JPMorgan chief executive Jamie Dimon warns that the US is inching closer toward the next credit downturn, and the fallout may catch investors off guard.
In a new Bloomberg interview, the JPMorgan CEO says credit cycles are inevitable and tend to follow economic slowdowns, while noting that every cycle hits different industries hardest.
“So some things rhyme, and some things never change. OK. There will be a credit cycle. It’s usually caused by a recession. The type of recession determines the nature of it. So stagflation is very different than just a recession.
One of the things that’s always different is which industries get really badly hurt. Like you may remember in 2000 it was telecom and utilities. In 2008, it was Warren Buffett’s stocks, media stocks. This time it may be software, maybe it’s not.”
Dimon mentions a handful of potential triggers ranging from geopolitics to weakening consumer demand and warns that the impact could exceed expectations.
“It could be geopolitics. It could just be people pulling back on their spending, and companies are laying off or they can’t pass on prices or something like that.
But I do think when we have that cycle, it’ll be worse than people expect.”
He adds that banks are taking more risks, and more institutions are hopping on the bandwagon, indicating that the US is in the latter stages of the cycle. The JPMorgan CEO also says the downturn will expose those who are swimming naked.
“We’re late in the cycle. We’re late in new entrants. There are some people out there who aren’t doing great credit because we see the other side of it. And I’m not talking about private credit. I’m talking about credit in general. That could be insurance companies. It could be private credit. It could be banks. We see some banks doing things that we probably wouldn’t do…
So that’s not going to surprise me when we find out who’s swimming naked when the tide goes out.”
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