Transcription
I am here with somebody who does not need an introduction. Jamie Dimon, who is the CEO and chairman of Jp Morgan. It's a really interesting day to have this, first of all, a huge turnout. But the focus, at least in the news world, is very much in the geopolitics. And I'm wondering from your perspective, you talked about geopolitics for a long time. Are you surprised that the market has been so sanguine to any kind of response or any kind of geopolitical disruption?
Hi, Lisa. I Bloomberg Not really. So one of our brilliant folks wrote a report years ago, Mike Sambo's, that you look at all these wars around the world since World War Two, the market reacts, but it never had a real long term effect other than the Israeli conflict. Oil prices tripled. That went on for an extended period time in 1973. So the world kind of tastes is dry, but geopolitics is a major issue. It's much more complex today than it has been since World War Two until about Ukraine, Russia, Iran, North Korea are related with China. And that could have an effect, but it may not. So these things may diminish over time. You know, this war with Iran, you know, it is short in oil goes to 80 or 90 or 100, but it is a short and not prolonged. It probably won't have a major effect if it becomes prolonged and all bets are off to tell you what how offsides for this market be. If there were truly a stagflation area shock given the fact that there seems to be comfort with the idea of disinflation right now.
Well, I think that's true, but I think that was true before this war. So if you look at, you know, my view is the price as the price of going to high growth, prices are kind of low. It's kind of a lot of complacency in the market. I'm not sure. You know, we look at risk, we look at the broad range of outcomes and there are negative outcomes. But one of them would be, you know, inflation, I call it. That's the skunk at the party. So it's been coming down, but it seems to maybe leveled off around 3% if things make it go up. And this is only one thing. You know, you can look at medical prices, construction prices, insurance prices, wages for sure, and things, other things. You know, inflation is a big thing. It's not just oil. So, you know, we'll say right now this will add a little bit, a teeny bit to inflation. Not a lot. I was surprised because things were kind of gloomy coming in today. And the mood here is not that actually there's a lot of optimism. There are a lot of different companies that are building things and investing things.
I mean, how vulnerable really is the US economy right now to some sort of geopolitical shock?
Well, it may not be geopolitical. It may be that companies are starting to lay people off. And so I think the most important thing in the world is geopolitical. What happens to free western democratic world, which is kind of been under attack by Russia and Ukraine, by Iran in the Middle East, a little bit by China, wants to, you know, divide and conquer the Western world and, you know, both militarily and economically, you know, you have all their neighbors are rearming because of actually not going to anyone else. So those are the most important things I did. Global deficits are so large. But those are those are like I call like large moving tectonic plates that may or may not affect the economy in the short run. They may be determinative in the longer run. And some of these things which are about war, you know, Vietnam, you know, did it affect the economy in the very short run? No. It had a 20 year effect after that. So you got to look at these things as they're moving plates, though it could take five years to have an effect, but it's actually real right now. The economy is doing fine. Asset prices are high. People are assuming things go on. I mean, nobody you talk to has any idea that credit spreads can get bad a lot and they could just because of sentiment. And so so I think there's a little bit of a little more exuberance I think there should be. But we've had years of it. And, you know, the one big beautiful bill edge to, you know, as to growth this year, bank deregulation, other deregulation as to growth and animal spirits. So we'll see. But but I think, you know, the skunk would be inflation. So we've got to keep our eye on them closely.
Yeah, Well, and this actually speaks to something that people are wondering, which is what's going to potentially crash the party before we get into credit. More significantly, I know that Jp Morgan has been expanding significantly in the Middle East, particularly in Riyadh and Dubai. If you take a longer term view, does any of what we're seeing now have the potential to shape that effort to expand either in the positive direction or potentially to withdraw in the effort?
