Will Tariffs Trigger Banking Collapse? (Uncut) 04-24-2025

Will Tariffs Trigger Banking Collapse? Banks’ Top Risks Exposed | Christopher Whalen

Powell’s an incumbent Fed chairman who’s pretty definitely not going to be reappointed, and I’m not sure he’d want to be. So once his term as chairman is over, my guess is he’s gone. Trump said that his termination cannot come fast enough.

Why is he obsessed with firing Powell? Well, he wants somebody in there that’s going to give him what he wants, which is lower interest rates. But I think the problem facing Trump is that even if the Fed were to drop short-term targets for interest rates, the long end may go up. We know that trade wars bring uncertainty to everybody, not just investors, but the regular person as well.

What does our future look like? Can our wealth be preserved? But importantly, whether or not our financial institutions can also be preserved, are banks in a lot of trouble? We’ll explore these topics today with Christopher Whelan, chairman of Whelan Global Advisors. Welcome back, Chris. Good to see you again.

David, nice to see you. Let’s start by talking about markets first before we get into some deeper economic issues. How should investors be allocating assets right now? Let’s just start with asset allocation.

What I’ve told my readers is that they should assume that the world is not going to end this year. I know a lot of managers have been, I think, shaken by some of the actions of President Trump. Trump is trying to wind the clock back 75 years and have fair trade.

That’s difficult to do in weeks and months. So he’s in a hurry. He did pause his tariffs recently for 90 days.

But I think ultimately, they’re going to cut a deal with countries that we don’t really have a problem with. And then you’re going to be left with China and Russia and a handful of other nations that they’re going to impose very serious sanctions on. So to me, you want to be keeping your powder dry.

I actually picked up some American Express on the lotus this week. And you know, we’re going to take it from there. I think that we’ve seen this movie so many times.

But unfortunately, Trump is an unusual element. He threw tariffs. He threw a lot of new things into the mix.

And the media and the economist chorus here in the US don’t know how to deal with that. They’re also used to having the Fed supposedly in charge. And when you challenge that notion, everybody gets excited.

So my message to my flock is, everyone, calm down, do your homework. Think about what you wanted to buy last year that was too expensive. I’m back below my exit level for Nvidia.

What do I do? Buy some more? I want to come back to some of these holdings and asset classes in just a bit. But let’s talk about something that you’ve been working on, which is your book that’s coming out next month, you told me, right, middle of May, Money, Debt, and the American Dream Inflated. Let’s just tie some of the themes of your book to today’s situation.

It kind of examines the history of banking in the US from free banking before the Federal Reserve all the way to private money. And then you talked about inflation throughout various economic periods all the way up to COVID, right, going through the 2008 financial crisis. So it’s a pretty in-depth, pretty comprehensive overview of the American financial system history.

So what are some of these crises that have happened in the past? And can you draw some parallels to what’s happening today, right now on the 17th of April? Well, we’re coming full circle to Abraham Lincoln. He was the one who started to break the connection between money and gold. Gold was money in the 1860s.

Everything else was debt, including the greenbacks he started issuing, they were debt. So now we’re coming to a bit of a crisis because 75 years after World War II, the US is tired. The finance minister of India said this very well in an interview in the FT recently.

If it wasn’t Donald Trump, it would be someone else. And so what Trump is doing is essentially recognizing that the US can no longer hold the ball in terms of being the sole reserve currency. And he’s asking everybody to pick up their fair share.

Those are radical concepts. And very few of our allies anticipated this, obviously. They’re all in a bit of a confusion.

But I think over time, we’re going to sort it out because most nations we don’t have a problem with. The EU, they have a lot of non-tariff barriers inside the community. Fair enough, we’ll talk about that.

But, you know, Trump is playing his classic book. If you’ve read any of his books, you know what he’s going to do. So this shouldn’t be a surprise.

He’s just doing it on an international scale instead of a national political scale. But that’s really the difference. Yeah, I read, I think, The Art of the Deal.

He was talking about how he, when he was a New York real estate agent, or a developer rather, not agent, but he, one of the deals he worked on, he wanted a building, they wouldn’t sell it to him, and he persuaded everybody else around him that they shouldn’t want that building too, because it’s not a good investment. Eventually, he drove the price down, and then they picked it up for pennies. Well, welcome to New York real estate.

Every developer in the city does that, by the way. Okay. I have friends who are lawyers in New York.

All they do is act as social workers between different developers to prevent them from suing one another. That’s it. Probably good business for your friends.

