At an annual conference sponsored by AllianceBernstein in late May, JPMorgan Chase CEO Jamie Dimon told a group of investors that he was preparing for the worst and feared that the U.S. economy might experience an economic hurricane.
I said there were storm clouds, big storm clouds. Its a hurricane, Dimon said. Right now its kind of sunny, things are doing fine, everyone thinks the Fed can handle it. That hurricane is right out there down the road coming our way. We dont know if its a minor one or Superstorm Sandy. You better brace yourself. JPMorgan is bracing ourselves.
The news of Dimons bleak forecast broke on June 1 when the S&P 500 was trading above 4,100. Over the next two weeks the blue-chip index sank 12% to below 3,700. While one mans words rarely move markets, and its unlikely that even Dimonwho is often seen as the voice of the financial industrywas able to cause such a drop, the outlook clearly didnt help. And now, Dimon is saying that he regrets using the word hurricane at all.
I shouldnt have ever used the word hurricane, he told FOX Business on Tuesday. What I said was there were storm clouds which may mitigate, and people said, Oh he doesnt think its a big deal. So I said, No, those storm clouds could be a hurricane.
Back in April, before his hurricane comments at the AllianceBernstein event, Dimon first told analysts in an earnings call that he saw storm clouds on the horizon. Then, in an interview with Bloomberg in May, the CEO said that the economy had a roughly 33% chance of a soft landing and a 33% chance of a mild recession, adding that theres a chance this could be much harder than that. He even warned at an industry conference that same month that stocks could drop another 30% in a severe recession scenario.
But now, Dimon says that his point was that the storm clouds on the horizon could be nothing, or they could be bad.
I think we should understand that Im not predicting one or the other, Im just saying, be a little prepared for both of them, he said.
Theres always uncertainty in the economy and markets, Dimon explained on Tuesday, but it is heightened these days because of the Ukraine war, high energy and food prices, rising interest rates, and quantitative tighteningor the Federal Reserves attempt to reduce the size of its balance sheet.
Thats why JPMorgan Chase is preparing for storm clouds, but Dimon made it clear that this isnt a new trend. The CEO added he is always ensuring his company can withstand any economic environment and serve customers.
We have always done that, he said. So when I say Im prepared, yeah, were prepared for a hurricane. But we were prepared before I talked about it. We were prepared before the 07 one and the Great Financial Crisis, because I know that bad things happenand very often they happen in a way that you do not expect.
Dimon said that there is also a chance that all the uncertainties that are threatening the economy, from inflation to geopolitical tensions, are resolved this year, leaving the economy with a Goldilocks mild recession.
But they may not, he added. Im still on the cautious side on this one.
Still, Dimon, who managed JPMorgan Chase through the Great Financial Crisis, still has faith in the U.S. economy. He noted that the consumers continue to spend and they have more money in their checking accounts than before the pandemic. He also argued that most companies are in good shape, despite the rise of inflation.
When asked about the biggest lesson he learned from his time in the financial industry coping with boom and bust dynamics, the CEO said that he learned how resilient the country is.
If you go back, every decade, back to 1900, its been bigger the decade afterand that includes World War I, World War II, Dimon said. The resiliency of the system is unbelievable. Its the type of thing that Warren Buffett refers to. It doesnt go backward, it may stop sometimes, but its always growing and innovating.
Never bet against America has been, and remains today, one of the key themes of the billionaire investor Warren Buffetts investing philosophy. At 92, Buffett still serves as chairman and CEO of the $692 billion conglomerate Berkshire Hathaway, and he has repeatedly emphasized throughout his career that the American economyand by extension, the stock marketwill continue to grow.
For 240 years its been a terrible mistake to bet against America, and now is no time to start, Buffet wrote in his 2016 annual letter to Berkshires shareholders. Americas golden goose of commerce and innovation will continue to lay more and larger eggs. Americas social security promises will be honored and perhaps made more generous. And, yes, Americas kids will live far better than their parents did.
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