JPMorgan CEO Jamie Dimon on the problems with socialism

JPMorgan Chase CEO Jamie DimonImage source: CNBC Video Screenshot

CNBC Transcript: JPMorgan Chase (NYSE:JPM) Chairman & CEO Jamie Dimon Speaks with CNBC’s “Squawk Box” From Davos Today

WHEN: Today, Wednesday, January 22, 2020

WHERE: CNBC’s “Squawk Box” – Live from the World Economic Forum in Davos, Switzerland

Following is the unofficial transcript of a CNBC interview with JPMorgan Chase Chairman & CEO Jamie Dimon on CNBC’s “Squawk Box” live from the World Economic Forum in Davos, Switzerland today, Wednesday, January 22nd. Following is a link to video from the interview on CNBC.com:

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Becky Quick: more reaction to the president’s comments the state of the economy and the markets and much more. We’re joined by Jamie Dimon he is JPMorgan Chase Chairman & CEO. It’s great to see you today.

JPMorgan CEO Jamie Dimon: happy to be here.

Quick: one of the stocks that helped fuel that rally has been JPMorgan you’re just coming off your most profitable year ever you talked an awful lot about the strength of consumer what you’re seeing in the united states what’s happening in the beginning part of 2020 after such a successful 2019.

Welcome, everybody. Welcome viewers. So the economy is doing fine 2020 just began but the consumer is strong. 70% of the GDP is the consumer and the balance sheet is in great shape. Housing is in short supply confidence is way up and wages are up jobs are up millions come back to work there are probably millions more that are going to come back to work things are working on the corporate side and did have a reduction in confidence and capex mostly in my view related to trade. That may have leveled off this point because now you have some positive trade news about the USMCA and the China trade deal.

Quick: joe actually asked the president about that this morning when he sat down with him do you expect to see the return of capex it sounds like you do expect to see a rise in capital expenditures this year.

Dimon: I think its very possible and remember a lot of companies do capex when they need to. Receivables go up. Inventory goes up they build that plan when there’s demand for the product you have already seen more capex on the consumer side and you may see it more on the manufacturing side global growth is 3.3%. Not terrible so you can see continued growth.

Quick: part of the reason that you had such strong revenue last year in part was because of what happened with trading revenue. It rebounded pretty sharply in 2019 how are markets feeling to you right now? How do things look

JPMorgan CEO Jamie Dimon: they’re fine the trading actually is not that big of a part of it. We’re up across the board. We look at more things like number of customer satisfaction number of accounts, market shares which we try to drive all the time but the markets right now are fine they are in a goldilocks place

Quick: I was going to say fine sounds like it’s almost underselling when you look at new records being set every day. Do you have any trepidation about anything that you see here

Dimon: the only thing I have trepidayion about is negative interest rates, QE and then diversion between stock prices and bond prices and yield and stuff like that. It’s one of the great experiments of all time and we don’t know what the ultimate outcome is.

Andrew Ross Sorkin: are you in favor of the way Powell has approached this

Dimon: yeah.

Sorkin: do you think he’s in responsible in large part for this do you think it’s fiscal policy or monetary policy that created this goldilocks period

Dimon: I think it’s a little bit of both but goldilocks has two sides to it. But I also think we have to have coordinated fiscal monetary policy and regulatory policy. You see China do that. In the united states you don’t see it so much industrial, regulatory, fiscal if you want to grow faster and not cause some of the problems that could be caused by rapidly rising rates or something like that, you are going to need both and you are going to need it globally.

Quick: that sounds like you don’t think that the federal reserve should operate independently from the white house and the president.

JPMorgan CEO Jamie Dimon: no, they can be completely independent that doesn’t mean they can’t be coordinated. If they feel if governments do x they will be very comfortable doing y. That’s not lack of independence. You both independently said that’s a good course for the country let’s go do it. But you go to China, they do it all the time.

Quick: obviously but China also tells its companies what to do.

Dimon: yeh they can manage their economy much better and we failed to do that we need to have more coordinated policy.

Quick: who runs the ship in that situation? Is congress supposed to listen to the fed in terms of what to do is the fed supposed to listen to congress how does the white house play into that because it sounds like you’re right. I could absolutely see how we could better manage our economy doing that but it does sound counter to how we have operated to this point.

