“America’s Banker” just penned his annual letter to JPMorgan shareholders. We think of it as Jamie’s State of the Union. 

CEO Jamie Dimon touched on a little bit of everything: restructuring of global trade, the transition to a greener economy, war, public versus private markets, and, of course, inflation. One key theme: Don’t hold your breath for rate cuts. 

Rate of Change

Dimon’s got a lot on his mind, and to him at least, it’s all connected. While Dimon calls the American economy “resilient,” he laments that it’s being “fueled by large amounts of government deficit spending and past stimulus.” Meanwhile, rising healthcare costs, an overhauled global trade order, military conflict, and a shift to green energy point to economic disruption — and will likely require more government spending. The upshot: “stickier inflation and higher rates than markets expect.” 

The constant threat of chaos undermines Dimon’s optimism about the future. While some give the Fed a 70% or 80% chance of successfully engineering a soft landing in which inflation recedes to a 2% goal without tipping the economy into recession, Dimon believes the “odds are a lot lower than that.”

The latest Consumer Price Index report, due Wednesday, will help clarify the state of inflation — but Dimon, and the market writ large, are already starting to price in a new status quo:

• Dimon wrote that JPMorgan is pricing in interest rates as low as 2% and as high as 8%, compared to the current Fed funds rate of around 5.33%. He added the caveat that “small changes in interest rates today may have less impact on inflation in the future than many people believe.”
• Markets are now broadly factoring in two quarter-point cuts in 2024, with around a 50% chance of a third. At the beginning of the year, many expected as many as six or seven cuts.

Private Eye: Among Dimon’s more interesting digressions was the rise of private equity-backed private companies, which now number more than 11,000, up from about 1,900 20 years ago, while the ranks of publicly traded firms have fallen to just 4,300. He blames the trend on myriad factors, especially the intense scrutiny of quarterly earnings results, which he contends can lead to “bad accounting and bad decisions.” Waiting in the wings, he assures, is more government regulation for private players.

Hurricane Season: Doom and gloom have kind of been Jamie’s thing. In 2022, he warned that high interest rates would bring a “hurricane” to the US economy. Scattered showers aside, Dimon’s still waiting. And, unsurprisingly, he assured shareholders that in “many different scenarios, our company would continue to perform at least okay.”

Taiwan Semiconductor Manufacturing Company — the largest chipmaker in the world — was already building a pair of new fabrication plants in Arizona when the Biden administration on Monday made an offer it couldn’t refuse: up to $11.6 billion in federal grants and loans to help TSMC upgrade its manufacturing plans and add a third factory to its Grand Canyon State footprint. 

Bringing it Back

The US is still a top chipmaker, accounting for about 12% of the global industry, but its share was more than three times that in 1990. Much of the capacity now exists in East Asian countries, including China, Japan, South Korea, and, of course, Taiwan. And because semiconductors are a part of pretty much every electronic device, it was a George Foreman-esque gut punch when the pandemic disrupted those supply chains.

The CHIPS and Science Act passed in 2022 earmarked $39 billion in direct grants — plus loans and guarantees worth $75 billion — toward US chip manufacturing. The White House has just started divvying up the money to eager tech firms, which have collectively announced $200 billion in US investment since Biden took office, Bloomberg reported. And now TSMC, maker of the most advanced chips, is about to get itself a major slice of the pie:

• TSMC was awarded $6.6 billion in grants, and it can potentially receive as much as $5 billion in loans. The company has two fabs in Arizona that are expected to start production in 2025 and 2028, and it plans to add a third factory by the end of the decade.
• In March, Intel was awarded $8.5 billion in grants, and in February, GlobalFounderies was awarded $1.5 billion. Sources also told Reuters on Monday the White House could announce between $6 billion and $7 billion in grants for South Korean chipmaker Samsung to expand its output in Texas.

It’s Politics: You’d think there was an election going on or something. TSMC had already started planning factories in Arizona, a state that Biden won in 2020 by only about 10,000 votes. Biden clearly hopes to keep the state blue in 2024 with the promise of new jobs and capital. 

All that’s gold does not glitter. Nor does it provide residency.

Spanish Prime Minister Pedro Sánchez said Monday the country would start unwinding its “golden visa” program that has been in place for 11 years. This comes after its Iberian neighbor Portugal watered down its program, and as the wider European Union has placed pressure on some Caribbean countries with similar programs to restrict who can acquire a passport that grants free travel inside the EU.

The Spanish Visa Inquisition

Golden visa programs, sometimes known as citizenship-by-investment (CBI), work like this: Invest a certain amount of money in a country, and it grants you a special visa. Some programs include “golden passports” — as soon as you get your visa, you’re a citizen of that country. However, Spain’s program required 10 years of residency before you could snap up a Spanish passport.

Spain’s golden visa program allowed prospective non-EU applicants to invest a minimum €500,000 into the country’s real estate. Alternatively, they could invest a cool €1 million into a Spanish company, or simply deposit that amount into a Spanish bank. The problem for Spain and Portugal is that the programs became associated with housing crises for citizens already there:

• Both countries have suffered particularly bad spikes in housing prices, and both have a deficit of publicly funded housing.“We will take the necessary measures to ensure that housing is a right and not just a speculative business,” Sánchez said on Monday.
• Sánchez added that the vast majority of golden visa applicants used the real estate route. “Today, 94 out of every 100 such visas are linked to real estate investment […] in major cities that are facing a highly stressed market and where it’s almost impossible to find decent housing for those who already live, work and pay their taxes there,” he said, per Reuters.

The Irish Exit: While Spain and Portugal are responding to housing issues, the wider EU concern is more focused on security. Ireland shuttered its Immigrant Investor Programme (IIP) in February last year after a surge of Chinese investors applied for it. The UK, a former EU member, also ended a CBI program in 2022, announcing the program’s demise was part of a “renewed crackdown on illicit finance and fraud,” though it was widely perceived as trying to stop wealthy Russian investors from buying their way into the UK.