(Kitco News) - Christopher Whalen has spent more than four decades picking apart bank balance sheets, starting at the Federal Reserve Bank of New York. So it says something that, at the end of September, he sold every bank stock he owned.
“I did a major rebalance at the end of the third quarter. I got out of my bank stocks,” Whalen told Kitco News anchor Jeremy Szafron. “I actually put a couple of short positions down on some consumer lenders because I think credit is going to go up in terms of expenses. And I emphasized precious metals, energy stocks, and also income.”
Whalen chairs Whalen Global Advisors, edits The Institutional Risk Analyst and once ran research at Kroll Bond Rating Agency. Over the course of the conversation, he connected Wall Street’s private funds to the price of groceries. His view is that the good times for lenders are ending, and sooner or later the Federal Reserve will have to start printing money again.
The good years for lenders are over
Banks have had it easy for a while. Loan losses “have been down for almost eight quarters consecutively,” Whalen said, and that left bank shares looking “a little bit too pricey” to him.
He boiled the business down to two things. “Bank earnings and credit, those are the two immutable concepts in banking,” he said. “When credit costs go up, earnings go down, and bank stocks suffer accordingly.”
You could already see this in third-quarter results, he said. The big Wall Street banks posted record trading profits, and their stocks barely moved. “People just shrugged. The stocks didn’t move. In fact, they traded down.” Goldman Sachs “had great earnings from their capital markets business, but they still really didn’t get any love from investors.”
He wouldn’t say which consumer lenders he’s betting against. He bought put options, which pay off if a stock falls, because he figures those shares will be cheaper six months from now. With energy prices up and household budgets stretched, he expects more people to start missing payments.
“We were at the end of almost two and a half years of declining credit costs,” he said. “You’re going to see higher consumer delinquency.”
Why gold is his lopsided bet
The money that came out of banks went into metals and income. Whalen said he’d already been adding to his gold and silver earlier in the year, while prices were soft.
“Precious metals for me is an asymmetrical trade,” he said, meaning he sees a lot more room for gold to go up than down. “The global central banks are continuing to shift away from dollars, shift towards gold, and to a lesser extent silver, simply because they want an independent reserve asset that is not controlled by another country.”
They haven’t slowed down. China’s central bank added about 740,000 ounces of gold in September, its biggest month in roughly three years, according to official data from the People’s Bank of China.
Whalen didn’t go as far as calling the end of the dollar, though. “It doesn’t mean the dollar’s going away tomorrow,” he said. “But I do think that the dollar is going to be competing with other fiat currencies.”
Gold was trading around $4,150 an ounce Monday, well off the record it set earlier this year. Over the long run, Whalen thinks supply works in the metal’s favor, and in favor of the companies that dig it up. “There’s not enough of either metal to really meet the demand,” he said. Sooner or later, the big producers will have to buy up junior miners. “They have no choice.”
He owns most of his mining exposure through ETFs. He doesn’t recommend individual miners because “the operational risk in miners is considerable,” though his newsletter has put out a list of about 50 mining and energy ETFs and stocks for readers to dig into.
When the conversation turned to a retired couple, his advice got a lot more conservative. “I would say focus on income, first and foremost,” he said. He’d like to see them put “5 or 10% into an ETF that has gold exposure. Not necessarily the miners. They’re a little too particular and idiosyncratic.”
‘You have to just trust what they say’
Whalen was at his bluntest on private equity. Bloomberg reported Monday that Goldman Sachs and Evercore are pitching private equity firms on what’s being called a “forever fund,” which would let a firm hang on to companies for 10 to 15 years or longer with no deadline to sell.
That would be a problem for any pension fund, Whalen said, because selling is “the only way you can check what it’s worth.”
“You can’t believe the manager or the sponsor,” he said. “Everything about private equity, I think, is antithetical to the interests of investors, and this is why we have public markets.”
He took it back nearly 100 years. Joe Kennedy and Franklin Roosevelt fought for securities laws, he said, “because of precisely situations like this.”
These days, private equity firms are more and more often moving companies into new funds they also run, instead of selling them to an outside buyer. Those continuation funds made up almost half of the $121 billion secondary market, where private equity stakes change hands, in the first half of 2026, according to an Evercore report cited by Bloomberg. In his Oct. 19 newsletter, Whalen wrote that when investors see those funds show up, “that is your signal to demand early redemption.”
“The private equity managers are horribly conflicted here because they’re continuing to earn fees on these continuation funds, even though they’ve essentially failed in their original objective,” he said. “There is no price discovery in private equity. You have to just trust what they say.”
He sees the same problem creeping into insurance, as private credit funds buy the companies that sell annuities. For most retirees, a credit rating is about the only look they’ll ever get inside those firms.
