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The last decade has been full of ups and downs in the global economy, and after the 2019 COVID-19 pandemic, many wondered how investors and large companies would recover. What no one expected was that the outlook wouldn't improve, with historically high inflation in major powers and an active war directly influencing commodity prices.
Faced with this situation, James Diamond of JP Morgan, one of the world's oldest financial firms, made an alarming prediction about what awaits investors and the market in the near future: possibly the biggest economic hurricane in history. He asked if governments could withstand a hurricane of such magnitude, and how the Federal Reserve's system strategy influences the hurricane's spread.
Although the respected leader, James Diamond, stated that the US banking system is solid and ready to weather such a problem, he also warned investors to be prepared, as the outlook wasn't as rosy for the economy as predicted. Therefore, today we will review his statements and the reasons why this hurricane is impossible to contain.
In recent years, the Federal Reserve has had to make decisions to maintain market stability, and one of the biggest was taken recently. In early June 2022, when did the quantitative tightening process begin? How does it unfold? The situation that the JP Morgan representative called an event that could remain in history books for 50 years.
As is known, quantitative tightening means tightening asset purchases to impact inflation and the money supply. But why is this type of movement necessary? According to Diamond, this is inevitable because the excess liquid injected, and then, as a result of the government's economic maneuvers to survive the pandemic, must be neutralized and eliminated in order to stabilize prices and the currency itself.
The big question is why do you see this as a mass of risk? Because you don't think it's turbulence for a market that isn't prepared, especially considering the increase in reserves. What will happen to interest rates? But not everything is doom and gloom. You also point out a positive side to the American financial system, expressing confidence that you and other experts know that the Federal Reserve system can handle challenges of this magnitude, noting that the situation is not as bad as the whole housing bubble of...
2008 and the so-called subprime mortgage crisis, however, there are things that cannot be covered by hand, and one of them is war. This has influenced the price of raw materials such as gas, wheat, and oil, worrying investors like Daemon who fear that the price of organic compounds could increase by almost seventeen percent, going from $150 to $175 per barrel.
This indicates a major problem for the European Union and the United States. Although the United States generally has the capacity to produce gas and oil on its own, the energy demand within its territory follows its internal cycle, thus requiring imports. This means that if there is an interruption in the supply, 7.9 percent of the oil imported from Russia will be affected.
Despite this, the United States has better prospects for damage control than the European Union in this situation, but could still be seriously affected. These are the two biggest concerns of JP Morgan, which, although it has not compared the situation to a more devastating natural disaster, is still worried about what is to come for the international market.
It made a strong argument that its colleagues should prepare for what they know. While his company is prepared to face the coming economic turbulence, his main strategy, unlike some companies in the same situation, seems to be to have the most valuable human resources and attract more talent, promising to be absolutely right in terms of certain payments to preserve the company's status.
Hey Pedro, everything seems to indicate that Daemon's words are not just an opinion, and since the emergency changes he led at JP Morgan demonstrate their veracity, this appeal became evident when he made the statement about what was happening. The company's shares fell 1.8 percent, completing an 18 percent drop so far, and taking into account that the JP Morgan economics team had already adjusted growth expectations in May of this year, showing the realism in their forecasts and the path they took as a possible economic hurricane for which Daemon says his company is prepared, while remaining conservative with its balance sheet.
The Wall Street leader is not the only one who has shown a change in his business strategy, and here the disappearance of the low interest rates generated by the pandemic meant that the gains of capitalists ceased to exist. Investing in new companies and cautiously preparing for a potential storm is one example.
Capital Stock Exchange, according to reports, held talks with its portfolio companies to be prepared for the critical moment caused by the infraction, being just one of many that alerted their employees to what was to come. Although it's not widely heard, coming from a respected figure with decades in the banking sector, it's undeniable that the Federal Reserve's system changes affected large and small companies that, unlike JP Mobile, were forced to cut staff and search for new professionals.
This is the case with Mark Zuckerberg, who announced he would reduce hiring in middle and upper management positions to protect himself from what was to come. The Robin Hood app, however, made public its decision to reduce its staff by nine percent. The hope of freezing strategic objectives is that this is just the tip of the iceberg of what is to come, because, as the saying goes, on June 1st, at a conference sponsored by Life Bars and Roses, the economic hurricane is on its way, and the intensity and repercussions are what we'll discuss.
Unknown sources alluded to the fact that it is unknown whether this is as damaging as or less damaging than Hurricane Sandy, which struck the Caribbean and the east coast of the United States, leaving dozens of victims, causing electricity problems and a collapse of the local economy. According to the raiders, even Tesla CEO Elon Musk, who is allegedly among those concerned about the upcoming economic downturn, reportedly sent an email to executives warning that he was analyzing strategies to cut 10 percent of staff due to a bad feeling he has about economic forecasts.
High-profile public figures like James Diamond are implementing policies to avoid economic downturns in their companies, indicating that it is best to pay attention, considering that they are part of a chain of predictions. However, considering the overall picture, not only were there comments from Fatah lists, but the head of JP Morgan also predicted a glimmer of hope, indicating that for now the sun is still out and the Federal Reserve system may still be able to handle the situation, so the hurricane may last less than expected.
This last point is supported by data showing that the United States is involved in the international conflict between Ukraine and Russia, in addition to the cessation of restrictions that China is beginning to impose. Having overcome the lockdowns created by the COVID-19 pandemic is good news for the United States, but it raises questions about how quantitative tightening measures will affect the US economy.
While warnings are not uncommon in the financial world, the expressions used by banks often generate alarm, generally aiming to directly influence the numbers. However, it's difficult to ignore James Diamond's statement that the current adaptation moves other companies are making to prepare for a situation that threatens their economy and their achievements are, for now, just a warning.
The advice to be cautious and stop wasting money in a few months, weeks, or even days could become a reality, and the economic hurricane could shake the market. With these unknowns, we conclude today's video. We hope you enjoyed it. Leave your comments on the video, and if you want to suggest a specific topic for us to discuss here on the channel, thank you for watching the video. Until next time!
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