JPMorgan CEO and BlackRock CEO Reflect on the 1970s

Both Jamie Dimon, Chairman and CEO of JPMorgan, and Larry Fink, CEO of BlackRock, recently shared their thoughts on the current economic landscape, drawing parallels with the challenges of the 1970s. Speaking at the Future Investment Initiative in Saudi Arabia, often referred to as "Davos in the Desert," both leaders expressed caution and highlighted the high levels of debt during peacetime in the United States.

A Feeling of Omnipotence Raises Concerns

Dimon remarked on the prevailing sentiment that central banks and governments have the ability to manage any economic difficulties. However, he warned against overconfidence, stating, “I’m cautious.” Drawing comparisons to the 1970s, he explained that the current situation reminds him more of that era, where economic fluctuations magnified the need for careful consideration.

Potential Rise in Interest Rates

Dimon reiterated his previous suggestion that U.S. interest rates could potentially reach 7%. During his speech, he highlighted the possibility of a significant increase across the entire interest rate curve by 100 basis points. While uncertain whether this will actually occur, Dimon urged people to be prepared for such a scenario.

Challenges in Environmental Sustainability

Addressing the topic of environmental, social, and governance (ESG) practices, Dimon expressed his support for the concept but criticized governmental approaches to its implementation. He claimed that governments tend to employ reactive methods rather than taking a rational approach. Specifically, he mentioned the lack of carbon taxes and limitations on building pipelines to reduce coal emissions in the U.S. Additionally, Dimon noted the difficulties associated with obtaining permits for solar and wind projects. He also highlighted nuclear proliferation as a more significant threat to mankind than climate change.

As leaders in their respective fields, Dimon and Fink offer valuable insights into the current economic climate, cautioning against complacency and underscoring the need for strategic preparation.

BlackRock's Warning on Bad Economic Policy

In a recent statement, BlackRock's CEO Larry Fink expressed concern over the current state of economic policy, drawing parallels to the 1970s. Fink emphasized that the '70s were characterized by bad policy, and unfortunately, we are currently experiencing a similar trend.

Fink highlighted several factors contributing to the rising inflation, including the politicization of supply chains, populism, and stricter regulations on legal immigration. He also noted the significant increase in the fiscal deficit over the years, ballooning from $8 trillion to a massive $33 trillion. This mounting debt is further exacerbating inflationary pressures, along with the Federal Reserve's expanding balance sheet.

Therefore, Fink predicts that interest rates will remain elevated due to these circumstances. Just recently, the yield on the U.S. 10-year Treasury broke through 5% for the first time in 16 years. However, it has experienced a slight decrease since then.

When questioned about the U.S. economy's future, Fink dismissed the notion of a hard or soft landing next year. Instead, he pointed to ongoing fiscal stimulus measures such as the Chips Act and infrastructure spending outlined in the Inflation Reduction Act. These initiatives are expected to continue driving economic growth.

BlackRock's warning serves as a reminder that careful consideration of economic policies is crucial to ensure stability and avoid repeating past mistakes.