics has been wrong on the same set of questions for years. Why does your framework read the system differently, and what does it actually measure? View from Leen's Lodge, West Grand Lake, June 9, 2026 Maini: Conventional macro measures depend upon debt-to-GDP, inflation, employment, growth, credit spreads. Those classical macro measurements work in normal conditions because the relationships between the levels are stable. They stop working when the relationships themselves are changing. That is what happens in a transition. Your experience benchmarking banks gives you a view of the particular, the micro economy so beautifully documented by US regulations. Levels can be smoothed. Sentiment can be managed. Reported numbers can lag. The IRA: That is precisely the problem with economics in the US. There is an assumption of stability, of continuance. I’ve actually had economist friends look me in the eyes and tell us that the Treasury market will always be open. Since that conversation, the Treasury market has collapsed twice – December 2018 and March 2020 – yet we continue to model the economy like today is normal and stable. Our big worry is that the rate of change seems to be accelerating. Maini: Motion is harder to smooth, to fit into a given narrative of the political economy. As a result, focusing on the Entropy Trap measures the volatility of policy and public sentiment. The Solstice framework measures motion rather than only levels of indicators. It measures the level of stress, the velocity at which stress is rising, the acceleration of that velocity, and the change in acceleration itself. It also measures whether risks that used to be separate are now moving together. Three examples make the point. Japan can carry very high debt because the system still has internal stability. Greece collapsed at a lower debt level because stress velocity was accelerating. The United States in 1929 had low federal debt, but private leverage was building underneath. The level alone was the wrong question. Motion told the truth. The level tells you where the car is. The derivatives tell you whether the driver still has control. That is what the framework adds. The IRA: The Institutional Risk Analyst has been warning that private credit has become a ticking time bomb — that risk has migrated outside the regulated banking system into structures with longer lockups, slower marks, and opaque counterparty exposure to banks themselves. What does the Solstice framework currently read on this change in bank exposures to nonbank firms and the attendant risk? Maini: The migration itself from banks to nonbanks is the signal. Healthy financial systems do not usually produce this kind of channel migration. Stressed ones do. Risk migrates toward weaker supervision, lighter capital treatment, slower marks and more opaque structures when the system is under stress. That is true in private credit, nonbank mortgage origination, structured credit, BDCs, insurance company alternatives and parts of commercial real estate finance. The framework currently reads private credit as one of the key propagation channels for the next phase of stress. "The migration itself from banks to nonbanks is the signal. Healthy financial systems do not usually produce this kind of channel migration. Stressed ones do. Risk migrates toward weaker supervision, lighter capital treatment, slower marks and more opaque structures when the system is under stress." The IRA: So translated into risk manager, we’re going to see increased contagion risk from the nonbanks. Usually the trigger for a selloff is a surprise. Maini: The exact trigger is unknowable. It could be a fund, a financing vehicle, a borrower cluster, a liquidity event, a bank line, or a valuation mark. But once the trigger fires, the risk does not stay private. It returns to the regulated system through committed credit lines, counterparty exposure, repo relationships, prime brokerage, warehouse lending, and confidence effects. That is the important part. The framework can tell you the system is brittle enough for cascade. It cannot tell you which institution or transaction starts it. That is where your IRA Bank Book and institutional plumbing work become essential. The system-level reading and the institution-level reading need each other for full understanding. But again, the migration itself is the signal. The IRA: We have called silver our number one idea for 2026 even while preferring gold as a core holding. How does the framework read the gold-silver pair, especially in the context of some of the more pronounced bubbles in technology and AI? Maini: Gold is the structural core. It is the major asset with no counterparty. It is no one else’s liability. That is why it returns to the centre of the system when trust in paper promises weakens. Central banks have been buying gold at historically elevated levels for several consecutive years. That is not retail behaviour. It is sovereign behaviour. The framework reads that as confirmation that trust in the existing reserve architecture is leaking. The IRA: We are in agreement on gold as the basic trust asset. How do you view silver, which was the poor stepchild of gold in a monetary sense going back to the 1890s when first Europe and later the US abandoned silver coinage? Today silver is a crucial industrial asset for everything in tech but also an increasingly interesting monetary metal. Maini: Silver is the kinetic version of the same trade. It has monetary properties like gold, but it also has growing industrial demand. Solar. Electrification. Electronics. AI infrastructure. Defence systems. All require silver. It is both a trust asset and a physical input. That makes silver more volatile, but potentially more asymmetric. In inflationary transitions, the gold-silver ratio has historically compressed. The timing is uncertain. The volatility is high. But the conditions for compression are present. The framework agrees with the broad preference: gold for the core, silver for the higher-beta expression. Gold comes first because the trust function comes first. Silver follows when the monetary trade and the industrial constraint trade converge. Gold is the anchor. Silver is the torque. The IRA: Thanks Mickey. We’ll talk again soon. Readers can learn more about Mickey Maini’s work and the research behind the framework at Solstice Laboratory. Additionally, The Entropy Trap: What Physics Knows That Markets Don’t is available now on Amazon, where readers can explore Maini’s full argument on systemic stress, phase transitions, and why today’s markets may no longer be operating inside a normal cycle. For more information on Mickey, the book, and Solstice Laboratory’s ongoing research, visit https://solsticelabs.com. 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.

