Jamie Dimon, chairman and CEO of JPMorgan Chase & Co. (JPM), released his annual letter to shareholders on April 4, 2022, in conjunction with his company's 2021 annual report. Noting that the Western world faces "challenges at every turn," Dimon nonetheless believes that the U.S. economy remains strong.
Among the events and forces creating an "unprecedented" situation in Dimon's view are Russia's war on Ukraine, the resulting economic sanctions on Russia, and rising inflation. "We are facing challenges at every turn ... [yet] we have a moment to put aside our differences, offer solutions and work with others in the Western world to come together in defense of democracy and essential freedoms, including free enterprise," he stated in a highlighted excerpt.
- CEO Jamie Dimon of JPMorgan Chase released his 2021 annual letter to shareholders on April 4, 2022.
- It was a lengthy and wide-ranging piece discussing key challenges and opportunities for the U.S. and the world.
- In general, despite many areas for concern, Dimon finds the U.S. economy to be strong.
Key Passages of Dimon's 2021 Letter
Highlights of Jamie Dimon's very lengthy and detailed 2021 annual letter to shareholders are quoted below. Italicized and bold passages are as he presented them.
"We are facing challenges at every turn: a pandemic, unprecedented government actions, a strong recovery after a sharp and deep global recession, a highly polarized U.S. election, mounting inflation, a war in Ukraine and dramatic economic sanctions against Russia. While all this turmoil has serious ramifications on our company, its effect on the world—with the extreme suffering of the Ukrainian people and the potential restructuring of the global order—is far more important."
"My friend, Warren Buffett, spoke in his letter this year about his silent partner—the U.S. government—noting that all his company's success is predicated upon the extraordinary conditions our country creates. He is right to say to his shareholders that when they see the flag, they should all say thank you. We should, too."
Significant Geopolitical and Economic Challenges
"America and the rest of the world are facing the confluence of three important and conflicting forces: 1) a strong U.S. economy, which, we hope, has COVID-19 in its rearview mirror; 2) high inflation, which means rising interest rates and, importantly, the reversal of quantitative easing (QE); and 3) the war in Ukraine and the accompanying humanitarian crisis, with its impact on the global economy in the short term, as well as its significant impact on the geopolitics of the future. These factors will likely have a meaningful effect on the economy over the next few years and on geopolitics for the next several decades."
The U.S. Economy Is Strong
"During 2020 and 2021, many aberrant things also happened: 2 million people retired early; the supply of immigrant workers dropped by 1 million due to immigration policies; available jobs skyrocketed to 11 million (again unprecedented); and job seekers dropped to 5 million. Wage growth accelerated dramatically, particularly in low-income jobs. We should not be unhappy that wages are going up—and that workers have more choices and are making different decisions—in spite of the fact that this causes some difficulties for business."
"Consumer confidence and consumer spending have diverged dramatically, with consumer confidence dropping. Spending, however, is more important, and the drop in consumer confidence may be in reaction to ongoing fatigue from the pandemic shutdown and concerns over high inflation."
Monetary Policy and Inflation
"Persistent inflation will require rising interest rates and a massive but necessary shift from quantitative easing to quantitative tightening."
"It is easy to second-guess complex decisions after the fact. The Federal Reserve (the Fed) and the government did the right thing by taking bold dramatic actions following the misfortune unleashed by the pandemic. In hindsight, it worked. But also in hindsight, the medicine (fiscal spending and QE) was probably too much and lasted too long."
"In today's economic environment, countries' central banks do not need to increase their foreign exchange reserves as they did after the great financial crisis, and banks don't need to buy Treasuries to improve their liquidity ratios. This time around, business investment will likely be higher, both because of higher growth and because the capital required to combat climate change is estimated to be more than $4 trillion annually. Finally, governments will also need to borrow more money—not less."
"This massive change in the flow of funds triggered by Fed tightening is certain to have market and economic effects that will be studied for decades to come. Our bank is prepared for drastically higher rates and more volatile markets."
War In Ukraine and Sanctions on Russia
"The war in Ukraine and the sanctions on Russia, at a minimum, will slow the global economy—and it could easily get worse."
"Many more sanctions could be added—which could dramatically, and unpredictably, increase their effect. Along with the unpredictability of war itself and the uncertainty surrounding global commodity supply chains, this makes for a potentially explosive situation."
"The confluence of these factors may be unprecedented."
"The war could affect geopolitics for decades. Russian aggression is having another dramatic and important result: It is coalescing the democratic, Western world—across Europe and the North Atlantic Treaty Organization (NATO) countries to Australia, Japan and Korea. The United States and the West realize there is no replacement for strong allies and strong militaries."
