JPMorgan CEO Jamie Dimon’s annual shareholder letter is out, and in it he has highlighted what he sees as the reasons why the United States is poised for greatness, and what’s holding it back.
The list spans everything from the housing recovery and the energy sector to consumer spending and political infighting.
This kind of specificity is what makes Dimon’s letters so great that Warren Buffett reads them every year. Dimon doesn’t just use the blanket CEO “uncertainty” excuse for why growth is tepid, he prefers to get into the weeds.
“Of course there is risk in the system,” he writes “There always was, and there always will be. As a company, we need to be prepared for even the unlikely and unpredictable bad outcomes. But like everything else, it helps to put risk into perspective.”
Now for what’s going right in the United States:
• Consumers are in increasingly good financial shape. Over 6 million more Americans are working since the depths of the financial crisis. The amount of consumer income that they spend to service their debt is the lowest it has been since it has been recorded, dating back to 1980. And Americans’ net worth has been increasing, along with stock market prices and the value of homes.
• Housing has turned the corner in most markets. We’ve moved from a buyer’s market to a seller’s market in four years, construction of new homes has steadily improved and home values have increased nationally more than 19% in the past two years due to the strengthening economy. • Capital markets are wide open — credit, for the most part, is flowing freely. (The only exception I see here is that it still is too hard to get a mortgage for many people.)
• Corporations and middle market companies are in extremely good shape. Corporate cash balances now are 11.4% of assets, up from 5.2% in 2000.
• The banking system is almost fully recovered, and banks are better capitalised than they have been in 60 years. Banks had average equity to assets of 11.1% in 2013 — the highest it’s been since 1950. And banks in total have $US10 trillion in deposits vs. $US7.6 trillion in loans today — the lowest loan-to-deposit ratio since 1970. In addition, banks currently hold HQLA of approximately $US2 trillion.
• Consumers are benefiting from abundant and less costly oil and gas due to technological advances in extraction.
And what’s wrong with the United States:
• Concerns around excessive regulation and red tape — I travel around the U.S. all the time, and this is a loud and growing complaint that I hear from businesses, small to large, across virtually all industries.
• Whether you were for or against “Obamacare,” when massive changes to such an important part of the American economy are made, it does create uncertainty for many businesses.
• The inability to face our fiscal reality is a concern. I believe that if we had adopted some form of the Simpson-Bowles plan to fix the debt, it would have been extremely beneficial to the economy.
• Entitlement spending — which now is 60% of federal spending and is growing — is crowding out infrastructure spending and spending on initiatives like research and development and training.
• In addition, uncertainty about the ultimate outcome of the Fed’s unconventional QE policy (and our inability to deal with some fiscal issues) makes future Fed policy more complicated.
• Political gridlock resulting not only in our government shutdown but in two debt ceiling crises was damaging and irresponsible.
• U.S. corporate tax policy is hugely inefficient and, at the margin, drives American capital overseas.
• U.S. immigration policy (which we should fix for moral reasons alone) also is driving brains and entrepreneurs overseas. Most economists think a good immigration policy could accelerate U.S. economic growth by 0.2% right away and by 2% over a 10-year period. This, alone, could create 3 million jobs.
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