Billionaire Jamie Dimon is warning about an impending economic hurricane with advice on how to be prepared.
Jamie Dimon, the CEO of JPMorgan Chase, explained how he is battening down the hatches in preparation for an economic super storm at the Sanford Bernstein 38th Annual Strategic Decisions Conference on June 1, 2022.
Jamie dropped the mic on delivering this masterclass lesson warning about bracing yourself for the economic HURRICANE coming while serving up some soup du jour of banking acronyms that I spelled out in transcript excerpts alongside his audio.
If you live on the east coast, hurricanes can be no big deal or they’re a really big deal like Superstorm Sandy was on Halloween 2012 where you’re lucky if you escaped from the destruction.
Key takeaways from what Jamie Dimon said is quoted below and cited from the JPMorgan Chase Investor Relations transcript of his talk: “What protects a company in a downturn is, first of all, you’re prepared” with a fortress balance sheet.
Jamie reassured that “when things get bad, we’ll still have margins, we’ll still be making money.”
He said that Chase is “quite concerned about the environment” because poor countries will be using coal if oil’s too expensive, and he thinks oil prices per barrel could easily reach $150-175 and go higher since we’re not investing enough and protecting consumers around the world.
This is not fun to imagine: “And for all those who love climate change, if oil prices go to $175 or $150, which I kind of think is in the cards to tell you the truth, not in the immediate run, but down the road, then CO2 won’t go down, which everyone predicts because people will buy less oil and gas. It’s going to go up because all those other countries out there, the poor countries who need oil and gas to feed and heat their citizens, will turn off – will not buy oil and gas. They’ll buy coal. That’s what’s going to happen. CO2 will go up. It won’t come down.”
We haven’t had a normal economic recovery since “huge growth in this country [was] driven by fiscal and monetary stimulation” in the last several years.
This is made more confusing because he said that “jobs are plentiful. Wages are going up. Consumers are spending.”
On the health of consumer spending, Jamie said “I don’t think they’re going to stop their spending in the next six to nine months. And so, that to me is the bright clouds out there, but it’s different. The Fed has to meet this now with raising rates and QT [Quantitative Tightening]. And the new part of this isn’t the raising rates. It’s the QT. The QT has – we’ve never had QE before like this. Therefore, we’ve never had QT like this.”
“So, you’re looking at something they’re going to be writing history books on for 50 years.”
“I think a lot of parts of QE [Quantitative Easing] backfired. I think the negative rates was probably a huge mistake for a whole bunch of different reasons I don’t want to bore you with now. But they’re going to have to raise rates and in my view they have to do QT.”
“They do not have a choice because there’s so much liquidity in the system, they have to remove some of the liquidity to stop the speculation, to reduce home prices and stuff like that. And you’ve never been through QT.”
Jamie said that banks are tapped out in their capital requirements, so they won’t be buying much more government bonds as “the central bank will be selling, not buying, and governments have much more fiscal deficit to finance. That’s a huge change in the flow of funds around the world. I don’t know what the effect of that is.”
“I’m prepared for minimum to huge volatility,” presumably in the stock market and in asset and commodity values.
“And the third thing is Ukraine. You’ve not had a European land war since 1945, okay, and you could – and the complexity of Ukraine is we don’t know the outcome. I always make a list; you predict the outcome.”
“So, those three things — fiscally induced growth, QT, Ukraine war. So, I’m going to change the storm clouds out there, because I – look, I’m an optimist. I said they’re storm clouds. They’re big storm clouds or – it’s a hurricane.”
“Right now, it’s kind of sunny. Things are doing fine. Everyone thinks the Fed can handle this. That hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or Superstorm Sandy.”
“And you better brace yourself. So, JPMorgan is bracing ourselves and we’re going to be very conservative on our balance sheet. And with all this capital uncertainty, we’re going to have to take actions… so we could serve clients in bad times.”
“And so, that’s the environment we’re dealing with. And I think it’s okay to hope that we’ll end up okay. I hope it. That’s my goldilocks, I hope. Who the hell knows?”
“The worst thing a CEO can do to a company is have this ABC – arrogance, bureaucracy or complacency. If you put your head in the sand, you die.”
“So, when all this liquidity gets run down, we’re going to hit a wall. And then, when that wall gets hit in terms of intermediation, you’re going to see very volatile markets again and no one’s going to be able to step in other than the Fed, which maybe they can’t do this time.”
“What surprises people is it won’t be mortgage this time. It won’t be – we don’t see it there. There might be something in the private credit markets – Archegos. When things happen, it will – someone will get hurt somewhere, and sometimes it’s industries you just least expect.”
“And in 2023, remember, if you have a – if a severe recession starts sometime in 2023, inflation – wage inflation can go to zero like literally overnight.”
“And so, you have to be very careful in that. Like in the 00s, it was telecom and utilities, the ones that were the most stable. In 2007-2008, it was Warren Buffett newspapers.”
“So, there’s underlying changes in credit you have to be very careful about, very hard to spot. And therefore, the discipline is you never put all your eggs in one basket. You’re very careful, no matter how people think real estate is or something like that.”
Even though Jamie said that the “banking industry is in great shape and the credit cycles follow a norm,” other points of vulnerability in the economy could appear. “So, is that systemic? I don’t know. There’s a lot of leveraged lending out there. Will someone get hurt? Probably. Will that credit dry up in that segment of the market? Probably.”
So brace yourselves friends because “this stuff is going to get worse if the markets get tighter and liquidity dries up a little bit. We will be prepared for it and so should you if you are smart.”
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