In one sentence this is how Jamie Dimon of JPMorgan Chase sees our financial future… ‘There will be another crisis’!
Does Jamie Dimon, often held out as one of the smartest minds in banking and the financial world in general, know something that the rest of us don’t know?
Or, is the handwriting on the wall written as clearly as a commitment for a 3% down mortgage, available again after a long hiatus post-2008 financial crisis?
On a more micro-scale back on April 1st we had examined how stock market performance and volatility today compared to the performance and volatility that preceded the 2008 crisis and subsequent economic swoon.
The question posed in that article was whether these somewhat striking similarities were anything for investors to be concerned about (‘Caveat Emptor: Stock Market Volatility And 2008 Financial Crisis Redux?‘)?
Jamie Dimon’s View From The Top!
In Jamie Dimon’s view the balance sheets of banks will be a focal point of any ‘next’ crisis based on what he sees as the over-regulation by the federal government.
In Dimon’s view this intrusion into free markets has limited the ability for the financial institutions to act and act quickly were it necessary (i.e.the banks now holding 100% of liquid assets against potential cash outflows).
Summarizing the letter, Business Insider writes the following:
“While crises look different, the anatomy of how they play out does have common threads,” Dimon writes.
Here are the core behaviors investors exhibit when these crises break out, according to Dimon.
- First, they sell the assets they believe are at the root of the problem.
- Second, they generally look to put more of their money in havens, commonly selling riskier assets like credit and equities and buying safer assets by putting deposits in strong banks, buying Treasuries, or purchasing very safe money market funds.
- Often at one point in a crisis, investors can sell only less risky assets if they need to raise cash because, virtually, there may be no market for the riskier ones.
And what’s more, no investor is truly safe in a crisis. Here’s Dimon:
These investors include individuals, corporations, mutual funds, pension plans, hedge funds — pretty much everyone — each individually doing the right thing for themselves but, collectively, creating the market disruption that we’ve witnessed before. This is the “run-on-the-market” phenomenon that you saw in the last crisis.
Dimon continues his discussion of what the next crisis could look like by breaking down how banks’ balance sheets had changed since the financial crisis.
Banks now hold 100% of liquid assets against potential cash outflows, and Dimon says no bank will want to be the first to admit that its liquidity coverage ratio has declined for fear of looking weak. (Source)
The full text of the shareholder letter can be read here.
Michael Haltman, President of Hallmark Abstract Service, New York.
HAS is a provider of title insurance in New York State for residential and commercial real estate transactions.
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