June 8, 2026 | This week The Institutional Risk Analyst is travelling to Leen's Lodge Grand Lake Stream, ME, for a week of fishing and conversation with a small group of mortgage and financial professionals. We’ll be updating readers on our discussions at the end of the week in "The Wrap." And yes, we’ll be taping our weekly discussion with Julia LaRoche from Leen’s Lodge on the shores of West Grand Lake. The photo below was taken from the dining room deck of Leen's Lodge. Photo: MJ Whalen We have updated the WGA Precious Metals Top 25 for June 2026. Many of the gold and funds are down YTD, having given up the gains seen in 2026 in the face of triple digit returns for AI related stocks. As we noted last week in “The Wrap,” when AI stocks are soaring and interest rates are rising, precious metals typically retreat. It's all about short-term yields and chasing the shiny object. Readers should recall our comment about the virtuous barbell that we use to inform our investment strategy at WGA (“Inflation and a Virtuous Barbell”). On the one hand, we anchor our portfolio in precious metals, real estate and commodities. These are long-term positions meant to counter the steady erosion of the purchasing power of the dollar. On the other hand, we balance the portfolio with income from fiat assets such as Annaly Capital Management (NLY) and capital appreciation from momentum driven sectors such as AI stocks. We’ve been taking profits in AI stocks and have rotated back into solid energy sector names such as Chevron Corporation (CVX) and The Williams Companies (WMB). Subscribers to the Premium Service of The Institutional Risk Analyst may see the updated WGA Precious Metals Top 25 and the 49-stock test group by logging into the web site and navigating to the Top Rankings page. https://www.theinstitutionalriskanalyst.com/toprankings Despite recent severe plunges, both gold and silver are still up over the past 12 months due to massive earlier rallies. Gold sits around $4,329 to $4,344 oz (up ~ 30% YOY) and silver trades near $67 to $68.50 oz (up ~ 100% YOY). We’ve been adding to our positions in silver to take advantage of market weakness and selling our last positions in AI bubble stocks. When a heretofore sleepy technology stock is up hundreds of percent in less than a year, that is your signal to 1) take profits and 2) look for good inflation hedges. Recent Posts of Interest AI, Debt & the Death of Fear https://www.theinstitutionalriskanalyst.com/post/theira851 The Wrap: Bessent Kicks Ass, Bitcoin Collapses, AI Soars or Not https://www.theinstitutionalriskanalyst.com/post/theira852 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.

“Central bankers around the world…seem more comfortable with inflation closer to 3% than I wish were the case. That’s very dangerous stuff. We can have an economic boom in that scenario, but there’ll be a high price to pay.” Kevin Warsh, 2024 This week in “The Wrap,” we feature the top events in Washington and on Wall Street over the past week. And please do watch “The Wrap with Chris Whalen” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. June 5, 2026 | Another week goes by and there is still no peace agreement between the US and Iran. The Strait of Hormuz remains closed and much of the world’s capacity for producing key refined products remains offline. The Iranians have made clear that they are not going to give up the nuclear program nor the Strait of Hormuz, their key playing cards. We spoke with our friend John Dizard this week and he wonders why the Trump Administration is refusing to begin planning for rationing of synthetic lubricants. Adding to the sense of confusion in Washington, this week President Donald Trump unexpectedly appointed FHFA Director Bill Pulte as Acting Director of National Intelligence (DNI), a move that left many people inside and outside the intelligence community speechless. In case you are wondering, Pulte will keep his FHFA job, notes mortgage market observer Rich Swerbinsky, where he serves as the regulator of half of the US market for housing finance. "I'm crushing it at FHFA," Pulte said in a statement. "Why stop now? Imagine what I'll do at both." An anonymous senior FHFA staffer responded: "Please. Please stop him." As one Washington insider told The IRA: “Actually, this makes perfect sense if Trump wants Pulte to combat the deep state and to exorcise the spirit of John Brennan. Trump is still score-settling from Jan 6th.” The appointment of Pulte as DNI resulted in a remarkable exchange during an appearance this week by Treasury Secretary Scott Bessent before the Senate: Senator Thom Tillis (NC): "Did you actually tell Pulte you were going to punch him in the face?" Bessent: "No, sir. I actually said I was going to kick his ass." Tillis: "Good, I share the emotion…I'm not going to support Pulte for DNI…He lost me when he went after Powell." This week Trump also announced he’ll formally nominate Acting Attorney General Todd Blanche for the post full-time. “This will be a difficult nomination for Senate Republicans,” notes Punchbowl News. “There’s no guarantee that Blanche — Trump’s former personal lawyer — can even get through the Judiciary Committee, much less get confirmed by the full Senate.” The Treasury market rallied on hopes of a peace accord in the Middle East, but the 10-year Treasury note is still at 4.5%. The par 5.5% Ginnie Mae contract closed Thursday a 100-05, meaning that most lenders will be offering 6.5% fixed rate mortgages next week. We suspect that mortgage rates will move higher rather than lower, making us very grateful for the 5.875 30-year fixed rate mortgage we priced in April. The financial markets continue to behave in a manic fashion, reacting to headlines about the prospect of peace in the Middle East, when the reality is far different. Even were peace agreed tomorrow, it would take literally years for the damage to productive assets in the Persian Gulf to be reversed. Damage to Persian Gulf petroleum refining and energy infrastructure is projected to shave roughly 0.3% off forecasted global GDP in the coming year, largely through elevated energy prices and inflation. More severe local contractions (up to double-digit drops) may occur in heavily impacted Gulf economies. We think that the global impact could be greater once shortages of key industrial materials are fully factored into the analysis. “Bitcoin posted its longest losing streak since August,” Bloomberg reports, “weighed down by liquidations of bullish bets and this week's rare sale of tokens by the dominant corporate buyer.” Gold and silver, by comparison, have held steady or declined modestly over the past five trading days. The action is AI-related stocks, however, remained brisk, but with some stocks falling in price. Source: Yahoo Finance (06/04/2026) NVIDIA (NVDA) was up roughly 2.08% over the last five trading sessions and gained approximately 2.44% on the 5-day window. Broadcom (AVGO) fell sharply by roughly 14.10% following a tech sector pullback after recent quarterly reports. Memory maker Micron Technology (MU) dropped about 7.74% over the five days amidst high cyclical volatility in the memory-chip market. Alphabet (GOOGL) emerged as the top-performing megacap AI-related stock, surging nearly 10% over the trailing five trading days. The rally was driven by renewed investor enthusiasm over AI infrastructure spending following tech earnings reports. The AI investing crowd seems to go from one stock to the next, gunning even large cap stocks up hundreds of percent before moving on to the next target. Recent Posts AI, Debt & the Death of Fear https://www.theinstitutionalriskanalyst.com/post/theira851 Inflation and a Virtuous Barbell https://www.theinstitutionalriskanalyst.com/post/theira848 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.

