The bond market is front and center. We're seeing yields at the highest levels in decades, yet we see the stock market keeps rallying. In fact, it's again in the money today. Should we be nervous or not?
Now I think it's always reasonable in the investment world to be nervous a little bit because you've mentioned the opening. There's a lot of geopolitical risk. You have a bunch of wars going on which I hope are probably resolved. You have bond rates going up. Inflation is a little bit higher than people thought. So yeah, I'm not surprised. I think when people say you should be surprised, the bond rates can go up. The notion that somehow people said they'll never go up is the wrong notion. And so companies like us prepare for higher rates, lower rates, and figure those things can happen.
The thing is, they're at the highest level in decades. I mean, that is where the surprise could be. I mean, they could be much higher than you are today.
Oh, yeah. How much? I would say decades. But we've had like one of the greatest bull markets, other than the brief Covid, since the great financial crisis, you had a huge bull market, huge, lower rates, for the most part for a long period of time. But the world changes, you know, like we may have gone from a savings glut to not enough savings, and the AI investments you're talking about in America alone 450 billion last year, 750 this year, a trillion next year. Global deficits are all time highs and they are huge. So that governments, including ours, has to borrow huge sums of money more next year, this year. And so, you know, people who own bonds, they tend to look at these things in both inflation and demands for capital can push up rates. The thing is, it's not just an inflation story right now. It's also, I guess a credibility story, right? I mean, we have an environment where everybody's trying to pay debt and governments around the world have so much debt at a higher level. I mean, at some point it's going to hit.
Yeah, it is going to hit like U.S. government debt is 30 trillion. The average rate is 3.5%. You know, so even today, they can't possibly refinance at lower than that rate. They have another $2 trillion to do this year.
So yeah, but the thing is we don't know when, we don't know when the world gets too scared about that. When inflation makes it where people don't want on long term duration securities and wishes to demand for capital, there have been examples in history where there's so much demand for capital rates are going up. But it's a very good reason people are making productive investments in the world. Government spending is often not that, government spending is much more consumption related, which doesn't help future productivity. So, you know, all that spending drives corporate profits. So people shouldn't be that surprised. Record profits are doing quite well too, which helps obviously the stock market.
The question, I guess if I could get you to look at the crystal ball. Right. And what yield would that be. Spill over to the economy to policy to markets.
Yeah. So I'm very cautious about crystal balls because I don't think anyone has a crystal ball. We look at all potential possible outcomes and you'd be surprised. From recessions, with inflation, from recession and no inflation from your home prices down 40%, stock price down 40% is a wide range of outcome. I think when people think this is our forecast, that's what's going to happen. I think that's an intellectual error. And you should be much more thinking about range of outcomes, possibilities, probabilities. And for us we want to handle all of them so we can serve our clients. So I'm not that worried about profits going down the stock. But that doesn't worry me at all. I want to serve our clients and do a good job. And I do worry about the geopolitics, the future of mankind as a far more important issue in my mind. But just looking forward, I need a pretty my own view, and it's just different. Other people's that rates can easily go up more. And credit spreads can go more. If people can have, everything is going to be okay, even with rates going up. At one point, you can have a lot of people have to refi high rates. So there's this general assumption that, oh, I can refi all this debt at roughly the same rate with credit spreads go up. People, companies and governments will have to pay more. And so that can put stress in the system. And these are of course a recession type thing. Again I'm not terrified of recession other than, you know, hurt people will get laid off. But I think there's a scenario that's a very possible scenario.
There are risks. People have caught time on the credit market. If yields continue to rise, that'd be a lot more pressure on the credit market. How might that play out?
Oh yeah. That a lot of companies are leveraged. There's about $5-$6 trillion of leveraged loans out there. They're going to have a hard time refi at those rates. The equity values would be considerably less. Some will be prepared for it, some hedge for it. A lot of people didn't hedge for it. So which means that people don't think about normally. But that means you're taking industry risk, and that they should be very cautious. We take interest rate risk. And so as you said, this could put pressure on the system. High yield. That's been so much demand for it. Never mind that inflation is sticky.
Is this worrying or not? But you mentioned the top is a little bit of exuberance in the marketplace.
Personally, I'm not a buyer of credit spreads. I am not that issue, but other people do. I would not buy credit spreads to these levels. And you know, other people have other views. But a lot of people out there remember they have passive passive funds. Buy it. You know, people have the indexes are reasons people have to buy. And they're just trying to create a little bit of alpha for themselves, as opposed to when you go absolutely low and credit spreads are not. So I would have the luxury of saying we don't have to. And of course we're in the business. So we continue to make loans that I think may be more stress than people think, but that's part of a long term strategy. That's not put I like it at this price. But the thing is, there's so much demand.
