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Jamie Dimon just gave a stern warning to investors, says geopolitics could trigger a 'deep recession

October 16, 2023

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4 ways to hedge your portfolio

JPMorgan Chase (JPM) head honcho Jamie Dimon issued a stark warning to investors as geopolitical tensions are reaching a boiling point around the world.

“This may be the most dangerous time the world has seen in decades,” the CEO said in a statement accompanying the bank’s better-than-expected third-quarter earnings.
He warned the ongoing war in Ukraine and the latest war between Israel and Hamas could have “far-reaching impacts on energy and food markets, global trade, and geopolitical relationships.”
In a call with CNN on Friday morning, Dimon said: “We do a hundred stress tests a week. Usually, geopolitics presents itself as a deep recession or a mild recession.”

This heightened geopolitical risk comes at a time when the U.S. economy is already under major stress. Despite the Federal Reserve’s aggressive regimen of interest rate hikes, U.S. consumer inflation still remains well above the Fed’s targeted rate of 2%, hovering at 3.7% for the past two months.

Dimon thinks there will be little reprieve in that area in the coming months — warning that inflation and interest rates could remain elevated due to several major headwinds. He also reminded investors that “markets doing well” today is never a reason to assume they will continue to do well.

The state of the U.S. economy

Dimon is currently more concerned about geopolitics than he is about the state of the economy.

In general, U.S. consumers and businesses “remain healthy,” he wrote in his Q3 earnings commentary — but he did note that “consumers are spending down their excess cash buffers,” signaling hard times.

The bank CEO also reiterated that core inflation (the change in the cost of goods and services, excluding the food and energy sectors) remains stubbornly high — at 4.1% in September — increasing the risk that interest rates will stay higher for longer.

“Persistently tight labor markets as well as extremely high government debt levels with the largest peacetime fiscal deficits ever are increasing the risks that inflation remains elevated and that interest rates rise further from here,” Dimon wrote.
“Additionally, we still do not know the longer-term consequences of quantitative tightening, which reduces liquidity in the system at a time when market-making capabilities are increasingly limited by regulations.”

Those headwinds, compounded with heightened geopolitical risk, leave the U.S. potentially at risk of a slow and prolonged economic downturn — but you don’t have to let your personal finances slide with it.

Hedge your finances

Here are four money moves you can make to hedge against inflation, elevated interest rates and the worst-case scenario of a recession.

High-yield savings accounts

One easy way to put your money to work is to stash some cash in a high-yield savings account (HYSA). With an HYSA, you could earn more interest on your money and benefit from greater compound growth than you would with a traditional savings or checking account.

You may also want to consider using other high-yield savings products like money market deposit accounts (MMDA) or a certificate of deposit (CD) to make the most of the current high interest rates.

Treasury bonds

Investing in treasury bonds (or T-bills) can be a great way to diversify your portfolio and protect your money from market volatility. While they may not make you rich, what makes T-bills unique are their safety and ability to appreciate in times of crisis.

“Bonds are providing healthier yields than we've seen since before the 2008 global financial crisis,” according to Vanguard. “Higher current yields support a much-improved outlook for bond returns going forward. Higher yields can help reduce risk by acting as a buffer to additional rate increases while also providing a stronger base for future returns if the Federal Reserve begins cutting rates in the future.”

Real estate

Real estate is often viewed as one of the best hedges against inflation for a few reasons. First, there will always be demand for homes and commercial properties, regardless of the economic climate. And secondly, property values tend to rise with inflation.

Investing in a real estate investment trust (REIT) is a way to profit from the real estate market without having to buy a physical property (and pay today’s painfully high mortgage rates. REITs are publicly traded. They collect rent from tenants and pass that rent on to shareholders in the form of dividends.

Consider also using an online crowdfunding platform, which allows investors to pool their money together to buy property (or a share of property) as a group. And there are also online platforms that can help you invest in diversified real estate portfolios, while keeping your fees low.

Alternative assets

You don’t have to rely on traditional assets to fight inflation. These days, investors have plenty of accessible ways to protect their portfolios when the U.S. economy is shaky.

Consider looking at alternative assets like fine art or wine, which often grow in value over time, or even precious metals like gold, which has retained its stable purchasing power over time.

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