June 3, 2026 | This week Goldman Sachs (GS) CEO David Solomon stated the obvious when he noted that there is “more greed than there is fear” in comments to the Economic Club of New York. Solomon’s observation came as Goldman projects that the war with Iran will cause “a modest drag” on U.S. and global GDP while significantly elevating inflation and delaying interest rate cuts. In fact, we expect the war with Iran to result in higher interest rates, higher inflation and rationing of key petroleum byproducts in coming months, something that nobody in the Trump Administration seems willing to discuss. If Washington was populated by serious people, the federal government would already be making plans for rationing key refined products. The prospect of such developments is unlikely to change the manic mood on Wall Street, however. Bankers have declared 2026 to be the year of initial public offerings regardless of whether the Fed cuts or raises the target for federal funds or inflation goes to double digits. On Wall Street, it no longer matters. As one reader named Ira notes: "There are four ways to deal with debt loads----repudiate, depreciate, devalue, or a capital levy------where do we go from here?" The Treasury’s issuance of short-term debt is serving as a rate cut of sorts, forcing down the level of duration in the market even as the amount of total indebtedness grows. Shortening the duration of Treasury debt is a sort of fiscal QE. No surprise then that a surreal atmosphere prevails in Washington as the federal debt now totals $40 trillion, yet the growth of private debt is equally impressive. The situation on Washington and Wall Street, however, is fundamentally different than a century ago. Rather than an absence of fear, the late 1920s were characterized by overconfidence and an "asset bubble" driven by greed, which ultimately culminated in the devastating Wall Street Crash of October 1929. Today the mechanisms of government provide stability to the system, stability that allows people to take even greater risks with less fear. Like Herbert Hoover in the late 1920s, Donald Trump in 2024 was elected to preserve the existing order even as the ground was shifting underfoot. While the financial markets climb ever higher, the level of dysfunction in Washington reminds close observers of President Trump’s first term in office. The lack of focus and attention to details in Washington, however, are less troubling than the lack of fear and especially uncertainty in the financial markets. Banksters are certain that AI-related technology firms will go to the moon, but their lack of fear and loathing is far more terrifying. Morningstar initiated coverage on SpaceX with a fair-value estimate of $780 billion. This is less than half of the $1.8 trillion target valuation for the company's planned initial IPO, just one caution about the valuation of SpaceX. Of note, SpaceX disclosed this week that it "may issue a significant amount of equity in connection with future transactions," signaling that the company expects additional acquisitions, investments, or other major deals after it reaches public markets. This may include the purchase of Elon Musk's ailing auto company Tesla Motors (TSLA). Bitcoin crypto tokens seem to have fallen into yet another price collapse. All around there are signs of a reset building. As we noted in the latest edition of The IRA Bank Book Q2 2026, “higher credit risk is becoming more broad-based,” note our friends at MIAC. “Rising delinquencies are most apparent in FHA, but the deterioration has touched all mortgage sectors.” Today debt spreads are as tight as ever before, usually a positive indication about the health of the metabolism of the US economy. In this case, however, we view the tightness of debt spreads as an indication of inflation, whereby investors are chasing investment assets in a way that is breathtaking in its presumption and lack of fear. In our work in the mortgage sector, for example, the list of institutional investors looking to put capital to work buying and flipping distressed residential mortgages is scary. Why are investors who usually gallop the globe looking for multi-billion dollar opportunities now focused on defaulted HECM reverse mortgages being auctioned this summer by HUD? Because despite the piles of private debt in the financial markets, government guaranteed assets remain scarce. William H. Janeway, special limited partner of Warburg Pincus, distinguished affiliated professor in economics at the University of Cambridge, and author of Doing Capitalism in the Innovation Economy (Cambridge University Press, 2018) commented in Project Syndicate this week: “One highly relevant place to examine how the world really works right now is the extraordinary boom in AI-related investment to fund construction of the physical infrastructure needed to enable the training and deployment of large language models. These investments are motivated by problematic long-term expectations with respect to commercially useful and financially rewarding applications of generative AI. The question from the world of financial economics is whether, in aggregate and with respect to specific players, the cash flows generated by these applications will be sufficient—and sufficiently timely — to validate the investments now committed. In turn, funding from the operational cash flows of the established, monopolistic