JPMorgan CEO Issues Major “Warning” for the Economy

Dave:The boss of the world’s biggest bank just issued a warning about the state of the economy calling investors complacent in the face of uncertainty and risk. So should you be worried or is this just another false alarm? Let’s dig in. Hey everyone. Welcome to On the Market. This is Dave Meyer, analyst and head of Real Estate investing at BiggerPockets. And I would like to think that this show has been a source of reason in the face of a lot of uncertainty and loud noises in the economy since its started over three years ago, people have been calling for crashes. They’ve been warning of recessions. But each week here on the market, we talk about data, we talk about trends, and I do my best to give rational reactions and advice. And a lot of times that basically entails cutting through all of the noise of people just trying to get attention so we can focus on what matters.But this last week, someone pretty important said something that caught my eye. It’s Jamie Diamond, the CEO of Chase Bank. It is the world’s largest bank. And what he said was that investors are displaying an extraordinary amount of complacency and then went on to say that people are generally underestimating the risks of tariffs of a trade, war, consumer sentiment, recession and all that. And when someone as knowledgeable and important in the global economy, as Jamie Diamond says, something like this, that definitely catches my attention. Are we becoming complacent in the face of increased risk or are things settling back down and growth is going to resume soon? Let’s take a look. So first things first. What Jamie Diamond said again is that he feels that there is a high level of complacency right now. We saw this reaction to a lot of tariffs. We saw this reaction to trade war to a lot of new economic data where the stock market went down.We saw bonds start to sell off. We saw all these things going on sort of in April. But then fast forward to where we are today, and I’m recording this towards the end of May. If you look at where we are right now, things kind of bounce back. They’ve sort of shrugged off all of the risk that people were feeling in April. Now come to May. That risk or that fear of risk seems to have subsided as of this recording. Stocks are up a lot today. They have basically recovered all of their losses. Bitcoin is at near all time highs. We’re seeing gold performing well, real estate still in its slump. We’ll talk about that a little bit later, but that’s sort of where real estate has been for the last couple of months. So nothing has really changed. And yes, Jamie Diamond was mostly talking about the stock market when he made his comments.But I think the question really applies to all asset classes and the general economy. Are we sort of shrugging off some risks that are presenting themselves in the economy or are things actually starting to come back to normal? I think to explore this question, we need to first just dig into kind of what does Jamie Diamond mean when he says complacency? When we’re talking about complacency, I think what Jamie Diamond is saying is that although people did, in my opinion, rightfully get spooked when big tariffs were announced, that was a big change in global trade. We got into this correction, right? Major indexes went down 10, 20% from their recent peaks. But then there has been this pause in a lot of the tariffs. There’s been a softening of tone. It’s on and off. Trump was threatening Europe the other day and iPhones, but overall I think there has been a softening of tone and markets.They basically just completely recovered. Like yeah, they were down 10%, now they’re back up 10%. It’s no big deal. It was all just a blip. Well, that’s the thing that Jamie Diamond is disagreeing with. He’s basically saying there’s still risk in the market and we need to be paying attention to it. This is not over. So let’s talk about then where that risk comes from. And there’s a couple of different sources. We’ve talked about some of them on the show, but I’m going to introduce a couple new ones that you should be thinking about too. The most obvious one of course is tariffs. I know you’re probably tired of talking about, I think we all are, but they still do offer a lot of risk, right? Because even though the liberation day tariffs that were super aggressive are on pause, at least for now, you need to sort of think in a historical context and recent context for where tariffs are.We still have 30% tariffs with China. If you had told me a year ago that we were going to have 30% tars with China, I would’ve called you crazy. I wouldn’t have expected that. We have 10% across the board tariffs for everyone else that is going to be impactful. These things, if they remain in place, which is a big, if they are going to drag on consumers, add on small businesses, it has to happen. We are introducing a major tax into the economy. So unless tariffs are completely removed, that adds risk. That doesn’t necessarily mean there is a foregone conclusion that there’s going to be some recession or a crash or anything like that, but it is pretty undeniable in my opinion, that it introduces risk. There’s just more uncertainty with these things going on. I haven’t heard a compelling argument that says this lowers risk.So I think