Jamie Dimon

Aug 06 2018

Jamie Dimon Warns of 5% Treasury Yields

Not content with a previous warning investors should brace for U.S. yields of 4 percent, Jamie Dimon went one further at the weekend, suggesting 5 percent was a distinct possibility.

The JPMorgan Chase & Co. chief executive officer said Saturday people should be prepared to deal with the benchmark 10-year bond yield at 5 percent or higher.

“I think rates should be 4 percent today,” Dimon said Saturday at the Aspen Institute’s 25th Annual Summer Celebration Gala. “You better be prepared to deal with rates 5 percent or higher – it’s a higher probability than most people think.”

The 3 percent level is still providing stiff resistance for the 10-year Treasury yield this year. It briefly rose through the mark last week before falling back for the fourth time this year. That’s despite a U.S. jobless rate below 4 percent, economic growth above 4 percent, and a rare surge in late-cycle government borrowing.

The current bull market could “actually go for 2 or 3 more years” because the economy is still doing quite well and markets usually turn right before the economy, Dimon said.

Cyber attacks are “probably the biggest risk” to the U.S. today, though banks are quite well protected, Dimon said.

“We’re very, very protected,” he said.

The JPMorgan CEO reiterated comments made last year on Bitcoin, calling cryptocurrencies a “scam” and saying he had “no interest” in the world’s largest digital currency. He suggested governments may move to shut down the currencies, because of an inability to control them.

Dimon had urged investors to prepare for higher rates in an interview in May, given the possibility growth and inflation could prove fast enough to prompt the Federal Reserve to raise interest rates more than anticipated, and the increase in financing by the U.S. Treasury.

Jan 02 2018

Goldman Sees Crypto, Credit Shadowing Robust 2018 U.S. Economy

Financial imbalances including those in credit markets and cryptocurrencies will shadow an otherwise robust 2018 U.S. economy, said Goldman Sachs Group Inc. economist Jan Hatzius.

Hatzius has already made some predictions for the new year: four Federal Reserve rate hikes, real U.S. gross-domestic product growth quickening to an average of 2.6 percent, the jobless rate dropping to about 3.5 percent, and the yield curve not inverting.

In a new report, Hatzius reiterated his expectation for overall economic strength, while flagging some concerns.

“Asset valuations in some areas — especially credit — have risen to high levels by historical standards,” Hatzius said in the “10 Questions for 2018” report issued late Friday. “While we have not seen the type of large credit expansions that would be most worrisome for Fed officials concerned about financial imbalances, there are now some signs of speculative behavior in financial markets, e.g. the cryptocurrency boom.”

Goldman isn’t the only firm to send up a warning flag about cryptocurrencies. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon labeled bitcoin a “fraud.” Fed Chair Janet Yellen has said it is a “highly speculative asset,” and Bank of Japan Governor Haruhiko Kuroda said it’s being used for speculation. (Note that Goldman is also reportedly building a cryptocurrency trading desk.)

On the positive side of the economic ledger, according to Hatzius: Single-family housing starts will rise further as the supply-demand imbalance continues to tighten, despite adverse changes from tax legislation signed into law by President Donald Trump.

U.S. wage growth will resume acceleration as statistical distortions fade, and there’s “evidence that upper-income households have been trying to defer income in the hope of lower tax rates,” which could have held back some wage data until now, Hatzius said.

Core inflation will also accelerate from the current 1.5 percent, Hatzius said. Import prices weighing on the core personal consumption expenditures (PCE) could turn into a boost in the coming year, Also, “base effects” should help — such as when the weak March 2017 reading, which partially reflected mobile phone service-price measurements, drops out.

The Fed won’t adjust its balance-sheet normalization plan either way, and market pricing of the terminal funds rate will rise as the Fed increases rates by more than currently priced, if markets view the additional tightening as appropriate, Hatzius said.

Still, as solid a picture as Goldman’s economist paints of the economic situation, the asset-valuation issue is seen as one to watch. And though the firm doesn’t see continued easing of financial conditions in 2018, it does view that as something that could alter the picture significantly.

