4 - 7 minute read
Jamie Dimon, the CEO of JP Morgan, has been sounding the alarm bells for the past year, warning of an economic hurricane approaching. Dimon, who has led JP Morgan for two decades and made billions of dollars in the process, has always been known for his unshakable demeanor, guiding his firm through any problems, including the 2008 financial crisis. However, over the past year, things have changed, and Dimon has well and truly been shaken. He has been doing the rounds, spreading fear, and many are trying to downplay what he’s saying. The mainstream media is trying to pretend that nothing is wrong at all, but the truth is very different.
In an interview almost a year ago, Dimon stated, “It’s a hurricane, it’s we right now, it’s kind of sunny things are doing fine, you know everyone thinks they’re the FED can handle this, that hurricane is right out there down the road coming our way, we just don’t know if it’s a minor one or super storm Sandy, or uh yeah Sandy or or uh Andrew or something like that, and it’s see you, you better brace yourself.” Clearly, Dimon wasn’t too excited about the state of the economy then, and his words haven’t ended there.
Dimon has stated that JP Morgan was pricing in a recession that the FED is simply not capable of handling. What is going to happen, and that his bank would be bracing themselves and keeping their balance sheet incredibly conservative for a long time. This prediction was mocked by many people, and while stocks fell throughout 2022, they only fell by about 20% on average. People hear the word “crash,” and they want everything to fall apart all at once. Their memories are selective, and they think that’s how crashes happened in the past, even though that just isn’t true. Every major bear market, recession, and even depression has their bad days, of course, but those usually only account for maybe 20% of the entire job. Everything else happens slowly but surely, week by week, and month by month, and that’s exactly what happened during 2022.
But then 2023 came around, and everything shifted. In January, many people thought all was well, inflation was over, the FED was about to pivot, and the promised land of a soft landing was finally upon us. However, inflation didn’t fall by as much as we had thought and hoped, and actually, core inflation has stopped falling altogether and is continuing to rise over 5% a year. This means that the FED isn’t done with their rate hikes, and the economy isn’t yet in the end zone. Then, of course, everything popped in March when the banking crisis began.
Silvergate failed, then SVB, then Signature, then Credit Suisse. First Republic has still yet to recover, which is the same story we’re seeing over at Charles Schwab. And had the FED not printed $300 billion overnight and flooded the banks with liquidity, many more banks would have collapsed. We saw what was really a full-on bailout, but we weren’t allowed to call it a bailout because that might hurt Joe Biden’s re-election prospects. And we were once again told that all was fine, but it isn’t fine, and everyone with half a brain cell knows it.
“Failure is okay, you just don’t want this domino effect.”Jamie Dimon, CEO JP Morgan Chase
The problem that caused these banks to collapse still exists. Interest rates still need to go up, which means bond prices are going to keep going down. That means more unrealized losses for banks, and when sentiment shakes or wanes, when people withdraw their cash, more bank runs will occur. It really is that simple. And on top of that, quantitative tightening is kicking off, pulling away $95 billion of liquidity every single month. And of course, the war in Ukraine is still waging, Western sanctions are still biting, and those aren’t going to stop anytime soon either.
Some banks have heightened their positions with interest rate hedges, but many banks have just not done enough, and frankly, their losses are just too big at this point to possibly profit their way out of this. The problem is not over, and nothing has fundamentally changed here. We’ve just seen a plaster applied to a sucking chest wound, and we’re expected to believe that all is well when it just isn’t. And we’re all aware that it isn’t at this point, and many are looking for ways to protect their investments as not to do so would just be foolish. More and more these days, investors are looking in the direction of gold, an asset and store of value as old as time itself that has a particular strength when it comes to inflationary environments, just like the period we currently find ourselves in.
The Bottom Line
Jamie Dimon’s warnings of an economic hurricane approaching are not to be taken lightly. The banking sector is on the brink of collapse, and the Fed is not capable of handling what is going to happen. Traders need to brace themselves for what is to come and consider protecting their investments by looking into assets like gold, which have a particular strength in inflationary environments. It’s time to take action and prepare for what could be a major economic storm.