Jamie Dimon on the Economy

[wageslave23]

https://www.msn.com/en-us/money/markets/this-is-the-most-prosperous-economy-the-world-has-ever-seen-says-jamie-dimon-%e2%80%94-and-its-going-to-continue/ar-BBWyNQD

I thought this was an interesting article for a few reasons, but mostly because he is one of the few remaining optimistic about the future of the economy.  To me, if you have any stake in the economy continuing to be prosperous you should be talking up the state of the economy as much as possible.  Its all psychological and consumer confidence driven.  All of the "experts" who continually predict another recession within the next 1-2 years and have been doing so for the past 10 yrs aren't doing anyone any favors, other than making sure the economy doesn't overheat I guess.  The only real threat to the economy would be if world trade actually came to a halt.  But despite what you think about Trump he knows that would be political suicide.  It seems like some people are intent on making mountains out of mole hills, and won't quit until they do.

[ROF Expat]

Nobody can predict the future of the economy or the stock market consistently, and Jamie Dimon is no exception.  Economic cycles are a reality and all the jawboning in the world won't change that. 

The only honest answer is the one attributed to John D. Rockefeller (but possibly apocryphal) when asked for a prediction about Standard Oil Stock.  He supposedly said:  "I think it will fluctuate." 

[mathlete]

What is the source for Dimon being one of the few optimists? Dimon says himself that consumer confidence is high. That would seem to indicate that a lot of people are optimistic.

I also reject that experts have been continually predicting a recession for the last decade. The Wall Street Journal does surveys on this kind of thing, and you can look up the historical data. Even today, only a third of economists survey by WSJ expect a recession in the next year.

[John Galt incarnate!]

https://www.msn.com/en-us/money/markets/this-is-the-most-prosperous-economy-the-world-has-ever-seen-says-jamie-dimon-%e2%80%94-and-its-going-to-continue/ar-BBWyNQD

I thought this was an interesting article for a few reasons, but mostly because he is one of the few remaining optimistic about the future of the economy.  To me, if you have any stake in the economy continuing to be prosperous you should be talking up the state of the economy as much as possible.  Its all psychological and consumer confidence driven.  All of the "experts" who continually predict another recession within the next 1-2 years and have been doing so for the past 10 yrs aren't doing anyone any favors, other than making sure the economy doesn't overheat I guess.  The only real threat to the economy would be if world trade actually came to a halt.  But despite what you think about Trump he knows that would be political suicide.  It seems like some people are intent on making mountains out of mole hills, and won't quit until they do.

businessinsider.com › what-you-can-learn-from-jp-morgan

Oct 17, 2016 -

In one famous incident, when asked by a passerby what the stock market was going to do next, Morgan responded simply: "It will fluctuate." Unfortunately, Morgan probably never quite said that — according to Barry Popik's research, the earliest appearance of the quote dates back to 1934, decades after the man's death.



Whoever said it, they were right when they said the stock market "will fluctuate."

The total stock market (FSKAX) is up ~25% YTD, quite a good year for equities so far.

Eventually,  will the stock market zigzag downward?

Yes, but no one knows for sure when, how long, or how much.

[John Galt incarnate!]

What is the source for Dimon being one of the few optimists? Dimon says himself that consumer confidence is high. That would seem to indicate that a lot of people are optimistic.

I also reject that experts have been continually predicting a recession for the last decade. The Wall Street Journal does surveys on this kind of thing, and you can look up the historical data. Even today, only a third of economists survey by WSJ expect a recession in the next year.

I do not think a recession is in the offing.

[Bloop Bloop]

A recession is often better off for your finances anyway. Discounted products aplenty.

[nancyfrank232]

A recession is often better off for your finances anyway. Discounted products aplenty.

+ 1 Completely agree

[js82]

I have a couple bones to pick with that article.

Dimon says:

“The consumer, which is 70% of the U.S. economy, is quite strong,” he said. “Confidence is very high. Their balance sheets are in great shape. And you see that the strength of the American consumer is driving the American economy and the global economy. And while business slowed down, my current view is that, no, it just was a slowdown, not a petering out.”