tech giants has been giving way to rapidly growing issuance of debt securities. The entire phenomenon cries out for analysis in the spirit of Minsky’s Keynes.” Bill Janeway, who we interviewed previously in The IRA (“The Interview: William Janeway on Capitalism and the Innovation Economy”) reminds us that America today is deep into the third phase of classical finance, the Ponzi phase, when valuations are purely a matter of manipulation and hubris. He recalls that the “Minsky Moment” arrived two years before the collapse of Lehman Brothers, when companies began to pay their debts by issuing more debt. Sound familiar? Like the standard practice today in private equity and debt. Again, Janeway: “Minsky had defined a process, not a moment, and the stage that it had reached in 2006 could have been inferred from the fact that banks were funding their customers with “PIK-Toggle” debt instruments. This meant that debtors could service their obligations by issuing more debt (PIK stands for “payment in kind”), and that the decision to do so was entirely within the borrower’s discretion (the “Toggle”). There could have been no clearer evidence that the system was in the Ponzi phase. Moreover, markets were so confident in the illusion they had created that one could purchase a three-year put on the S&P 500 (a bet that the index would fall) for only 2% per year.” We can understand why many economists believe that the FOMC will be forced to raise interest rates at the next meeting or by the latest July, yet we’d argue that the situation in the financial markets now exceeds the ability of mere policy to control inflation. After 16 years of QE from the Fed, the only way that we can tame the dragon of inflation and affordability in the US is for a maxi asset price reset in credit a la the 1970s or even the 1930s. In the event, when the surprise event does occur, the FOMC will be forced to drop interest rates dramatically to get ahead of a deflationary tidal wave. Recent Posts of Interest Keynes, Minsky, and the Economics of Uncertainty https://www.project-syndicate.org/onpoint/keynes-minsky-economic-uncertainty-investment-and-bubbles-by-william-h-janeway-2026-05 Inflation and a Virtuous Barbell https://www.theinstitutionalriskanalyst.com/post/theira848 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. Recent Posts of Interest Gretchen Morgenson: She paid an insurance company $99,000 to generate retirement income for life. Then it collapsed 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.

June 1, 2026 | Whalen Global Advisors LLC has released The IRA Bank Book Q2 2026, which delivers a detailed look at the operating realities and credit risks building beneath the surface of the US financial system. The 30+ page deep-dive into the US banking sector updates investors on the performance of financials YTD in 2026 after the remarkable performance in 2025. The IRA Bank Book Q2 2026 Source: Yahoo Finance (05/29/26) “Financial stocks are the only sector of the equity market with positive performance after AI/technology,” notes WGA Chairman Christopher Whalen. JPMorgan Chase (JPM) CEO Jamie Dimon stated that the bank's trading (markets) revenue could rise by at least 11% in the second quarter, which would make it the second-best quarter ever for that business. Additionally, Dimon projected that JPM's investment banking fees would increase by about 10%. “Credit indicators continue to trend lower even as exposure to areas such a private credit and nonbank financial institutions continue to grow by double-digit rates," notes Whalen. "The rising exposure of US banks to non-depository financial institutions, including private credit funds, credit managers, and private equity sponsors that now sit at the center of the shadow banking system, suggests that bank stocks may be headed for a reset, especially if the FOMC tightens policy later this year.” The new report includes WGA’s proprietary estimate of the contingent credit exposure of U.S. banks to these NDFIs, a number that may surprise investors who assume bank balance sheets are insulated from the private credit boom. The IRA Bank Book for Q2 2026 also features a discussion of the WGA Bank Top 50 test group as well as extensive tables and charts showing the performance of loans, fixed income assets and other indicia of bank financial performance. Source: FDIC/WGA LLC “One reason why bank credit statistics look so good is that the markets remain awash in liquidity, forcing asset prices up and default rates down,” notes Whalen. "We estimate that there are now $3 trillion in unused loan commitments by banks to non-depository financial institutions." He adds: “The period of Fed tightening from 2021 through the end of last year did not even begin to deflate the asset bubble in US markets fueled by quantitative easing (QE) by the Fed. Many of the indicators of the cost of default are actually falling as Q2 2026 draws to a close, evidence that there remains a huge amount of inflation in financial assets and markets after 15 years of massive securities purchases by the Federal Reserve Board.” The IRA Bank Book Q2 2026 is available for purchase in The IRA online store and to subscribers to The IRA Premium Service which provides ongoing analysis of bank risk, credit markets, and financial system stress points. Subscribers please login to download your copy of The IRA Bank Book for Q2 2026 report below.

