JPMorgan’s Jamie Dimon warns that the world is on fire – and many people are far too optimistic

• In his annual letter to JPMorgan shareholders, Jamie Dimon sounded the alarm about geopolitical tensions.
• The bank’s CEO said investors were too optimistic about inflation, interest rates and the economy.
• Dimon praised AI as revolutionary and flagged a recession or even stagflation as significant risks.

Jamie Dimon is deeply concerned about international relations – and worries that investors are too optimistic about threats such as inflation, interest rates and recession.

JPMorgan’s CEO made his case in one strict shareholder letter published on Monday.

“Maybe we’ll go into one of them most treacherous geopolitical eras since World War II,” Dimon said.

He pointed to the wars rage in Ukraine and the Middle East, the US and China butting heads on issues such as trade, and a revival in terrorist attacks.

Sharp increases in food and energy prices, steeper borrowing costs, greater chances of a recession and whiplash markets have also increased global fear and uncertainty, Dimon said.

The billionaire banker outlined why he was particularly concerned about stubborn inflation. He highlighted the governments’ budget deficits and their enormous amounts tax incentive during the past years; the remilitarization trend; the continuous revision of global supply chains; the costs of the transition to green energy; and the possibility of higher energy prices in the future due to underinvestment in energy infrastructure.

Dimon also called on the equity and credit markets to price in a 70% to 80% probability of a soft landing, where the US economy avoids a recession and both inflation and interest rates fall. “I believe the chances are much lower than that,” he said.

The bank chief warned against paying too much attention to monthly inflation figures or the timing of the next interest rate cut. He said the larger forces he worries about may already have locked in longer rates and small adjustments may not make much difference.

In fact, Dimon said JPMorgan was ready for interest rates of 2% to 8% or even higher. He said a 2 percentage point increase in interest rates would have reduced the value of most financial assets by 20% particularly vulnerable real estate assets such as office space with possibly even more.

The Federal Reserve has raised interest rates from near zero to over 5% to combat inflation. If they rise further, Dimon said, “there will be a lot of stress – not just in the banking system but with leveraged companies and others.”

He flagged the possibility of stagflationwhich could lead to higher interest rates, large credit losses, a decline in business volumes and difficult markets.

The Wall Street heavyweight also made a comment artificial intelligencewhich became one main market theme last year. “We fully believe that the consequences will be extraordinary and possibly as transformative as some of the most important technological inventions of the past hundreds of years: the printing press, the steam engine, electricity, computers and the Internet, among others,” said he. .

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