we need to admit that tariffs are adding risks and at the same time the benefits of tariffs, if you believe in them, even if they do come, it will take years. Even if companies commit to building more things in the United States, moving manufacturing, moving factories into the us, that’s not coming overnight. So we have outsize, the scale is sort of balanced towards risk right now on the whole tariff picture because the benefit, it is uncertain and it is in the future. So to me, if we’re getting back to what Jamie Diamond is saying, right? If you look at where we are today compared to let’s say six months ago, I think that there is more risk in the market. There’s more risk to the economy to corporate profits than there was before. And when I say risk, I think the assumption here is that I’m talking only about recession, but it is not just recession.What we’re seeing right now, and again, not a foregone conclusion, but there is some reasonable fear that we are facing the dual threat of both inflation and recession at the same time. This is called stagflation. You’ve probably heard this term before, but if you get inflation and recession at the same time, it’s a particularly terrible thing for the economy and it will be a very big deal. It basically handcuffs the federal reserve and monetary policy. You can’t cut rates to stimulate the economy for fear of inflation. You can’t raise rates to combat inflation for fear of damaging the economy and it could be a really hard thing to get out of. And so again, we don’t know if this is going to happen. I’ll tell you my own opinions about inflation expectations and recession in a little bit. But again, what we’re talking about here is, is there more risk in the market?Should we be complacent and assume everything is fine? I think there is more risk whether or not stagflation comes around or not, there is more risk of it than there was six months ago. I think that’s just true, and I think we all sort of need to just recognize that. The other thing here is that because of this perceived inflation risk, right? This is preventing a real estate recovery. This is going to impact all of us as real estate investors, right? We’re seeing mortgage rates stay high because of this increased risk, but it’s also going to drag on GDP real estate. It is estimated makes up about 16% of GDP. That is huge. That is an enormous piece of the pie in terms of what our economy is made up of. Real estate is huge. And so the fact that we are having high mortgage rates that are slowing down our whole industry, I mean every agent, every loan officer knows this.It is dragging on our economy. And so those threats are going to impact us. And as you can kind of see here, what I’m talking about is these things can sort of build on each other, just the fear of inflation. It’s not up. The data is not showing there is renewed inflation, but just the fear of inflation, it’s keeping mortgage rates up, which in fact can actually hurt GDP. So these expectations actually have real impacts and that’s what Jamie Diamond is saying is that there are these risks on top of these things. We’re also seeing some slow cracks in the labor market. It’s still held up remarkably well. The labor market is still relatively strong, stronger than I think almost anyone would’ve predicted at this point in the business cycle. And so that’s a good thing. But the other thing I want to talk about here is the other risk that I think, I don’t know if Jamie Diamond was mentioning this, but the one I see and that seems to be on the minds of investors right now is the national debt.Now, I’ve talked about the national debt a few times on this show. I think it’s a really big issue. This is a huge long-term problem, but I don’t think it’s an acute problem. This isn’t something that is going to crash the market this week. It’s probably not going to crash the market this month or maybe even this year or maybe even for a few years. But national debt is a big long-term risk. It creates long-term inflation risk. I’m not going to get into all these stuff about currency and fiat currencies, but basically if there’s a lot of debt in a currency like the US dollar, yeah, people say, oh, the US is going to default. No, it will not default on this debt. That’s not really how it works. When you have a money printing machine, you have a choice. Do you want to default on your debt or are you going to print more money and devalue the US dollar?I think almost everyone agrees if a country was put into that position, they will devalue their own currency by printing more money. And that’s why higher US debt increases the risk of long-term inflation. Again, I’m not saying that’s going to happen tomorrow or next week, but you have to think about bond investors who control mortgage rates and they are very worried about this stuff and that’s why when the new tax bill came out last week and showed by the GOP’s own math, they were saying that their tax bill will add 4 trillion to the deficit. People are getting mad. That’s why we’re seeing saw mortgage rates go up last week. Not mad, but bond investors are getting spooked, I should say, because of that. And some people might say 4 trillion, that’s just a drop in the bucket. It’s already like 36 trillion or something like that. And that’s true.I mean any addition to