When he's not calling Bitcoin a fraud, Jamie Dimon is penning his innermost thoughts (well, a carefully curated list of not-too-revealing thoughts, at least) about what troubles him in markets today.
His letter to shareholders features the seven primary threats he currently sees:
- About $9 trillion, or 30% of total mutual fund long-term assets are in passive index funds or ETFs, which investors can get out of easily though the underlying assets, such as bonds, may be tough to sell in an illiquid market. And “it is reasonable to worry about what would happen if these funds went into large liquidation.”
- Even more procyclicality has been built into the system. Risk-weighted assets will go up as will collateral requirements – and this is on top of the procyclicality of loan loss reserving.”
- Market making is “dramatically smaller” in the bond market than last time. “Virtually every asset manager says today it is much harder to buy and sell securities, particularly the less liquid securities.”
- Liquidity requirements, which much higher, are more rigid than before. “Banks will be unable to use that liquidity when they most need to do so – to make loans or intermediate markets…. As clients demand more liquidity from their banks, the banks essentially will be unable to provide it.”
- An excessive reliance on models.
- No banks to the rescue this time – banks got punished for helping in the last go-round,” when stronger banks that had absorbed collapsing banks, were hit with big fines for the sins committed previously by collapsed banks. In other words, if a bank collapses, no healthy bank will jump in to absorb it.
- Much higher interest rates.
ORIGINAL SOURCE: “When the Next Crisis Begins…” JPMorgan CEO Jamie Dimon by Wolf Richter at Wolf Street on 4/5/18