JPMorgan Chase CEO Jamie Dimon on the credit market, the state of the consumer, no high yield debt issuance, the outlook for Federal Reserve policy and the U.S. markets and economy.
H/T Dataroma
JPMorgan’s Jamie Dimon: Don’t Know About A Rip-roaring Rally But Will Have Decent Growth In 2019 In America
[REITs]Q3 hedge fund letters, conference, scoops etc
Transcript
There is no high yield debt issuance in the month of December and it’s the first time that’s happened in a decade. So is that an ominous sign. I remember during the financial crisis which you lived through and you led with such great leadership. It was the debt markets that got us into trouble.
But as the deleveraging in the liquidation of debt markets not the not the lack of issuance so my view is that in December things slow down people got scared. The issue didn’t one issue get spreads gapped out. That’ll probably change.
How long can the credit markets stay this tight before you actually do see it as a worry sign. For a while.
I’m really not worried about. I think I think you just having if you look at the other way around. So credit spreads were normally low for a long time. This is more maybe a little bit of a normalization. And you know you and I both know that the tip of the iceberg the tip of the spear is IPOs and high yield. So when people when sentiment changes dramatically those are the two areas where people cut back and then they kind of open up over time.
The fundamentals seem to be OK putting the market volatility aside. But you’ve got a great vantage point in seeing how consumers are doing from your credit card business. What do you saying.
So credit card is very good. I mean again if you look at actual data people getting jobs more people working wages going up wages are going up. Household balance sheet in very good shape. Credit Card credit extraordinary good things better than we deserved at this point in the cycle and if you look at actual spend now look at retail spend about home improvement spend a whole bunch and it’s pretty good. And so you know me my view is that the consumer is in good shape and is continuing to grow and they have back when with jobs and wages going up.
Speaking of non-aligned the Federal Reserve is trying to normalize interest rates now raising rates from these rock bottom levels that we were at. Is the Fed doing the right thing in your view. How many Fed hikes do you think we should see in the year ahead and how many might we say.
I remind people years ago you know the Fed didn’t forecast and all that type of thing Paul Volcker raised rates effectively 200 basis points on a Sunday night. No one completely knows the future. So the Fed obviously has be data dependent. And I think that depends both interest rates and maybe how the markets bounce you a little bit. They are very bright people I have enormous respect for Chairman Powell and they’ll look at the situation and adjusted accordingly. But my own view is if we had good growth. Raising rates normalize normalize would be 3 percent the short end and maybe 4 percent a tenure is a good thing.
So you don’t think markets though are indicating a recession is on the horizon over the near term then.
No markets are overreacting to short term sentiment around a whole bunch of complex issues. What about the shrinkage in money supply. Actually this is that some of it is a rational response. So when have stock prices are 18 and now there’s 16 because you think will be slower growth higher chance of recession highchairs trade. That is a rational adjustment. You shouldn’t say that that’s irrational. You know I would say that’s probably pretty rational. You pay less under that environment because you think the future is going to be very different was before.
Actually you know better than I do but when I think about things the Federal Reserve makes a pivot they say there is no rush. Earnings have been pretty strong. We just had great jobs numbers on Friday. And 12000 jobs created. Valuations are better after the last three months. It seems like we could be poised for a rip roaring rally there.
That’s why I think people react. I don’t give a rip roaring rally but I think you’re going to have decent growth in 2019 in America and therefore sending me reverse course a little bit down the road. I hate guessing about the future. I run my business like serving you as a client.
And then we’d navigate the ups and downs of markets but just to be clear when you look at what happened in the inversion or when you look at the no high yield debt issuance that’s real time and that’s telling us something right now it’s not speculating.
I think that’s true. But again I look at the inversion a little bit because of QE. I wouldn’t give it it is quite high importance as they were before. We don’t know the exact effect of QE. And I still suspect that somehow that 10 year bond today should be 4 percent. And I’ve been wrong about that. But you know when you’ve had 2 percent inflation a normal 10 year bond rate is 4 percent. And we don’t have that and that may be because of not just us QE by the way. So if you’re the Federal Reserve. You’ve had QE around the world for a long time the ECB was buying 100 percent of sovereign debt issuance in in Europe and for a couple of years that was true here. We’ve never seen something like that before maybe during World War II we had some of that but you know it’s we don’t know exactly what the reverse will be but I have little faith in that our folks foetal navigator.