This week in “The Wrap,” we feature the top events in Washington and on Wall Street over the past week. And please do watch “The Wrap with Chris Whalen” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. May 29, 2026 | As the month of May draws to a momentous close, the US-Israeli war with Iran seems no closer to a conclusion than it was a month ago, this despite the almost daily optimistic statements about “a deal” from the Trump Administration. "US and Iran 'very close' to deal but 'not there yet', VP JD Vance said this week. The chief result of President Donald Trump’s Iranian adventure seems to be ever higher inflation and rising LT interest rates. That said, WTI trended down again this week, hitting around $89/barrel (was ~ $97/barrel last week). Brent was down to about $94/barrel ($103 last week). Gasoline prices also fell to $4.39 vs $4.52 last week, with diesel down to $5.52 vs $5.63 last week. But technology stocks are at all-time highs led by the likes of Micron Technology (MU), which is up over 800% in the past year. Are the US equity markets approaching an inevitable reset? Bank Income Up, Stocks Sideways The FDIC released the aggregate Q1 data from the US banking industry this week. Income was up again, but stock prices for financials are flat to down with a few exceptions. We’ll be publishing our quarterly update on the industry and specific thoughts on financials on Monday. One basic issue with all financials, banks or nonbanks, is that the upward move in LT interest rates has left many issuers underwater on their fixed income investments. Likewise, the preferred and debt securities issued by financials are trading at a discount. Are banks good value at these levels? We’ll tell our Premium Service subscribers next week. With the 10-year Treasury trading at 4.45% yield as of Thursday’s close, banks and investors with large positions in low-coupon securities are facing rising unrealized losses on their securities portfolios, but rising delinquency in private credit is also a concern. “Fueled by ultra-low interest rates, post-2008 banking regulations, and yield-hungry investors, private credit became one of the most powerful forces in global finance,” writes Mayra Rodriguez Valladares. “Now the environment that created it has reversed: rates are elevated, refinancing has become harder, and the first real signs of stress are emerging across the asset class.” Rodriquez notes that Fitch Ratings reports that the U.S. private credit default rate hit a record high of 6.0% in April, 10x the default rate for US banks. The credit rating agency also estimated that private-credit-backed corporate borrowers experienced a subprime 9.2% default rate in 2025. Despite such concerns, our WGA Bank Top 50 group is currently led by The Toronto-Dominion Bank (TD), Merchants Bancorp (MBIN) and Bread Financial Holdings (BFH), not exactly a who’s who of usual leaders in the group. TD has almost doubled in the past year largely due to its recovery from 2024 regulatory penalties (including a U.S. asset cap), combined with record revenue in Canadian retail banking. TD has done a much better job recovering from regulatory sanctions than say Wells Fargo (WFC). The End of Policy? Will an eventual cut in ST interest rates by the FOMC will also result in lower LT yields? Our simple answer is no unless and until the Fed restarts quantitative easing (QE). Treasury Secretary Scott Bessent heavily criticized (QE), calling the Federal Reserve an "engine of inequality,” but the lack of QE is gradually forcing LT interest rates higher as the federal debt grows. We may be closer to QE 5 that Bessent knows. To review: QE1 (Nov 2008 – Mar 2010): Response to the global financial crisis, the Bernanke Fed purchased $1.75 trillion in mortgage-backed securities (MBS), agency debt, and Treasury notes. QE2 (Nov 2010 – Jun 2011): Aimed at “supporting a struggling recovery,” the Bernanke Fed purchased an additional $600 billion in longer-term Treasury securities. “Operation Twist” redux c/o Governor Janet Yellen. QE3 (Sep 2012 – Oct 2014): Open-ended asset purchasing program (nicknamed "QE-Infinity") under the Bernanke Fed that eventually peaked at $85 billion per month in combined MBS and Treasury purchases. QE4 (Mar 2020 – Mar 2022): Initiated to counter the "economic fallout" of the COVID-19 pandemic. Open-ended program expanded the Fed’s balance sheet to a peak of nearly $9 trillion through massive purchases of Treasuries and MBS causing home prices to soar. Notice that the US housing market was massively subsidized by the Fed going back to 2008, one reason that home prices surged until the end of 2024. In relative terms today, housing is in a depression. There may be a short rally in LT interest rates as and when the Fed inevitably cuts the target for federal funds, but we have a hard time envisioning a catalyst for a sustained rally in Treasury notes and bonds, much less MBS. The massive weight of duration of MBS that is being shifted from the Fed back to the private markets is pushing mortgage rates higher. More, the impact of the war with Iran may push up inflation up towards double digits by year-end, regardless of whether a deal happens sooner than later. Higher Rates, Lower Asset Values As a result of the war with Iran, “Trump’s poll numbers on the economy — by far the top issue this year — have collapsed,” PunchBowl reports. “Some recent polls had him under 30%, an absolute disaster for Republicans” in the midterm elections. Consumer confidence hit record lows this week as well. Americans are cutting back on spending and consuming savings as they struggle with rising gas prices and interest rates, even as Wall Street notches record highs. The number of Americans struggling to put food on the table is growing. But even more worrisome is the impact of rising inflation and interest rates on prices for stocks and other assets. Could the net result of two years of manic behavior by investors chasing returns in everything AI be a maxi reset in the financial markets? A decade of artificially low interest rates – and the expectation of more of the same in the future – drives up asset prices. As low interest rates permeated the economy over the past decade and more, MTS Observer noted recently, “near-term cash flows are discounted by a lower cost of capital, leading to higher valuations across all asset classes.” When the expectation of interest rates lower for longer evaporates, however, suddenly the rationale for elevated assets prices disappears. As interest rates rise, the true condition of bank loan portfolio is becoming evident and is tied to valuations. Or to use the language of commercial property, a higher cap rate implies a lower valuation for the asset. Gold, Silver Trend Lower In the past five days, gold lost several points in a week of choppy trading. Gold has trended down, falling by roughly 3% to 4% to below $4,400 per ounce. This marked multi-month lows driven by a stronger U.S. dollar, stalled U.S.–Iran peace talks, and rising Treasury yields. Over the last five trading days, silver prices experienced a volatile pullback, sliding from roughly $76.50 per ounce down to the $72.00-$74.00 range. Prices softened reportedly due to short-term profit-taking, pushing the metal to four-week lows. ZKB Silver ETF (0VR6.L) is still the best performing stock in the WGA Precious Metals Top 25, but we’re not allowed to buy it at Merrill Lynch. Go figure. Recent Posts Inflation and a Virtuous Barbell https://www.theinstitutionalriskanalyst.com/post/theira848 Who is the Next Countrywide Financial? PennyMac, Rocket & UWMC https://www.theinstitutionalriskanalyst.com/post/theira843 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.

