And now let's get to the big story breakdown.
Analysts continue to raise concerns about a slowing economy, but so far the credit markets are not signaling a recession.
Net credit losses across the US banking industry fell in the 2nd quarter of this year and have been declining since 2024.
And despite multiple recession warnings over the past 3 years, industry-wide credit losses have remained stable on the heels of pandemic era stimulus.
Also QE.
Now with only 2 more Fed meetings left this year, recent changes by the board of governors, what is the economic outlook heading into your end?
Well, joining me live at the New York Stock Exchange to weigh in is Chris Whalen, chairman of Whaling Global Advisors.
Chris, great to have you here.
Thank you so much for joining us.
Good morning.
Well, now that the September Fed meeting is in the rearview mirror, give us your take on what we're seeing when it comes to the banking sector.
Banks are underutilized.
They would like to make more loans.
They're buying back record amounts of equity since the Fed gave them a gold star with the latest stress tests.
Deposits are growing twice as fast as loans, so the net's going to go into securities.
The biggest growth area is non-bank financial institutions, which has got everybody worried, but the credit side of the banks is not that bad.
It's actually been going down.
And all the commentary and the earnings reports pretty benign.
Yeah.
And when we take a look at the S&P 500, in particular financial services and we dive deeper down into the big banks here, we are seeing the double digit percentage gains for that sector.
But even the big banks, when we take a look at them, they range anywhere from 20% to even higher than that year to date.
So what does this mean not just for the institutions, but the American consumers?
I think the American consumer has a multiplicity of choices.
Think of all the platforms that have come to the market in the past year for consumer finance.
They're everywhere and they're funded with private equity.
So what I would tell you is the big performers.
In the last quarter, Citi so far was the best performing bank in the group lending club back from the dead.
The stock hadn't moved for years.
All of a sudden it takes off.
So I think the story here has actually been mid caps as opposed to large caps JPMorgan, Wells Fargo, nowhere to be seen in the last quarter.
Yeah, and as we head into the rest of this week, Chris, we're going to be hearing a lot of Fed officials, right?
We're going to be hearing from Powell later today we heard from Marron yesterday, but of course now that the September meeting is over and all these officials can speak, what do you expect to see when it comes to the central bank, not just for the rest of this year, but moving forward, and what does that actually mean?
I think they're going to be cautious on further rate cuts.
Mirin Myron was the outlier, and really if you read their comments, you're going to have Musalem voting.
In the next meeting, he's not on board with with rate cuts.
I think all of them are still looking at inflation more than the economy, and again, the banks aren't telling us that there's a recession here.
If there was, they'd be putting a lot more money in the reserves for future losses.
They're not doing that yet.
There's a little bit of a reserve build, but if you look at JPMorgan, no, even Citi, which has a much more subprime portfolio, no.
Yeah, so I do want to dive deeper into this because we're paying attention to the economic data, right?
We're looking at inflation figures.
We get PC at the end of this week and of course we'll be looking forward to the non-farm payrolls and unemployment figures.
But when it comes to the US economy, what should we be looking aside from these data points?
I look at market activity.
I look at the fact that there is still so much liquidity in the system.
We still have seen no indication really that the housing market is going to crack.
There's some overbuilding in the South in the southwest, mostly because of home builders.
That's a story you're going to hear about.
A lot of home builders were subsidizing loans, and these are the loans that are going to be underwater first.
So keep tuned up for that.
But generally, I don't see this big consumer recession that everybody keeps talking about.
Look at the high flyers like a synchrony which runs white label credit cards.
You'll see pressure there before you see it anywhere else.
Now they wrote off 6% of loans last quarter, but that's their business.
They have a spread that's almost 20%, so they have excess money to burn, if you will, in terms of taking care of credit.
But the rest of the industry, the nonbanks too, pretty benign.
Yeah, so Chris, I understand you're paying attention to October 1st as a key date here.
So tell me why you're watching that day.
October 1st is when all of the remaining loan forbearance and other accommodations roll off.
The Trump administration is putting us back to where we were.
For COVID, so you're going to see higher delinquency, especially in the FHA and the VA markets, which are the bottom of the credit stack in mortgages.
The conventional market, no, not really.
And then the prime market for banks, which tend to be much bigger loans, they're still at zero default.
They're literally making money if somebody actually goes to foreclosure, and what this means is that you don't see foreclosures.
They'll sell the house and give the borrower the residue from paying off the mortgage.
So we're still feeling the effects of quantitative easing from the Fed.
This is remarkable, isn't it?
And yet I think that's going to still be the story next year.
We'll probably see a bit more slowdown in the economy.
We'll probably see a little bit more credit costs, but will it be like 2008?
No.
Well Chris, finally, before I let you go, I, I do have to ask you about gold while I have you here.
So we saw spot gold XAU hit new record highs yet again.
So what are you looking for, especially given the fact that spot prices are high?
I think some of the central bank buyers are going to slow down.
They've been buying based on volume.
They were indifferent to price.
However, in the US, the allocations to gold are still so small, less than 1%, but I think over time you're going to see more and more.
I advising their clients the way we've been telling our readers you have to have gold in your portfolio as an inflation hedge and also because there's going to be significant appreciation.
I think you're going to see silver also come back amazingly enough after a long time, and the lack of supply in silver plus the relative lack of supply in gold, I think is going to drive prices higher.
And finally, before I let you go, when it comes to access to gold miners, what are you looking at?
I'm looking at some of the junior miners, the ones who actually still have assets in the ground, because the industry hasn't invested in mining, in property, and anything in well over a decade.
So the majors are going to eventually have to go out and buy these smaller players.
They tend to have lower quality deposits, but that's OK.
They're still going to manage to bring more gold to market and I think over time this has got to be part of a well balanced portfolio.
OK, Chris, always great having you on the show.
Thank you so much for joining me.
