Jamie Dimon “Cautious” About U.S. Economy

“The mini banking crisis of 2023 is over, but beware of higher rates and recession — not just for banks but for the whole economy.”

— Jamie Dimon, JPMorgan Investor Letter

Dear Reader,

April’s over. And that means the end of Financial Literacy Month. I bet you didn’t even know April was Financial Literacy Month, did you?

National Financial Literacy Month was created in 2004 to help U.S. citizens learn and develop healthy financial habits. Not sure it’s had the intended effect…

But hopefully, as a faithful Wealth Daily reader, you’re able to gain insights you can’t find anywhere else. Our goal is to show you how to generate more wealth for you and your family, all for free.

With the pandemic-related widening of the wealth gap, increased taxes, and massive inflation, there’s now a huge demand for financial literature. But with so much information swirling around, it can be difficult to know where to start. 

Billionaire investor and hedge fund manager Ray Dalio thinks individuals and countries should start by following the “golden rule” of finance:

It’s most often the case that a nation’s greatest war is with itself over whether or not it can make the hard decisions needed to sustain success. As for what we need to do, it comes down to just two things: Earn more than we spend and treat each other well.

And that’s exactly why investing is so important — so you can give yourself a true shot at earning more than you spend.

But if I learned anything last month, it’s that things aren’t as rosy as I previously thought.

I read through JPMorgan CEO Jamie Dimon’s annual investor letter, and he paints a troubling picture for the U.S. economy.

Each year, investors eagerly await Dimon’s letter, as he’s able to give a non-politically biased view of the state of the U.S. and global economies. As JPMorgan is the largest bank in the U.S. and has clients globally, Dimon can give us a bird’s-eye view.

What he wrote might shock you, but it’s worth paying attention to it.

He opens by saying that America’s dominance is being directly threatened by foreign and domestic actors…

Almost all nations felt the effects last year of global economic uncertainty, including higher energy and food prices, inflation rates and volatile markets…

As these events unfold, America’s global leadership role is being challenged outside by other nations and inside by our polarized electorate. We need to find ways to put aside our differences and work in partnership with other Western nations in the name of democracy.

You can tell that Dimon is a patriot and loves this country and what it stands for. He adds. “During this time of great crises, uniting to protect our essential freedoms, including free enterprise, is paramount. We should remember that America, ‘conceived in liberty and dedicated to the proposition that all men are created equal,’ still remains a shining beacon of hope to citizens around the world.”

Let’s cover the four main sections to his letter: inflation, AI, geopolitics, and markets.

Inflation

Unlike many of his peers and investors, Dimon believes inflation could be stickier for longer, which means rates could go higher than markets previously expected.

He writes, “There are downside risks to watch. Quantitative tightening is draining more than $900 billion in liquidity from the system annually — and we have never truly experienced the full effect of quantitative tightening on this scale.”

He says he’s remaining cautious as the “ongoing wars in Ukraine and the Middle East continue to have the potential to disrupt energy and food markets, migration, and military and economic relationships, in addition to their dreadful human cost.”

He stresses that fiscal spending and quantitative easing are major threats to the economy that are boosting inflation:

There seems to be a large number of persistent inflationary pressures, which may likely continue. All of the following factors appear to be inflationary: ongoing fiscal spending, remilitarization of the world, restructuring of global trade, capital needs of the new green economy, and possibly higher energy costs in the future (even though there currently is an oversupply of gas and plentiful spare capacity in oil) due to a lack of needed investment in the energy infrastructure…

I remain more concerned about quantitative easing than most, and its reversal, which has never been done before at this scale.

When the leader of the largest bank in the world is telling you that he’s cautious, you should pay attention.

AI

Dimon touches on how the bank is utilizing AI to streamline banking. Now, regardless of whether you think this is a good idea or not, it shows you just how pervasive AI has become in the last year. The letter highlights jobs that AI will affect the most at the bank and across the economy:

We’re also exploring the potential that generative AI (GenAI) can unlock across a range of domains, most notably in software engineering, customer service and operations, as well as in general employee productivity. In the future, we envision GenAI helping us reimagine entire business workflows…

Over time, we anticipate that our use of AI has the potential to augment virtually every job, as well as impact our workforce composition. It may reduce certain job categories or roles, but it may create others as well. As we have in the past, we will aggressively retrain and redeploy our talent to make sure we are taking care of our employees if they are affected by this trend.

He doesn’t mince any words by admitting AI will have its hand in nearly every job. It’s unlikely AI will actually replace many roles, but it will certainly be used as a tool to streamline certain processes. We’re already seeing this across the workforce.

Geopolitics

Dimon mentions multiple times that we are living in unprecedented times, especially on the geopolitical front with at least two wars raging as we speak:

We talk about how we may be entering one of the most treacherous geopolitical eras since World War II…

The impacts of these geopolitical and economic forces are large and somewhat unprecedented; they may not be fully understood until they have completely played out over multiple years.

He urges investors to consider the effects of these wars and how they’re certainly contributing to the inflation that we’re feeling here at home.

Markets

Finally, Dimon says that stock prices are very high and that he doesn’t believe a soft landing is inevitable.

He writes, “These markets seem to be pricing in at a 70%–80% chance of a soft landing… I believe the odds are a lot lower than that. In the meantime, there seems to be an enormous focus, too much so, on monthly inflation data and modest changes to interest rates.”

Reading between the lines, it seems that he agrees with our analysis that the Fed has screwed this whole thing up. Interest rates don’t affect inflation as much as we’re being led to believe.

He reiterates this when he says, “Small changes in interest rates today may have less impact on inflation in the future than many people believe. Remember, a simple 2-percentage-point increase in rates essentially reduced the value of most financial assets by 20%, and certain real estate assets… may be worth even less due to the effects of recession and higher vacancies.”

The Fed should be lowering rates sooner than later to save this economy. Because right now, the poor and middle class are being wiped out by these bogus interest rates.

As for the wealthy? They’ll be fine. People with money are spending it like no tomorrow because they want to get rid of it. Baby boomers are retiring and that money isn’t getting stronger, so they’re, ironically, spending it, which is driving up inflation. AP talked about this in a recent article that highlights why inflation is sticking around…

The so-called “wealth effect,” whereby rising home and stock values give people confidence to increase their spending, is a big reason why the economy has defied expectations of a sharp slowdown. Its unexpected strength, which is contributing to stickier inflation, has forced a shift in the Fed’s plans.

As money remains tight, you need to get the most out of your portfolio.

In fact, we’ve created a portfolio that’s giving back to our members every day.

Get access to it here…

Stay frosty,

Alexander Boulden
Editor, Wealth Daily

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After Alexander’s passion for economics and investing drew him to one of the largest financial publishers in the world, where he rubbed elbows with former Chicago Board Options Exchange floor traders, Wall Street hedge fund managers, and International Monetary Fund analysts, he decided to take up the pen and guide others through this new age of investing.

Alexander is the investment director of Insider Stakeout — a weekly investment advisory service dedicated to tracking the smartest money on the planet so that his readers can achieve life-altering, market-beating returns. He also serves at the managing editor for R.I.C.H. Report, a comprehensive service that uses the highest-quality investment research and strategies that guides its members in growing their wealth on top of preserving it.

Check out his editor’s page here.

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