And he's in danger of being quite wrong by glossing over issues with consumers' "balance sheets".  In aggregate, consumer debt is growing at a rate that's unsustainable:

https://www.wsj.com/articles/families-go-deep-in-debt-to-stay-in-the-middle-class-11564673734?mod=article_inline

The difference from before is, the growth in individual debt is being driven by different sources than in the past - this time it's student loans and auto loan debt that are seeing rapid growth, as opposed to mortgages.  Any type of debt that's growing that much faster than the economy as a whole is due for a correction at some point - the questions is how soon, and whether it will be relatively confined, or if it will ripple.

[mathlete]

A recession is often better off for your finances anyway. Discounted products aplenty.

I never understood this logic. If I could press a button to guarantee no more recessions forever, I'd do it in a heartbeat. Stable and predictable growth in the economy every quarter? Yes please.

Sure, I went to Disney World really cheap because the 2008 recession hit them really hard, and that was nice I suppose, but I probably would have rather graduated college into a healthier job market.

[nancyfrank232]

I never understood this logic. If I could press a button to guarantee no more recessions forever, I'd do it in a heartbeat. Stable and predictable growth in the economy every quarter? Yes please.

Sure, I went to Disney World really cheap because the 2008 recession hit them really hard, and that was nice I suppose, but I probably would have rather graduated college into a healthier job market.

Here’s another way to look at it

During the Credit Crisis, you could’ve got a (few) house(s) and Disney stock on the cheap and set yourself up for years

Both would be worth more than the discounted Disney vacation

That’s what I did anyway

[mathlete]

Here’s another way to look at it

During the Credit Crisis, you could’ve got a (few) house(s) and Disney stock on the cheap and set yourself up for years

Both would be worth more than the discounted Disney vacation

That’s what I did anyway

But a credit crisis is characterized by a steep drop in the availability of credit. So maybe houses were cheaper, but credit was a lot harder to come by. On balance, an environment where credit flows easy and assets are appreciating sounds much better than a recession or a credit crisis.

Maybe a recession creates "buying opportunities" if you're well positioned to take advantage of them, but if you're well positioned, then you also probably have a lot to lose in a recession. I often hear people hoping for a "buying opportunity" like 2008. In 2008, equities fell by 50% and took nearly 5 years to recover. The cost of your buying opportunity is 5 years of growth on all the equities you already own.

Since the market recovered to pre-2008 highs in 2013, the S&P has had a compound annual growth rate of about 12%. If you're given the choice between a 2008 style recession, and another 6 years of 12% CAGR, the choice is easy. Give me the growth.

[nancyfrank232]

But a credit crisis is characterized by a steep drop in the availability of credit. So maybe houses were cheaper, but credit was a lot harder to come by. On balance, an environment where credit flows easy and assets are appreciating sounds much better than a recession or a credit crisis.

Maybe a recession creates "buying opportunities" if you're well positioned to take advantage of them, but if you're well positioned, then you also probably have a lot to lose in a recession. I often hear people hoping for a "buying opportunity" like 2008. In 2008, equities fell by 50% and took nearly 5 years to recover. The cost of your buying opportunity is 5 years of growth on all the equities you already own.

Since the market recovered to pre-2008 highs in 2013, the S&P has had a compound annual growth rate of about 12%. If you're given the choice between a 2008 style recession, and another 6 years of 12% CAGR, the choice is easy. Give me the growth.

“Credit was hard to come by...” coincidentally good for those who stack cash

Tech wreck was good too. I got Berkshire Hathaway on the cheap

Since markets throw up regularly, I’ve found it best to be invested and have stored cash. Best of both worlds

The good news is that growth never continues regardless of what we want

Do I want 6 years of 12% CAGR or a downturn to buy cheap assets? Yes

The question is, how many people are invested AND prepared for opportunity?

[wageslave23]

But a credit crisis is characterized by a steep drop in the availability of credit. So maybe houses were cheaper, but credit was a lot harder to come by. On balance, an environment where credit flows easy and assets are appreciating sounds much better than a recession or a credit crisis.

Maybe a recession creates "buying opportunities" if you're well positioned to take advantage of them, but if you're well positioned, then you also probably have a lot to lose in a recession. I often hear people hoping for a "buying opportunity" like 2008. In 2008, equities fell by 50% and took nearly 5 years to recover. The cost of your buying opportunity is 5 years of growth on all the equities you already own.

