- The only bubble forming in financial markets is in sovereign debt, JPMorgan Chase CEO Jamie Dimon told CNBC on Wednesday.
- The chief executive railed against the negative interest rates seen in Europe, and warned that bonds with negative rates are a harbinger of poor market performance.
- When asked if he views the US stock market as overvalued, Dimon pointed to the US’s steady economic growth as justifying the record highs seen in 2020.
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When asked if he sees any volatile sectors in the market, Dimon replied “only in sovereign debt.” He railed against the negative interest rates seen in Europe, noting that central banks’ solutions are largely reactionary and helping drive the debt’s lofty valuation.
“Right now people think central banks around the world can do whatever they want. They can’t,” the bank CEO told CNBC, adding that inflation “would be the big negative surprise.”
An unexpected surge in inflation would likely prompt central banks to raise interest rates to maintain steady price growth and cool economic expansion. Such an adjustment to the benchmark rate would likely spike bond prices as borrowing becomes more expensive. Yields could fall and push more government bond yields below zero. Such an event would further roil the already-chaotic government debt markets, Dimon said.
“Do you know anyone who’s actually bought a negative-interest-rate bond? I would never buy a negative rate bond,” the CEO said. “In history, whenever you see something like that, it doesn’t necessarily end well.”
Dimon’s warning arrives after the US government released debt figures last week that showed the federal budget reaching a $US1 trillion deficit for the first time since 2012. The total US public debt outstanding currently stands above $US23 trillion.
The chief executive also responded to claims that the stock market’s record highs point to equities becoming overvalued. The S&P 500 is already up 3% year-to-date after soaring 29% in 2019, and opened at an all-time high on Wednesday.
Dimon called some public companies’ shares “overpriced,” but clarified that the bull market’s continued strength is propped up by steady economic growth.
“We’ve always had overpriced companies in life, and stock prices are at a high, but those prices can be justified if you have a growing economy,” the chief executive said.
JPMorgan is the biggest US bank by assets, and the 10th highest-valued public company in the world. Dimon’s interview with CNBC took place at the World Economic Forum in Davos, Switzerland.
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