I’m just curious, so practically speaking, what do you mean by he’s just taking what he’s done before in his private sector life to the international scale? What does that mean? It means he always looks for leverage. He wants to know where his leverage is over his various counterparties and adversaries, and he tries to take advantage of it. He’s like any businessman.

Trump is a little more ostentatious. If you’ve seen the movie, The Apprentice, which I urge everyone to watch, then you really get a sense for him, because he mutated into a version of Roy Cohn, the lawyer who represented him earlier in his career, and he uses many of the same approaches and mannerisms that Cohn taught him over the years. So, to me, it’s not a surprise, and I think that Scott Besson, the Treasury Secretary who’s leading most of these discussions, is eventually going to sort it all out.

That’s why I’ve said to my clients, view this as what it is, which is a buying opportunity. I think the discussion of tariffs in the U.S. media and various economists is mostly a distraction, because there’s nothing they can tell us. You don’t think that consumer sentiment is bad enough now that it’s going to become a self-fulfilling prophecy for slower economic growth? We were slowing down anyway.

Trump is going to accelerate that change. But if you look at first quarter earnings from the banks, there’s still no consumer recession here. Half of them are up, the other half are down in terms of credit costs.

Where you have problems is commercial real estate, particularly multifamily real estate, apartment buildings in blue states around the U.S. They are a mess. That’s where the pain is right now. Commercial credit generally, corporates, private equity portfolios, again, yes, lots of pain.

But that’s not the same thing as a traditional consumer-led recession, David. It’s not the same at all. The banks are hiding some of it.

They’re managing the rest. But the interesting thing is Trump takes us back to the 19th century in terms of how he views government and the way they manage the operations of the U.S. government. That is going to have some pain.

There’s an awful lot of consumers who’ve been in forbearance for the past four years because Joe Biden just declared a jubilee. You didn’t have to pay your bills. That’s going to go away.

And ironically, you know what that’s going to cause? We’re going to see more homes for sale. It’s going to actually help the squeeze in existing homes down at the bottom of the market. Before we continue with the interview, let me tell you about the FIRE movement.

It stands for Financial Independence, Retire Early. It’s a philosophy focused on achieving financial freedom at a younger age through a combination of aggressive saving, smart investing, and mindful spending. While the movement continues to grow in popularity, financial institutions have largely ignored this community until now.

And here comes FIRE ETFs today’s sponsor. These are the first ETFs designed specifically to help support the FIRE community. FIRE ETFs have launched two complementary funds designed to align with the movement’s financial goals.

FIRE Funds Wealth Builder ETF, FIRS, seeks to diversify its portfolio across four ETF baskets to match prosperity, precession, inflation, and deflation cycles. While the FIRE Funds Income Target ETF, FIRI, seeks to target a minimum 4% annual income level. So if you’re looking for ways to support your FIRE journey, while this is a really cool product to take a look at, visit FIREETF.com, link down below, or scan the QR code here to learn more.

This ad is brought to you by and sponsored by FIRE ETFs. So it’s going to help the real estate market? A little in terms of supply. It’s sad to say those people are going to sell those homes.

But my point is, is that I still don’t see this consumer recession that people keep talking about, especially Democrats. It’s just not there yet in the numbers. You see a little bit in auto loans, a very little bit in credit cards.

But you know, American Express stuck to their guidance when they issued their earnings. They beat on earnings. And they basically said they were comfortable with their credit guidance for the rest of the year.

Obviously, there’s a big question mark if the world ends. But I think tariffs are certainly disruptive. But is it going to cause a maxi recession like 2008 or 2020 during COVID? No, we’re not even close.

Or even the Great Depression. I think Jim Bullard, former St. Louis Fed President, was making a reference to the Smoot-Hawley tariffs, comparing this with 1930. Any similarities there? Well, that’s a poor analogy.

What I talk about in the book, Inflated, is that the US had tariffs, high tariffs, 50% for 70 years before Smoot-Hawley. Smoot-Hawley was about agriculture. And it didn’t help agriculture either, by the way.

But if you compare, say, Donald Trump and Franklin Roosevelt, Roosevelt was a heck of a lot more protectionist than Trump on his worst day, much more. So, you know, if you want to know why the depression became worse, it’s because FDR seized gold, terrified Americans by doing so, and then devalued the currency. It was like Salvador Allende.

So, you know, you have to differentiate. Again, you know, the economic history of the United States over the past century was written by Democrats. They hated tariffs, and they blamed Smoot-Hawley, falsely, I think, for causing the depression.

It’s totally untrue. What is going to happen to inflation then? That’s another concern people have. I think inflation is going to remain elevated for a lot of reasons.