Fed officials are “likely to view further easing of financial conditions as increasingly undesirable,” Hatzius said, “and an argument in its own right to normalize policy.”

“The economy is already at or slightly beyond full employment, growth momentum is strong, and a further boost from fiscal policy is already in the offing,” Hatzius said. “Adding more fuel to the fire via yet easier financial conditions looks undesirable.”

Dec 31 2017

From Bitcoin to Belize, Here Are Best and Worst Assets of 2017

It was a great year to hold bitcoin, but a bad time to have been invested in the Uzbek soum.

As 2017 winds to a close, a look at the winners and losers around the globe shows that, broadly speaking, the riskiest assets performed well, with bullish sentiment on display in stocks, emerging-market sovereigns and corporate debt. Securities generally seen as the safest and least volatile bets — think Japanese government bonds — trailed behind.

There was perhaps no investing idea that attracted more attention in 2017 than cryptocurrencies, from Jamie Dimon’s dismissal to Katy Perry quizzing Warren Buffett about the subject. Bitcoin soared almost 1,500 percent while smaller counterparts such as ethereum and litecoin gained at least 6,000 percent. Of course, the surges were accompanied by no shortage of pessimists calling a bubble.

Here’s our wrap-up of the best and worst performers in various asset classes over the past year:

Equities

Bulls in Ukraine had a good year after the International Monetary Fund said in May that it sees “welcome signs of recovery” for the economy and “a promising basis for further growth.” It was part of a broader rally in emerging markets as investors flocked to developing nations in hopes of higher returns.

It wasn’t a good year, however, to have bet on stocks in Qatar and Pakistan. The Persian Gulf country was thrown into chaos mid-year when Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic and transport ties. In Pakistan, the index was coming from a high base, but also suffered from foreigners pulling money out of the market. (NOTE: We excluded the Venezuelan stock exchanges 3,865 percent gain this year because it’s almost entirely due to the effect of a rapidly devaluing currency.)

Best and Worst Performing Equity Indices

Since the start of 2017

*As of 12/26/2017

Bonds

The three-decade bull run for fixed income rolled on in 2017, defying yet again predictions that faster inflation and tighter monetary policy would bring it to an end. The bond world’s best performers were yesteryear’s losers, with Greece and Argentina among the standouts.

It took effort to lose money on bonds this year — the Japanese central bank’s stitch-up of its government-debt market, and Venezuela’s economic collapse made those two the worst performers in the developed and emerging categories, respectively.

Developed Market Government Bonds in 2017

Year-to-date performance

Source: Bloomberg, based on bonds in ICE BofAML Developed Markets Sovereign Index

Total return YTD as of 12/21/2017

Tiny Belize earned top marks in the emerging government-debt category after an upgrade from Moody’s Investors Service in April.

Emerging Market Government Bonds in 2017

Year-to-date performance

Source: Bloomberg, based on corporate bonds in Bloomberg Barclays EM USD Aggregate Total Return Index

Total return YTD as of 12/21/2017, excludes defaulted and called bonds

Turning to the corporate-debt world, U.S. high-yield securities saw a wide dispersion of results, from high-flying food-and-beverage, retail and transport companies to trauma for holders of bonds sold by commercial printer Cenveo Corp.

U.S. High-Yield Corporate Bonds in 2017

Year-to-date performance

Source: Bloomberg, based on industrial bonds in Bloomberg Barclays U.S. Corporate High Yield Total Return Index

Total return YTD as of 12/21/2017; excludes defaulted and called bonds

In the emerging-market corporate debt category, an Indonesian energy company topped the list, while securities tied to Brazilian construction giant Odebrecht SA — which is embroiled in a corruption scandal that stretches across South America — proved to be ones to avoid.

Emerging Market Corporate Bonds in 2017

Year-to-date performance

Source: Bloomberg, based on industrial bonds in Bloomberg Barclays EM USD Aggregate Total Return Index

Total return YTD as of 12/21/2017, excludes defaulted and called bonds

Commodities

Palladium, which is typically used in pollution-control devices for gasoline vehicles, led gains in precious metals this year by climbing more than 50 percent as investors bet on increased usage in vehicles. Copper and aluminum bulls also had a great year. Those gains were largely tied to better economic prospects across the globe, which would mean higher usage of industrial metals.