I think the way I look at it creates more risk. It creates more chance of a positive outcome. So all those nations have been modernizing, educating their people, you know, adopting more and more Western methods to open up their markets, bring in foreign direct investment, invest overseas. That won't change. In fact, and Tom Friedman wrote about this in his paper today, that this creates a bigger opportunity for long and just peace in the Middle East and writ large, not just Iran in this war, but, you know, Saudi Arabia, UAE, some path to statehood for the Palestinians in Gaza and Palestinian. It's going to be up to them. You know, there are reasons to be optimistic. This opens the door for that. You know, and there are a lot of naysayers. And I understand that if things go south, they could say, I told you so, but this does over. Out the door for that. Hopefully we're wise enough to help move in that direction. And if you are close, is right in the Middle East, Saudi Arabia, UAE, Qatar, Kuwait, they all want peace. And they all know that like really growing and having great economies rely on that. You want to get more foreign direct investment in peace. Do things like war reduce the chance of people don't want to put your real investor in the ground. So you know, and then they even set up a shadow government for the Palestinian Authority with Palestinians. But professionals, lawyers, doctors, business people to create maybe a governing structure that can actually only corruptly govern Palestinians and create peace on the ground there and, you know, have Israel and Palestine working a long term course. But of course, to see, you know, peace side by side with statehood. So we'll see. I mean, look, and that way I want to be optimistic. Even though it's been terrible now for a long time.
You were talking about. Right. And I do want to return to it and what could potentially cause the credit cycle to crack, even if we don't know the catalyst. Do you have a sense of what this credit cycle is going to look like if it's going to be akin to something that we've seen in the past or if it's going to have a new kind of dynamic?
Yeah, So some things rhyme and some things never change again. There will be a credit cycle. It's usually caused by a recession. The type of recession determines the nature of it. So stagflation is very different than just a recession. Obviously, the depth of the recession and a credit cycle is a normal cycle. But one of the things that's always different is which industries get really badly hurt. Like you may remember in 002 thousand, it was telecom and utilities. You know, the bond stocks they paid dividends in oh eight was Warren Buffett stocks, media stocks. Now, this time it may be software, maybe it's not. But some of these movie the changing type of credit, I do think it'll be things that cause a recession could be geopolitics. It could just be, you know, people pulling back on their spending and companies are laying off or they can't pass on prices or or something like that. But I do think when we have that cycle, it will be worse than people expected. Were late this cycle for a lot lay new entrants. There are some people out there who aren't doing great credit. Can you see the other side of it? And I'm not talking about private from talking about credit in general. That could be assurance companies. It could be private credit, it could be banks. We see some banks doing things that we probably wouldn't do. So. So there will be and there is about credit. There's always if you look at the outcomes, there's always the people did it well. They still have a cycle and the people did it really badly. So that's not going to surprise me when we find out who the horse will be naked when the tide goes out.
You don't think you don't think the private credit the epicenters?
No, because private credit, I mean, give you big numbers. Corporate debt in general is in pretty good shape. Consumer debt in pretty good shape. And you take private credit levers lending 1.7 trillion banks to 1.7 trillion. The high yield market, 1.7 trillion. I wouldn't put that in this systemic category even if it gets worse than people expect.
So do you think, given the fact that Jp Morgan is lending significantly as well, I'm just wondering how you sort of guard against a credit cycle that you think is going to be worse than people expect at the same time that there are opportunities and there's a growing economy? I mean, do you have to keep more cash? You have to be more conservative.
So we always run the risk margin we do is we always run the company looking at range of outcomes and so we can handle it easily, so we can continue to serve our clients. Like there are 3000 clients here, investor clients, 250 corporate clients. So whatever the environment is, we're going to be a good serving you properly. I don't have to worry about that. And we're going invest in our future with technology and you branch in new countries. So we always wanted that way. Look at our margins. And I think they now, of course, we manage credit, you know, some of the crisis manage because, you know, people want a loan, they come to us, we offer access onto some more aggressive and we lose and we're totally fine with that. We see a bunch on the leverage side sometimes we tied our standards, you know, we want more covenants, we want more collateral. We are doing less subprime. You know, we trim ourselves in credit card, for example, where you have lessons learned. And once the lessons learned, you make about change underwrite. But we've always been pretty good at underwriting credit, though. When there's a cycle, it is going to run through our books too. And I'm but we're adults, you know, reduce our result. We'll still be fine.
You talk about some of the technologies in order to serve clients, artificial intelligence, a huge focus. And there's been some pushback by Jp Morgan investors about the amount that Jp Morgan is investing. How are you looking at what areas you think Jp Morgan's going to win? And as a result of that, what gives you confidence?
