Gil’s Musings

Jamie Dimon Testimony Comments

A Polished Dimon

This week’s testimony by JP Morgan chief, Jamie Dimon, holds some clues to the future. These clues can be used to develop better investment strategies. While much of the questioning appeared scripted, as you could tell from several not-so-literate-bureaucrats reading questions that they seemed to not understand themselves, Jamie Dimon continues to set himself apart as a class act. He is not only very likeable (I have met him many times as a former Smith Barney employee myself), he comes off as very transparent and contrite over JPM’s large recent losses. I long for the days when corporate losses are none of the Government’s business. A lesser-controlled man would have been right to get his back up over this issue, since JP Morgan has paid back all their TARP money, and never needed it in the first place. The tongue biting was palpable. The takeaway is that government intervention in the banking business is far from over. Increased capital requirements and a reduction in risk taking rule the day. The money multiplier, used to create money in our banking system (via bank lending), will not lead to a robust lending environment any time soon. Without those wheels churning out cash, inflation going forward will be muted. But woe the day the tires actually bite the pavement, when inflation will roar. Gold, mining, minerals, and energy may be temporarily rattled by the new recessionary trajectory. But recent weakness in commodities businesses will likely not last. Unwinding long term bond positions during this lull would seem wise. This transition may take some time, so implementing slowly would seem to make sense. However, the snap back from Fed missteps should be attention-getting.

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