the deficit I think is significant, but it’s not like 4 trillion is some number we haven’t heard of over the course of 10 years. And this is just speculation, but I think what is happening, why we’re seeing bond yields go up this week, it’s because it shows that neither party is serious about reducing the deficit. Everyone when they’re campaigning, and this is not political, I try to stay out of politics as much as possible on the show, but if you just Google this, go look at it in time. Both parties contribute to the national deficit. Democrats do it, Republicans do it. And so I think what we’re seeing here is that investors bond investors are saying, Hey, people talk about tackling the deficit, but no one’s actually doing anything since Bill Clinton balanced the budget in what, 1998, 2000, something like that, that no one has really tried to balance the budget and to reduce deficit.That’s been 25 years at least. And so I think bond investors are getting a little bit wary of that, and that is another risk that Jamie Diamond is probably saying is entering the market. So given all of these things that’s going on, the question is are they offset by some of the benefits? What positive things could be happening because maybe people aren’t being complacent. If there’s just a slew of great news, the opportunity for growth, consumer spending, business spending is all going to go up, then maybe people aren’t being complacent and they’re appropriately reinvesting into the stock market and into the economy. Is that the case though? We’re going to explore that right after this quick break.Welcome back to On the market. I’m here today reacting to some news that Jamie Diamond, the CEO of the world’s biggest bank Chase is warning that investors are becoming complacent in the face of increased risks. And before the break, I sort of called out a couple of the macro economic risks that are going on, and I personally don’t see a lot of macroeconomic benefits that might come and sort of offset that. One that could happen is the tax bill. We don’t know exactly what that’s going to look like, but a reduction in taxes could spur spending, it can spur investment by businesses, and so we might see some macro benefit from that tax bill passing. A lot of the tax bill, at least as it’s written so far, is mostly a continuation of the tax cuts that came in 2017. And so it’s not like I think the majority of Americans are going to see, oh, some huge shift in their economics though personal economics.There are some additional tax breaks I’ve been researching a little bit. I’m going to go further into in a future show when we get more details about that, but just wanted to call that out. So in the short term, I’m not seeing a lot of upside to the macro conditions, right? I’m not saying a year from now things can’t get better or two years from now, but when we’re talking about the complacency in the market, I’m talking about right here, right now, today, I have a hard time imagining in the next three months that corporate profits are all of a sudden going to get way better or we’re going to see some total removal of risk and uncertainty from the trade situation. That just seems like it’s going to continue. And so that’s sort of why you probably can tell at this point that I agree that investors are getting pretty complacent in the market.I generally agree with what Jamie Diamond is saying, and we haven’t even talked about this whole other component of what’s going on right now, which is what’s happening with the US consumer. Generally the news and the media, they focus a lot on businesses and what they’re doing and the government and how they spend and rightfully, but in the United States, the US consumer drives the whole thing. 70% of the US economy is based on the spending of US consumers like you and me. And when you dig in there, honestly, that to me may even be more concerning on what’s going on with trade war. That is a lot of uncertainty. I trade war that introduces risk. We don’t know how that’s going to play out. But when we look at the consumer situation, to me that just seems a little bit more dire. So consumer sentiment, just as an example, is just a measure of how people are feeling about the economy has dropped to basically the second lowest it’s been since June of 2022 and pretty notably it’s dropped 30% since January.So people are really souring on the economy. And similar to what I was saying before about how expectations of inflation or recession can impact things, consumer sentiment can impact spending. So that’s really important. Along the same lines, we are seeing inflation expectations really jump. It’s up to 7.3% for the next year for May up from 6.5% in April. That is the highest inflation expectation we’ve seen from US consumers since 2022. Now, a couple things about this. First and foremost, I think this is wrong. So I usually try and give balanced opinions. I think that tariffs introduce risk to think that inflation’s going to shoot up to 7.3%. I think that’s pretty aggressive. That is probably double what most forecasters are expecting. I think on the high end, four, maybe 5% if the trade war really escalates, most people are predicting somewhere between three and 4%.So just keep that in mind that just because these expectations are high does not mean that they’re