I had a chance to see Jamie Dimon, the Chairman and CEO of JPMorgan Chase, give a live talk and Q&A at the bank’s headquarters yesterday on Park Avenue in New York City. It’s the second time I’ve been to this event and I came away very impressed on both occasions. Dimon’s ability to speak extemporaneously on a variety of topics and then field questions without any notes or facts in front of him is a really cool thing to watch.
I’m both an investor in JPM’s stock as well as a business banking customer. But this was an event sponsored by the firm’s asset management division, which has spent the last couple of years rolling out an impressive suite of smart beta and factor ETFs at an astoundingly low cost. They want market share and they can afford to take it. This marks a big departure from the bank’s traditional stance to passive investing – Mary Callaway Erdoes (the head of asset and wealth management at the bank) dismissing the rise of index funds as a passing fad up until recently, an unfit challenger to the power and sophistication of active management. Jamie mentions that the house view was initially wrong about beta products and has since been corrected to a more consensus attitude of “there’s room for both within a portfolio.”
Anyway, I’m jotting down a few of the things Jamie said to the audience of mostly wealth managers and investment advisors in attendance. He was sharp but spoke plainly, witty but serious. I hope this is interesting to you as well. If something is in quotes, it’s an actual quote. The rest is paraphrased to the best of my recollection.
The Global Economy
It’s ticking along, “everything seems to be okay.” Japan is running at around 1%, which is expected, Europe is doing slightly better and here in the United States we’re seeing about 3%. He didn’t seem particularly worried about emerging markets, although he acknowledged the issue – mostly as something country-specific and manageable.
Trade & Tariffs
Jamie probably spent the most time on this, in both his initial remarks as well as during the Q&A session that followed. His take is that a lot of the policy ideas are misguided even though “Trump’s right about a lot of this stuff.” He thinks there’s a better way to attack the problem of unfair trade, particularly with respect to China. Dimon says TPP would have been more effective, along with a trilateral NAFTA renegotiation. “Instead, now you have a trade war with Canada. Trade war with Mexico. Trade war with Europe. Trade war with Japan. Trade war with India. And, on top of all that, you have the trade war with China as well.” He would have liked to have seen the Trump administration get Europe and North America resolved first, and then went back to Asia with grievances.
Dimon thinks China will retaliate to anything Trump does but that the response will be measured and appropriate. “They don’t lose their cool. A senior trade official there told me last year that this period of time is ‘just a fleck of dust’ in history.”
He’s optimistic that deals will get done because “there’s no way the leadership of these countries is going to spite their own economy” because of any sort of personal animus toward the US president. “They’ll make a deal.” He highlights the fact that we’re not arguing over major issues in dollar terms at this point – at least with respect to Canada, Mexico and EU. “It’s down to 2 or 3 things, it’ll be resolved.”
Jamie explained that he uses funds and ETFs for things he isn’t an expert in, like emerging markets and European stocks. For US stocks he likes to pick companies. “I’ve been buying and selling securities since I’m 13 years old, I don’t need any help from a fund to know that Boeing, Home Depot, JPMorgan will all be doing better 10 years from now than they are today.” It sounds as though he’s a blue chip stock plus funds to fill in the rest sort of investor.
Jamie despises bonds. “I wouldn’t own any” he says in response to a question about asset classes and opportunities. He does the math out loud about how much in bonds the Treasury is going to have to sell this year and next year to fund the government. It’s over a trillion in issuance, a stark reversal from the bygone days of asset purchases and quantitative easing. More supply will mean higher rates and he’d rather have the volatility in the stock market than hold bonds with yields destined to rise. “I don’t want to hold Treasurys now.”
Someone asked a question about the relative shittyness of Europe’s economic recovery and whether or not there was an implication for European stocks. Dimon disagreed. “You have to keep the two things separate. Europe has some great companies that do business all over the world, more than half their revenue comes from outside the Euro Zone.” He thinks the opportunity to invest in stocks and businesses overseas is just as good as it’s always been, and he’s still bullish on China as an investment as well.
“No, I still don’t believe in it. When I said I made a mistake, I didn’t mean I changed my mind on Bitcoin. I meant that I had made a mistake in talking about it.” His view is now consensus for the banking industry: “The blockchain is real, crypto currencies are fake.” He tells the story about a friend who said ‘How can you call it a fraud when I just finished showing you that it exists…’ – Jamie tells the guy, “Fine, it’s not a fraud, it’s a scam. Does that make you happy?”
My favorite line of the day: “The only way out of a Bitcoin is another schmuck.”
His overarching idea here is that anything proponents of crypto say it can do, the banks can do better with improving technology. There’s no need for what Bitcoin offers – from store of value to money transfer to transparency to financing transactions.
There was some concern about the rising levels of aggregate debt – both domestically and among sovereign issuers around the world – but Jamie broke it down into some subcategories to give us some context.
“Student loans are $1.3 trillion with about a third of the money due currently late – want to know why? Because the government took over and pushed out real lenders. So it doesn’t work. The wrong incentives.”
About credit cards, “So that’s roughly another trillion dollars, I don’t see a lot of delinquencies.” Mortgages, “The mortgage market is about $10 trillion, and everything written since the financial crisis over the last ten years is pristine.” Nothing else got through in any meaningful amounts.
Asked about peer-to-peer lenders or shadow banking activities, he’s not worried about them as competition. “There isn’t a single hedge fund or private equity firm who will stand there, in a panic, and buy assets. The only two people who will serve as a lender of last resort are the Federal Reserve, and a lending institution with a strong balance sheet.” I think he meant JPM but it could also mean Buffett / Berkshire.
“Lehman could never have happened today. Never.” He’s talking about how regulation and capital levels have put the banks into a much stronger position than ever before. Not to say he’s a fan of all regulation, as we all know. (josh’s comment: I don’t see why – the high cost of today’s regulatory climate is probably one JPM’s biggest advantages in today’s environment. It’s why Amazon is doing supermarkets rather than lending.)
European banks will never be as good as US banks for structural reasons. None of the EU’s countries want to see cross-border banking giants take over the continent. Plus too much oversight and government involvement for them to truly compete.
The last thing I’ll relay is what Jamie had to say about digital disruption / fee pressure on investment management / financial advice…
“Get over it. It’s been happening your whole life. Costs have always been coming down – for trading, for asset management, for investing.”
Will there be layoffs in this division or that one? Of course, but when you walk onto a trading floor, and some traders have been replaced by an equal amount of programmers, you can’t see the difference. Headcount overall “almost never changes. It’s pretty stable.” Of course there will be different people doing different things. But the aggregate level of employment doesn’t change much. Everyone has to keep up and find something to do.
re: financial advice, he says it’s a forever business. People will always need help. Even successful, smart people don’t have their shit together. “If I brought a few dozen investment bankers from around the building in here, would all of them have made smart decisions with their money over the years? No way. I’d say maybe half.” He touted his new app that allows JPM Chase customers with deposit or investment balances of $75,000 or more to do free trades. “Pretty cool, huh? You heard about that?” He calls it an “MVP” or Minimum Viable Product. “It’ll get more features and improve, we just wanted to get it out there.”
As far as the health care initiative Dimon announced in concert with Amazon’s Jeff Bezos and Berkshire’s Warren Buffett, he didn’t have any specifics to report other than the fact that everyone else is “stupid” (Josh’s comment: Yes!). They’re testing all sorts of data and hiring smart people. “It’s one sixth of the economy and its a mess. None of what we’re doing makes any sense.”
Thanks to my friends and colleagues from JPM Asset Management for having me over for this.