Since the market recovered to pre-2008 highs in 2013, the S&P has had a compound annual growth rate of about 12%. If you're given the choice between a 2008 style recession, and another 6 years of 12% CAGR, the choice is easy. Give me the growth.

“Credit was hard to come by...” coincidentally good for those who stack cash

Tech wreck was good too. I got Berkshire Hathaway on the cheap

Since markets throw up regularly, I’ve found it best to be invested and have stored cash. Best of both worlds

The good news is that growth never continues regardless of what we want

Do I want 6 years of 12% CAGR or a downturn to buy cheap assets? Yes

The question is, how many people are invested AND prepared for opportunity?

So basically you were trying to time the market by keeping cash on the sidelines that could have otherwise been invested. 

[mathlete]

So basically you were trying to time the market by keeping cash on the sidelines that could have otherwise been invested.

This is my read as well.

Can beaten down asset prices be a silver lining to an economic downturn? Sure. But I don't really see that as a reason why recessions are "good". Cash has negative real returns. The reasons to hold cash are to cover emergencies, or because you have a reasonable expectation that an investment will come along in the near future for which liquidity is needed. Recession discounts only fit that bill if you're good at predicting recessions.

[Bloop Bloop]

So basically you were trying to time the market by keeping cash on the sidelines that could have otherwise been invested.

This is my read as well.

Can beaten down asset prices be a silver lining to an economic downturn? Sure. But I don't really see that as a reason why recessions are "good". Cash has negative real returns. The reasons to hold cash are to cover emergencies, or because you have a reasonable expectation that an investment will come along in the near future for which liquidity is needed. Recession discounts only fit that bill if you're good at predicting recessions.

You are forgetting a few things. The first is that investing isn't just about plowing in accrued cash. It's also about plowing in currently accruing cash. If your earning power is strong relative to the rest of the population, e.g. you're a surgeon say, then you will probably be able to at least maintain your real earnings when everyone else's real earnings go down in a recession. That gives you an advantage.

The second thing you forget is that a recession doesn't only affect investing. It also affects general spending. It makes certain goods/services cheaper. Investment aside, that means less money spent.

The third thing is that recessions create opportunity. Well I suppose any turmoil, good or bad, creates opportunity. But in a steadily slowly rising market I think there are fewer market niches to explore.

Finally, I don't know how it works in the U.S. but here in Australia it's common to borrow to invest in property or shares, thus creating a tax-deductible debt, then put cash in an offset account connected to the debt - the cash offsets the debt and limits or entirely cancels out the interest payable. But when you then want to buy anther asset (even a non-investment asset), you move the cash out of the offset, buy up the private asset, but re-create a tax-deductible debt. By having revolving offset accounts, you can ensure that you always have cash on hand (liquidity), but any time you spend it, you create a tax deductible debt. If your cash on hand gets to be too much you just buy another investable asset and put the cash in the offset. It's a good way to keep investing but also keep liquid.

[mathlete]

You are forgetting a few things. The first is that investing isn't just about plowing in accrued cash. It's also about plowing in currently accruing cash. If your earning power is strong relative to the rest of the population, e.g. you're a surgeon say, then you will probably be able to at least maintain your real earnings when everyone else's real earnings go down in a recession. That gives you an advantage.

If you're a person who makes a lot of money, then you probably have a lot of invested assets. Taking 2008/9 as an example, the price of the ~30% gains on equity we saw as markets started to recover in 2009, was the ~40% drop we witnessed in 2008. Unless you were investing substantially more than you already had invested, that's probably a losing proposition.

The second thing you forget is that a recession doesn't only affect investing. It also affects general spending. It makes certain goods/services cheaper. Investment aside, that means less money spent.

If people are spending less on goods and services, then this very likely includes the goods and services that you personally sell. If you're our recession proof surgeon, maybe this appears to work out for you at first blush. Except that you're also an investor. So the goods and services that the companies in your portfolio sell are being discounted, and thus you see lower growth and reduced dividends.

The third thing is that recessions create opportunity. Well I suppose any turmoil, good or bad, creates opportunity. But in a steadily slowly rising market I think there are fewer market niches to explore.

It depends upon how you think about opportunity I suppose. At the height of the last downturn in the US, U6 unemployment reached 17%. A whopping 17% of the workforce wanted to work (or work more) but couldn't find adequate opportunities to do so.