realistic expectations. But there’s a lot of studies that show that inflation expectations can actually push up inflation in the short term. It can actually help, it can spur buying because people want to buy before tariffs and stuff. So we might actually see the economy get propped up for a few more months, but this will likely impact the economy in the long run. So those are two things. Consumer sentiment, inflation expectations. When we look at other measurements like we see credit card debt, we are at record levels of credit card debt, which I’ve done shows on before. I don’t think that in itself is all that concerning because if you adjust that for inflation and monetary supply, if you want to get all nerdy about it, it’s not really all that much higher than it has been in the past.But what does concern me is that credit card delinquencies are going up pretty rapidly. Debt in itself, people have different opinions about debt. I don’t think credit card debt is good. It’s high interest. It is usually not put into an appreciating asset or something like that, and it’s very, very risky and we’re seeing that delinquencies are going up, which can be a really bad situation for people. And so I am not super happy about that. That’s something I’m really keeping a close eye on. You also just hear sort of anecdotally about companies like Klarna or Affirm these buy now pay later that their delinquencies are starting to go up. We have now seen that student loan collections are starting up again, so we might see delinquencies go up there. These are all things that show that consumers are just stressed right now. You look at other data, I got even more for you.Do people say it’s a good time to buy a home? No. 76% say no, which is very, very low. The jobs insecurity index, right? We are seeing more people having anxiety about unemployment than we have in recent months. So basically everywhere you look in terms of consumer sentiment, people are not feeling optimistic about the economy. The way I’m looking at it, again, we started this conversation today talking about risk, not what’s going to happen. I’m not saying that there is going to be a recession, there’s going to be a crash or anything like that. The question that investors need to be thinking about, is there more risk in the market and if there is a more risk, should you do something about it or she just carry on like you were before this risk was introduced into the equation. And the way I see it is we’re getting hit from both sides, right?We’re getting big macroeconomic stuff, some long-term things that have been brewing for years. Then we also have the introduction of new trade risks, which are throwing a wrench into a lot of people’s plans, a lot of business plans, and just having people pause and wait to see what’s happening there. And then on the other side, we’re also seeing these definite signs that individual consumers are at risk as well. So that’s my opinion. I agree. I think there is more risk in the market, and I do think that overall a lot of investors, whether you’re in the stock market, the crypto market or the housing market are being a little bit complacent. They are kind of shrugging off a lot of the economic news that we’ve been seeing for the last couple of months, and I’m not sure that’s the best course of action. So I’m going to share with you a little bit more on my take and what I recommend you do right after this break, we’ll be right back.Welcome back to On the Market. Today we’re talking about a big headline that Jamie Diamond thinks that the market is complacent. And before the break I said, yeah, I agree. And again, I want to make sure that I’m clear about one thing. I am not saying there is going to be a stock market crash. I’m not saying there’s going to be a housing market crash. I’m not necessarily even saying that there is going to be a recession. My point here is that you need to adjust for increased risk. You can’t just shrug off evidence of economic challenges even if those challenges don’t wind up turning into something more sinister or severe. This is just my opinion, but I think it is prudent right now to account for this increased risk and make decisions about your own personal finances and about your own investing accordingly. And maybe I’m wrong and you wind up missing out on a little bit on a bull run in the stock market.For me, that’s what I’m doing. And feel free to disagree. I’d love to hear your comments. If you’re watching this on YouTube or on Instagram, hit me up. I always love talking to you guys, but for me personally and everyone’s financial situation is different. I think it’s more important when these periods of increased risk. Come on to think a little bit more about capital preservation and making sure you don’t lose what you got than it is to maximize your gains. And there are of course trade-offs for that, right? The more risk you take, the more benefit you get. But when you’re in this kind of market, at least for me, I am willing to take my foot off the gas a little bit. That might mean my returns might not be as good, but I want to sleep a little bit easier, making sure that I’m not risking too much of what I already have.And again, I just kind of want to reiterate why I think this because I introduced a lot of risks and of course there are other things that