Jamie Dimon’s Alarming Economic Prediction for 2024

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JP모건 CEO 디몬의 80페이지 서한을 소개. 지속적 인플레이션 우려(재정적자, 재무장, 무역재편, 그린투자, 에너지비용)와 AI의 장기 디플레이션 요인을 언급. 주식·채권 밸류에이션이 고점이며 시장은 soft landing 70~80%를 반영하나 디몬은 35~40%로 봄. 금리 2%p 상승 시 금융자산 가치 약 20% 하락 가능성 경고.

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01. beware of higher interest rates and recession we have ongoing concerns about persistent inflation stock prices are at the high end of the range these are some of the warnings Jamie Diamond discussed in an 80-page letter he released last week warnings that don't just apply to the investors of JP Morgan but are addressed to the entire world but they are drugs running through the system and they create this kind of sugar high and we're in a sugar high I think it may bite more than other people people one of the most important quotes from Diamond's letter is we have ongoing concerns about inflationary pressures that the US but also much of the world faces some critical factors that raise the possibility of a second wave of inflation and the data we've received this year so far has surprised many economists and investors monthly inflation measured by the Consumer Price Index has been accelerating since October last year the latest report from the BLS indicated that Prices rose 4% in March alone which might not sound like a lot but in the first 3 months of 2024 there has already been 1.1% of inflation we're only a quarter of the way through the year and we're already halfway to the fed's 2% annual inflation Target Diamond sees five major factors that could contribute to inflation continuing to be a big problem for the economy fiscal spending the remilitarization of the world the restructuring of global trade the large Capital needs for the green economy and the possibility of higher energy costs all of these factors continue to play out over multiple years but one of them is particularly relevant for 2024 in the past fiscal deficits did not seem to be closely related to inflation but today things are very different because how the US behaves regarding their spending has changed take a look at the 1950s to' 70s period the government would bounce between a budget surplus and deficit every few years they'd run a budget surplus when the economy was booming collecting increased tax revenues as income and capital grew and not needing to spend more than they receive in Revenue because economic conditions were great when a recession hits indicated by the vertical gray bars the government would run a deficit tax revenue would decline as incomes and business profits fell and government spending would increase to help reignite the economy and then the cycle would start all over again that has not been the case for more than 20 years the US government has been in budget deficit since 2002 the early 2000s recession was quickly followed by the worst recession since the Great Depression so instead of returning to Surplus the deficit expanded after 2008 the deficit was being reduced until about 2015 when increased spending drove the deficit back up to almost a trillion dollar before covid had even started of course we all know that the pandemic required the most government support in history driving the deficit to a wobb $3.1 trillion the deficits today are even larger and occurring in boom times the point being that the US still runs a $1.7 trillion deficit despite decent economic growth and a very strong labor market and what ultimately happens with the deficit is extremely uncertain because this year it's an election year likely a very close race between parties with two very different budget strategies Biden if he can keep his eyes open will likely try to increase taxes particularly on corporations and the rich to cover their large spending plans and Trump if he can stay out of jail is likely to provide tax cuts while also cutting government spending however just as there are uncertain but important inflationary factors like the budget deficit there's also some deflationary factors at play as well I've spoken a lot about inflation caused by an increase in the money supply because it's specifically been a big factor in the inflation crisis so far what I haven't spoken about is another critical Factor productivity productivity in economics is an analysis of how much is being produced by the hours of Labor worked if workers on average are more productive then cost to the business will be lower and through competitive forces prices come down when I say become more productive you might be imagining that I'm suggesting people need to work harder and faster but that's not the only way that the labor force can become more productive in fact a much bigger way is through technological advancement take the advancement of computing for example according to statistic brain in 1980 the cost of 1 GB of hard drive storage was about $440,000 by 2014 the cost was just 3 so the cost of computing has put significant downward pressure on business expenses but even more valuable is the enormous amount of human hours of Labor that's been saved by The increased use of computing and the internet imagine a business seeking research to open a new store in a different country it still requires humans to be involved but access to incredible depths of data from all around the world instantaneously with the internet saves an enormous amount of money or even customer relationship management tools which can save businesses huge amounts of money through improved productivity and increased sales conversions and actually today's video is sponsored by the number one CRM for medium-sized Enterprises pipe Drive pipe Drive is the first CRM and intelligent Revenue platform designed by salespeople for salese it's a comprehensive tool for helping small and medium businesses visualize their sales processes and improve their efficiency pipe Drive helps streamline your deals to sales conversion and capture highquality leads with their customers achieving on average 28% more deals in their first year using the platform form pipe drives tools can be tailored to your business take me for example I'm running a very unusual type of company and I'm able to use pipe drive to streamline my video creating process customizing project stages and tasks to exactly what I need keeping me accountable and reminding me of which work needs to be done first pipe drive has incredibly easy to use visual sales pipelines lead segmentation business analytics and much more so if you want to unlock the best version of you and your company's success please check out pipe drive from the link in the description below you can get a 30-day free trial and a 20% discount for the year the impact of computing and the