Chris Whalen, chairman of Whalen Global Advisors and author of The Institutional Risk Analyst blog, joins Julia La Roche for episode 231 where he shares his perspective on the economic and market implications of President Trump's pivot back to 19th century-style tariffs. Whalen argues that while tariffs are unlikely to significantly slow the US economy, the Fed is "playing chicken" with liquidity levels as it unwinds its balance sheet amid soaring deficits. He warns of structural issues in the mortgage market stemming from pandemic-era policies, and expects a major housing reset in 2027-28. Whalen also discusses the Treasury's funding challenges, the Trump administration's likely tax policy priorities, risks lurking beneath buoyant markets, and the limits of mixed economic data for asset allocators. Tune in for an incisive discussion on navigating an increasingly uncertain investing landscape.
Links:
Twitter/X: https://twitter.com/rcwhalen
Website: https://www.rcwhalen.com/
The Institutional Risk Analyst: https://www.theinstitutionalriskanalyst.com/
Stanley Middleman book: https://www.amazon.com/Seeing-Around-Corners-Achieving-Business/dp/B0D5PTSJVC/
Timestamps:
00:00 Introduction
01:06 Trump taking us back to the 19th century with tariffs
03:14 Tariffs unlikely to slow down the US economy much
04:57 Fed erring on side of liquidity due to federal deficit, hasn't reduced reserves
06:27 Fed playing "chicken" with liquidity levels in the economy
08:03 Politics making Fed governors protective and reluctant to cut rates
09:45 Treasury's ebb and flow of cash and Fed's balance sheet runoff impacting liquidity
12:36 Fed's difficulty in determining minimum liquidity levels
13:43 Treasury Secretary Bessent inheriting Yellen's reliance on short-term T-bills
15:42 Appetite for longer-dated Treasuries depends on the coupon
17:49 Structural impediments in the mortgage market from QE during COVID
18:19 Taxes to be a big focus for Trump administration
19:51 Danger of relying on long-dated Treasury issuance to finance deficits
21:11 Strong liquidity masking underlying economic issues
22:44 Inflation likely here to stay given high debt levels
24:14 Expecting Fed rate cuts, mini boom, then major housing reset in 2027-28
25:55 Treasury Secretary Bessent named acting head of CFPB after firing Chopra
27:13 Stock market valuations stretched, risks from passive strategies selling
29:54 Trump likened to a disruptive Andrew Jackson, investors may seek safety
31:48 Mixed economic data making asset allocation challenging
