Jamie Dimon's Brutally Honest Thoughts on the US Economy.

You are more pessimistic about a soft landing. Do you still think that the truth is the truth is the truth, and the truth today is pretty ugly? That there, as many of you may already know, is Jamie Dimon. He is the CEO of America's largest bank, JP Morgan, has been since 2006, and has an estimated net worth of $2.4 billion. As well as lots of cash, there is one thing that Jamie definitely gets from his position as the head of America's largest bank, and that is economic insight.

Luckily for us, Jamie regularly sits down for interviews to share his thoughts, and yes, he's recently done exactly that, sitting down with Bloomberg for a 20-minute interview a week or so ago. Now, if you don't know Jaime's take on the economy, it is certainly one of caution. No, he's not running around like a headless chook, but he also doesn't shy away from telling Americans exactly how their country stands. In fact, it was only back in August where Dimon gave his last economic update, cautioning Americans that a recession could be on the horizon and giving only a 35 to 40% probability that the US manages a—whoop, buzzword alert—soft landing.

For those that don't know what a soft landing is, it's simply where a central bank like the Federal Reserve in America, typically through monetary policy like raising interest rates, successfully slows down an overheated economy to prevent high inflation without triggering a recession. So Jamie gave that scenario a 35 to 40% probability back in August, but what does he think now? You mentioned earlier that you are more pessimistic about a soft landing. I think you gave it a 35% probability back in April. Do you still think that, or do you think that the probability has gone up with some of the good data that we've been getting?

I'm not talking about forecasting 2025. I just think there's a lot of moving parts, a lot of things in the future which are inflationary. The most important thing taking place is these wars overseas—geopolitics, the terrible humane suffering, a bunch of these countries acting in cahoots against Western interests, against Israel, against Ukraine, against the United States. And that's really serious. I look at a long amount of serious things. Soft landings are hard. I hope it happens. I don't know. I just wouldn't count my eggs in that one.

I think this is a very rational response to the question. I like that Jamie starts by saying that he's actually not trying to make a prediction with his words; he's just trying to draw attention to some of the factors that might not be given enough consideration when discussing the US economy. From the clips I'm going to show you throughout the rest of the video, you'll see that Jim's overarching point is that there are still a lot of inflationary forces in the world that may yet still have an effect on the broader US economy.

Yes, the headline inflation rate that we see reported in the news seems to be under control for now. It's settled to 2.4% from a high of 9.1% in 2022. But Jamie is thinking much more broadly than this. Listen to the nuance in his answer here: do you think that it was a mistake for the Fed to cut by 50 basis points? No, actually, I mean, you guys separate the here and now. Inflation has definitely been coming down; they don’t want to go into recession. Unemployment has been going up. They were late raising rates, but they raised very high rapidly to 5%. I think it's the right thing, and they're right to take their foot up the gas in that one.

I don't think it matters that much—50 or 25, honestly, but I think that was okay. If inflation comes back, I'm looking at future things. The remilitarization of the world's inflationary, the fiscal deficits of the world, particularly the United States, are inflationary. The green economy is inflationary. Demographics are inflationary. It's very possible energy prices down the road, until about two to three years, will be inflationary. Those will hit later; they should react at that time to those things, but I don’t think you can anticipate that. We don’t know that that’s going to happen.

So the points he brought up there—the remilitarization of the world is inflationary—this is both talking about the increases in spending and potential money printing that may be required to shore up the US military. In 2023, we saw total global military expenditure reaching $2.4 trillion, a 6.8% increase in real terms from 2022, which is the steepest year-on-year increase since 2009. Of that, US military spending rose 2.3% to reach $916 billion for 2023. War also has disruptive effects on supply chains, and that is inflationary.

Jamie also noted the ongoing fiscal deficit is inflationary; the US spends more than it earns, and we see quite frequently that gap is plugged by borrowing or printing money. That’s inflationary. The green economy is inflationary because a lot of government spending is required now for the green energy infrastructure of the future. The US demographics are inflationary, with more and more spending needed on healthcare for those getting older. Then slow population growth also has the longer-term effect of labor shortages, which are also inflationary.

