The World According to Jamie

Dimon 2024! I can see it now...well...maybe not. Our friends at CNBC estimate a 20% likelihood that the chairman and CEO of JPMorgan Chase stages a run for president. Couldn't be in 2020 because he has vowed to stay on board at JPM for at least the next few years.

We can dream!

Each year, like most CEO's, Mr. Dimon releases a letter to shareholders. His is more anticipated than most (Larry Fink of BlackRock generates pretty equivalent hype.)

Jamie's 47-page letter was released today. So why does the Street, politicians and business people worldwide value his opinion so much?

Remember that little recession in 2008? When the U.S. was teetering on the edge of financial collapse, 9 CEO's of the worlds largest banks were summoned by the U.S. and New York Fed Chair's, the Treasury Secretary and the head of the FDIC (Federal Deposit Insurance Corporation.)

Gathered in downtown Manhattan, these 9 men collectively controlled $9T in assets, or 70% of the U.S. financial system.

If you have seen the movie Too Big To Fail, this was that ominous scene in the large conference room. As part of many negotiations and mass lending's, the Fed teed up a deal for JPM to acquire failing Bear Stearns.

$700B later, of the 9 CEO's, only 2 survived and continued to lead their firms- Goldman Sach's Lloyd Blankfein and, of course, Jamie Dimon.

One can assume this guy "just gets it."

He is not without his controversies. From the memorable 2017 Delivering Alpha appearance where he declared Bitcoin a "fraud." To being the poster child for inflated executive compensation as he harbors a net worth of over a billion dollars. Above is his family Christmas card that raised eyebrows citing opulence. Isn't a Christmas card supposed to be fun?!

As Bobby Axelrod on Billions said: "When did it become a crime to succeed in this country? America used to salute the guy in the limousine. They wanted to be the guy in the limousine. They still want to. But now they throw eggs at it."

Whether you think he is overpaid, overrated or one of the greatest business leaders of our time, Mr. Dimon does not mince words. No one can accuse him of being anything but a staunch capitalist. Dimon has a great pulse on the economy as a whole and has provided immense value for JPM for the past 12 years.

Below is a summary of said letter. Small government, less regulations & praise for POTUS.

On JPMorgan's Initiatives:

Use of Capital. "We much prefer to use our capital to grow than to buy back stock...We currently have excess capital, but due to recent tax reform and a more constructive regulatory environment, we hope to use funds to grow our businesses, expand into new markets and support employees."

Risk Management. "When people talk about banks, it sounds like we are taking big bets...This is the complete opposite. Every loan we extend is a proprietary risk. Every new facility we build is a risk...We perform extensive analytics and stress testing to challenge our assumptions...We try to manage the company such that all possibilities including the worst case-scenarios cannot hurt the company."

Employee Opportunities. "The path to opportunity begins at a young age, but too many young people, particularly from disadvantaged backgrounds do not get a fair shot." JPMorgan is investing $350MM to support demand-driven skills training along with re-entry programs for individuals that have been out of the workforce or incarcerated.

Diversity. "I believe the door to diversity opens when you run a great company where everyone feels they are treated fairly and with respect."

On Business as a Whole:

Brexit. "We are prepared for it to be a hard Brexit. It essentially means moving 300-400 jobs around Europe. The worst outcome would be much of London's financial center moving to the Continent over time."

Employment. "It may well drop to 3.5% this year, and there are more signals that businesses will improve CAPEX and raise payrolls. Wages, jobs and household formation are increasing."

Regulation. "Excessive regulations for both large and small companies reduced growth and business formation. Ease of starting a business worsened with small business formation dropping to the lowest rate in 30 years."

Trade. "It is not unreasonable for the U.S. to seek more equitable terms."

Corporate Taxation. "We had a hugely and increasingly uncompetitive tax system driving companies capital and brainpower overseas...the article (below- 'A Politician's Dream is a Businessman's Nightmare') provides excellent advise for our legislators and regulators...The current administration is taking steps to reduce unnecessary regulation by insisting congressional rules around cost-benefit analysis be properly applied."

On Markets, the Fed & Economy as a Whole:

Volatility (Commodities/Tariffs) "I am a little perplexed when people are surprised by large market moves. Oftentimes it only takes a an unexpected supply/demand imbalance of a few percent and changing sentiment to drastically move markets...Oil, cotton, corn, aluminum...each industry or commodity has continuously changing supply and demand."

The VIX. "Same for stocks, bonds, interest rates and currencies. Changing expectations whether around inflation, growth or recession, supply and demand, sentiment and other factors can cause drastic volatility."

Economic Growth. "We have had subpar economic growth over the last 8 years. Our growth cumulatively in this expansion has been about 20%. A more normal recovery would be 40% by now."

Quantitative Easing (QE). "As long as rates are rising because the economy is strengthening and inflation is contained, it is reasonable to expect the reversal of QE will not be painful...QE has never been done on this scale before so the effect on asset prices, confidence, CAPEX, and other factors cannot possibly be known."

Rate Hikes. "We have to deal with the possibility that the Fed and other central banks will need to take more drastic action...People underestimate the possibility of higher inflation and wages, which means they might be underestimating the chance the Fed will have to raise rates faster."

Economic Synopsis:

• Far more capital & liquidity, less leverage in banking.
  
• More collateral in markets.
• Less short-term secured financing.
  
• Less leveraged lending.
• Money markets are safer due to regulatory nature.
• Healthier consumers in terms of income and employment.
• Absence of loans in mortgage business.

On Government Inefficiencies. The full article above can be read here.

Labor Force Participation. "Especially men aged 25-54 has dropped dramatically. An estimated 2 million Americans are addicted to opioids...a main cause. 70% of todays youth are ineligible for military service due to lack of proper education or health issues."

Infrastructure. "It took 8 years to get a man to the moon (idea to inception,) yet it now can take a decade to simply get permits to build a bridge or new solar field. We are now not even ranked among the top 20 developed nations."

Immigration. "Policies fail us. 40% of foreign students who receive advanced degrees have no legal way of staying here...One of our largest exports is brainpower."

Healthcare. "Nations costs are twice the amount per person compared with most developed nations."

Debt. "America's net debt stands at 77% of GDP...Hopefully with the right policies we can grow GDP at faster than 2%."

We have an incredible country but, as seen above, we are not without our flaws.

Jamie Dimon's perspective lends to the idea of more rational and comprehensive moves from our government.

More ways to make America competitive. Stop practices that are hindering us and start enacting change to grow our country for years to come.

https://www.thebalance.com/bearn-stearns-collapse-and-bailout-3305613
https://reports.jpmorganchase.com/investor-relations/2017/ar-ceo-letters.htm
http://money.cnn.com/2012/10/16/news/bailout-wall-street-ceos/index.html
https://www.cnbc.com/2018/04/05/jamie-dimon-backs-trumps-legitimate-complaints-over-trade.html
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