JPMorgan CEO Jamie Dimon: I’m not sure that it’s true if you read history books about the fed and the government usually through the administration they have sat down and had coordinated policies to accomplish the goals of the country they did it together in the great depression and they did it to get out of world war ii. Multiple times

Quick: those were in times of crisis.

Sorkin: but even arguably after the crisis even in 2008 they didn’t do it. Yes they had a stimulus plan but clearly the retrospective was big enough there were lots of things that ben bernanke was screaming and hollering and saying please you were screaming everyone is saying and bernanke has said he lowered interest rates in large part because he couldn’t get congress to move.

Dimon: I think it’s very hard for central banks to forever make up for bad policy elsewhere and that puts them in a trap and we are a little bit in that trap today. Rates are so low around the world

Quick: do you think that’s a bigger problem in the us or because of europe

Dimon: much bigger problem in europe.

Quick: where it is negative interest rates that’s kind of gotten them into that rut

JPMorgan CEO Jamie Dimon: yes do you know of anyone who has actually bought a negative interest rate bond.

Quick: no, that’s what president trump said this morning.

Dimon: because the buyers of central banks and certain banks, insurance companies didn’t have to or index mutual funds or passive funds, I would never buy a negative rate bond.

Quick: why would you

Dimon: not unless I was forced

Quick: hold my money

Dimon: in history whenever you have seen something like that in history it doesn’t necessarily end well.

Quick: I know that we have been talking about this for a long time, what do you think the potential end looks like when do you think it comes? Are there any signs to say we’re getting closer to a point where this actually does play out.

Dimon: I don’t know.

Quick: what would you watch for?

JPMorgan CEO Jamie Dimon: the biggest surprise would be inflation. Any kind of inflation in the united states and right now people think central banks around the world can do whatever they want. They can’t they have to be reactors as opposed to just actors if you see adverse consequences going a certain way, they’re intelligent looking at all the facts and figuring out what to do. But that would be the big negative.

Sorkin: do you see bubbles.

Dimon: only in sovereign debt.

Sorkin: sovereign debt is where you see the bubble

Dimon: yeah.

Sorkin: you don’t see the bubble, even we had uber on a lot of these privacy companies. Is that a bubble

JPMorgan CEO Jamie Dimon: it’s not a bubble because those are in total not that big and yeh some are overpriced we always had overpriced companies in life and stock prices are at a high those prices can be justified if you have a growing economy. We have had 11 years of growth australia has had 28

Joe kernen: if I try to really be half full and optimistic it’s true, here we are at these rates that seem like they’re not normalized and they don’t seem appropriate. They don’t seem appropriate for where unemployment is right now. The rates where we are but if inflation is really because of technology and innovation, why not, in an expansion, leave rates low, let corporate earnings catch up with where stock prices are maybe this isn’t -- maybe the stock prices aren’t just following the fed and central banks up maybe it’s more than that. Maybe it’s justified maybe it’s not just cheap money.

Dimon: the other reason I think it’s been so slow is my point to you all before is over the last 11 years we have had 23% growth it should have been 40 plus. It would have been normal. People act like it was just slow not it wasn’t it was our own bad infrastructure policy, work skills policy, litigation, regulation taxations I can go on and on and what we did to ourselves to slow down growth slow growth means less need for capital. Lower rates, lower growth, lower wages. We need a growth strategy which is why you say fiscals it’s not just spending more money. Do the things that create more growth and then acknowledge that you can help people left behind.

Sorkin: what do you do in a country that’s clearly politically so polarized that virtually nothing gets done? That’s the fundamental question.

JPMorgan CEO Jamie Dimon: they have gotten some things done recently. They did do a budget deal, USMCA done, they got the China trade deal done, they got tax reform done, regulatory reform done if it were up to me that I’d make congress compromise. I think it is obsurd in a democracy that your starting point is you won’t compromise that is what a democracy is. We don’t completely agree and then we find our way ok I will do this for you and you do this for me and now we agree.

Sorkin: you just listed a number of accomplishments by the administration one of the things we have been talking about for the last few days is how the davos community in large part has been a surprise, two years later, three years later now because when he first came into office there was such trepidation and anxiety and worry that the economy wasn’t going to go up, it was going to go down.

Dimon: right.

Sorkin: what do you think everyone got wrong?

Kernen: we all read your piece

Quick: your piece in the time it says unless we change capitalism we might lose it forever. That’s the headline.

JPMorgan CEO Jamie Dimon: no, the headline is always not the accurate thing what did we get wrong

Sorkin: yeah.

