In a interview with CNBC, Jamie Dimon, CEO of Chase Bank, shared that consumers are currently spending 40% more than before the COVID-19 pandemic. He also mentioned that households still have an additional $1 trillion in their checking and savings accounts. Furthermore, Dimon stated that spending on Black Friday and throughout the year has increased by 10% compared to the previous year
It is worth noting that inflation has reached 10%, so in real terms, it is possible that spending has not actually increased by 10%. 🙂
In his interview, Jamie Dimon provided two warnings. The first warning was that he expects consumers to run out of their excess savings by the middle of 2023, which could lead to a mild to hard recession.
It is important to understand that consumer spending drives 70% of the economy. Therefore, if consumers stop spending, it is likely that GDP will go negative and growth will also decline year over year. This could also cause a decrease in earnings per share at companies, potentially leading to a crash in the stock market.
In the event of a market crash, the first half would likely be a multiple crush, where the value of future earnings is discounted at a higher rate. This would lead to a decrease in the value of stocks, potentially resulting in significant losses for investors. While this explanation may be simplified, the consequences of such a crash would be significant and painful. It is important for both consumers and investors to be aware of the potential risks and take steps to prepare for them.
If a recession were to occur in Q3 or Q4 of 2023, it would align with the expected peak of the Fed funds rate and with the potential for an inverted yield curve, which is often considered a sign of an impending recession.
Many people believe that the economy was already in a recession in Q1 and Q2 of 2022 due to negative GDP growth. However, it is possible that these numbers could be revised upwards in the future, and it is generally difficult to determine whether or not a recession has occurred until a year or more after it has begun. Therefore, basing investment decisions on the assumption that a recession is currently happening or will happen soon can be risky.
Jamie Dimon's warning was not so much about the potential for a recession, but rather the consequences of the actions taken by the Federal Reserve to address inflation. It is known that the Fed's plan has been to use interest rate hikes and other measures to stamp out inflation, but they have not been particularly transparent about their intentions. This lack of transparency, combined with the potential for a recession, could have significant consequences for the economy and for investors.
Dimon's second warning was that, in the lifetimes of most people, the US has never experienced a QT cycle (Quantitative tightening – monetary policies that contract, or reduce, the Federal Reserve System (Fed) balance sheet ). While there has been some QT in the past, Dimon believes that the full effects of such a cycle are unknown. He warned that the QT cycle could keep rates high even as the Federal Reserve starts cutting interest rates. This could create a “bizarre world” where the Fed is simultaneously cutting rates and ramping up QT to keep rates high.
Overall, Dimon believes that the US is entering a period of significant economic uncertainty. He urged investors to be cautious and to consider investing in companies with strong purchasing power and expanding margins.
In conclusion, if you need the money invested in the stock market or crypto in the near to medium term (6-8 months to 2-3 years), it is difficult to predict what will happen. However, by carefully monitoring market movements and positioning ourselves as best as possible, we can prepare for potential challenges and opportunities.
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