Jamie Dimon cautioned on Monday that prevailing financial conditions, coupled with banks engaging in “dumb things” such as extending risky loans, could precipitate a market meltdown akin to the one preceding the 2008 financial crisis. “There will be a cycle one day,” he stated, “I don’t know what confluence of events will cause that cycle.” My anxiety is elevated regarding this matter. The elevated levels of asset prices do not alleviate my concerns. Indeed, I believe that this contributes to the overall risk. In comments directed at investors on Monday, Dimon indicated that the prevailing market conditions, characterised by unprecedented levels, might warrant concern. “Regrettably, we observed a similar situation in 2005, 2006, and 2007.”
The rising tide lifts all boats. Profits were abundant for all involved. Individuals were utilising leverage to its maximum extent. “The sky was the limit,” he stated. “And I believe that currently, the rising tide is lifting all boats. In my perspective, individuals are becoming somewhat complacent, believing that the current high asset prices and elevated volumes are sustainable, and that we will encounter no issues at all,” he stated. “I am uncertain about the duration of favourable conditions for all.” It appears that a few individuals are engaging in actions that could be deemed unwise.
Dimon refrained from identifying the specific institutions in question, while reassuring investors that his bank, the largest in the nation, maintains a stance of “considerable caution,” emphasising that “we adhere to our own regulations.” He also noted that the recent apprehension among investors regarding artificial intelligence’s potential to disrupt the software sector mirrors historical disruptions observed in financial markets. “There’s always a surprise in a credit cycle,” he noted, referencing past instances of industries that appeared to be secure investments until they encountered difficulties, including newspapers, utilities, and phone companies. “And this time around, it might be software, because of AI….There are shifting tectonic plates beneath it, which presents challenges to the industry.
In October, Dimon cautioned about vulnerabilities in the private credit market after subprime auto lender Tricolour and parts manufacturer First Brands both declared bankruptcy amid allegations of financial fraud. JPMorgan Chase subsequently recorded a $170 million impairment charge related to its loan to Tricolour. “My antenna goes up when things like that happen,” he remarked at that moment. “When you observe one cockroach, it is likely that additional ones are present.”