#379 Chris Whalen: The Bond Market Already Hiked, Why Double-Digit Inflation Is Still Ahead, And Kevin Warsh Sets New Tone at Fed

Chris Whalen is back for The Wrap after his fishing trip in Maine, where he caught a 21-inch smallmouth bass! He's very positive on Kevin Warsh's "less is more" approach at the Fed—no forward guidance, likely removing the dot plot, and refocusing on letting the numbers speak for themselves rather than trying to control expectations through communication. Whalen argues the bond market has already delivered a rate hike on its own, and if he were Warsh, he'd wait and see how the Iran peace deal holds before making more moves, given that war inflation is transitory and external to Fed policy. He reveals the definition of inflation will likely be narrowed to minimize rate hikes and avoid tanking the economy, and he's watching a massive rebalancing from equities to bonds at record allocation levels. Whalen sold most of his AI stocks and locked in serious gains, but he's holding SpaceX as a long-term play given Elon's monopolies on space launch and global internet. He warns the AI bubble is going south with Mike Saylor and Bitcoin spiraling, sees gold and silver as a great entry point after being beaten down, and is adding to positions. He explains silver's manufacturing and technology demand while copper faces supply constraints. On Iran, Whalen argues the MOU doesn't solve underlying inflation drivers—diesel, fertilizer, energy ripple through the economy—so double-digit inflation is locked in with no Fed rate cuts coming. He's concerned about private credit festering with two-and-twenty fees still common, distressed debt exchanges now over 70% of defaults since 2022, and he likes Annaly as a mortgage REIT with government-insured assets and mortgage servicing rights providing protection. Whalen notes precious metals could still rise despite rate hikes because central banks will keep accumulating gold as reserve assets.

Links:
The Institutional Risk Analyst: https://www.theinstitutionalriskanalyst.com/
The Wrap: https://www.theinstitutionalriskanalyst.com/post/theira858
Inflated book (2nd edition): https://www.barnesandnoble.com/w/inflated-r-christopher-whalen/1146303673
Twitter/X: https://twitter.com/rcwhalen

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Timestamps:
0:00 Intro and welcome back Chris Whalen
1:47 Warsh sets different tone - No forward guidance, likely no dot plots
3:33 Less is more approach - Fed was communicating too much
5:43 Bond market has already done the rate hike
6:50 War inflation is transitory - External factor Fed can't control
7:19 Definition of inflation will be adjusted/narrowed
9:10 Bond market doing tightening, not Fed funds rate
10:34 Rebalancing from equities to bonds at record levels
11:50 Sold most AI stocks, took profits, holding SpaceX
12:07 SpaceX monopoly on space/internet - Long term play
13:57 AI trade, Bitcoin
15:57 Gold/silver beaten up but good entry, adding positions
17:02 Silver manufacturing and technology demand
17:49 Copper supply/demand - Not enough copper globally
19:32 Iran MOU doesn't solve underlying issues
21:45 Double-digit inflation locked in - Diesel, fertilizer ripple
22:34 Fed can't fix war-driven inflation
23:52 No rate cuts coming - Business banking on cuts won't get them
24:48 Private credit festering problem - Two and twenty fees
26:16 Distressed debt exchanges over 70% of defaults
29:27 Annaly - Mortgage REIT with government insured assets
30:00 Precious metals could rise despite rate hikes - Central banks buying
31:43 Precious metals dollar strength question
32:07 Next week