Jamie was saying in his lights there's a real possibility of energy prices rising over the next few years. So, he's not so much making the argument that inflation isn't under control, and that the Fed is making a big mistake, and the US economy is going down the drain next Thursday afternoon. He's just zooming out, taking that 10,000 ft view, and just cautioning everyone that there are still many challenges on the horizon that are both yet to be resolved and inflationary.

What you're telling clients, what they're doing, how they're ranging in preparation for potential escalations in a whole bunch of different hotspots. You know, unfortunately, you—I go to a lot of things, and people like it to tell us the positive news, what's the good spin out there. I was getting to— I don't do anything like that. You know, the truth is the truth is the truth, and the truth today is pretty ugly. We have this war now; you know, almost a million casualties in Ukraine. The Ukrainians say that 20,000 children have been kidnapped and sent to Russia.

It's quite clear that Russia, Iran, and North Korea acting in cahoots—China isn't kind of part of that, but they're aiding to betting Russia. You know, China and Russia have spoken about dismantling the world order set up by America and the Allies after World War II, which have been quite successful in keeping peace. You know, they want to do it differently, and that's their right. I don’t think it's a good idea for the Western world. And of course, the terrorist acts in Israel—Israel is being attacked, you know, basically on three or four sides. This is tough stuff. American warships are being attacked every day in the Red Sea. The head of the FBI just said the terrorist threats, internally and externally to the United States, have never been higher.

There was a lesson on when Ukraine was invaded. The war world isn't a safe place. We've got to get rid of the illusion of safe, and somehow peace is at hand. So we need a very strong military, which means we have to spend more money. At least every analysis I've seen for that. We need a very strong economy. We have to subordinate some of the stuff we do to national security. We have to engage much better allies in trade, finance, development finance and things like that if you want to hold the world together.

So, yeah, I think this is the most important thing for dwarfs, whether we have a soft landing or modest landing the next 12 months. That to me, as a business person, almost all of us in business have dealt with that many times. That is not a big deal. So Jamie laying things out pretty thoroughly there, and this general idea of inflationary forces on the horizon has a very particular implication for the US government. Inflationary forces naturally keep interest rates higher. While Jerome Powell and the Federal Reserve are currently lowering interest rates, it's worth remembering that Jerome Powell himself has said that they're probably not going to lower rates by all that much and that the low-rate environment of the last 20 years or so that many people think we’re going back to is simply not achievable.

But this higher-for-longer situation actually inflicts a lot of pain on the US government, and I'll explain why. The US spends more than it earns, and unfortunately, that is just not going to change anytime soon, and that's by the Treasury Department's own admission. When the government doesn't bring in enough money to cover their expenses, they need to sell treasury bonds or IOUs to investors to cover the difference. Now, when interest rates are low, the government can go into debt and not feel too much pain because they only have to pay a small amount of interest.

But when interest rates start to rise, then it gets more and more painful. The government has to pay more interest to investors to take on that debt, and that's what's happening at the moment. However, the biggest problem is that because the government doesn't make money when their debts come due, they actually don't have the money to pay them back. So in reality, what happens is they take on a new loan to pay off the old loan. But now, of course, they're having to take on that new loan at 4% interest when a few years ago that debt they took on only cost them well less than 1% per year to service. This refinancing effect snowballs America's debt servicing cost during periods of higher interest rates.

So much so, interest rate payments are now the third highest category when it comes to total US spending. Deficits, by their nature, are inflationary. And you know one point we have to deal with this, I think what you should worry about is the deficit today is 7% of GDP when Volcker was around and we had very high inflation was 3.5%. The debt-to-GDP is 35% back then, in 1982. It's 100% today. The deficit is the biggest peacetime deficit we ever ran. I would beg the government to set up a powerful Simpson-Bowles type of committee authorized by Congress, up or down vote. It's probably the only way to do it.

The other way to do it is wait until there's some kind of disaster in the market, and then you're kind of forced to do it at the wrong time. I don't know when that might be; I think it’ll happen next year, probably not, but you know, can America afford 120% debt to GDP? Probably, but should we wait for that hockey stick to start? I don’t think so. I think it's just a bad way to run risk.