are going well. I just said that the labor market is performing pretty well in the next couple of months, three months. I am having a hard time, like I said earlier, seeing how it gets better realistically, let’s just game it out. What makes the American consumer in a better position in three months then they are today? And I’m not saying a year from now, two years from now, I’m talking sort of short term here. What happens in the next three months? Yeah, tax relief, that’s the big one to me, that’s sort of the main thing that could offset all of the risks that I’m seeing in the market. I do think that will help a bit. It’s not going to help equally for everyone, and honestly, a lot of those benefits won’t hit till 2026 in terms of people actually getting a check.And so it might help psychologically, but again, those benefits next three months aren’t really going to hit people’s pocketbooks. So I have a hard time thinking that’s going to really change anything in the short term here. Tariffs, are those going to help? I certainly don’t think so. I’ve been pretty clear about that. I think that the tariffs have the potential to hurt the economy short term. Even Trump and his team have said that there is going to be short-term pain. They are readily saying that they think that this is going to cause short-term challenges. And since the benefits are still unclear, I don’t see that helping anything better. Ai, I hear that a lot of people saying that AI and technology is really going to help the economy grow. I don’t really buy it. I’m into ai. I totally buy AI as a transformative technology that will really benefit the economy longterm, but in the short term, maybe it will boost some corporate profits, but I doubt that’s actually going to help consumers short term, right?It’s probably more likely to reduce jobs short term as the economy and is going to help people short term. So I think that’s a farfetch for the next couple of months, maybe full pullback of tariffs. That’s probably actually now that I’m thinking about it, that’s probably the one thing a really significant pullback on tariffs might actually be the catalyst that people need. But you have to ask yourself, is that really likely? Trump has been very adamant about tariffs for a long time, going back to his first presidency, he believes in this stuff and so the tone has been softened, but is he going to pull it all back? I personally don’t think completely, although I am more in favor of less than more generally speaking. And so I hope that it is a more modest approach than what we saw on liberation Day. So that’s sort of how I see it.I see introduced risks less upside right now. There are definitely past that upside. I’m not like some hundred percent doom and gloom person. My point is just people should act accordingly that there are new risks to the market. To me, it’s just better not to be complacent as Jamie Diamond said, and to prepare in times like this. Just think about this risk. Don’t put your head in the sand and instead do what most people recommend. You don’t have to do anything crazy, but do what most financial planners or investors recommend during periods of increased risk and increased uncertainty. Those things are, for example, diversification. Don’t put all of your money in the stock market or all of it in crypto or even all of it in real estate. I diversify most of my net worth is in real estate, but I put it in different types of real estate.I put it in rental properties and lending funds. I have it in some syndications, and so I spread that out a little bit and I have a lot of my net worth in the stock market as well. Other things that you can do as a real estate investor are to raise cash. I think this is a great opportunity to raise cash. I myself am selling a property to sit on some cash to look for opportunities that I think are going to come in the real estate market in the next six, nine months. I’m excited about that. The other thing you can do is sort of coal, any properties that you’re not excited about. I was actually talking to Jay Scott who wrote the book Recession Proof Real Estate Investing, and his recommendation is if you go into a period of risk like this to sell any property that you don’t want to hold onto for the next five years.And so for me, the combination of that there’s this property I have is actually doing fine. It was a pretty good investment, but it’s not something I’m in love with and I feel like is the best possible use of my capital. So I’m selling it. I’m going to raise cash and that’s a way for me to diversify a little bit, to put money in a money market account and just earn a couple of simple interest, that kind of stuff. There are other things that you should do also just on a personal level like maintaining an emergency fund, but when it comes specifically to real estate and decisions that you should make about your own portfolio, lemme give you just a little bit more advice or at least things that I am considering myself. This should go without saying, but I wouldn’t buy risky deals. I have bought risky deals in the past.I will buy risky deals again. Right now is not a period of time where I’m willing to push it because again, my overall analysis of the economy and pretty much every market from the housing market to the stock market to the crypto