Bloomberg Audio Studios, podcasts, radio, news. All right, folks. We've got another great voice to talk about the environment, the macro. We're talking about Jamie Dimon. He's of course the CEO of JP Morgan Chase, and he is there in Miami at the JP Morgan Global Leverage Finance Conference with our own Lisa Bramowitz, one of the co-hosts of Bloomberg TV's Surveillance. Lisa, take it away.
Thank you so much, Carol. 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, 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, hi Bloomberg. Not really. So, one of our brilliant folks wrote over four years ago, Mike Semblat, that you look at all these wars around the world since World War II, the market reacts, but it never had a real long-term effect other than the Israeli conflict, where they, you know, oil prices tripled and went on for an extended period of time in 1973. So, the world kind of takes it in stride, but geopolitics is a major issue. It's much more complex today than it has been since World War II. I'm talking 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 if it is short and oil goes to 80 or 90 or 100 but it is a short not prolonged it probably won't have a major effect. If it becomes prolonged then all bets are off the table.
Well how offsides would this market be if there were truly a deflationary 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 that was true before this war. So, if you look at, you know, my view is that the asset prices are kind of high, credits 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 that 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 certain things, other things. You know, inflation is a big thing. It's not just oil. So, you know, we'll see. Right now, this will add a little bit, literally a teeny bit to inflation, not a lot.
You know, I was surprised because things were kind of gloomy coming into 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 the companies will start to lay people off. And so, I look, the most important thing in the world today is geopolitical. What happens to the free western democratic world, which has kind of been under attack by Russia and Ukraine, by Iran and the Middle East, you know, a little bit by China who 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 their actions, not because of anyone else. So, those are the most important things. I'd add global deficits are so large, but 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 when you talk 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 that can take five years to have an effect, but the effects are real. Right now the economy is doing fine. Asset prices are high. People are assuming things go on. I mean, no one you talk to has any idea the credit spreads can gap out a lot and they could just because of sentiment and so yeah, I think there's a little bit of a little more exuberance than I think there should be. But we've had years of it and you know the one big beautiful bill adds to growth this year. Bank deregulation, other deregulation, spurs growth and animal spirits. So we'll see. But you pointed out I think you know the skunk would be inflation. So we got to keep eyeing that one 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 been modernizing, educating their people, you know, adopting more and more western methods, want 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 large, not just Iran and this war, but you know that Saudi Arabia, UAE, some path to statehood for the Palestinians and Gaza and Palestinian that's going to be up to you know them. You know there are reasons to be optimistic. This opens the door for that and there are a lot of naysayers. I understand that and if things go south they can say I told you so but this does open up the door for that. So hopefully we're wise enough to help move in that direction and if you watch closely going on 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, you need peace. Things like war reduce the chance of people don't want to put real investment in the ground. So 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 uncorruptly govern Palestinians and create peace on the ground there and have Israel and Palestine work a long-term course but of course side by side with statehood. So we'll see. I mean, look, on that one, I want to be optimistic even though it's been terrible now for a long time.
You were talking about credit 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, there some things rhyme and some things never change. Okay. 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. The one of the things that's always different is which industries get really badly hurt. Like you may remember in 2000 it was telecom and utilities, the ma stocks they pay dividends. In '08 it was Warren Buffett stocks, media stocks. You know this time it maybe it's software maybe it's not. But something's moving that changes 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 something like that. But I do think when we have that cycle, it'll be worse than people expect. We're late in the cycle, but a lot of new entrants. There's some people out there who aren't doing great credit because we see the other side of it. And I'm not talking about private credit. I'm talking about credit in general. That could be insurance companies. It could be private credit. It could be banks. We see some banks doing things that you know we probably wouldn't do. So there will be and the other thing 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 you know that's not going to surprise me when we find out who's swimming naked when the tide goes out there.
So you don't think the private credit's the epicenter?
No because private credit I mean give you big numbers. Corporate debt in general is in pretty good shape. Consumer debt in general in pretty good shape. And you take private credit, leverage lending, 1.7 trillion, banks do 1.7 trillion, the high yield market is 1.7 trillion. I wouldn't put that in the systemic category even if it gets worse than people expect.