Dimon: that good policy matters. Good government matters. We don’t build infrastructure -- it takes us ten years to get the permit to build a bridge half the kids in inner city schools don’t graduate litigation costs 1% more in our country. Health care is 19% of GDP. Our competitor comes at 9% immigration if we had an immigration bill would e 0.2% a year, a year of more growth.

So we haven’t done these things that’s why, I don’t think it is China or trade or technology I think it is the bad policy in the united states and you’ve seen similar things in europe by the way fortunately you have macron in europe trying to change it you need labor flexibility, innovation, positive capital and you need all of these things to have a vibrant economy which is good for everybody. The politicians should focus on that in addition to focus on who is left behind you have more wealth to take care of everybody if you have a better growing economy.

Sorkin: you said you were barely a democrat I think you said that many, many years ago. You look at this election. Is there a democrat that you like people

Dimon: yeh I like a lot of the moderates not a socialist I mean capitalism is the greatest thing that ever happened to mankind I think that people who haven’t read history books about socialism really should. Educating younger kids freedom and free enterprise are inextricably linked they’re not different you can’t tell people where you can work and how you are going to work free enterprise was the pursuit of happiness and once you have governments taking control of businesses it ends up in corruption.

In Venezuela and it erodes over time because companies get used for political purposes not to give you great products and services does that mean they’re perfect, no.

Sorkin: if it is trump and bernie or elizabeth warren what do you do?

JPMorgan CEO Jamie Dimon: that does not mean that we can’t acknowledge that some people are left behind. I have already mentioned inner city school kids I think wages need to go up on the lower end. A lot of the business round table is in favor of increasing the tax credit get more money to people to give them more of a living wage. I would be in favor of universal healthcare if it was properly done. You could design these things badly or well and we have just gotten really bad at designing them well.

Quick: jamie you just listed a laundry list of things that you think government should be doing but waiting for them to fix it and do it better you have gotten impatient and as a CEO you have taken matters into your own hands. I’m thinking of haven, the health care initiative that you at JPMorgan along with berkshire hathaway and amazon have been working on do you have any updates there? Anything you can tell us about what is happening?

JPMorgan CEO Jamie Dimon: I really don’t because its still nacent we are doing some test experiments and big data but I think the business rountable which I am not the Chairman anymore it’s attacking the issues head on. Work skills.

Like how you get into cities and get kids more trained for jobs either out of high school or community college certified training infrastructure they’ve got programs for infrastructure and immigration if you go to the brt site these things need to get done and it will be much better for america the brt supporting raising the minimum wage and supports expanding the urban tax credit both which would get wages to the lower paid.

Giving them opportunity like through schools, education and those things work. They are known to work in any country that has ever done them properly. They work and you have a more equitable society. You have to match skills and we have a lot whole more stuff coming out and things like that.

Kernen: 3.5% unemployment match the skills and then you get organic wage growth which we’re already starting to see. It is much higher than it was

Dimon: I think the bottom quintile or bottom 10% is up 8% for two years in a row or something. We would typically see in a recovery it just took a long time that’s a very slow recovery.

Kernen: what you don’t see with crappy policies that lock the fed in at zero it exacerbates wealth, income inequality and that’s what we saw prior to this.

Sorkin: there’s lots of reasons for that becky mentioned this piece that you wrote in time magazine and we wanted to ask you about it, it refers specifically to what seems like you polled young people about the word capitalism and they may be on the socialist side of things

JPMorgan CEO Jamie Dimon: honestly I don’t think they understand what socialism is. Socialism is when the government controls companies. There’s no example of when the government controls companies they do well and they don’t start to use it for votes satisfying people. They don’t even want competition.

Why have competition they do it for jobs and votes. They have bad allocation of capital. Most state run enterprises don’t do a particularly good job if you take a look around the world and they become corrupt overtime. That does not mean that capitalism is perfect does not mean that every public company is perfect? No, they’re flaws.

Sorkin: do you think that bernie sanders or elizabeth warren are socialists in the construct that you talked about it or this construct of a democratic socialist ? It is something that may feel more european in some ways.

JPMorgan CEO Jamie Dimon: I don’t want to talk about any particular people but if you’re talking about governments controlling corporations that’s socialism. You can do it in a small way or a big way.

