Dear Fellow Shareholders,
Jamie Dimon’s latest letter to shareholders has an interesting section on “how the table is set” for the next financial crisis (“Where do you want me?” asks future rogue criminal). First, some good news: “We will enter the next crisis with a banking system that is stronger than it has ever been.” Harder! Better! Faster! Stron–“There is a greatly reduced supply of Treasuries to go around — in effect, there may be a shortage of all forms of good collateral…It is unlikely that we would want to accept new deposits the next time around because they would be considered non-operating deposits (short term in nature) and would require valuable capital under [new regulations]…Non-bank competitors are increasingly beginning to do basic lending in consumer, small business and middle market…it is my belief that in a crisis environment, non-bank lenders will not continue rolling over loans or extending new credit except at exorbitant prices that take advantage of the crisis situation.” K. Speaking of nonbanks, “many big banks have retreated from the repo market following the adoption of costly new regulations…This opens up a potential new revenue opportunity for nonbank brokers and others who aren’t subject to the same regulations.” And the good taxpayers of Kentucky aren’t (directly) subject to the same regulations: “Stephen Jones, who oversees about $4 billion of state money at the Commonwealth of Kentucky, said he completed his first direct repo trade in January, without using a large, bank-owned broker-dealer. The state is lending $123 million this month to a REIT called Invesco Mortgage Capital Inc., up from $50 million earlier.”
Basically Nobody Knows The Difference Between A Bubble And A Bull Unless We’re Talking China
“The question of whether or not we are in a tech bubble has been raised regularly for years now…it’s easy to look at numbers, whether that be valuations, revenue multiples, or simple counting stats, but any analysis is incomplete without understanding markets. In 1999 most consumer markets were simply not ready, whether it be for lack of broadband, logistics build-out, etc…Today, by contrast, many of the most valuable unicorns are consumer-focused companies like Uber or Airbnb. Moreover, these companies are competing not with other tech companies but rather with entirely new (to tech) industries like transportation or hospitality.” “Optimism in the face of growing uncertainty is hard to sustain. That seems to be the crux of the problem facing the market. The current situation — very optimistic implied earnings growth and deteriorating economic uncertainty — is a temporary condition…If the market’s pricing of earnings growth drops to the long-term realized growth mean of 7%, the S&P 500 would drop 11% to 1850.” Meanwhile, Dan McCrum has dropped the mic on China.
Oil: Is Volatile