Former New York Fed Insider Sold His Bank Stocks and Is Betting on Gold and Silver
Christopher Whalen, former New York Fed insider and chairman of Whalen Global Advisors, told Kitco News that he has sold his bank stocks and is leaning into gold and silver as the risks in private markets grow.
Large pension funds have poured billions into private equity. Whalen warns that investors in these vehicles are entirely beholden to the manager for what their holdings are worth. There is no daily mark to market and no independent source of transparency. Continuation funds and “forever funds” are being promoted as a way to keep capital locked up even when the underlying companies cannot be sold. Distressed holdings inside private equity portfolios have reached double digits.
The same opacity is now appearing in insurance. Private credit funds have been buying insurers, raising questions for anyone who owns an annuity. Whalen’s first question for annuity holders is simple: what is the insurer’s rating?
An annuity contract is similar to a bank deposit in that the company must have enough liquidity to meet its obligations when they come due. When private credit vehicles control the insurer, that liquidity is no longer obvious.
On the public markets, Whalen sees the artificial intelligence borrowing boom as a major source of pressure on bond yields. Nearly half a trillion dollars has been raised this year for AI infrastructure. Circular financing, in which technology companies invest in one another at rising valuations even when revenue is absent, has become common. Banks that both underwrite the deals and publish research face a natural conflict. Whalen expects the Federal Reserve will eventually have to return to quantitative easing and buy Treasuries again once the private bid fades.
He has already positioned for consumer weakness. Whalen bought puts on consumer lenders because he expects more missed payments as higher rates and elevated prices work through household balance sheets. Food prices could rise further as farmers struggle to afford fertilizer, which may fall by as much as a third next year. He does not expect five percent mortgage rates to return.
Against that backdrop Whalen has reduced exposure to the banking sector. He describes gold and silver as an asymmetrical trade while central banks continue to shift toward gold. For a retired couple he recommends focusing on income first and holding roughly five to ten percent in a gold ETF as a simple hedge. Mining equities can offer leverage, but he prefers broad ETFs rather than individual stocks because the largest companies will eventually have to acquire smaller producers to secure supply.
Whalen is writing a book tentatively titled “Gold, the One Measure,” a reference to the biblical instruction that there should be only one measure. In his view gold is returning as that measure after decades in which policymakers tried to push it aside.
The combination of opaque private markets, heavy AI related borrowing, and the likelihood of renewed central bank bond buying makes physical metals and related ETFs his preferred offset to the risks still building in the financial system.