May 26, 2026 | For a while now, we have been alluding to a “barbell” strategy for our investments at WGA LLC that is anchored in precious metals and real estate, in terms of value protection, but balanced with an aggressive strategy toward fiat gains on the stock market and income from high quality fixed income exposure in REIT common and preferred, and unsecured debt. In a system where tax avoidance is a national aspiration, the currency must inflate continuously and at varying rates to accommodate the Treasury’s cash needs. Last week in "The Wrap," we noted that real gasoline prices, adjusted for inflation, are actually quite low. We also predicted that inflation could touch double digit rates later this year as a result of the US-Israeli war with Iran, but the big driver of inflation remains the federal debt. As we wrote in “Inflated: Money, Debt and the American Dream” in 2025: “Over the decades, the political will to collect taxes in the United States has failed, often because conservative politicians think (wrongly) that depriving the Treasury of revenue will somehow slow federal spending. If Democrats tend to be too enamored of demand-side policies and debt, Republicans tend to have a nineteenth-century view of money and markets that is entirely antiquated. What the Civil War proved and the New Deal and subsequent decades confirmed, a legal tender fiat currency and Treasury emissions are interchangeable. But when American individuals or corporations avoid taxes, they are essentially forcing the Treasury to borrow.” Our missive last week (“What Does a Smaller Fed Balance Sheet Mean for Inflation & Interest Rates?”) caused more than a few questions from our readers. The key factor to consider when the Fed is buying Treasury securities (or MBS during the Yellen and Powell FOMC is the duration represented by these assets. Why? When the Fed buys securities, the duration “disappears” inside the magical confines of the system open market account (SOMA). As a result, there is less duration available for private investors. If interest rates are stable, lower duration means asset prices rise and market yields fall as investors compete for a scarce asset. But what happens if interest rates fall dramatically as the Fed buys securities and new issuance surges? Think of duration as the average time in years that it takes to return principal and interest to an investor, thus higher levels of aggregate market duration generally means lower prices for securities. During COVID, the FOMC pushed interest rates down to zero, unleashing a tidal wave of new securities issuance with very low coupons and very long durations. In 2021, the Fed began to raise ST interest rates, causing new bond issuance to slow and coupons to rise. The change left the Fed and many banks insolvent. The Fed allowed its balance sheet to shrink for barely four years until December 2025, forcing banking system deposits to contract. The massive Treasury deficit as well as the net-sales of MBS by the Fed helped to push LT interest rates higher in 2026 even as duration measured in years was falling. But the fact remains that the average GNMA MBS coupon rate is just over 4% today Source: Ginnie Mae Market duration measured by the Bloomberg U.S. Aggregate Bond Index dipped as low as 3.63 years in March 2009 and rose to as high as 6.69 years at the end of 2021. Although immediately following COVID the Fed was buying $7 trillion in securities and sequestering this duration inside the SOMA, the overall duration of the US bond market actually rose. Trillions in new private securities were issued with very low coupons as illustrated by the chart above showing $2 trillion in GNMA MBS by coupon rate. Once the Fed raised interest rates in 2021, however, duration fell dramatically, causing bond prices to rise sharply. More recently, the relentless increase in outstanding public debt and the fact that the Fed is no longer buying MBS has forced LT yields higher during 2026. As a result of changes in the bond market, Weitz Investments notes, roughly half of the U.S. bond market does not appear in the Bloomberg Agg Index today. Lower coupons and higher duration means a more volatile bond market. Below we discuss some of our investments over the past five years, what has worked and what had not, and our view of the future The results are often surprising but also show that our basic thesis about balancing value investing with opportunistic speculation in fiat assets such as stocks and fixed income has kept us ahead of the curve and the crowd. In a system that continuously devalues its currency, the prudent investor is forced into an active strategy to defend value. We start the discussion with a foundation in financials, government debt and credit, enhanced with our later focus in nonbank finance and residential mortgages, and most recently in vehicles for gaining exposure to precious metals and commodity producers more generally. As the excesses of the progressive state that has existed since the New Deal and WWII become more pronounced, Americans are forced to adopt more sophisticated methods to defend real value – like hoarding high value goods for resale in the future. Years ago, we worked as a consultant in Mexico for the US Export Import Bank and a number of private companies. We witnessed first hand how the average individual hedged against the double digit inflation that was commonplace at that time south of the border. Cargo planes fitted out with extra wide doors loaded up on new home appliances in Laredo, TX, then flew to airports in Mexico where the appliances were sold for cash right on the tarmac. The buyers would store the new appliances for a year or more, then sell the item for cash at a much appreciated value. The mentality of inflation was ingrained in Mexico 50 years ago and is becoming ingrained in the US today. The Virtuous Barbell

