Forget the Black Swans, the Vultures Circling Are Bad Enough to Kill us

Jamie Dimon never saw a dying bank he didn’t want to eat. Yet, while I think that Dimon’s name should be pronounced less like the clear, crown jewel of choice and more like the horned fiends of Hades, he does often speak of things likely to bring down the banking world or the economy with more candor than any other bankers, including particularly his partners in crime at the Fed. And you can be sure he has his scavenger eye on those things.

Perhaps it is just because he has unparalleled confidence that he is untouchable like a serial killer who talks to police on the street about how sorry he feels that they have had no luck at all finding the serial killer. He’s just that confident his next big take from hauling in a failing bank at fire-sale prices is so certain, he needn’t worry that warning everyone of the coming failures will get in the way of his business. Thus, he can play the saint for warning us all, knowing the greedy will ignore his warnings anyway, and still wait in the wings for that Friday evening call from Fed Chair Jerome Powell that says, “We have another bank for you. Can we meet tomorrow morning to discuss terms and complete a weekend sale?”

Fitting right in with my theme for this weekend’s Deeper Dive for paying subscribers to be titled “The Apoceclypse,” The CEO of JPMorgan Chase warned the world this week that it faces "Risks that eclipse anything since World War II." I, of course, couldn’t agree more, so I want to spend this article distilling the Dimon’s annual report down to the most essential risks:

Chaos is certain, so is more shrinking of your finances

Dimon begins with the geopolitical chaos—the word I’ve used to describe what this year will be—that will assail markets, banks and the economy all year long in a series of events that are driving the value of the dollar down (and the purchasing power of all currencies).

Across the globe, 2023 was yet another year of significant challenges, from the terrible ongoing war and violence in the Middle East and Ukraine to mounting terrorist activity [the Houthis in particular] and growing geopolitical tensions, importantly with China. Almost all nations felt the effects last year of global economic uncertainty, including higher energy and food prices, inflation rates and volatile markets.

I don’t think there is much doubt in anyone’s mind that war around the world has brought increasing inflationary pressures, particularly as it cut off the Suez Canal, but also food and fuel supplies out of and through Ukraine and out of Russia.

Next Dimon brings up the chaos of the American electorate, which leaves the US paralyzed from doing just about anything to help itself, even economically with wise decisions about the exploding debt.

America’s global leadership role is being challenged outside by other nations and inside by our polarized electorate.

Trust the vultures of finance

After all, they only eat what is already dying. Dimon actually suggests like a true globalist bankster that we put aside our differences to work with our global partners, by which he means his globalist pals. That, of course, is where America’s divide actually begins.

We need to find ways to put aside our differences and work in partnership with other Western nations in the name of democracy. During this time of great crises, uniting to protect our essential freedoms, including free enterprise, is paramount. We should remember that America, “conceived in liberty and dedicated to the proposition that all men are created equal,” still remains a shining beacon of hope to citizens around the world. JPMorgan Chase, a company that historically has worked across borders and boundaries, will do its part to ensure that the global economy is safe and secure.

The problem is the “Western partners” have lost all trust, and there is certainly no reason they should get it back. They are far from repentant. With these noble-sounding thoughts, Dimon reveals the demon credential behind his name because, of course, many citizens realize that globalist banksters like the Dimon do not really have our concerns at heart at all.

A prime example is his friend and former Global Bankster-in-Chief Janet Yellen, who always worried out loud about the widening divide between rich and poor (“the inequitable distribution of wealth”) even as she constantly did her best to make sure that all financial rescue efforts went by the trillions to the wealthiest corporations and individuals in the world so that a few drop might someday trickle down to the rest of us … and then continued to wonder aloud why the gap kept widening. The audacity to even wonder that aloud is as astounding as the sympathetic-sounding serial killer described above.

It is the good that is the illusion, not the bad

To his credit, Dimon notes that the reasons the economy is considered strong and resilient include a host of dying things underneath that support the appearance of a healthy economy but that are actually unhealthy sources of spending that keep GDP up on the surface:

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. Furthermore, there are downside risks to watch.

Then he wisely warns,

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. Plus the ongoing wars in Ukraine and the Middle East continue to have the potential to disrupt energy and food markets, migration, and military and economic relationships, in addition to their dreadful human cost.

These significant and somewhat unprecedented forces cause us to remain cautious.

I’ve been arguing for some time that investors are FAR too complacent about all of this, and Dimon in his annual report says the same, noting that the driving concern besides all the forces listed above is inflation that will likely be made worse by all of those forces.

We have ongoing concerns about persistent inflationary pressures and consider a wide range of outcomes to manage interest rate exposure and other business risks.

We are living in the first time when the world has gone through more than a decade of numerous rounds of quantitative easing. When the Fed last tried to take some of that unprecedented liquidity out of the system, things started creaking and breaking badly. We’ve never seen liquidity withdrawn at the present rate or from such a height of enterprise and that has become dependent on it. So, as Dimon warns, we really have no idea (even HE has no idea) how that turns out, except that our last attempt didn’t go so well to where the Fed had to backpedal quickly.

Quantitative easing is a form of increasing the money supply (though it has many offsets). I remain more concerned about quantitative easing than most, and its reversal, which has never been done before at this scale.

Dimon says that complacent markets are pricing in a 70-90% likelihood of a soft landing (everything comes out of the tightening in fairly fine shape). Then he says, he would put the odds of that outcome far lower than where markets have priced odds. He also says that the constant regard paid to monthly reports on inflation as being not all that bad fail to account for the likelihood that the forces above are going to play out over a much longer timeframe, making the monthly snapshots far more benign than the final picture for inflation from these forces.

The worst is already yet to come

The worst is already baked in but will take a while to show. I agree with Dimon about the mistake of a short-term view, as I’ve said that even the rising price of oil will take many months to price through to products that will eventually be sitting on the shelf. It can price though to gasoline and diesel by this summer, but it will take many more months before the rising costs of those fuels fully prices into everything made from resources now being transported with those fuels and then to the transport of the final products plus the cost of petrol-chemicals used in manufacturing them that will be pricing up as oil rises. So, the person who looks at the next monthly rise in inflation and breathes a sigh of relief because it wasn’t all that terrible, breathes that sigh many months too soon.

And we haven’t even gotten to what happens if the Fed causes a recession as it is pressed to tighten for much longer:

Also remember that credit spreads tend to widen, sometimes dramatically, in a recession.

Finally, we should also consider that rates have been extremely low for a long time — it’s hard to know how many investors and companies are truly prepared for a higher rate environment….

"When terrible events happen, we tend to overestimate the effect they will have on the global economy. Recent events, however, may very well be creating risks that could eclipse anything since World War II - we should not take them lightly."

Markets are priced under the fantasy that all the bad stuff that is currently happening that Dimon describes and that you have been reading about for some time here, is going to quickly go away as the Fed wins the inflation war this year and starts turning down interest rates.

What happens, instead, if all the bad stuff keeps getting worse, as it, in fact, has been doing and more bad events pile on, as has also been happening and as things look poised to do from all directions—meaning directions such as China, Russia, Iran and Israel and the rest of the Middle East, parts of Africa, Mexico and Venezuela, Haiti, maybe North Korea, a projected extra-intense hurricane season, black-swan events that have already hit like Baltimore continuing to play out, oil hitting $100/bbl, commercial real-estate failures plaguing banks again, resurgent shortages of food and fuel, an election that throws the nation into deep political turmoil and rebellion, a national credit downgrade—you know, just the usual things that are already hovering all around, hitting with greater force?

These being so visible already in the skies around us almost can’t be called black swans. They are more like the known vultures that are just waiting.