internet as a deflationary force is very hard to quantify but it's safe to assume that it's one of the biggest reasons why inflation has been persistently low for much of the last 20 years even while the money supply over that time quadrupled in size in 2024 we're on the cusp of one of the biggest technological Revolution utions in history artificial intelligence we are completely convinced that 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 all of those big technological revolutions have automated types of manual labor and reduced business costs and AI seems to be a way bigger shift than even all of the past ones combined you might have seen open AI announce its new text to video AI model called sora this is one of the videos generated entirely by Sora with a simple text prompt it's of course not perfect but it's very close to replacing the need for a physical human to go out and record that footage with a drone and Sora doesn't just solve a stock footage problem it and similar models will reduce the labor hours all across the media sector from animations and graphics to logos and other designs Sora and its Inception of textto video AI is just one application of AI that we've been able to see and in some cases try ourselves but over time there will be use cases and problems being solved by AI in ways that we can't even imagine right now we anticipate that our use of AI has the potential to augment virtually every job he goes on to write we do not know the full effect or the precise r at which AI will change our business again AI will certainly be some kind of deflationary force over the next couple of decades but how much of a deflationary force it is and how it balances with the other forces at play is completely unknown in the letter Diamond then turns to the stock market Equity values by most measures are at the high end of the valuation range and credit spreads are extremely tight year to date the US Stock Market is already up about 8 % an extremely fast start to the year and it's largely because investors are just willing to pay more for stocks it's the same story in the bond market and we can take a look at this by looking at something called a credit spread credit spreads are where we measure the difference in yields between two types of bonds with different credit qualities such as comparing the return of baa rated corporate bonds and double A+ government bonds which are considered risk-free the gap or spread between these yields has been declining why well investors are feeling very confident about the future and as a result they're investing more money into riskier higher yield Investments driving up the price of corporate bonds which drives down their yield closer to the lower government bond yields confidence is up there's more m& chatter e Equity Mark open a little bit spreads are getting close to historical lows which is means you know so both the stock and bond markets show us that investor confidence is high these markets seem to be pricing in a 70 to 80% chance of a soft Landing modest growth along with declining inflation and interest rates investors strongly believe that inflation will continue to declin this year and that interest rates will be lowered by the fed and the US will avoid a recession Diamond somewhat disagrees so when people talk about you know the market is kind of pricing and soft Landing that may very well happen but you know the odd 70 or 80% chance we'll have a soft Landing I give it half that we may very well have he thinks the odds of a soft Landing are closer to 35 to 40% rather than 70 to 80% he's certainly not coming out and saying there's definitely going to be a recession but he thinks the outcome of inflation interest rates and the economy is much more of a coin flip and as a result he's preparing for a very wide range of outcomes we are prepared for a very broad range of Interest r rates from 2% to 8% or even more with equally wide ranging economic outcomes from strong economic growth with moderate inflation to a recession with inflation or in other words stagflation but in my view the most fascinating part of this letter from Diamond is the two warnings that he gives one for the economy and one for the stock market he writes beware of higher interest rates and recession not just for banks but for the whole economy the banking crisis last year was devastating for a handful of banks but the failures were largely contained to the institutions that faced a very particular cocktail of problems extreme interest rate exposure large unrealized losses in health to maturity assets and highly concentrated deposits most of the banking sector and the rest of the economy for that matter have been so far able to handle the rate Rises that we've seen but we should be wary of assuming that that interest rates have peaked if long rates go up over 6% and this increase is accompanied by a recession there will be plenty of stress not just in the banking system but with leveraged companies and others the likelihood of the US achieving a soft Landing goes down dramatically if inflation resurges and interest rates go up again a simple 2% increase in rates essentially reduced the value of most Financial assets by 20% I'm going to visually demonstrate this for you because it can be hard to wrap your head around this imagine you have a friend who offers to give you $100 but only in 10 years time how much would you be willing to pay him today for that deal well the answer largely depends on interest rates and specifically it depends on this formula with interest rates at 3% you'd be willing to pay as much as $74 for that $100 in 10 years the reason why this answer and the formula make sense is because if you didn't take that deal you could just take your $74 invest it at current interest rates at 3% and in 10 years time that $74 would be worth $100 so at 3% interest rates $100 received in 10 years is worth about $74 today now imagine that interest rates have risen to 5% that same $100 in 10 years is worth just $61 today so 2% increase in interest rates resulted in the deal declining in value by 17.5% buying a stock or a bond as an investor is exactly the same thing you're buying into a stream of cash flows that you'll receive over time and the price you're willing to pay for that stream of cash flows is in part dictated by the alternative places that you could invest your money today rates have been extremely low for a long time it's hard to know how many investors and companies are truly prepared for a higher interest rate environment if you enjoyed this video here's one I did recently where I discussed some other deflationary factors relating to the housing market and a reminder to check out pipe drive it's the first link in the description below