Chris Whalen: Double-Digit Inflation, Falling Home Prices & a Fed Forced to Hike

Summary

Chris Whalen and Julia La Roche discuss inflation, the midterm political climate, housing, bank earnings, and financial-market risks.

Affordability and Politics

Whalen characterizes President Trump’s proposed $5,000 cash dividend as “bread and circuses,” arguing that it is an election-season gesture rather than a solution to rising costs. He says affordability is the leading voter concern and that high gasoline and diesel prices could hurt Republicans in the midterms.

Citing political analyst Joe Costello, Whalen says Democrats could gain around 50 House seats, though he notes that Democrats also remain unpopular.

Inflation and the Fed

Whalen argues that the economy is already on a double-digit inflation path, pointing to energy costs and September producer-price data, which he says were the highest since late 2022. He expects higher fuel and input costs to ripple through food, transportation, and other goods.

In his view, the Fed may be forced to raise rates by a quarter point, potentially before the midterms, although the vote could be close. He warns that higher rates cannot resolve an energy supply shock and may further weaken demand.

Housing and the Mortgage Industry

Reporting on the Mortgage Bankers Association conference, Whalen says industry participants expect home prices to soften by roughly 5–10% over the next three years, rather than undergo the sharper 20–30% correction previously discussed. He stresses that conditions vary significantly by location.

Builders’ price cuts and the conversion of unsold homes to rentals signal a softer market, while elevated construction costs could put a floor under existing-home prices. Whalen also expects rising credit costs and continued layoffs among mortgage lenders and real-estate professionals.

United Wholesale Mortgage

Whalen sees United Wholesale Mortgage facing pressure from falling loan volumes and large payments owed to Oak Tree, despite its efficiency and recent management changes. He does not consider the stock an attractive buy at present.

Banks and Financial Markets

Whalen says Wall Street-related banking activity is slowing, while some recent loan growth was tied to securities and margin lending amid the AI boom. He notes that JPMorgan missed analysts’ estimates and that Bank of America received a $1.5 billion regulatory fine over anti-money-laundering issues.

He is cautious about financial stocks and expects bank credit costs and unrealized losses to rise.

Low-Rate COVID-Era Mortgages

In response to a viewer, Whalen says loans carrying very low coupons lose value when rates rise and can generate less income than banks now pay for funding. Selling them to raise cash could mean losses, so he argues banks should restructure portfolios rather than retain large amounts of low-coupon assets.

AI Stocks

Whalen describes parts of the AI boom as “circular” or “Ponzi-style” financing: companies raise money from investors and then sell services to those same investors. He argues that current revenues and earnings do not justify some valuations and expects further pressure on AI and technology stocks as the economy slows and energy costs rise.

Annaly Capital Management

Whalen views Annaly primarily as an income investment, not a vehicle for stock speculation. He says it has fallen about 20% from its highs and is trading slightly above book value; he may consider adding if it falls below book value.

Presenters

Julia La Roche; Chris Whalen.