On the down side, sugar and natural gas had a bad year. The sweetener has been falling on concerns of a global surplus, while natural gas recently hit a 10-month low following two warm winters that left stockpiles at high levels.

Best and Worst Commodities

Since the start of 2017

*As of 12/26/2017

Currencies

The biggest gainer in the currency space is a bit on the obscure side: the Mozambique new metical. The East African country has struggled to control inflation following a debt crisis, but the central bank has said it wants to achieve a lower and more stable rate.

On the down side, the Uzbek soum tumbled after the gold-rich republic removed the currency’s peg to the dollar.

Best and Worst Performing Currencies

Since the start of 2017

*As of 12/26/2017

Dec 23 2017

JPMorgan Dips a Toe Into Analysis of Bitcoin Futures Volatility

Jamie Dimon may think bitcoin is a “fraud,” but that isn’t stopping JPMorgan Chase & Co. strategists from analyzing volatility for the cryptocurrency.

“At a time when volatilities across asset classes have plummeted, this presents us with the oddity of an asset with extreme daily moves,” strategists Matthias Bouquet and Marko Kolanovic wrote in a note to clients Thursday. “Realized vols in BTC are unlike anything we’ve seen in other asset classes.”

Bitcoin’s surged more than 1,500 percent this year and prompted two major derivatives exchanges to offer futures contracts. That’s put the cryptocurrency on just about everyone’s radar, leading more financial institutions to attempt to analyze the asset using traditional tools. The JPMorgan analysts call the pursuit “mostly gratuitous,” yet they give it a shot.

The first thing they looked at was the fair value of a bitcoin forward, constructing a curve that uses the mining yield discounted by the cost of mining.

That comes with one big caveat, though.

“It is obvious that, due to the novelty of the market, low liquidity, speculative interest from nonminers, and extreme volatility of BTC, there is no practical reason for BTC futures to converge to these theoretical forwards,” they said.

The strategists also looked at the cost of options, concluding that there’s a high risk premium for out-of-the-money contracts — which, they add, is pretty standard in regimes of high realized volatility.

“The signs of implied risk-reversals rarely change on a high frequency basis, except in the notable case of precious metals. From that point of view, the claims of Bitcoin behaving as ‘digital gold’ find a justification,” the strategists wrote. “Since the value of Bitcoin is highly dependent on market sentiment, one can expect ‘BTC/USD risk-reversals’ to experience significant swings.”

There’s even a tentative bitcoin vol smile — “because, why not” — as the report says. JPMorgan derived it looking at the historical distribution of spot returns at one-month maturities, using option-market conventions for gold.

With a market hungry for news and analysis in the crypto world, the JPMorgan attempt could start to gain momentum, or perhaps inspire others to come out with their own ideas to figure out what it all means. But it appears that at least for now, no matter what metrics are used, it all comes back to this: pretty much everything about bitcoin is really volatile.

Nov 05 2017

Diary of an African Cryptocurrency Miner

Eugene Mutai’s Nairobi apartment is filled with the sound of money: That would be the hum of a phalanx of fans cooling the computers he’s programmed to mine cryptocurrencies around the clock.

The 28-year-old has given up a chunk of his living quarters to the enterprise. What’s more, he invests every spare cent in initial-coin offerings: fundraising tools some startups are using to crowdsource capital. He’s a proud citizen of a strange and controversial new world — and a rather rare breed, with just a high-school education and no formal training as a coder. That’s one thing he holds up as proof that cryptofinance isn’t the scam that a diversity of critics, from Jamie Dimon of JPMorgan Chase & Co. to Saudi Arabian Prince Alwaleed bin Talal, have suggested it is.

“The entire ecosystem could be the biggest wealth-distribution system ever,” Mutai said as his 2-year old daughter, Xena, named after the warrior princess, played with a tablet, swiping from app to app. In the world of internet-based currencies traded without interference from banks or regulators, “big players can’t deny anyone from participating in the financial system.”

Cables and electronics components that make up one of Mutai’s mining machines.

