JPMorgan CEO Jamie Dimon, predicts rough times ahead for regional banks and warns of more deposit runs, as future interest rate hikes become increasingly likely.
Dimon warned at a May 22 Q&A Investor Day meeting at JPMorgan Chase that interest rates were likely to go higher from here and rise to as much as 7 percent.
He noted that there was much uncertainty about the health of regional banks and that rising yields in the money market have led to a steady outflow of deposits, bringing their balance sheets to dangerous levels.
A combination of Federal Reserve rate hikes and quantitative tightening is adding more fuel to the regional bank crisis. JPMorgan controls more than 13 percent of the nation’s deposits, with a lock on 21 percent of all credit card spending.
Under Dimon, the banking giant has gobbled up more of the lending market with each small bank failure, since the financial panic in March.
JPMorgan investors were told that they should expect to benefit from rising interest rates because of its recent acquisition of First Republic Bank. Dimon told meeting attendees, that net interest income this year would be revised from $81 billion to $84 billion, after the bank bought out the profitable operations of its smaller competitor in a deal with the FDIC.
Dimon Predicts Even Higher Interest Rates
Dimon addressed the central bank’s raising of the overnight rate and said there was still too much liquidity in the system.
The JPMorgan CEO said that the credit situation will probably get worse and that higher interest rates are likely, contradicting popular opinion that the Fed has reached the upper limit of its policy hikes. However, he assured investors that the U.S. economy was fine for now and that a “mild recession” would not hit until later in the year.
“Everyone should be prepared for rates going higher from here,” Dimon said, adding that capital is already tightening up and that the Fed funds rate would surge past its current level of 5 percent, to as high as 6 or 7 percent.
“There’s a chance you could have rates ticking up and not just 3.78,” said Dimon, calling 7 percent interest rates an “outlier but possible.”
Fed’s Quantitative Tightening Policy May Cause Another Bank Liquidity Crisis
With the Fed Funds rate at 5.25 percent and with Treasuries and money market funds offering similar yields, smaller banks are now buckling under the pressure. This could spark another disastrous bank deposit run from both checking and saving accounts.
Meanwhile, the Fed’s quantitative tightening policy is causing its monetary reserves to shrink and drying up the supply of available liquidity for banks, said Dimon.
The JPMorgan chief said that higher capital charges from the Fed would hurt the smaller banks, but not their larger peers like JPMorgan. He said that smaller banks face more problems on the deposit side, as they are less likely to absorb a financial blow from a lack of liquidity.
The American banking sector had benefited from low loan defaults over the last few years, due to almost zero interest rates and the flood of government stimulus money during the pandemic.
For two decades, lenders were encouraged to buy up low-yielding securities, but the vulnerable regional banks are now being squeezed, as yields soar and fixed-income and loan prices plunge. Deposits will now have to shift into treasuries, or face liquidation in a future bank run, said Durden.
“We haven’t been through Quantitative Tightening. So we really don’t know what’s going to happen to deposits at all. And that’s why I’ve been quite concerned about that. I’m probably more concerned about quantitative tightening with anybody in this room,” warned Dimon.
“We’ve never had QT before. It just started, okay? And you see huge distortions in the marketplace already.”
“We’ve never had the Fed in the market like this … They have $2.3 trillion basically lent out to money funds. And I don’t know the full effect of that. And obviously, that’s a direct deduction from deposits are rolling out it made sense to do,” he said.
“So I think people should build into their mindset that they may have to move deposit beta more than they think and manage that. So I mean, if I was any bank or any company, I’d be saying, can you handle higher interest rates and surprise in deposits, etc?” Dimon continued.
Commercial Real Estate Sector Exposed To Credit Crunch
Before the failure of Silicon Valley Bank set off the recent bank crisis, uninsured deposits were generally not seen as a problem, said Dimon, but the regulatory moves made in response will lead to tighter credit for smaller lenders.
This will in turn lead to even tighter credit from lenders to customers.
“You’re already seeing credit tighten up because the easiest way for a bank to retain capital is not to make the next loan,” he explained.
As banks raise the bar for lending, the commercial real estate sector is expected to suffer the most from tighter credit, which may spread to the wider economy. About 80 percent of commercial real estate loans are granted by the regional banks, which have been rattled by the monetary policy of the Fed and the outflow of capital, according to Goldman Sachs.
“There will be a credit cycle. My view is it will be very normal” with the exception of real estate, Dimon said, and that “there’s always an off-sides.”
He explained that “the off-sides in this case will probably be real estate. It’ll be certain locations, certain office properties, certain construction loans. It could be very isolated; it won’t be every bank.”
Commercial properties in upscale markets, like San Francisco and New York, are already losing money, as workers increasingly prefer to work remotely.
Article cross-posted from our premium news partners at The Epoch Times.
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