Energy is helpful. There are some other positive signs in terms of commodity prices, but everything else is still going up. And I think, you know, when Powell got up last month and said that he was basically ready to go either way in terms of either raising or decreasing interest rates, what he was telling you was that the data is all over the place.

You pick your data point and you can build an argument. We’ve had some governors out saying we should wait and see. We had Chris Waller earlier this week saying we’ve got to cut rates right now.

He’s kind of in the ECB camp. So, you know, it’s the muddled picture at best. And I think it’s the legacy of COVID.

We still have data points, credit benchmarks, everything else all over the place. But the one thing that I can tell you, David, is spreads have widened since last summer between government bonds and private credit. And that’s probably going to remain.

I think you’re going to see a higher risk premium in U.S. dollar securities going forward. Risk premium, baking in what exactly? Currency risk and also uncertainty regarding the U.S. economy. Right.

If the dollar’s weak and you’re an offshore investor, you’re losing money. Will the dollar continue to weaken? Yes. I think that’s part of the hidden agenda of Trump.

I think he’d like to see the dollar weaken. Well, I don’t know. He made that pretty clear, actually, that he wanted that, even on a campaign trail.

It’s just interesting how it’s playing out now, because usually you would expect tariffs, even though Cashkari, Minneapolis Fed governor, was saying he was surprised at how the dollar went down in interest rates, you know, when kind of the opposite direction of what you would expect when tariffs were announced earlier in April. Because back in February, the dollar went up. You would expect the dollar to go up when tariffs are announced.

But here, it started to go the other way. Why is that happening, you think? Historically, when you thought of a currency weakening, you thought that interest rates, short-term rates, would have to go up to defend it, right? But that’s not the case. The dollar has been going higher simply because of volume.

You know, 80 plus percent of all global foreign exchange transactions have dollars on one side or the other. And what that means is that people are happy to use our money as an exchange medium, maybe not a store of value, maybe not a measure of value in an ultimate sense. They may want to go into other currencies.

So, you know, I think trying to explain the movements of the dollar and interest rates together is difficult. They have not shown any particular correlation. And this goes back to 2008.

Really, since 2008, David, we’ve seen wide dispersion in many factors that we used to rely upon to give us direction in terms of the economy or credit or whatever. And that hasn’t been the case since then. It’s been a bit of a muddle.

I want to ask you about what the Fed is going to do next. This came in from yesterday. Powell was making a speech at an event.

Stocks slide as Powell warns of impacts of tariffs on the economy. This is April 16th. We’re speaking on the 17th.

So the level of the tariff increases announced so far is significantly larger than anticipated, Powell said at an event in Chicago. The same is likely to be true of the economic effects, which will include higher inflation and slower growth. Correct me if I’m wrong, but I think this is the first time that, at least I’ve seen, Powell openly acknowledged that this will cause higher inflation.

I think prior to that, he was not sure, but he’s making an open acknowledgement that this is going to be higher inflation down the road. That’s his view. We’ll see.

The Fed has been kind of posturing in terms of not wanting to cut rates since Trump came into office. And this is partly defensive. Whenever you attack the central bank, all of the governors, regardless of who appointed them, will defend the institution.

Mickey Bowman, who’s a Trump appointee, was just nominated to be vice chairman for banking. All of them are going to defend the institution. So when you see Powell kind of hemming and hawing about inflation, dragging his feet, otherwise exercising his independence, remember that there’s politics involved.

This is not just an economic analysis exercise we’re engaged in here. Powell’s an incumbent Fed chairman who’s pretty definitely not going to be reappointed. And I’m sure he’d want to be.

So once his term as chairman is over, my guess is he’s gone. Yeah. Actually, just today, I was reading the news.

Trump said that his termination cannot come fast enough. Why is he obsessed with firing Powell? Well, he wants somebody in there that’s going to give him what he wants, which is lower interest rates. But I think the problem facing Trump is that even if the Fed were to drop short-term targets for interest rates, the long end may go up.

See, after COVID, that wasn’t the case. Everything was correlated positively, right? That’s interesting. If Powell isn’t going to give him lower interest rates, do you think Trump is purposely engineering lower interest rates by raising and escalating this trade war and basically forcing the Fed’s hand? I think he thought that would happen.

That’s what I’ve written. I think Trump simplistically thought that if he pushed money out of stocks and kind of deflated the markets, everyone would run into treasuries and yields would fall. But that’s not what’s happening.

You know, credit spreads on the long end have been widening. You see it in mortgages, you see it in high-yield securities were quite high in terms of the high-yield market. So, you know, the Fed controls short-term rates.