'The Extraordinary Need for Strong American Leadership'
"Even before the war in Ukraine jeopardized the world order, we were facing exceptional and enormous global challenges—nuclear proliferation (this is still the biggest risk to mankind, bar none, and made all the more stark by the war in Ukraine), threats to cybersecurity, terrorism, climate change, pressures on free and fair trade, and vast inequities in society. Critical to solving these problems is strong American leadership."
America Has Flaws but Also 'Enduring Strengths'
"Our country is not perfect, but our basic principles—i.e., the rule of law, individual liberties, freedom of speech and religion, and the concept of equal opportunity—are still exceptional ideals that most of the world wants yet often is not able to achieve. These principles still make America the partner of choice for many countries and the destination of choice for many individuals. Our American system gave us one of the world’s most prosperous and innovative economies. I do not like it when anyone disparages this wonderful country because of our flaws. Though our sins may be real, they are the sins of all countries. We can celebrate this country for having given so much to so many while acknowledging prior mistakes and fixing them. It is shocking to me how many people denigrate not just America but free enterprise and the essential role of business. If America could open its borders to all, I have little doubt that billions of people, if they could, would want to come here, and few would leave."
'Our Principles, Including Free Enterprise, Need to Be Nurtured'
"Free enterprise celebrates, and is inseparable from, human freedom and creativity, which ultimately are the sources of all human progress. The secret sauce of free enterprise is not only the free movement of capital but also, more importantly, the value of knowledge and free people exercising their rights."
"Nonetheless, many countries—inadvertently through decades of following bad policy or deliberately by restricting freedoms—damage the full benefit of free enterprise and often discourage savings, innovation, and the free movement of people and labor. We all believe in great social safety nets that reduce poverty, provide opportunity for good jobs and serve as an engine for economic growth. But freedom slowly disappears when a country's government controls too much of its economy, and people in nearly every country, free or not, do not like constantly being told what to do. It is disingenuous when political leaders say that government 'built the roads' and then use that statement as an argument to suppress free enterprise. The roads were built by the people and for the people so that all could travel and prosper."
"What we really need are free enterprise, more civic-minded companies and citizens, and extraordinarily competent government and policies."
'Government ... Has an Essential Role ... but It Needs to Be Realistic'
"We have fallen into the rut of false narratives, which distracts us from facing reality. We don't define our problems properly. If you have the wrong diagnosis of a problem, you will certainly have the wrong solution. Even if you have the right diagnosis, you still may arrive at the wrong solution—but your odds are certainly much better. Our policies are often incomprehensible and uncoordinated, and our policy decisions frequently have no forethought and no identification of desired outcomes."
"We sometimes blame inflation on corporate profits—for example, the cost of meat in the United States is high not because of the profits earned by the meat packing industry but because of high cattle and feed costs and disruptions in logistics. Similarly, energy costs are high not because of price gouging but because of the dramatic decline in investments in energy, which results in reduced supply when demand goes up. Regulation has dramatically impeded our ability to build good infrastructure in a timely manner—the cost of building a highway has more than tripled in 20 years purely because of expenses due to regulations."
"Our politics are dysfunctional, which has prevented some of our best, brightest and most competent to want to work in government. While we have plenty of economists, academics and lifetime politicians in government, who I know are committed to doing their best, we need additional brainpower, capabilities and experience from leaders across all sectors of our society, including business. It is going to take extraordinary, broad-based leadership to solve our problems."
'We Must Confront the Russia Challenge With Bold Solutions'
"America must be ready for the possibility of an extended war in Ukraine with unpredictable outcomes. We should prepare for the worst and hope for the best. We must look at this as a wake-up call. We need to pursue short-term and long-term strategies with the goal of not only solving the current crisis but also maintaining the long-term unity of the newly strengthened democratic alliances. We need to make this a permanent, long-lasting stand for democratic ideals and against all forms of evil."
'A Strong America Need Not Fear a Rising China'
"The most important relationship over the next 100 years will be the one between America (and its allies) and China. The stronger the allied nations, the better it is for America. But for America to get this essential relationship right, we need to have a clear-eyed view of our strategic economic and national security interests."
"America is not operating from a position of weakness; indeed, our strengths are extraordinary. Conversely, over the next 40 years, China will have to grapple with some serious issues: For all of its strengths, China still needs more food, water and energy to support its population; pollution is rampant; corruption continues to be a problem; state-owned enterprises are often inefficient; corporate and government debt levels are growing rapidly; financial markets lack depth, transparency and adequate rule of law; income inequality remains highly prevalent; and its working age population has been declining since 2015. China will continue to face pressure from the United States and other Western governments over human rights, democracy and freedom in Hong Kong, and activity in the South China Sea and Taiwan."