Jamie Dimon Annual Letter Purports Something Is “Wrong” with America
“Something is wrong” with America. Those were the shocking words transcribed in the highly anticipated Jamie Dimon annual letter, released on April 4, 2017. The 46-page letter from the CEO of JPMorgan Chase & Co. (NYSE:JPM) imparts various economic wisdoms and prognostications worthy of attention. But it was Dimon’s three-word takeaway stealing all the limelight. Perhaps in a year which gave us Trump and Brexit, we should have expected as much. (Source: “Dear Fellow Shareholders,” JPMorgan Chase & Co., April 4, 2017.)
The dark undertones inter-dispersed within the Jamie Dimon letter to shareholders 2017 caught many by surprise. The letter is usually a flaccid affair, a soapbox for Dimon to display his public policy suggestions and macroeconomic musings. People recognize this as the typical permabull Wall Street colloquialism. They didn’t expect it to be any different.
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The Jamie Dimon annual letter references several economic issues suggesting that “something is wrong” in America. And indeed, there is. From 2000–2016, real gross domestic product (GDP) per capita only grew 1.0% versus the 2.3% experienced from 1948–1999. This is problematic because, had the United States been able to maintain 2.3% growth throughout, per capita GDP would be roughly $12,500 higher per person. This would have provided a major boost to flagging middle-class living conditions.
Even worse, a sizable percentage of the middle class is disappearing altogether. Dimon rightfully mentions that the percentage of middle-class households has been steadily contracting. In 1971, six out of 10 households were classified as middle class, yet it’s barely 50% today. This is wholly consistent with the destruction of livable and abundant jobs prevalent in the U.S. before globalization took root.
This can also be witnessed in the record income inequality in America today. The nation’s top 10% earn nine times more income than the bottom 90%, which isn’t too crazy. But the upper echelons of society are absolutely killing it, compared to everyone else. The top one percent are averaging over 38 times more income than the bottom 90%, while the 0.1% are raking in over 184 times more income than the lower 90%. This has long since eclipsed inequality levels last encountered in the late 1920s. (Source: “Income Inequality,” Inequality.org, last accessed April 10, 2017.)
The Jamie Dimon annual letter also speaks to the lack of economic growth and opportunity becoming a source of “frustration” among many Americans. This manifests itself in many forms, including declining wages, rising debt totals, overbearing student debt, high health care costs, and all-around economic uncertainty. Brexit was one such example of millions of middle-class workers’ revolt against the power elite, who find their living standards slowly sinking in the quicksand. Trump’s tax plans to reduce personal and corporate taxes aim to put more money in people’s pockets, thereby boosting discretionary spending and business investment.
“Something is wrong” with America. Not for the power elite, who are doing better than ever, but for the silent majority.
What Do Jamie Dimon’s Comments Indicate About the U.S. Markets for 2017?
As part of the president’s Strategic and Policy Forum, the Jamie Dimon Trump nexus is ongoing. Dimon, along with several powerful business leaders in the U.S., will help shape Trump policies in ways that will benefit JPMorgan Chase & Co., and presumably, society at large. At least that what he claims: “I want to help lower-wage people more than I want to help you (elite)”. (Source: “Sorry Moneybags, Jamie Dimon Is Here For The Working Man,” Vanity Fair, December 6, 2016.)
Dimon’s influence should be especially forceful, since Trump offered him the powerful Secretary of the Treasury job soon Trump won the presidential election. Dimon turned down the offer, indicating he was happy continuing to be top dog at JPM, but this was prime evidence that Trump respects and covets Dimon’s input on economic policy issues. Dimon will look to exert that same type of influence on the Policy Forum as a civilian business mogul.
Are such, here are the top five Jamie Dimon letter policy ideas that could affect U.S. markets in 2017 and beyond (if implemented). While there’s no guarantee that the malleable Trump will take his advice, we suspect Dimon’s influence behind the curtain will be unmatched within the administration. The U.S. economic outlook 2017 could depend on it.
5. Immigration
As the leader of a multinational company with over 240,000 employees worldwide, it comes as no surprise that Dimon favors the free movement of labor. This sentiment also applies to the graduating labor pool.
Dimon devoted some words toward the “alarming” fact that 40% of the 300,000 student obtaining advanced degrees in the U.S. every year are foreign nationals with no path of staying in America after they graduate. Coveted graduates with science, biotech, engineering, and computer science degrees are emigrating to other nations, often times not by choice. Dimon would like immigration policy to be made more flexible to allow this young talent to stay within America.
