There are three letters Wall Road merchants care about getting: the one from Warren Buffett, the one from Jamie Dimon, and the one again dwelling from mother, after all.
On Monday, there was no care package deal with candy treats from dwelling. It was JP Morgan CEO Dimon’s flip to opine on markets. His annual letter to shareholders dropped on what’s a form of financial groundhog day the place CEO punditry stands in for Punxsutawney Phil. The decision? “I don’t envy the Fed,” Dimon wrote.
Too A lot Drugs
In his letter final April, Dimon noticed the possibility for an financial “Goldilocks second,” the place quick progress matches inflation and rates of interest slowly comply with. Your checking account is aware of what occurred subsequent: The quick progress materialized however sadly obtained lapped by inflation, prompting the Fed to rethink fee hikes. “In hindsight, the medication was in all probability an excessive amount of and lasted too lengthy,” Dimon wrote of pandemic stimulus measures that stored borrowing prices at historic lows.
JP Morgan thinks an inflating globe, set in opposition to political and provide chain realignment — due to Russia’s invasion of Ukraine — will see GDP in Europe develop 2% in 2022 as a substitute of the 4.5% it forecast earlier than the conflict. The US progress forecast was minimize to 2.5% from 3%. Extra fascinating have been some subtler particulars:
- Dimon mentioned the Federal Reserve should not trouble marriage ceremony itself to 0.25% rate of interest will increase or a set variety of fee hikes. The Fed, he mentioned, ought to hike charges together with “information and occasions in actual time…Our financial institution is ready for drastically increased charges and extra risky markets.”
- “The moats that defend this firm usually are not significantly deep,” Dimon warned, including that Apple and Walmart’s rising suite of economic companies pose a menace to banks, which also needs to count on “many mergers.”
The Opposition: At the very least Dimon is bullish on the US financial system, noting shoppers are in fine condition with “plentiful jobs with wage will increase and greater than $2 trillion in extra financial savings.” Not so with Morgan Stanley, whose chief US fairness strategist Michael Wilson warned purchasers on Monday of an unforgiving financial backdrop that includes “demand destruction from excessive costs,” including the financial institution is “doubling down on a defensive bias.” Wilson was additionally pessimistic concerning the inventory market final yr, one thing he later admitted was “fallacious.”