Photographer: Luis Tato/Bloomberg

For Mutai, the appeal is simple: It levels the playing field in global markets that don’t give people like him many breaks.

An opposing view is that what this young man is doing is wrong or stupid, sucking up massive amounts of electricity to create a software-fabricated asset that’s traded anonymously in a lottery criminals find irresistible.

So Mutai is either in the middle of a fraud, or a revolution. Whichever, the market has exploded — growing to $190 billion from just $17 billion at the start of the year. Hundreds of new digital tokens have sprung up as entrepreneurs started projects based on blockchain, the public bookkeeping technology that supports digital currencies, raising millions and even hundreds of millions of dollars in minutes. The value of bitcoin, the biggest of them all, has increased six-fold. And it’s about to go mainstream, with CME Group Inc. in Chicago planning to introduce bitcoin-futures trading contracts by the end of the year.

Eugene Mutai and his daughter Xena.

Photographer: Luis Tato/Bloomberg

Cryptocurrencies are especially attractive in economies where there are restrictions on taking cash abroad, or people don’t have bank accounts, or the local currency is being trampled by inflation. That’s the case in Zimbabwe, for example, which is facing a liquidity crisis as inflation spirals: Bitcoin in the local Golix exchange has soared to more than $10,000, a 75 percent premium on global prices, as locals rush to it to protect savings.

In six of the largest African nations for which there is trading data in the online exchange Local Bitcoins, the average premium to the Bloomberg bitcoin index is 7 percent; the gap in major bitcoin trading hubs such as China, South Korea, Germany and the U.K. doesn’t surpass 3 percent. Mutai said he sees cryptocurrencies as safe because “local political issues don’t affect them” — something of note in Kenya, where after two elections within three months there’s still a stalemate over who is the rightful leader.

A bitcoin web trading screen.

Photographer: Luis Tato/Bloomberg

Just last year, Mutai hadn’t heard of bitcoin, which hardly makes him unusual. Neither does the fact that a decade ago he didn’t have access to a computer. He was interested in technology, though, and borrowed a friend’s Nokia Symbian S40, one of the first non-smartphones that could download apps. In between odd jobs in farming, herding sheep and ferrying people on his motorcycle, he taught himself the basics of HTML and CSS coding languages.

He was living at the time in his mother’s home village — they moved there from the city for his last year of high school, after his twin brother died and his mom lost her job — and was barely earning enough to survive. So he decided to move in with his uncle in Nairobi, who happened to have a desktop computer and a WiFi connection. “It was do or die,” he said.

Mutai spent four months glued to the computer, worrying his uncle, who at one point took the machine away. After mastering the mysteries of code, he landed a job as a programmer. He also became a consultant for the technology incubator iHub and for the Nairobi County government. By 2016, he was named Kenya’s top-ranked software developer by Git Awards, which bases its rankings on data from GitHub, a site where coders store and share their work.

Mutai arranges a rack of cryptocurrency mining machines at his home in Nairobi, Kenya.

Photographer: Luis Tato/Bloomberg

Now Mutai works for Andela, which trains developers and engineers throughout Africa and connects them with companies including Microsoft Corp. His current contract is with Restaurant Brands International Inc., building an ordering app for Tim Hortons. He’s in the Kenyan middle class, a feat for a guy without a college degree.

But his opportunity for real wealth, Mutai figures, is in cryptocurrencies, which he can exchange for dollars or hold as an investment. His mining rig runs six 1080 Ti graphics cards. Maintenance is pretty low, as he wrote on his Facebook page: “It sits in my living room doing its thing all day every day with little or no supervision.”

At the moment, the rig churns out mainly digital coins called Zcash and LBRY Credits. Mutai said he’d like to increase production by plugging in two more graphics cards, but that will have to wait until he can upgrade the power supply to his apartment. As it is, his monthly electric bill is about $200, steep for a residence in Nairobi.

His initial-coin offerings investing takes more personal energy. “I do a lot of research,” Mutai said. “I feel like a small VC.”

Is he treading dangerous waters? Possibly, but he’s up for the gamble. “They say no-risk, no-return, and I’m willing to take the risk.”