So what should annuity holders ask? “The biggest question you have to ask is what’s the rating of the company? How have they done in the past in terms of meeting their obligations? Have they been involved in things like private credit?”
Whalen called the collapse of 777 Partners one of the “big red flags” investors need to pay attention to. The Miami firm’s co-founder, Josh Wander, pleaded guilty Oct. 15 in Manhattan federal court to wire and securities fraud, according to The Associated Press.
“Insurance is a slow, boring business,” Whalen said. “An annuity of an insurance company is just like a bank deposit.”
Who pays for AI
Whalen said the artificial intelligence boom has been sucking up money the bond market needs. Roughly half a trillion dollars was raised this year for AI infrastructure, he said, citing Goldman Sachs.
“We’re not even doing AI yet. We’re just building the data centers so that we can do it.”
All that borrowing, plus Washington’s own, helped push long-term rates up this year, he said. The 10-year Treasury yield hit 5.36% on Oct. 7, its highest since 2002, according to the Financial Times.
He called a lot of the deal-making circular, with chipmakers financing the same customers who buy their chips. “In many cases, they can’t even use the chips,” he said. “The chips end up going into a warehouse somewhere because it’s becoming increasingly difficult to build the facilities.”
Power is a big part of that. The Financial Times reported in October that Microsoft backed out of leasing a planned data center near London because the site might not get grid power until after 2030.
And investors are already pulling back. The Nasdaq 100 fell 5.5% in the week ended Oct. 16, its worst week since April 2025, and hedge funds cut tech positions faster than at any point in Goldman Sachs prime brokerage data going back to 2016, Bloomberg reported.
“I think it’s reached an endpoint, honestly,” Whalen said. He takes Wall Street’s rosy AI research with a grain of salt, since the same banks are hoping to run the IPOs. Literally, in his case. “I have a salt shaker on my desk.”
The Fed’s way out
The Fed raised rates in September. As of Monday, traders saw about a 17% chance of another hike at the Oct. 28 meeting, down from about 58% a month earlier, according to CME Group’s FedWatch tool. Bloomberg reported that traders are still betting on a hike in December.
Whalen isn’t buying it. “I don’t think Chairman Warsh at the Fed wants to raise rates again,” he said. He thinks a slowing economy could force cuts “by the first quarter next year,” and that the Fed will end up back in the bond market.
“I think the Fed will have to print. In other words, they will have to start buying Treasury securities again the way they did during and immediately after COVID,” he said. It’s been done before. Between 2008 and the end of the pandemic, “the Fed bought $10 trillion worth of securities.”
He thinks you’ll feel it at the grocery store first. “Fertilizer utilization next year could be down by a third because farmers can’t afford to buy it,” he said. “We could see much higher food prices next year.”
And he doesn’t think Washington, on either side of the aisle, wants to talk about the deficit. “We’re kind of in a daydream. It’s like we’re having a nice nap, and we’re not even worried about anything that’s remotely important.”
‘Praying’ for 5% mortgages
Homebuilder confidence fell in October to its lowest level since 2012, according to the National Association of Home Builders, with mortgage rates above 7%. If you’re waiting for cheap money to come back, Whalen thinks you could be waiting a long time.
“A 7% mortgage isn’t that unusual,” he said. “I was just with the Mortgage Bankers Association out in Chicago, and everybody there is praying that we get back to 5% mortgages, but I don’t think it’s going to happen.”
He’s played the timing game himself. When he bought a house in April, “I told my lender, I said, ‘Don’t price that loan,’ because I knew that the Treasury market was going to rally.” He ended up locking a 30-year loan at 5.875%.
His advice for buyers now is to start with a floating-rate loan and refinance into a fixed rate once the Fed starts easing. He also wants them to shop around. “The drop rate on mortgages that have been locked but haven’t been closed yet is remarkably high, and it’s because people go shopping,” he said. “I encourage people to do this.”
Meanwhile, the mortgage business is shrinking. Some of the smaller lenders, he said, “will give their people a little thank you and shut the lights off on the way out the door.”
‘Gold is the one measure’
Whalen is writing a book on gold, working-titled “Gold: The One Measure.” The name comes from a passage in Deuteronomy that he reads as a ban on rigged markets with two different prices.
“Gold is a measure of inflation,” he said. He wants the U.S. Treasury to “ask Congress for authority to revalue our gold stocks.” He’d also like to see it sell gold coins by weight, and “publish prices where they’re willing to buy and sell gold every day.”
On paper, the U.S. government still values its roughly 261 million ounces of gold at $42.22 an ounce, which comes to about $11 billion, according to the Treasury Department. At Monday’s price, that same gold is worth more than $1 trillion.
So what would Andrew Jackson, the face on the $20 bill, think of what that bill buys today? Whalen didn’t have to think about it. “He would not be happy, I’m telling you.”