What's behind that demand? Is it that complacency I suppose yes,
but demand changes. You know, people forget sentiment. If you look at, you know, what happened before the crash of 73 or the crash of 82 or the bond market in 94, the crash of 2000. It was all true. And then things change. And even the things change about when people talk about liquidity or what happens when things get tough as sentiment changes and people want more cash. And so the liquidity requirements change. Money supply changes, central banks change, banks pull back. And that all can, you know, put liquidity on the market at precise the wrong time. When people need cash, they sell risky assets. So you might predict this I would have no, but I wouldn't be surprised that happens.
It's not just about markets is about AI. It's about tech. I mean, you know, JP Morgan has come out to say it is actually a tech company that just happens to be a bank. You have a huge tech budget, I think $9 billion, $20 billion. And then I think 3 billion for cyber security. Talk to us about how you're mobilizing the capital. Where are your areas of priority.
So we don't actually deploy capital by saying we put capital there. We in everywhere. We do it every bit as we grow in China. Like here. If you look at just China, we've gone from banking ten companies to banking, I think it's 2 or 300. We've gone from banking 30 multinationals coming here to banking, 600 multinationals coming here as we serve them. It deploys capital. So deployment, a capital deployment, the outcome of building the business that's true for every country is truly open branches, the United States, it starts to demand capital as people give us deposits which are to make loans. So that's it's a we are pretty comfortable. We can deploy capital intelligently serving clients. We don't deploy capital. If an investor saying, oh, this is the best place to put it. It's a kind of an outcome of how we kind of grow the business.
In terms of AI though, I mean, how are you invested?
Absolutely. Well, I if you would any business I mean, we have and we've been doing it for 13 years and every business meeting you have, we talk about how you can use technology to do a better job for your clients. What are the projects you have? So we're using AI for risk, fraud marketing design, document management. Who you should call in the morning Salesforce type things. Branch location hygiene and is the tip of the iceberg. You know, it's moving very, very quick. Coding is moving very quickly. So we wanted to stay up there and use AI to serve our clients. And we're going to do that. How can I do a better job for our clients using a technology called AI just like we did it with a technology called digital technology called cloud. And we back a technology called mainframe. It's no different. We got to do a better job for a client because that's how we compete.
So how will JP Morgan look like in 3 to 5 years on the back of developments in AI? How well, what how will JP Morgan look like? I mean, how old are you?
This is I hope we're thriving. But what's not going to change? People don't have to hold money. Move money. Invest money, raise money. I think how it happens if I change, you know we use blockchain. May maybe more blockchain being used to do that. There may be more people in AI jobs and less people and in certain jobs, you know. So it all morphed. But that's our job to serve the client. And of course, you know, I always point out that we in the old days, we had, you know, the big banks were a big competitors in the investment banks and that was global. Different banks in every country. Now it's fintech in every country and they're there. And they're good. You know a lot of these people in Revolut, Stripe and Citadel. They're quite good. So we have to compete with all. And a lot of that competition will be technology and AI. So we are investing that money to be competitive to do a better job for our clients. If we're not fast and nimble, we'll lose.
And you're also nimble, right? Sometimes we're faced with something. I feel like we're. I feel like we're a dinosaur. An elephant riding a bronco. It is about manpower. In the end, we've had the likes of... Man power, women power. It's about the workforce we had from Standard Chartered cutting about 8000 jobs, about the spread of three years. We also had Meta saying it's shedding the same number of people. I mean, how are you looking at manpower, women, power? How are you looking at the workforce on the back of, you know, advances being made in AI?
But I think the most important thing is we do a good job for our clients and use AI. Will it change the structure of jobs? Yes, I think there have been very few announcements there. I related, I think a lot of companies have too much bureaucracy, and they may use AI to cover up the fact that they should never have hired that in the first place. But AI is going to change jobs. I don't know. I think it will reduce some of our jobs down the road. I don't think, you know, be all different types of jobs and you have to deploy it at a level like, I think we'll be hiring more AI people and probably less bankers in certain categories, and it'll make them more productive. So when you get up in the morning and you want to interview someone, it'll lay out what I've said 14 different places or give you questions. Your job be the same. You'll just be much smarter how you execute that job.