This could be at odds with Trump’s immigration policy to restrict immigration and H1-B visa program to protect American workers. Mindful of this fact, Dimon said, “I’m not going to write about immigration in this letter—we have always supported proper immigration—it is a vital part of the strength of America.” We wonder if Dimon is hedging his bets with this disclaimer. (Source: JPMorgan Chase & Co., op cit.)
4. Globalization
Jamie Dimon is a big believer in globalization. He characterizes trade as “absolutely critical” for world growth and believes that billions of people have benefited in various capacities. But it’s not perfect. He believes that trade policies need to be fixed to some degree, especially with two key trading partners: Mexico and China. But perhaps more telling was the line “poorly conceived anti-trade policies could be quite disruptive.” This is completely contrary to Trump’s repeated threats of punitive tariffs of up to 35% on internationally originated imports, to which he’ll have a difficult time walking back.
Perhaps Dimon’s stance is having an effect. There’s been increasing chatter of alternatives to border taxes, such as a harmonized Value Added Tax (VAT) and other measures to minimize the disruption to U.S. economic growth. Trump may be “walking back” the border tax issue by simply not talking about it.
3. Student Debt
In the Jamie Dimon annual letter, he pontificates that, since 2010, when the U.S. government took over student lending, student debt has unacceptably exploded from $200.0 billion to over $900.0 billion in six short years. This has created dramatic adverse effects, with young people struggling to pay off debt with entry-level salaries and being unable to receive other credit (like a home mortgage). Presumably, Dimon wants policies in place which can slow down student debt expansion and help ease the burden on America’s youth.
Trumps agrees. He’s on record pushing a plan which would see student loan payments capped at 12.5% of annual income. After 15 years, any outstanding debt would be forgiven and written off by the government. This is one of the few Trump proposals which has been received favorably on both sides of the aisle. Said Trump, “Students should not be asked to pay more than they can afford… (it) should not be an albatross around their necks” for their entire lives. (Source: “Trump has a plan — a pretty good one — for tackling student debt,” Chicago Tribune, January 27, 2017).
I expect student debt policies to become much less one-sided in favor of the banks.
2. National Defense
Jamie Dimon is not a fan of unnecessary warfare. The Jamie Dimon annual letter indicates deep regret over the overly ambitious spending thrown toward national defense. Over the last 16 years, trillons of dollars have been spent on wars instead of investing it more productively in America. Dimon finished off with a disclaimer that he’s “not saying the money didn’t need to be spent,” but clearly, his preference would be that defense money be spent domestically if possible. After all, “every dollar spent on battle is a dollar that can’t be put to use elsewhere.” (Source: Ibid.)
Meanwhile, Trump’s stance of defense spending is somewhat hawkish. Trump’s budget calls for a “historic” increase in military spending of approximately $52.0 billion annually to the Department of Defense (DoD). Trump has also courted executives from big defense contractors like Boeing into administration, and of course has famously coined the phrase “We’re going to knock the hell out of ISIS.” His proposed defense budget would also contribute to rising national debt, which many were hoping could be restrained.
Dimon may need to work on his pitch a little more, because the military industrial complex is set to expand, not contract. Libertarians and pacifists throughout America will hope he succeeds.
Current U.S. Defense Spending (All Dollars in USD Billions)
| Year | Military Spending | Veterans | Foreign Aid | Total Defense |
| 2015 | $589.60 | $159.70 | $48.60 | $797.90 |
| 2016 | $595.30 | $174.50 | $45.30 | $815.10 |
| 2017 | $617.00 | $180.80 | $55.80 | $853.60 |
| 2018 | $599.00 | $179.30 | $56.70 | $835.00 |
(Source: “What is the Total US Defense Spending?,” usgovernmentspending.com, last accessed April 10, 2017.)
1. The Environment
The Jamie Dimon annual letter didn’t spend much time on this point. It was easy to miss among the mass of economic musings dominating the document. While Dimon is in favor of slashing certain growth inhibiting financial regulations, this doesn’t include the environment. “Some regulations quite clearly create a common good (e.g., clean air and water),” wrote Dimon. He went on to say that non-financial regulatory reform should be subject to a “systematic review of the costs and benefits of regulations, including their intended vs. unintended consequences.”
I thought it was odd that Dimon would plug an environmental quote into the equation. It’s completely out of line with the financial tenor of the letter. Perhaps he’s concerned about Trump’s willingness to roll back environmental regulations, whether it’s ditching the Clean Water Act or reducing the Environmental Protection Agency (EPA) budget. This quote may be of the colloquial variety, intended to raise the issue but not press it.
Environmentalists everywhere will hope it’s much more than that.