market is that there is more risk than upside right? Now. That doesn’t mean I’m not going to do deals, I’m buying a house this week, but it does mean that I don’t want to do risky deals and I’m going to be extra conservative and cautious when I identify properties to buy. The second thing you want to do is to try and buy under market value. If you can find deals that would’ve sold for 5% more a couple of months ago, if you can buy something under what you think it’s worth today that you against further declines, and frankly, I think holding rental properties, good solid rental properties during these periods of uncertainty are really good provided that they cashflow.So that is another thing that I was going to say is that you have to buy cashflow positive deals right now. I’ve never been one to advocate for buying pure appreciation plays as I think you all know. For me, it’s a minimum of breakeven cashflow, and I’m talking real cashflow. You got to put in vacancy and turnover costs. I mean every dollar accounted for, it’s got to be breakeven cashflow at a minimum, and I think that’s true even in good times and in riskier times. You got to be super disciplined about that because even if prices go down, if you’re cashflow positive, it’s fine. You’re still getting tax benefits, you’re still getting amortization. You’re getting that cashflow every single month. So that can be actually a good way to weather uncertain times in the rest of the economy. The last thing I’ll say is if you have the option to, don’t put the bare minimum down.If you can put 10% down, do it. If you can put 15 or 20% down, do it. If you can put 25% down, do it. I think that is a better decision these days than to try and spread that money out and buy more property. If you think about the real risks of real estate, the worst thing that can happen to you sort of has to have two things happen at once. The first is if you go underwater on your mortgage, which means your equity and your house is worth less than you owe on your mortgage, and so you’d have to come out of pocket to sell your property, that’s a bad situation. The other thing that needs to happen for worst case scenario is that you can’t afford your mortgage payment anymore. If those two things happen together, you can be forced into a short sale, right?That’s what you always want to avoid as a real estate investor. That’s the worst thing that can happen to anyone who owns property. Now, of course, you want to be able to afford your mortgage, which is why I recommend being cashflow positive. That’s one way you can very successfully mitigate against this worst case scenario. If you’re disciplined in your underwriting, you can avoid that entire thing right there. The second weight, if you want to be extra cautious, which I recommend, is make sure that you don’t go underwater. Now, if you put 20% down, the chance of you going underwater on your mortgage is very, very low because you would need your property values to decline by 20%, and even during the great recession, they went down about 19%. So yeah, you could go underwater if you bought at the absolute worst time. That was still possible.But the people who really got hurt in 2008, 2009, there are people who put 0% down or three and a half percent down or 5% down because even though I don’t think there’s going to be a crash, there are already markets that are down 3%. There are markets that are down 7%, and so if you put more money down, not only is it going to improve your cashflow, it’s going to reduce your risk of going underwater and reducing the risk of that worst case scenario playing out for you. So those are my recommendations. You could still buy deals. Again, I’m buying a primary residence that I’m going to renovate sort of a live and flip kind of deal this very week. I am not panicking, but I’m adjusting. I am selling some property. I am moving some assets around to be in a more defensive position than I would be if the economy seemed like it was humming.If interest rates were low, if homes were super affordable, I would act differently. This is just how you have to be as an investor. It’s a game of constantly reallocating your resources based on perceived risk versus perceived upside. Whatever you decide to do with your money, my ask for you and recommendation for you is don’t be complacent. Like Jamie Diamond said, the reason that sort of stuck with me so much is that word complacency is sort of the key here. You can do whatever you think is right with your money, but don’t just assume things are going fine right now and they might be fine, but don’t be complacent and just make that assumption. Dig in and understand where your risks are. Identify what parts of your portfolio, what properties could be risky. If things go badly, maybe they won’t go badly, and this will all be a waste of time. I hope that’s what happens. But if I were you, my recommendation is to err on the side of caution these days. Identify those weaknesses, identify those risks, and do whatever you can to mitigate them in the coming weeks or months. Hopefully. Again, it’ll all be a farce alarm, but I feel better myself and I’d feel better for all of you if you did that exercise here and now. So that’s what I got for you guys today on the market. Thank you all so much for listening. I’ll see you next time.