A veteran bank analyst who worked at the New York Fed and has long studied bank balance sheets said he completed a large rebalancing at the end of September, selling all of his bank stocks and rotating into precious metals, energy stocks and income-producing assets, while using put options to bet against some consumer lenders. His core judgment is that rising credit costs and higher consumer default risk are eroding bank profitability, and the favorable conditions that had supported bank stocks are weakening.
He said banking performance ultimately depends on two variables, earnings and credit. When loan losses remain low for a long time, bank valuations can be pushed higher; once credit costs start to rise, profits come under pressure. Even though some large Wall Street banks reported record trading profits in the third quarter, capital markets did not respond positively, and some stocks weakened, showing that market excitement over improving bank earnings is fading.
On allocation, he favors precious metals. He said he bought gold and silver earlier this year when gold prices were relatively weak and sees precious metals as a trade with upside clearly greater than downside. Global central banks continuing to reduce their reliance on the dollar and add to gold reserves is one important reason for his bullish view. Public data show that China's central bank added about 740,000 ounces of gold in September, the largest single-month increase in about three years. He also believes supply constraints in gold and silver are likely to persist, which could benefit mining companies, but direct investment in individual mining stocks carries higher operating risk, so he prefers exchange-traded funds for exposure.
For income-focused investors, he recommends focusing on stable cash flows and considering allocating 5% to 10% of portfolios to gold-related funds, without concentrating in mining stocks. For more conservative retirees, controlling individual risk is more important than chasing upside.
He also turns criticism toward the private equity industry. Recent market reports say some investment banks are pitching so-called evergreen fund structures to private equity firms, allowing funds to hold assets for long periods without exiting within a fixed time. He believes this would weaken the valuation validation mechanism, because public-market trading prices are often a key benchmark for testing asset values. When assets increasingly move among funds controlled by the same managers rather than being sold to external buyers, investors find it difficult to judge true prices. Data from related institutions show that in the private equity secondary market through the first half of 2026, continuation funds accounted for nearly half, worth about $121 billion.
He also warned that similar conflicts of interest are spreading into insurance and private credit. After some private credit funds participated in acquiring annuity sales companies, the information available to retirement investors has become more limited, and credit ratings may become one of the few visible metrics. Public information shows that a co-founder of an annuity-related company pleaded guilty to wire fraud and securities fraud in federal court on Oct. 15, and such events show that regulation and investor education need to keep pace.
On rates and the technology sector, he said AI investment is draining funds from the bond market. About $500 billion has been put into AI infrastructure financing this year, and combined with government financing needs, that is pushing long-term rates higher. Market data show the 10-year U.S. Treasury yield briefly rose to 5.36% on Oct. 7, the highest since 2002. At the same time, fund flows in technology stocks have shifted. The Nasdaq 100 fell 5.5% in the week through Oct. 16, its worst single-week performance since April 2025, and hedge funds have been trimming technology stocks at a markedly faster pace, the fastest since 2016. He believes some chip financing arrangements have circular features: chip suppliers provide financing to buyers, while some chips have not yet been put to effective use, and data center construction also faces power-connection bottlenecks.
On monetary policy, he does not agree with the market's current bets on further tightening. After the Fed hiked rates in September, traders see about a 17% probability of another hike at the Oct. 28 meeting, down from about 58% a month earlier, but expectations for a December hike remain. He expects that, as the economy slows, the Fed may pivot to rate cuts around the first quarter of next year and re-enter the bond market to buy U.S. Treasuries. He pointed out that from 2008 to the end of the pandemic, the Fed bought about $10 trillion in securities, and if policy turns accommodative again, effects may first appear in agricultural inputs and food prices. He expects fertilizer use next year may fall by about one-third, pushing food prices higher. He also criticized both U.S. political parties for lacking serious discussion of the fiscal deficit.
On the housing market, he believes the low-rate era may not return quickly. Data from the National Association of Home Builders show that homebuilder confidence in October fell to its lowest level since 2012, while mortgage rates remain above 7%. When he bought a home in April, he waited for a rebound in the U.S. Treasury market and ultimately locked in a 30-year loan at 5.875%. For current homebuyers, he suggests considering floating-rate loans first, then switching to fixed rates once the Fed enters a cutting cycle, and thoroughly comparing different loan options. He also warned that contraction in mortgage lending could push some smaller lenders out of the market.
He disclosed that he is writing a book about gold and hopes to push the discussion, including reassessing the value of U.S. gold reserves, selling gold coins by weight, and publishing official bid and ask prices daily. The U.S. Treasury currently still values its roughly 261 million ounces of gold at $42.22 per ounce, a book value of about $11 billion. At recent gold prices, the market value of the holdings exceeds $1 trillion.
