Investing

Jamie Dimon Is Starting To Ring The Doomsday Bells

Austin Smith

Published: April 12, 2024 6:00 am

In today’s episode of the 24/7 Wall St. Podcast Doug McIntyre and Lee Jackson discuss Jamie Dimon’s most recent investor letter. In it, he cautions against elevated inflation, runaway federal spending, and cautions against other problems others don’t want to talk about.

Instability in the Middle East could push inflation back to levels higher than anyone else is talking about, and the impact could be catastrophic.

Transcript: 

This is Doug McIntyre, the editor-in-chief at 24-7 Wall Street.
And with me is Lee Jackson, who is the senior editor and is in charge of covering everything from public companies to global finance to the economy.
Let’s start with this.
Jamie Dimon, head of JPMorgan Chase, probably the best known bank CEO in the universe, not just the world.
Indeed.
warned that anybody who thinks that inflation is over is nuts and that there was a chance that you could see rates move as high as 8%.
Now, nobody other than him, I think, has said that recently.
He’s pretty much the Lone Ranger there.
Yeah.
So what do you think?
I mean, in some ways, this is his letter to shareholders where you find this.
It came out of left field.
What do you think?
I’m not the least bit surprised because he’s extremely pragmatic and he’s been in this game as long as you and I have it, not longer.
And he sees the problems that people just don’t want to talk about.
And he highlighted the rampant government spending and the fact that even though this sounds truly amazing, we’re now spending more as a capital budget on our interest for our government debt than we are in defense.
That’s pretty astonishing.
And I think everything is starting to get to the point where he just sees something dreadful happening if it’s not addressed.
There’s one area that I think is very important in his comments.
And that is, is that for the first time, maybe since the credit crisis, there’s a concern that the U S is borrowing too much money.
I mean, there was a little bit of that.
Remember when there was the credit crisis and then there was the thing in Congress or whether the government was going to get you.
And that was a whole thing of, does the U S rating, uh, get cut from, you know, quadruple a and, That was one of the issues.
The U.S. government is starting to spend too much money.
What do you think?
Well, you know, it’s $35 trillion.
And there’s no way that ever gets paid back.
You know, like, here’s all your money back.
So the question is, what are they going to do about that?
And the thing that’s, you know, they worked themselves into, especially Powell and the Fed, into a tough spot because we had 15 years of zero interest payments.
money.
It was just free money.
Free money.
And now they’re pinned because they can’t really raise rates and they can’t really lower rates and any sort of rate cut in the summers off the table, I think.
Well, you got the new CPI report for March.
Came in hotter than expected.
I mean, not super hot.
It’s not like it was eight, but the market tanked.
You know, if you’re in fixed income government, you were happy today.
If you were a buyer.
Yes.
But the fact of the matter is inflation is not going away and energy prices based on what’s going on in the Middle East could actually go up.
And that’s a big enough component of people’s daily lives for a lot of us that you could have the feeling among a lot of people in America that things are getting much, much more expensive.
I mean, if I’m sitting where the Fed is right now, I don’t know that I touch anything this year.
Well, clearly, if they bypassed on the summer. they’re certainly not going to do it in front of the election.
So that would give them, you know, maybe the November and or December meeting.
I’m not exactly sure if there’s a November one, but I’m pretty sure there’s the December one, of course.
And they may have to wait to then, because they certainly can’t be viewed as, you know, leveraging it one way or another for political purposes.
I know, but let’s think about what that means.
Here’s an example.
Everybody thought that 7% mortgage rates would start to come down, right?
Going to stimulate the housing market.
People can afford a home.
The last time I looked, a $450,000 house, okay?
$1,900 at a 3% fixed mortgage, $1,000 more a month at 7%.
$1,000.
That’s a huge increase for the average family, yeah.
The housing market, is not going to get restarted.
It’s that simple.
If the Fed does nothing, mortgage rates are going to, they may creep up and down around seven, but they’re not going to go down.
No, they won’t.
And historically, you know, and you and I know this, a six and seven eighths or 7% mortgage, you know, 25, 30 years ago, wasn’t a bad deal.
And historically it’s kind of in line, but it’s the highest it’s been since 2008.
Yeah.
And as you know, people are locked into this cycle.
You’ve got people who own homes today that have less than a 3% mortgage.
They want to sell them, but they say, well, where am I going to go?
The answer is, if you want to buy another house, you’ve got to be the person who went from 3% to 7%.
And a lot of people, even if they want to sell their homes, they are not going to go there.
Or maybe you’d trick up some 15-year loan that somehow is an adjustable loan and hope that rates come down, but they’re not going to.
They plain and simple are not going to because Powell and the Fed had their shot in 2018, and they started to raise rates, and the stock market tanked, and it was like, whoa, tap the brakes, bring them back down, and that was the last chance they had, and that was six years ago.
I think people are also gun shy about adjustable rate mortgages after the slaughter during the housing crisis.
So I don’t know that people are going to jump into an adjustable rate mortgage that resets in five years because there’s a chance that it resets at that point.
Higher.
In the wrong direction.
Diamond, sticking with Jamie Diamond, which is worthwhile, it’s like sticking with Warren Buffett.
He said that right now, the world, geopolitically and financially, may be as risky as any time since World War II.
I think he’s right because there’s always something going on that’s negative, but that’s part of the way the game’s played.
But there is such a confluence of issues, geopolitical, financial, and a million other things.
And he’s right.
What are we going to do about all these?
And nobody in Washington, seemingly Republican or Democrat, wants to deal with the hard realities of fiscal blow up.
No.
Well, let’s do this.
Jamie Dimon will not have another letter for a year, so we’re not going to wait that long.
It’ll take that long to read this one.
No, it’s 65 pages or something like that.
But this is what we will do.
There’s going to be a geopolitical shakeout in the Middle East in the next few weeks.
I don’t know if it’s going to get better or worse.
It’s probably going to get worse.
So let’s get together in a few weeks and see what happens to energy, And let’s do it right after the CPI is announced for April.
Right.
We can sit down and say, well, things have changed again.
I don’t think so, but I’ll see you then.
We’ll get together then.
Take it easy.
Thanks a lot, Doug.