But as Scott Besson said very well, long-term rates are my problem. I think what you may see, by the way, is rate cut by the Fed eventually and Treasury buying in more low-coupon securities to essentially undo Operation Twist by Janet Yellen. You remember that one? Yeah.

Yeah. This is an interesting dilemma that Trump has to contend with. On the one hand, he has to ensure that financial markets don’t tumble to such an extent that his midterm reviews are going to be terrible by the Wall Street community.

On the other hand, he doesn’t want to appear weak and back off now, now that he’s already… That’s right. …245% tariffs on China. Their priority this year is tax legislation.

That’s what they’re trying to get done this year. Everything else is secondary. Yes.

245% tariffs on China was recently announced two days ago, right? What is it? I haven’t read of an retaliation from China yet. In fact, they’re kind of just rolling their eyes and saying this is ridiculous. But what is the next wave? They’ve retaliated somewhat on key elements, rare earth metals, things to that nature.

I just don’t know, given the Chinese business model right now nationally, if they can really adjust to a more multilateral world. They are still very much of a mercantilist model, very much like Great Britain prior to World War I and the end of the empire. China’s approach is it is difficult to reconcile with the other Western nations, because they all want to see fair trade, and China’s not interested in that.

They’re interested in asymmetry, both in terms of geopolitical and economic relationships. Banks, you’ve been warning us about the risks that banks have faced in our prior interviews. People can check out our last interview with Christopher a couple of months ago.

But how will banks fare under this current trade war? Well, the pain for banks today is on the commercial side, not the consumer side. So if we see a slowdown in the U.S., if consumers actually start losing jobs, start defaulting on their loans, that sort of thing, then you have a more traditional recession. We don’t see that yet.

The bottom quartile of all U.S. consumers is suffering quite a bit for a number of reasons. They never really recovered from COVID. But the rest of the group is quite strong.

And you can see it in employment numbers. The unemployment numbers keep coming in low compared to the estimates. So the economists are looking for a traditional recession.

But I think this time around, it’s different. I hate to put it that way, but it’s always different a little bit. This time around, we’re really focused on commercial, private equity, commercial real estate.

That’s where the pain is for the banks. And they’re largely managing it behind the scenes, David. You know the way it is.

They’re not taking over properties. They’re forbearing on loans. They’re keeping a lot of this stuff in floating storage, waiting for the Fed to cut rates.

If the Fed comes in and cuts rates, you’re going to see the banks try and refinance a lot of this stuff. Delinquencies may go up for consumer loans. Yes, slowly.

Yeah. I just wonder if banks are going to be able to absorb some of these bad loans. They have way too much capital.

Both Goldman Sachs and J.P. Morgan have told investors that they have to increase share buybacks because they don’t have enough business. There’s not enough demand for credit. You’re in a funny place right now, David.

You don’t see a lot of volatility in employment. You don’t see people losing jobs or looking for new jobs as aggressively as they did a couple of years ago. And then you look at the banks, and they’re underutilized.

They literally don’t have enough customers. So what does this mean for investors? Should we be buying banks right now? I think you want to look at the better performers. I wouldn’t be buying the middle or the lower end.

We benchmark the top 100 banks. We actually publish an index. And the top 10, top 15, I would look at.

As I mentioned, I picked up some American Express because that bank was trading over seven times buck, and it dipped down to the fives. So I am a value investor. I haven’t owned any U.S. bank commons since 2020.

So Amex is my first position. It’s a smaller name. I wouldn’t necessarily encourage people to dive in there.

But even JP Morgan has come off about 30% from last year’s highs. This came in from Scott Bessette, Treasury Secretary. People across the investment community were worried about investors fleeing the U.S. Bessette says Treasury has big toolkits if needed to save bonds.

I don’t think those are dumping by foreign investors, Bessette said in an interview on Monday. He pointed to what was increased foreign demand at auctions for 10-year and 30-year Treasury securities last week. I’m getting mixed messages.

Some people on my show have been saying that the Treasury auction failed, but I’m reading that it actually didn’t. I don’t know where the truth lies, maybe somewhere in between. Bessette reiterated his interpretation of the decline being mainly a product of deleveraging.

I have no evidence that it’s sovereigns. So my question is, do you think investors are dumping the U.S. dollar and thus Treasuries? Is that why we saw a yield spike last week? No, you have volatility in that market because we don’t have a strong dealer community the way we used to. The investors that are floating these auctions are essentially funds that use a lot of leverage.

So they’re working on a carry trade. They’re not sitting there making a market with their own capital. In 2008, we annihilated half of the primary dealers in the U.S. And I talk about this in my book.