You can see from the graph that it took us almost 10 years to get back to where we were pre-2008. You could think of that as opportunity. The opportunity to get from 17% to 7%. But I look at that graph (the area under the curve specifically) and I see opportunity lost. Tens of millions of man hours that could have been productive had their been the opportunity.

As an investor, I see lots of opportunities today. I'm partnered on an apartment complex that is doing some major capital improvements, including a new roof and a swimming pool. We're doing this because the good economy will support people paying higher rents for these things.

To me, this represents opportunity in the holistic sense much more than the "opportunity" to buy a cheap property because some banks wrote complex derivative investments, the bond rating agencies failed to understand them, and then someone got foreclosed on.

[Bloop Bloop]

I don't think we have any factual disagreement, mathlete. You just look more holistically. I look more individually. You talk about 17% to 7% and I see a lot of distressed properties waiting to be bought.

You're right that a high-income person may have a lot to lose in accrued investments. Even so, he or she might be happy to lose that in order to buy low on another tranche of investments, knowing that in the long-term there is likely to be a recovery. For example someone who invested prior to 2008, then doubled down in 2008, would be in a great position today. The pre-2008 investments have recovered to an extent and the 2008 investments have done really well. No doubt you would have to have been financially very sound in order to have that sort of investing ability, so the average person couldn't have taken advantage of any such opportunities.

[mathlete]

I don't think we have any factual disagreement, mathlete. You just look more holistically. I look more individually. You talk about 17% to 7% and I see a lot of distressed properties waiting to be bought.

You're right that a high-income person may have a lot to lose in accrued investments. Even so, he or she might be happy to lose that in order to buy low on another tranche of investments, knowing that in the long-term there is likely to be a recovery. For example someone who invested prior to 2008, then doubled down in 2008, would be in a great position today. The pre-2008 investments have recovered to an extent and the 2008 investments have done really well. No doubt you would have to have been financially very sound in order to have that sort of investing ability, so the average person couldn't have taken advantage of any such opportunities.

Gotcha. Seems like we're on the same page then.

[nancyfrank232]

So basically you were trying to time the market by keeping cash on the sidelines that could have otherwise been invested.

Correct

Once all retirement accounts are maxed, I stack cash

I won’t just pour excess cash into the index

How about yourself? Every penny invested all the time?

[nancyfrank232]

So basically you were trying to time the market by keeping cash on the sidelines that could have otherwise been invested.

This is my read as well.

Can beaten down asset prices be a silver lining to an economic downturn? Sure. But I don't really see that as a reason why recessions are "good". Cash has negative real returns. The reasons to hold cash are to cover emergencies, or because you have a reasonable expectation that an investment will come along in the near future for which liquidity is needed. Recession discounts only fit that bill if you're good at predicting recessions.

No need to predict a recession

Downturns always happen. It’s not different this time. No prediction necessary

Lower prices are always good for investors. Especially good for those with cash

What did you buy during the Great Recession?

[mathlete]

No need to predict a recession

Downturns always happen. It’s not different this time. No prediction necessary

Lower prices are always good for investors. Especially good for those with cash

But when they're going to happen is pretty important if you're holding a cash position to be ready to invest.

What did you buy during the Great Recession?

Incidentally, I actually started investing for the very first time during the great recession. I bought all kinds of beaten down stocks that performed very well for me over the years. And I had no previously existing assets that lost value.

But we're talking a few thousand dollars of investments. I waited tables at the time. It would have been considerably better for me to have more tables buying higher dollar meals and tipping on bigger bills.

[nancyfrank232]

But when they're going to happen is pretty important if you're holding a cash position to be ready to invest.

This is a fatal mistake some people make IMO

It doesn’t matter that the “when” is important because it’s unpredictable (which automatically makes it unimportant)

I max my retirement accounts and stack cash. Booms and busts are inevitable. And everybody knows this

I’m ready for both

Incidentally, I actually started investing for the very first time during the great recession. I bought all kinds of beaten down stocks that performed very well for me over the years. And I had no previously existing assets that lost value.

But we're talking a few thousand dollars of investments. I waited tables at the time. It would have been considerably better for me to have more tables buying higher dollar meals and tipping on bigger bills.

That’s awesome! Congrats!

