JP Morgan Chase CEO Jamie Dimon’s annual shareholder letter is always a good opportunity to learn what the economy looks like from such commanding heights
On inflation:
‘It is important to note that the economy is
being fueled by large amounts of government deficit spending and past stimulus.
There is also a growing need for increased spending as we continue transitioning to
a greener economy, restructuring global supply chains, boosting military expenditure
and battling rising healthcare costs. This may lead to stickier inflation and higher
rates than markets expect.’
On Liquidity:
'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. ’
On Valuation:
'Equity values, by most measures, are at the high
end of the valuation range, and credit spreads are
extremely tight. These markets seem to be pricing
in at a 70% to 80% chance of a soft landing —
modest growth along with declining inflation and
interest rates. I believe the odds are a lot lower
than that. ’
On the fiscal deficit:
‘In the past, fiscal deficits did not seem to be
closely related to inflation. In the 1970s and early
1980s, there was a general understanding that
inflation was driven by “guns and butter”; i.e.,
fiscal deficits and the increase to the money
supply, both partially driven by the Vietnam War,
led to increased inflation, which went over 10%.
The deficits today are even larger and occurring in
boom times — not as the result of a recession —
and they have been supported by quantitative
easing, which was never done before the great
financial crisis. Quantitative easing is a form of
increasing the money supply (though it has many
offsets). I remain more concerned about quantita-
tive easing than most, and its reversal, which has
never been done before at this scale.’
