Wall Street is on a tear.
Deal making, trading, and lending are driving strong profits at the big banks.
Goldman, JPMorgan, City, and Wells Fargo all beat expectations with Goldman headed for a record year and JPMorgan on track to top $50 billion in profit again.
Now BlackRock's assets hit a record 13.5 trillion as strong markets, active deals, and AI investments keep money moving while volatility as well as Trade tensions and inflation could easily reignite, and the recent failures of automakers, Tricolor and First brands have bankers on alert for risks.
Well, joining me to weigh in this morning is Chris Whalen, chairman of Whaling Global Advisors.
Chris, great to have you on.
Thank you so much for joining me.
So bank earnings look pretty flat so far this season, but what does that tell you about the health of the sector right now?
The deal side is doing very well, as you mentioned.
The credit side is quiet in terms of consumers, not so quiet in terms of commercial, private equity, commercial real estate.
There's still a lot of problems in the industry.
Uh, you know, you've got a chart up there showing efficiency for the big banks.
Uh, most of the, the institutions are still struggling with costs because they're only making about 1% return on assets.
Uh, there's a lack of demand for credit, and we're hoping that lower rates are going to push up volumes, uh, much like we saw in the 3rd quarter last year.
September was already a pretty good month because even before the rate cut, lenders were pushing down their rates.
They were trying to attract customers.
So we're going to see more of that.
The markets, I think right now, Remy, are a function of the fact that a lot of private markets have cooled, especially private equity, which is.
Bit of a disaster and so much of the liquidity is flowing back in the public markets looking for returns and AI in the tech sector, of course, is continuing.
Banks are really not attracting that much attention.
I thought it was interesting that Bank of America was congratulating themselves for balance sheet management when they still have half a trillion dollars in mortgage backed securities that are under water.
So you know, everybody's trying to focus on the good and ignore the bad.
But what I'll tell you is we're going to see more surprises in the 4th quarter, especially when it comes to writing off special idiosyncratic exposures that the banks have been trying to manage.
A classic example of this was Goldman, where they were talking about how hard it is to get out of some of their private equity positions, and they're taking losses as a result.
So the good news though is that the markets are roaring and people are doing deals.
So that's what's important for many of these banks.
Yeah, and Chris, I'm glad you covered some of the risks out there when it comes to the big banks, and it was really interesting to hear Jamie Dimon's comments regarding credit cracks and how he said if you see one cockroach, there are probably others, but I do want to move on to what we've been seeing in terms of gold as well as Bitcoin.
So gold continues continues to climb higher, breaking that 4200 level, while Bitcoin does remain lower after Friday's sell-off.
So what's going on here?
Well, I think on Friday we were reminded, Remmy, that gold and Bitcoin are not correlated.
Uh, tokens, Bitcoin, all the rest of the crypto complex are really correlated with stocks.
So when you had that trade kerfuffle with President Trump and Xi Jinping, which I view as a buying opportunity, by the way, uh, it took the crypto sector down.
You also took, saw some very idiosyncratic, uh, losses in some of these crypto platforms, hyper liquid, for example, got kicked around terribly on.
Friday, people weren't expecting that.
So I think it's important for investors to realize that gold, silver, some of the other metals are going up because of a lack of supply for structural reasons.
Crypto, on the other hand, I think it kind of slowed down in recent months.
Uh, the big gains were a decade ago, and I've been telling my friends that are heavily involved in that sector, look, go buy something real.
Go buy some gold, go buy some real estate.
Because you're gonna have to segue at some point back into the world of fiat if you want to use those profits.
I'm actually doing an interview later this week to talk about real estate and how people who have accumulated wealth in crypto can start to use some of that in the real estate market.
It's not easy.
You got to go back to dollars at some point.
So that's what I think about crypto.
I, I've always believed it was not a phenomenon that had great legs.
Well, Chris, finally, before I let you go, we just heard from Powell yesterday.
We'll be hearing from more Fed officials today, including Mayer.
So tell me, how concerned are you about the market liquidity as well as potential strain on the Fed funds market?
I'm very concerned about Fed funds for the simple reason that the big balance sheet policy that the Fed adopted years ago, going back to Chairman Bernanke, has taken a real toll on market function.
We essentially nationalize the Fed funds market.
Bill Nelson at Bank Policy Institute put out a very important piece earlier this week talking about the impending collapse of the Fed funds market.
Nobody's using it.
And so to use that as a policy mechanism, I think is kind of reached the end of its useful life, and the Fed has got to figure out how they are going to communicate changes in policy going forward, especially given that Fed funds is basically no longer a viable private market.
It would be nice if we could.
Reduce the amount of the Fed's balance sheet so we could get back to a market that really had some degree of private sector influence, but you know, the, the, the interesting thing is that the Fed told us by the beginning of this year that they were going to stop shrinking the balance sheet and they're continuing.
I think you can see that through the end of the year and again this is tightening.
So while we're talking about dropping the target for Fed funds, the Fed is essentially tightening policy with the balance sheet.
OK, Chris, well, we will have to leave it there, but as always, thank you so much for joining us and thank you so much for sharing all of your insights.