This week in “The Wrap,” we feature the top events in Washington and on Wall Street over the past week. And do watch “The Wrap with Chris Whalen” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. May 22, 2026 | This week featured a lot of important developments in Washington and on Wall Street. Citigroup (C) struck a deal with BlackRock’s (BLK) private credit arm HPS to make up to €15bn of loans to companies and leveraged buyout groups across Europe. Democrats released a draft of their autopsy report on Kamala Harris’s stunning 2024 defeat. And unregulated firms offered investors a way to speculate on the coming IPO of SpaceX outside the usual confines of US securities laws. The stalemate with Iran over the Strait of Hormuz continued, raising increased pressure on prices for key industrial chemicals and fuels. John Dizard told The IRA this week that he expects to see rationing of fuel and lubricants in the US later this summer. Of course, there is not a word from the Trump White House about shortages of key energy products as a result of the prolonged US-Israeli war with Iran. Even as rising energy prices undermine Republicans hopes for the midterm elections, President Trump continues to say and do things that are forcing members of the Senate to distance themselves from the President. Then there is the new $1.776 billion “anti-weaponization” fund that Hill Republicans reportedly see as politically toxic and an immunity deal for the President and his family with the Department of Justice. These are merely the latest “surprises” from Trump for members of Congress. Readers should ponder why President Trump feels the need for an immunity deal with the DOJ. Political commentator Mark Halperin suggests Trump would prefer to use taxpayer money for a "weaponization fund" to relitigate the 2020 election and January 6th, rather than focusing resources on the upcoming midterms. He warns that Republicans could see a "big wipeout" if voter sentiment on the economy doesn't improve. Citi Doubles Down This week Citigroup (C) struck a deal with BlackRock’s (BLK) private credit arm HPS to make up to €15bn of loans to companies and leveraged buyout groups across Europe. The timing seems a little off, but the surge of spending in and around AI continues to be the biggest area of growth -- and risk -- for bank loans. “Citi-HPS joint venture is a regulatory-capital arbitrage, using non-recourse financing transactions which put Citi and taxpayers at contingent credit, liquidity, correlation, and market risks…..just like its “AAA” arbitrage in 2007/2008,” opines Victor Hong in a LinkedIn post this week. “HPS earns AUM fees in a capital/liquidity/balance-sheet light manner……by borrowing such from Citi, via those non-recourse financing transactions. Citi eats the downside while HPS savors the upside. A 2007 “AAA” pig or a 2026 “Investment-Grade” Private Credit loan P.O.O.P.? Scant difference; similarly non-existent cashflows.” Bitcoin Down, Interest Rates Up Meanwhile, Michael Saylor, Executive Chairman of Strategy (MSTR), f/k/a MicroStrategy, stated that the company will "probably sell some Bitcoin" to fund dividends and "inoculate the market," after the firm (now holding hundreds of thousands of coins) faced consecutive quarterly losses. This change marks a stark reversal in Saylor’s public position regarding the value of bitcoin. The war with Iran and the closure of the Strait of Hormuz caused Federal Reserve officials' concerns about inflation to intensify last month, with a growing number open to the possibility ​that they may need to raise interest rates. The change in inflation expectations drove the 10-year Treasury bond above 4.6% this week. “Policymakers noted that resurgent price pressures—exacerbated by geopolitical conflicts and higher fuel costs—make achieving their 2% target take longer than expected, prompting many to consider further rate hikes,” reports the Wall Street Journal. So far, President Trump has not attacked his new Fed Chairman, Kevin Warsh but we expect the honeymoon to be short-lived. The sharp increase in LT interest rates caused the value of loans and securities to fall, but boosted the value of negative duration mortgage servicing assets. The mark-to-market losses of banks have risen because of the increase in LT interest rates. The Fed is also likely to see an increase in unrealized losses on its $2 trillion portfolio of mortgage-backed securities. See our comment on the legacy of Jerome Powell on FT.com. KPMG Chief Economist Diane Swonk stated earlier that a recent surge in oil and commodities prices has made it "harder and harder" to justify interest rate cuts from the Federal Reserve. In an interview with Kathleen Hays on Thursday, Swonk said she expects at least one rate hike this year and perhaps as early as July. Silver and gold prices moved sideways over the past week. Nvidia (NVDA) reported good earnings and then traded off on the news. NVDA is down nearly 7% over the past five trading days, but our holdings in Advanced Micro Devices (AMD) continue to lead the AI group higher. Over the past year, AMD is up almost 300% vs just 60% for NVDA. Recent Posts Wall Street Killed Bitcoin https://www.theinstitutionalriskanalyst.com/post/theira779 Who is the Next Countrywide Financial? PennyMac, Rocket & UWMC https://www.theinstitutionalriskanalyst.com/post/theira843 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.

May 18, 2026 | Back in September of last year (“Trading Points: Klarna & Figure IPOs”) , we wrote critically of Klarna Group plc (KLAR) prior to its IPO: “Our basic view of Klarna is that the offering is a leading example of damaged goods c/o PE firms. The firm’s $14 billion offering price marks a steep decline from the $45.6 billion valuation assumed in 2021, when Japan’s SoftBank made a $639 million investment.” Since the IPO, KLAR has lost more than 60% of its value vs an 18% gain for the NASDAQ composite. As of Friday’s close, KLAR has a market capitalization of just over $5 billion or about 1/10th of the private valuation in 2021. The Klarna transaction illustrates the basic problem with private equity and credit, namely that the sponsors and insiders have no incentive to be truthful in their statements to investors. A colleague in the media asked the other day how private investment strategies had grown so large. The short answer is inflation. Asset prices have steadily increased since 2008, in large part because the Fed has refused to allow deflation and, indeed, has encouraged inflation to prevent the US financial system from seizing up. As we wrote in the book “Inflated: Money, Debt and the American Dream”: “The vast amount of debt incurred by governments around the world has forced policymakers to err on the side of ample liquidity in fact, regardless of what the official statements say about encouraging jobs and fighting inflation. In the fall of 2024 on the eve of a presidential election, the Fed decided to end the battle against inflation a little early, a remarkable development given that the central bank had barely reduced the level of bank reserves and home prices had not fallen. Yet the fact was that the Fed was unwilling to reduce market liquidity for fear of causing another systemic event in the bond market a la December 2018 or March 2020.” So long as the general level of asset prices rose, the private equity and credit markets seemed attractive. The systemic bias of the public equity markets to rise due to the predominance of passive strategies contributed to this pleasing illusion. Asset price inflation made the cost of credit negative in residential real