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

Episode 4: Enjoying the dust (3 min)