The small way is to put a commisar on your board remember the old russian commisars could sit in the room or do it through regulatory or stuff like that the other way is that they actually own the company. Look at all the other countries and they start to take over the oil companies and the steel companies and utility companies. And the banks.

The banks start making loans not to good company not because they are properly allocating capital to its highest and best use but to keep that factory open. The bridge to nowhere to make sure the mayor doesn’t lose jobs in his town and once you do that you will have an eroding society. Having said all that it doesn’t mean that things don’t need to be fixed. They need to be fixed inner city school, infrastructure, education, healthcare we could fix all of those.

Sorkin: what did you make of la larry fink’s letter last week?

JPMorgan CEO Jamie Dimon: I read it it’s fine. Climate is a real issue. I think most people want to be part of the solution we are going to be 100% green this year. We are doing 200 billion in green financing probably going to be increased some time this year. We only do responsible financing we don’t do mountain top removal we don’t do dirty coal mines and you need a transition at the end of the day what the public needs to know you can yell and scream all you want at privte enterprise you need government policy government policy.

It’s the only thing that will globally solve this problem and at the end of the day you need carbon tax and the great thing called the carbon dividend where it doesn’t get sent back to washington it gets sent back to the people and you start buying things or doing things that make more sense. Get a small car,

Sorkin: does it make sense for companies like microsoft to announce their own plans and try to be carbon negative or try to run expensing around carbon?

JPMorgan CEO Jamie Dimon: it makes sense to show their intent and to want to do a better job and say it’s important.

Sorkin: is that real? Is it marketing?

Dimon: it’s not going to solve the global problem okay you have two countries that are growing the pollution dramatically I’m not against them but india and China. America is already coming down 20% the last 15 years or something. You will not solve the problem without real government policy.

So I appreciate all the people saying stop doing this. Stop doing that and all that happens, someone else will make a lot more money than you because the world needs the energy you need policy. What you need is government policy, r&d and carbon tax. The citizens of the world have to take a vote at that level and understand it’s going to have some sacrifice.

Sorkin: you would advocate for a carbon tax to be 100% clear.

Dimon: absolutely. With a carbon dividend

Sorkin: with the dividend.

Dimon: co2 this means based on some --

Sorkin: you mean the smoky stuff. It’s odorless colorless gas.

JPMorgan CEO Jamie Dimon: yeah. But it could be --

Kernen: what about clean water? What about chemical waste? What about what we have done with strip mining? All of those things are okay too? How about clean water?

Dimon: most of us need to be cleaned up.

Kernen: not really, we’re a little bit focused on all of this you were just telling me about I don’t know.

Dimon: I look at carbon a different way. There’s a risk that something is going terribly wrong here we could handle that risk today and rather painlessly if you do it right.

Kernen: we need to decide what the problem is whether it’s causing slight warming or whether it’s causing every single adverse weather event that’s been occurring on its own for 4 billion years. More snow less snow, more flooding less flooding.

CEO Jamie Dimon: forget all of that.

Kernen: but that’s what they equate it to now.

Dimon: that’s so people can get noise about it but if we have a co2 problem in the air which is hurting the world and most of the scientists say that, my view is if their is chance it is bad we should do something about it.

Kernen: not if it cost $30 trillion.

CEO Jamie Dimon: you can do it cost free that’s what I’m trying to tell you about carbon tax. It goes to a bank and you get it back.

Kernen: I understand but there is a certain amount of carbon, carbon dioxide that’s going to be released for years whether you balance it out and do your carbon offset and feel better about your whatever you came over and fine.

Quick: can I just tie it back to where we started this conversation you mention risk mitigation. That’s what you do very well when you look out there, what are the big risk factors since we had a trade one phase deal signed with China and since we know where brexit is headed at this point what are the things that you’re watching.

JPM CEO Jamie Dimon: cyber is a big one. You look at our systems vunlerability to cyber and that can be banks, water or grids im not going to talk about geopolitics cause that is always noise that can always cause something that we don’t fully understand today I would put the qe it is just in the back of my mind as an abnormal situation that’s been going on for a long time.

We don’t completely understand why the cause and effects and we may not know for other ten years on this particular one and good policy I mean, I get frustrated that we don’t have better policy around the world and I applaud the politicians that are strong enough to get up and fight the good policy which doesn’t always sound like it’s good for the citizens but it is so I credit macron I think he’s fighting the fight to get france growing better.

Quick: I want to thank you for your time it’s always a pleasure seeing you. We love this interview at davos.

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About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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