Jamie Dimon is deeply concerned about international relations — and worries investors are too optimistic about threats such as inflation, interest rates, and recession.
The JPMorgan CEO made his case in a dour shareholder letter published on Monday.
"We may be entering one of the most treacherous geopolitical eras since World War II," Dimon said.
He pointed to the wars raging in Ukraine and the Middle East, the US and China butting heads over issues like trade, and a resurgence in terrorist attacks.
Sharp increases in food and energy prices, steeper borrowing costs, increased recession odds, and whipsawing markets have also heightened global fear and uncertainty, Dimon said.
The billionaire banker outlined why he was especially worried about stubborn inflation. He ticked off governments' deficit spending and epic amounts of fiscal stimulus in recent years; the remilitarization trend; the ongoing overhaul of global supply chains; the costs of the green-energy transition; and the possibility of higher energy prices in the future because of underinvestment in energy infrastructure.
Dimon also called out equity and credit markets for pricing in a 70% to 80% probability of a soft landing, where the US economy skirts a recession and both inflation and interest rates fall. "I believe the odds are a lot lower than that," he said.
The bank chief cautioned against paying too much attention to monthly inflation figures or the timing of the next rate cut. He said that the larger forces he's worried about may have locked in longer-term rates already and that minor tweaks might not matter much.
Indeed, Dimon said JPMorgan was ready for rates of 2% to 8% or even higher. He said a 2-percentage-point increase in rates had slashed the value of most financial assets by 20% and particularly vulnerable real-estate assets like office space by possibly even more.
The Federal Reserve has raised rates from nearly zero to north of 5% to combat inflation. If they rise further, Dimon said, "there will be plenty of stress — not just in the banking system but with leveraged companies and others."
He flagged the possibility of stagflation, which could usher in higher rates, large credit losses, a slump in business volumes, and tough markets.
The Wall Street heavyweight also touched on artificial intelligence, which became a major market theme last year. "We are completely convinced the consequences will be extraordinary and possibly as transformational as some of the major technological inventions of the past several hundred years: Think the printing press, the steam engine, electricity, computing and the Internet, among others," he said.
