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JP Morgan Chase Economic Presentation Notes

Presentation given by James E Glassman, Managing Director and Senior Economist of JP Morgan Chase & Co., Monday, December 7 at the Hilton Hotel in Portland.

Mr. Glassman has served in a number of areas in the research division of the Federal Reserve Board and is widely cited in the financial media on economic policy.

In his opening comments Mr. Glassman said “People who are not investing during hard or scary times have no imagination.” and then he quoted Warren Buffett who said “I get greedy when others are scared.” This translates to the reality that those who wait for rock solid evidence of an economic turnaround end up at the back of the line to opportunity.

To deny that the economy is not on it’s way back is like being uncertain that following a low tide, a rising tide is on its way to a high tide. Admittedly economists can’t publish dated highs and lows like a tide table book, but they are good at recognizing and projecting patterns.

The key reversal of the downturn was in late March ’09 when banks and businesses started moving again after months of an apparent free fall despite no substantial change in lending and liquidity. It was caused by the passing of a crisis of confidence at the highest levels of the private sector. They finally believed that the FDIC had leadership that had a sense of direction and was able to act decisively without congressional blockage, even if what they were doing at that point would not necessarily be 100% correct in hind sight. A critical compound to that was that the central banks in the other major economies were taking similar action as well. Even if the US got it 100% right, we couldn’t pull it off by ourselves. So before corrections in the banking / liquidity crisis could take effect, a crisis of confidence had to happen at the highest levels of the public sector. In near hind sight the reality of the economy was in a “U” shape while the crisis of confidence was in a much deeper “V” shape within it.

 

The fed was surprised at how fast banking and business has rebounded so far but expect jobs to see a slower to return as we all know. When asked about WPA/CCC type job creation like FDR did in the 1930’s, he said that could be politically pleasing but by the time it was starting to be effective the normal job creating rebound will do the same job but then you have an expensive new bureaucracy and jobs program to unwind. He also said that a healthy job recovery is about ½% yearly. Historically when it was much more than that there is usually some back lash to follow.

We've seen this pattern before and profited from it. Some of the best deals made were coming out of the recession of the early 80's. Many of our clients are moving funds from their stock portfolios and retirement accounts into stable apartments to shelter their nest egg while allowing it to grow. Most apartment investments require a minimum of 100k to participate.

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