So Jamie, almost looking a little Ray Dario-esque in that clip, as Ray would say, you can argue around the topic as much as you like, but at the core, the US needs to work towards spending less than it earns. It needs to think about that without lowering that debt pile. The American public needs and deserves a very confident, effective government. If you go around, they don't believe that's what they have. You know, so people have all these things the government should do, but a lot of the things the government does, it doesn't do particularly well. It does some things particularly well; it does a lot of things only the government can do.

But we have to be, again, cold-blooded, clear-headed, pragmatic about what works and doesn’t work. Over time, there have been less and less people in government who were in the real world.

So fair to say Jamie isn't thrilled with the current management of the US economy. Interestingly, he was also asked later in the interview whether he'd be interested in eventually running for office, but he kind of just laughed that one off and said no. But with that said, there was just one more topic I wanted to cover off in this video, and that was Jamie Dimon's thoughts on the stock market at the current time, as I'm sure that's what a lot of you guys are also interested in.

Interestingly, this stock market discussion was actually taking place through the lens of IPOs. The interviewer was asking Jamie a lot of questions about how he sees the IPO market. For those that don't know, an IPO is simply an initial public offering, and it's when a private company decides to sell a big new batch of shares to the public for the first time. This process raises a whole lot of funds for businesses as they are selling new shares to investors, and then from that moment on, the shares are then publicly traded between investors on an exchange, so they become publicly traded.

The nuance to understand with the IPO market and how that relates to stock market valuations is that generally, lots of IPOs take place when the stock market is in a speculative mania, whereas not many IPOs happen at all around the time of recessions and market downturns—take 2008 for example. The reason for this is because private companies really try and game the system with IPOs. They essentially want to hold off until the most speculative and overly optimistic times in the stock market because it generally means that money is flying around, and they'll probably be able to raise a boatload of money from investors at a lofty valuation.

So it makes their job a lot easier and more lucrative. But what's interesting about right now is that despite the S&P 500 being at practically all-time highs, there really isn't a huge amount of IPO activity taking place. There's been a deterrence to really going public as quickly as in the past. Do you still see that? Is that a structural change, or is that something that's cyclical, just having to do with rates?

It's a complicated subject. Yes, there’s private capital, and I think it's a good thing that people can raise money in the private capital markets, but it's a little odd that, you know, public markets are quite elevated, and IPOs haven't picked up very much yet. Part of it is they have access to capital; part of it, they're waiting; part of it, they reduce their own cash burn; they don't need as much cash. So it's a whole bunch of reasons why they're not going public.

So do you expect that to pick up in the near future, or do you think it’s going to remain muted for the foreseeable future? I don’t know; I honestly don’t know. I think it may very well stay muted because, you know, markets may come down as opposed to just go up endlessly, and they may find other sources.

Now that’s an interesting perspective from Jamie. He thinks the IPO market will stay muted because he doesn't anticipate particularly strong market optimism. As he noted, a lot of the reduction in IPO activity may be because most companies are raising money okay in private markets. However, it does show you Jaime's broader perspective on the stock market.

There's a pretty good backlog growing of IPOs of companies. You know, whether it happens or not is a different thing. Markets are open; when you say open, they’re very—you know, values are high; they’re not low, both equities and bonds. You know, credit spreads are very low, so they’re open. But people are saying they’re not open for IPOs; they’re open for those who the market wants to buy today. Sometimes people would go public; they don’t like the price—that's a very different thing.

That kind of hits the nail on the head; the markets are open. It's just that at the moment, there might be some hesitancy from public investors as to the price they'd be willing to pay, and that, therefore, causes hesitancy from the private businesses as to whether or not they decide to list. This might sound slightly speculative from Jamie Dimon, but at the same time, you do have to remember that his company, JP Morgan, is literally the middleman company that assists these businesses to actually IPO, so he definitely has a very strong understanding of things like the IPO market.

But overall, with that said, that is Jamie Dimon's latest update on the state of the US economy. One thing I'd just like to ask is, if you've made it this far into the video, guys, and you've not already subscribed, please take the 2 seconds to click the button. It really does mean more to me than you can ever realize. We're actually hoping to work towards that big million subscriber milestone across the next few months, so any support from you guys is greatly appreciated. I really, really, really have to thank you guys for that.

But with that said, thanks very much for watching. Please leave a like if you enjoyed, and I'll see you guys in the next video. [Music] [Music]