Where did the primary dealers come from? The Fed created them in the 1950s to gain some separation between themselves and the Treasury after World War II. So now we have a market that’s supported largely by hedge funds. Very volatile.

The pre-issue market for Treasuries is all over the place. But we just did 20s, which are probably the least attractive maturity in Treasury bonds, and the auction went reasonably well. So everybody keeps predicting that people like China, for example, are going to sell their Treasuries, go into cash dollars, and then go where? And they never answer that question, David.

The trouble is, is that the dollar is so big that if you decide you don’t like dollars anymore and you want to go somewhere else, where are you going to go? You’re going to go in the Chinese yuan? No, they don’t want that kind of size. You’re going to go in the Swiss francs? No, government’s not interested. They will tell you to go away.

There’s only two currencies you can consider, really, euros and yen. That’s it. Well, the other thing is whether or not the Treasury could actually do something about it.

Can you expect fiscal stimulus to be on the way? The Treasury last year, I’m reading this article, began the first regular buyback program since 2000, designed to improve liquidity in older securities that are less frequently traded than the newer so-called on-the-run Treasuries. In past episodes, official intervention in the market, the Federal Reserve has been the main actor buying up large volumes of debt in the secondary market. What is the Treasury going to do? What’s in their toolkit? Well, that’s two different things.

When they buy those low-coupon securities that were issued during COVID, what they’re basically admitting, this was the error Janet Yellen made, is that dealers don’t want to hold twos and one and a half percent Treasuries. They’re underwater on their cost of funds. If their cost of funds is SOFR plus 50, for example, do you want to hold a Treasury two? No, you’re losing points on the carry.

So the Treasury is buying those older low-coupon securities and issuing current coupons so that the dealers will hold them. That’s really the issue. The mortgage-backs, they’ve got to wait for them to roll off.

If the Fed cuts rates, you’re going to see a wave of prepayments in mortgage-backed securities. That’s going to be quite something. The Fed would love that, by the way, because they want to get out of mortgage-backed securities and have their portfolio 100% in Treasuries again.

Chris, what is a safe haven then for investors seeking safety right now? A short-term and relatively small size is gold. I think gold is going to continue to perform very well. It’s coming back into vogue.

But the reality is if you’re a big investor, you can’t take delivery of gold in size. There just isn’t enough free supply out there. And the Russians and the Chinese are not selling.

They’re buying. So the gold market’s actually pretty tight. I think the price is going to continue to escalate simply because there’s not that much free supply above ground.

What is gold signaling right now for market participants observing this rising gold, but this lagging of silver, right? Silver’s always lagged going back to the 1800s. We talk about that a lot in my book. And I compare the silverites to the cryptocurrency crowd today, which I think is very apt.

But look, ultimately, the metals are a short-term safe haven. Short-term securities in the US, I think, is a good place to hide if you don’t know what to do. But I’m actually buying bank preferreds and other securities.

I have a pretty broad portfolio outside of financials. And when things get cheap, I go shopping. That’s what I tell my readers.

1. Where can we find your work right now, Chris? Where can we learn more from you? I publish the Institutional Risk Analyst blog. I write a column for National Mortgage News.

And I’m active on X and LinkedIn. I occasionally write for Zero Hedge, where I’ve been a publisher for a long time. And I always look forward to questions from people.

So I appreciate your time, David. I’m going to put the links down below. And I’m going to end on this one question that I’ve been getting in my personal life.

My friends who aren’t professional investors, who just dabble, they ask me, hey, is the collapse coming? I’m reading this every single day. I don’t know how to answer this question. I’m not the expert.

But I say to people, look, there’s a lot of fear-mongering in the media. I try not to. But how would you answer that question? Somebody comes up to you at a dinner party, hey, I’m reading about the collapse of XYZ, the dollar, the financial system, whatever have you, the economy.

Are we going to be fine or not? I think we’re going to be fine, but we’re going to change. The one constant in American history is change. And we’re getting ready to end the period where we were in charge.

The U.S. has had a monopoly position on the global financial world for half a century, if not more. So that’s changing. And it’s changing largely because the U.S. is changing.

The baby boomers are dying, and the whole architecture that came out of World War II has got to be revised. What is money? We have to have that discussion. There’s a lot of things that we have to talk about.

But I think, ultimately, there’s a fiscal crisis facing the U.S., and they’ll fix it. That’s the bottom line. Okay.

Very good, Chris. We’ll speak again next time. Appreciate your time.

Thank you. My pleasure. Thank you for watching.

Don’t forget to like and subscribe.