JP Morgan’s Dimon Says Economic Boom Could Justify “Lofty” Stock Valuations By Lasting Through 2023

JP Morgan’s Dimon Says Economic Boom Could Justify “Lofty” Stock Valuations By Lasting Through 2023

As his bank tries to offload big blocks of Manhattan real estate, JPMorgan CEO Jamie Dimon proclaimed in his latest annual letter to shareholders, published Wednesday morning, that the economic expansion in the US could run through 2023, which would justify lofty equity valuations which recently pushed the S&P 500 north of 4K.

And the CEO who once called for the US to raise taxes on the rich and adopt more explicitly socialist policies to expand access to higher education, housing and child care, praised the federal government’s response to the economic crisis caused by the COVID pandemic. Consumers who are now flush with savings will help drive an economic boom, Dimon wrote in his 34K-word missive.

“I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the US economy will likely boom,” Dimon said. “This boom could easily run into 2023 because all the spending could extend well into 2023.”

“Ascertaining the quality of the government’s spending will take years, Dimon said, but he has little doubt that “spent wisely, it will create more economic opportunity for everyone,” he said.

Although equity valuations are already “quite high”, Dimon aid a multi-year boom may help to justify current levels, because markets are pricing in economic growth and excess savings that may soon be poured into the market.

Dimon, who built the biggest and most profitable bank in the US, warned shareholders in his industry that disruption by big tech had finally arrived, as shadow lenders have gained ground, having the benefit of being unconstrained by strict capital requirements that have forced big banks to hold more capital in reserve.

“Banks have enormous competitive threats – from virtually every angle,” Dimon said. “Fintech and Big Tech are here… big time!”

Echoing Jerome Powell and other senior Fed officials, Dimon offered an oblique reference to “froth and speculation” in the market, but didn’t point to any specific areas he saw as threats. He also offered some thoughts on yields and the inflation outlook that, unlike comments from Jerome Powell, raised the possibility that the rise in inflation might be more than “transitory.”

“Conversely, in this boom scenario it’s hard to justify the price of US debt (most people consider the 10-year bond as the key reference point for US debt),” Dimon said. “This is because of two factors: first, the huge supply of debt that needs to be absorbed, and second, the not-unreasonable possibility that an increase in inflation will not be just temporary.”

Speaking of government spending, Dimon wrote about the need for more infrastructure spending roughly one week after President Biden laid out his sweeping infrastructure plan in Pittsburgh last week.

“We need to properly invest, on an ongoing basis, in modernizing infrastructure,” Dimon wrote. “Virtually everyone agrees that we have done a woefully inadequate job investing in our infrastructure – from highways, ports and water systems to airport modernization and other projects. One study examined the effect of poor infrastructure on efficiency (for example, poorly constructed highways, congested airports with antiquated air traffic control systems, aging electrical grids and old water pipes) and concluded this could all be costing us hundreds of billions of dollars per year.”

However, while Dimon said he’s bullish about the future of the US, some challenges remain, including our increasingly polarized society. In closing, he wrote: “While I have a deep and abiding faith in the United States of America and its extraordinary resiliency and capabilities, we do not have a divine right to success. Our challenges are significant, and we should not assume they will take care of themselves. Let us all do what we can to strengthen our exceptional union.”

The lengthy letter touched on many perennial policy bugbears like the need for “proper immigration policies” – ie making it easier for tech companies and others to hire skilled labor from abroad – while the CEO also wrote that ” affordable housing remains out of reach for too many Americans.”

The country ultimately needs to “move beyond our differences and self-interest and act for the greater good,” Dimon said. “The good news is that this is fixable.”

Of course, a strong economic rebound is good for JP Morgan, and waxing about the threat posed by Big Tech could help the CEO push for less regulation even under a Democratic Administration. Is Dimon once again just talking his book?

Tyler Durden
Wed, 04/07/2021 – 06:38

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Author: Tyler Durden