Dimon sees recent volatility as harbinger of things to come

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Jamie Dimon warned investors to get ready for more wild rides like the one that upended markets at the end of last year.

"The fourth quarter of 2018 might be a harbinger of things to come," the chief executive officer of JPMorgan Chase said Thursday in his 51-page annual letter to shareholders. Dimon cited a raft of issues driving the more pessimistic outlook, including uncertainty about the Federal Reserve's interest-rate shifts, Germany's economic slowdown, Brexit and the U.S.-China trade spat.

Investors face a "new normal" of liquidity constraints because of tighter regulations on banks and other market makers, Dimon said, adding that "there are growing geopolitical tensions — with less certainty around American global leadership."

Dimon's more cautious tone is a shift from the full-throated optimism he's conveyed in the past few years, and even from his last letter in 2018, when the bank forecast billions in profits tied to rising interest rates and the U.S. tax overhaul. Investors closely parse Dimon's letters for insights even as the CEO's frequent public appearances mean his opinions are well known.

The annual missives have more than tripled in length since Dimon, 63, took over as CEO at the end of 2005, as he's dedicated more space to public policy. That's helped fuel speculation the banker plans to run for president, a suggestion he's quick to shut down.

Recession outlook

At JPMorgan's investor day in February, the chief of the largest U.S. bank acknowledged a growing number of potential obstacles to the economy that carried his firm to record profits last year. He said the bank is "prepared for a recession" but not predicting one, and repeated that assessment in Thursday's letter.

Dimon has often lamented the sluggish nature of the U.S. economic recovery, saying poor policy decisions are in part to blame for slow cumulative growth. U.S. growth cooled by more than initially reported in the fourth quarter on revisions to consumer and government spending, signaling mounting challenges to the expansion as it nears a record duration.

Daniel Pinto, JPMorgan's co-president and head of its investment bank, said in his own letter Thursday that recent volatility could be pinned on investors speculating that a downturn was coming sooner than previously expected. "'Flash crashes' are becoming more frequent," Pinto said. "These are a function of a number of factors, including thinner liquidity across asset classes, fewer participants in the market and a growing percentage of automated trading volumes."

Dimon also called out other CEOs, challenging them to get more involved in social and public policy. He said JPMorgan is bolstering its teams that deal with such issues.

"In the past, boards and advisers to boards advised company CEOs to keep their head down and stay out of the line of fire," Dimon said. "Now the opposite may be true. If companies and CEOs do not get involved in public policy issues, making progress on all these problems may be more difficult.

Bloomberg News