So everything we do whenever we meet, if you were running a business, Jp Morgan at that level, credit card, auto, you know, mortgage sales and train, we always say, what are you doing to grow your business? And that could be any great sales people of your countries. Very often it's any technology, it's various forms of technology. It's just building something that's a digital account or an API. They're customer ones, you know, and more and more. G So we use A.I. for risk fraud, marketing underwriting, no taking idea generation error reports. Sorting, reducing errors. And, you know, and there are six or eight use cases, 58 put in the important category. And that's part of what you do is no different than the past. And we can do it. We can use it to do something better, faster, quicker, cheaper, higher sat in the car. But we are going to do it. And so air is the new front of, you know, wonderful stuff coming. And and I think for society you got to remember people talk about the negatives. You know, my guess is I really do mean it. Like maybe in 30 or 40 years your kids you have two kids, Right. Are going to be working 4 hours, four days a week, maybe three and a half days a week, live in 220. A lot of cancers will be cured. A lot of disease will be cured. Food will be safer, cars will be safer. It will be a wonderful thing. The risk and that people are focused on today is that somehow it just it gets deployed so fast that people don't have time to adjust to it. There are too many layoffs. I think that's legitimate. So companies should be thinking about how are they going to handle that? And, you know, I've suggested I may write about this, that the government should start thinking about how can we help get the benefits of AI and diminish the negatives. And that would basically be retraining, relocation, how you your high schools, your colleges, your community colleges, you know, to reskill. But even people are 40 or 50 and it's all doable if we think about how we're going to prepare for it.
Well, do you think that there is going to be a smaller workforce for each sector? I mean, for the banking sector, for example, if you can consolidate a lot of market share and you can analyze things much more efficiently, maybe your overall workforce doesn't shrink, but your overall book of business expands dramatically. I mean, how do you how do you see that?
I think there will eventually be some shrinkage of the workforce. And I think if you're ahead, you have a temporary benefit. Remember the competitive capitalist world, people will catch up and even smaller banks, we support ourselves. We'll get the same services directly from Claude or from, you know, or from Fish or something like that. So it isn't like you're going to have a permanent advantage. You have temporary advantages and you stay ahead. Temporary, you have an advantage. But I don't think you have a winner take all thing. The world is really competitive. And then look at it also opens up, you know, in a good way competition. So fintech. So we now have all the big bank regular competition, but we also have hundreds of fintech companies who are using new technology to sometimes to take a just a little sleeve of business and then expand it. And, you know, and it could be dead, it could be tried, it could be rent payments, it could be, you know, cross-border payments, it could be anything like that. So I appreciate that. But we have to some of that money issue is very specific. We need to do that, too. So JP Diamond, appreciate Stablecoin, but no, thank you. I will take it back. I yeah, we have no promises. Okay. But there is a kind of proxy probably regulated. Yeah. Yeah.
Going forward though, I do find a reluctance by some employees to adopt to artificial intelligence because they're worried about losing their jobs.
Not really. Yeah. We have this. So we use, I guess every six or eight use case cases. We do it everywhere, but we have on our phone and I'm sweet and we have like 12 or 13 or 14 products that you can use to review your own documents to. Right. So summarize research. So if you want to, you know, the lawyers, when I ask how many legal documents of 50 don't have these things in it, you can review it and tell you that in minutes and 180 or 160,000 people use it a week. So it's adopted. They say they're saving 4 hours a week on it. Now, we don't include that in how we look at productivity because we don't really see the productivity. They're using it for research, no taking. They're going to go see a client When might the client be interested in? And those use cases are that those 12 products are being every week. They're adding like new products to, you know, to do different types of things for our for our own employees.
So the mood music so far this year has been kind of negative around the economy and sort of the worries around credit in particular over the past couple of weeks in particular. You don't sound that negative.
Look, I you know, I look at the system out there. I think there are big geopolitical risks, sovereign debt risks. I think inflation is not not beaten yet. I think so. Yeah, I'm concerned about that. We've not had a cycle a long time. I just look at it more like the probabilities. I think the probabilities of something going south are more than other people think. I would price more into the market if I could. I guess if we don't run our business, that we run a business, we can serve our client. So I but I think there's a little bit too much exuberance out there that everything's going to end up fine. I just the idea that not enough bite or higher than some of these other people.
Do you think the bigger risk is inflation or an economic downturn?
Well, I think the related I think inflation caused the economic downturn, but the economic downturn just could be just when you look at history, I have been through so many past I mean, I've studied even after I would have been 73, would have been 82 would have. It is a confluence of events that are hard for you and I to see in real time is not one thing. It's usually a multitude of things.