Nothing beats the feeling of having cash during a bust

[Lmoot]

A recession is often better off for your finances anyway. Discounted products aplenty.

I never understood this logic. If I could press a button to guarantee no more recessions forever, I'd do it in a heartbeat. Stable and predictable growth in the economy every quarter? Yes please.

Sure, I went to Disney World really cheap because the 2008 recession hit them really hard, and that was nice I suppose, but I probably would have rather graduated college into a healthier job market.

The problem with this is, if someone falls off of the treadmill, even temporarily, they will never catch up.

I like to compare the economy to a forest. Naturally occurring forest fires, while destructive, are necessary to clear out old growth that dominated the habitat, to create space for new growth. Can you imagine a young couple competing to buy a house, with people who have had decades of infinite growth, in a market chock full of properties that have had infinite growth?

A slow down or backslide of the market, allows those just getting into the game (or those who had to take a time out), a chance to jump on the treadmill.

[Lmoot]

Here’s another way to look at it

During the Credit Crisis, you could’ve got a (few) house(s) and Disney stock on the cheap and set yourself up for years

Both would be worth more than the discounted Disney vacation

That’s what I did anyway

But a credit crisis is characterized by a steep drop in the availability of credit. So maybe houses were cheaper, but credit was a lot harder to come by. On balance, an environment where credit flows easy and assets are appreciating sounds much better than a recession or a credit crisis.

Maybe a recession creates "buying opportunities" if you're well positioned to take advantage of them, but if you're well positioned, then you also probably have a lot to lose in a recession. I often hear people hoping for a "buying opportunity" like 2008. In 2008, equities fell by 50% and took nearly 5 years to recover. The cost of your buying opportunity is 5 years of growth on all the equities you already own.

Since the market recovered to pre-2008 highs in 2013, the S&P has had a compound annual growth rate of about 12%. If you're given the choice between a 2008 style recession, and another 6 years of 12% CAGR, the choice is easy. Give me the growth.

Credit wasn't hard to come by for those who were financially prepared to buy, whether by choice, or like me by simply having no choice but to continue saving since I couldn't afford to buy. If we're talking housing, the recovery increased most properties purchased during the recession by waaaaayyyy more than 12%.

[wageslave23]

So basically you were trying to time the market by keeping cash on the sidelines that could have otherwise been invested.

Correct

Once all retirement accounts are maxed, I stack cash

I won’t just pour excess cash into the index

How about yourself? Every penny invested all the time?

For the most part yes.  I keep about $10k cash in the bank.  And once it gets up to 15-20k I invest 5-10k.  If I was trying to wait until a recession I would have lost out on amazing returns the last 3 years.  I also invest in rental houses though.  So if there was a major market crash in either housing or the stock market, I would probably pull money out of the other and take advantage of the lower prices.  But I'm pretty sure that studies have proven that trying to wait for a recession in order to invest doesn't work out in the long run for most people.

[nancyfrank232]

Correct

Once all retirement accounts are maxed, I stack cash

I won’t just pour excess cash into the index

How about yourself? Every penny invested all the time?

For the most part yes.  I keep about $10k cash in the bank.  And once it gets up to 15-20k I invest 5-10k.  If I was trying to wait until a recession I would have lost out on amazing returns the last 3 years.  I also invest in rental houses though.  So if there was a major market crash in either housing or the stock market, I would probably pull money out of the other and take advantage of the lower prices.  But I'm pretty sure that studies have proven that trying to wait for a recession in order to invest doesn't work out in the long run for most people.

+1 that’s awesome!

I also agree. Most need to be fully invested

For myself, with my retirement accounts maxed and having stacked cash during the Great Recession, allowed me to buy enough rentals to completely replace my earned income with passive income more than twice over

And where my retirement accounts have achieved the typical returns of a low-fee S&P index, many of the properties purchased with cash have quadrupled over the last 10 years while providing rental income 

Best of both worlds

Today feels the same as it did 15 years ago - retirement accounts continually maxed and stacking cash, with cash stacking faster because of the rentals

Recession or not, if opportunity happens, I’ll be interested

[mathlete]

I'm getting visions of Dwight Schrute from The Office, talking about how with deep concentration, he could raise his cholesterol at will. When asked why he did that, he said so that he could bring it back down again.