estate, encouraging growth in credit strategies. But would investors of all stripes be pouring new cash into private equity or credit strategies if public equity valuations or home prices were flat or even falling? Ponder another example of systemic inflation. The assets of the US banking system “grew an astonishing $888.03 Billion (3.52%) to finish the 1st Quarter at $26.145 Trillion,” notes Bill Moreland of BankRegData. What drove this remarkable increase? Growth in the federal debt, deposits and also in bank loans. "This is a simply stunning number and the natural question is: where did all the funding come from?" Moreland asks. The table below shows the growth rates in bank liabilities in Q1 2026 which support this asset growth. Source: FDIC/BankRegData Most economists will tell you that the federal debt is not inflationary and that the size of bank reserves does not impact asset prices. Modest amounts of federal debt is not inherently inflationary, but deficit spending that creates the debt does contribute to overall demand and thus asset inflation. Also, the debt issued by Treasury fuels more borrowing. When bank assets grow by 3.5% in a single quarter, that inflates asset prices directly and indirectly. When the government borrows money to inject high levels of demand into a supply-constrained economy, as in 2020 during COVID, it drove up prices for housing. The fact that the Fed drove interest rates down to zero only added to the inflationary impact of huge fiscal action, an effect that continues to push up prices even today. As the Budget Lab at Yale University notes in a 2025 paper: “Higher debt adds to the risk of inflationary pressure in both the short- and the long-run, through aggregate demand, inflation expectations, crowding-out of private investment, and worries about fiscal dominance.” A Shrinking Fed Balance Sheet? Fed Chairman Kevin Warsh has made reducing the size of the central bank’s balance sheet and thus the level of bank reserves a priority. Most mainstream economists, of course, don’t think that the size or composition of the Fed’s balance sheet matters. In fact, the Fed’s purchase of securities from 2020 onward (and the sequestration of massive duration inside the system open market account or "SOMA") actually allowed the FOMC to keep ST interest rates higher for longer. The chart below shows the SOMA with the red line representing Treasury debt and the green line mortgage securities. If the Fed had not gone overboard with QE during and after COVID, the private markets would have needed to support trillions in Treasury and mortgage securities, and the FOMC would have needed to keep the target for federal funds lower to compensate for the additional duration held by the private markets. When the Fed buys Treasury debt, it is the economic equivalent of giving a sick patient morphine. If the Warsh Board of Governors (not the FOMC note) decides to move forward with a smaller Fed balance sheet, how the Treasury responds will be crucially important, notes Bill Nelson at Bank Policy Institute. In his must-read May 8th missive, Nelson lays out three scenarios for a shrinking Fed balance sheet, which would result in a commensurate decline in bank deposits. The most likely of the three Nelson scenarios is that the Fed shrinks the SOMA and Treasury issues zero duration T-bills in response, meaning that the FOMC would not need to lower ST rates. “Suppose instead the Treasury replaced the Fed’s portfolio holdings with new debt that had the same 5-year duration as the existing public debt, Nelson writes. “In that case the committee would need to reduce the target by 62 bp to leave the policy stance unchanged.” The more interesting possibility for Warsh involves a swap of the $2 trillion in MBS in the SOMA, which has a duration that is 3x the Fed’s whole portfolio. If the Treasury were to swap the Fed for the MBS with say 7-10 year notes, the monetary impact would be neutral. Then comes the bigger question of what to do with the MBS outside the duration sequestration of the Fed’s balance sheet? As we’ve written before ("Should the FOMC End Fed Funds Targeting? Issue CMOs?"), the obvious answer to the problem of the Fed's MBS position is for Treasury to hold the agency and government MBS. The White House can then direct the GSEs, Fannie Mae, Freddie Mac and Ginnie Mae, to engage with Street dealers and large end investors to restructure the paper into collateralized mortgage obligations (CMOs). The idea is to place this attractive, “AAA” paper with banks, insurers and pensions, forever. Insurers in particular would be natural buyers of the long-duration tails from these deals. Even though the paper would technically be “held by the public,” the fact of the duration transformation of the different CMO tranches would render the issuance neutral in terms of the public markets and FOMC policy. Warsh can correct the grievous error of QE under Ben Bernanke, Janet Yellen and Jerome Powell of doing too much for too long, and without creating yet another problem for policy. Chairman Warsh argue that the reduction in the size of the SOMA warranted a permanent reduction in the federal funds market. More, the permanent interment of the $2 trillion in duration represented by the Fed’s MBS hoard would give the Committee some additional flexibility in terms of managing the duration of the Treasury’s public market. “According to the New York Fed Market Group’s Annual Report, the duration of the Fed’s Treasury portfolio at the end of last year was 6.7 years,” Nelson wrote, but the true duration of the $2 trillion in MBS in the SOMA today is closer to 16-20 years. When these MBS held by the Fed were created during COVID, the duration was closer to 2-3 years. Source: dataQollab The good news is that Warsh can credibly advocate a cut in the ST target for Fed funds, but it involves shrinking the Fed balance sheet and reserves by $2-3 trillion and some artful coordination with the Treasury in the process. Given Nelson’s views, the best route may be for Treasury to issue longer term, longer duration debt, which would arguably force a 50bp rate cut by the Committee in response. We all need to remember that shrinking the Treasury portion of the Fed balance sheet is the easy part. The $2 trillion in notional amount of MBS held in SOMA, which now has an effective duration that is much, much bigger than the rest of the portfolio combined, requires some subtlety. The good news is that the agencies and Ginnie Mae are thinking about a potential Fed MBS swap with Treasury. Wall Street can make it all happen and profit handsomely by selling a lot of “AAA” rated CMOs. 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. 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