As his bank tries to offload big blocks of Manhattan real estate, JPMorgan CEO Jamie Dimon proclaimed in his latest annual letter to shareholders, published Wednesday morning, that the economic expansion in the US could run through 2023, which would justify lofty equity valuations which recently pushed the S&P 500 north of 4K.
And the CEO who once called for the US to raise taxes on the rich and adopt more explicitly socialist policies to expand access to higher education, housing and child care, praised the federal government’s response to the economic crisis caused by COVID. Consumers who are now flush with savings will help drive an economic boom he said.
“I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the US economy will likely boom,” Dimon said. “This boom could easily run into 2023 because all the spending could extend well into 2023.”
“Ascertaining the quality of the government’s spending will take years, Dimon said, but he has little doubt that “spent wisely, it will create more economic opportunity for everyone,” he said.
Although equity valuations are already “quite high”, Dimon aid a multi-year boom may help to justify current levels, because markets are pricing in economic growth and excess savings that may soon be poured into the market.
Dimon, who built the biggest and most profitable bank in the US, warned shareholders in his industry that disruption by big tech had finally arrived, as shadow lenders have gained ground, having the benefit of being unconstrained by strict capital requirements that have forced big banks to hold more capital in reserve.
“Banks have enormous competitive threats – from virtually every angle,” Dimon said. “Fintech and Big Tech are here… big time!”
Echoing Jerome Powell and other senior Fed officials, Dimon offered an oblique reference to “froth and speculation” in the market, but didn’t point to any specific areas he saw as threats. He also offered some thoughts on yields and the inflation outlook that, unlike comments from Jerome Powell, raised the possibility that the rise in inflation might be more than “transitory.”
“Conversely, in this boom scenario it’s hard to justify the price of US debt (most people consider the 10-year bond as the key reference point for US debt),” Dimon said. “This is because of two factors: first, the huge supply of debt that needs to be absorbed, and second, the not-unreasonable possibility that an increase in inflation will not be just temporary.”
However, while Dimon said he’s bullish about the future of the US, some challenges remain, including our increasingly polarized society.
The country ultimately needs to “move beyond our differences and self-interest and act for the greater good,” Dimon said. “The good news is that this is fixable.”
Of course, a strong economic rebound is good for JP Morgan, and waxing about the threat posed by Big Tech could help the CEO push for less regulation even under a Democratic Administration. Is Dimon once again just talking his book?
— Andrew Fisher (@acpandy) April 7, 2021