Last week Jamie Dimon, the larger than life CEO of U.S. banking giant J.P. Morgan Chase, raised serious threats to the global economy that you should be paying attention to now. The legendary investment banking mogul stated that geopolitical hot spot tensions and climbing interest rates have the potential to upset the U.S. economic growth. Dimon attracted the attention of global media with his declaration:
“The economy is still very strong, and that’s across wages, job creation, capital expenditure, consumer credit; it’s pretty broad-based and it’s not going to be diminished immediately. I was pointing out the probabilities that I thought were higher that rates would go up. I still believe that. I do think you’re going to see higher rates.”
Dimon paid lip service to support higher interest rates in a still-growing economy. Yet he was equally quick to warn that this trend has the potential to bring to an end the almost decade long running cycle of economic expansion. In his subsequent analyst conference call, Jamie Dimon admitted that he believes in benchmark interest rates reaching four percent.
Clearly the J.P. Morgan Chase CEO is not front running interest rates by much with such a prediction. Ten Year Treasury yields touched 3.16 percent this past week. It represented a significant move higher over the past month. Many analysts now attribute the longest running pullback in nearly two years (for the S&P 500) to the dramatic interest rate increases. Dimon ominously put it this way:
“If rates go up because you have inflation, that is not a plus. That is a bad thing.”
Yet these interest rate concerns (while real and prescient) are only the tip of the proverbial iceberg, according to the J.P. Morgan Chase CEO. Jamie Dimon brought up a host of issues, each of which individually has the potential to derail the U.S. and global economies. Taken together, they could be the sparks that unleash the much-feared raging global inferno.
Among the most pressing of these global hot spot tension geopolitical issues are Brexit, the ongoing trade war with China, and global central banks’ unwinding of decade-running bond buying QE programs (that markets have become dependent on for continued new highs). Besides these major concerns, there are also regional economic flareups breaking throughout Europe, Latin America, and the Middle Eastern regions. Among the chief of these growing worries and troubles is Italy and Turkey.
Italy just had its sovereign debt rating cut by Moody’s Investors Service to Baa3, a mere lonely level above junk bond status. The chart below reveals how desperate Italy’s deb to GDP ratio has become in the decade since the Global Financial Crisis:
As its war of words and stalemate with the European Union grows worse, fears are increasing that Italy may need a massive bailout package if its debt yields continue rising, pushing the national government of one of the G7 wealthiest nations into austerity, outright default, or even tragic bankruptcy.
Turkey meanwhile continues to pose a severe risk of contagion to countries like especially Italy with its Unicredito Bank SpA as well as Spain and its various debt-saddled banks. Not only are the Turish lira and economy on the edge of full-blown meltdowns, but this threatens to take half of the so-called peripheral PIIGS (Portugal, Italy, Ireland, Greece, and Spain) down with it, a serious threat to global economic prosperity and stability in coming months.
Is Your Retirement Portfolio Prepared for the Global Geopolitical Flareups Melting Down?
We have reached a whole new low in world geopolitical affairs when one of the world’s wealthiest and most economically important nations like Italy now finds itself in dire circumstances. Like Dimon warned about the troubling breadth of the list of global flareups:
“It’s an extensive list of stuff. I’m just pointing that out. No one should be surprised if it happens down the road.”
Jamie Dimon did not get to be the most famous single banker in the world today by accident. His larger than life personality is grounded in a realistic, sobering view of the world that he sees all around. The threats to global markets today are real and growing. Worst of all, they are closing in from all sides, seemingly at one time. This is where the yellow metal comes in as a savior to your retirement portfolio.
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