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Is the U.S. economy heading for recession? Bank CEO sees worrying ‘storm clouds’ ahead

April 18, 2022, 9:50 AM UTC

I’m Bernhard Warner, filling in for Alan. Today’s newsletter comes to you from a little hilltop hamlet in Central Italy, which must mean it’s Pasquetta, as they call it here, Easter Monday. I hope everyone had a lovely weekend.

Banks, the conventional wisdom goes, are a strong indicator for the health of the consumer. When consumers are spending (using their credit cards), bank profits take off. Similarly, trading fees pad the bottom line of big banks during a bull market. And, for mortgage lenders, nothing beats a sustained housing boom.

With that in mind, this is an important time to gain key insights into the strength of the economy. That’s because it’s the first few days of a new earnings season, which is typically when the banks report results. Bank CEOs tend to tell us more about the economy than what we can glean from the policy-speak that central bankers prefer.

Last week, we got results from some Main Street and Wall Street banking giants including Wells Fargo, Goldman Sachs, Citigroup, and JPMorgan Chase. In a nutshell, the results so far have been fairly lackluster. Today we hear from Bank of America, and Wall Street will be listening keenly for details about future guidance.

Last week, we got a particularly rough diagnosis on the economy from JPMorgan Chase CEO Jamie Dimon. America’s biggest bank is not at all bullish on the rest of 2022.

Dimon got plenty of headlines for saying he sees “storm clouds on the horizon.” The reason: Inflation is running hot and showing little signs of slowing. To cap price increases, the Fed is raising rates—and quickly—just as economic growth seems precarious. Oh, and the fallout from the Kremlin’s invasion of Ukraine is hitting consumers and companies harder than anyone previously had expected. (Wells Fargo CEO Charlie Scharf said something similarly downbeat the very next day.)

The business impact of course pales in comparison to the humanitarian crisis in Ukraine, but suffice to say the global fallout will be with us for some time. To wit, JPMorgan Chase said it would set aside $900 million for loan losses (mind you, that’s not a huge sum by big-bank standards, but it’s symbolically significant) as it braces for worsening economic conditions.

What struck me most is that Dimon sounded unsure what to expect in the quarters ahead. On those storm clouds he referenced, they “may disappear, they may not,” he said. Not very helpful insight.

It’s a far cry from the 2021 version of Jamie Dimon. A year ago, he was far more bullish, describing the U.S. economy as being at a kind of “goldilocks” turning point. And last week’s takeaway? He’s not saying we’re heading for a recession, but he warned investors he was preparing for one. On cue, financials stocks fell 1.7% last week. That was good enough to outperform the S&P 500, but only because tech stocks turned in such a lousy week.

JPMorgan Chase’s Q1 results are just one data point, but they add to a growing chorus of concern that we should brace for tough times ahead. The bears say we’re headed for stagflation, or rising prices and slowing growth. The bulls believe the headwinds we face are temporary.

It would be worth listening to more bank and financial services CEOs to get the fuller picture.


A brief report from the countryside.

As I mentioned above, I’m in rural Italy for a few more hours with the family. The place is called Amandola. For those of you who used to subscribe to the now-defunct Bull Sheet newsletter, you may recall me mentioning this place.

We celebrated Easter here this weekend with family. I can happily report that it was more or less just like old times, pre-COVID. That is, after the obligatory several-course feast, all manner of neighbors and friends came knocking on our door, usually bearing gifts like a human-head–size chocolate egg for the kids.

We put the chocolaty bounty on an overflowing table of sweets, and got down to chitchatting about life. This being spring planting season, I was curious to get the lowdown on what our neighbors—just about everyone in this little hamlet is either a farmer or rears sheep—had planted. Since the start of war in Ukraine, the European Commission has been prepping emergency measures designed to get EU farmers to boost output, and essentially keep food prices from soaring even further.

I asked Renzo, my neighbor, what kind of incentives—if any—they were getting from the Italian government to plant crops like sunflowers, maize, or wheat. He shook his head, clearly unconvinced ag policy would save us from runaway food inflation.

Is the problem the size and structure of the incentives, I wanted to know? Is it down to the supply of fertilizer or seeds?

Nah, he said, vaguely.

What is it then?

The boars, he responded. They’re a menace.

After a moment of awkward silence, we joked about boars growing fatter on EU ag handouts, which is a twist in the war fallout I hadn’t thought of—but one Renzo clearly had… Again, that’s just one data point.

Amandola. April 2022.
Amandola, April 2022.
Original photo: Bernhard Warner

Anyhow, signing off from Amandola.

Have a nice day, everyone. There’s more news below.

Bernhard Warner


Market preview

Markets are shut in Europe for the Easter Monday holiday, and investors stateside may end up wishing they were closed there too today. At 4 a.m. ET, Treasury yields were spiking again to a three-year high. That’s putting pressure on U.S. futures. It’s a big week for corporate results with names like Netflix, Tesla, and Bank of America on tap. CNBC

China’s good-news-bad-news GDP reading

On the strength of robust factory output, the world’s No. 2 economy grew in Q1, outpacing economists’ forecasts. The bad news: The economic impact of Shanghai’s lockdown won’t show up until we get the next reading in July. CNBC

Just how “dysfunctional” is Twitter’s board?

In a series of weekend tweets, Twitter founder and former CEO Jack Dorsey laid into Twitter’s board, saying the group has “consistently been the dysfunction of the company.” This being Twitter, there was little context to the comments, but Dorsey’s exchange is moving the share price premarket this market. Fortune


Are we headed for a housing crash?

No way, says Ben Carlson, Ritholtz Wealth Management wealth adviser and frequent Fortune contributor. His reasoning: demographics, a dearth of houses to sell, and consumers’ financial well-being all point to signs this red-hot housing market has legs. Bonus read: Check out Fortune’s housing-market coverage in the latest Quarterly Investment Guide. Fortune

California going to a 32-hour workweek?

We continue to see companies and countries tweaking the conventional workday calendar by…shrinking it. The latest to join them could be California. Lawmakers there are debating whether to define a full-time workweek as 32 hours rather than the standard 40-hour week. On cue, the Wall Street Journal editorial page is savaging the idea. Wall Street Journal

Crypto jolt

Bitcoin is trading at a five-week low this morning. That’s not the only bad news for crypto traders. It’s tax-deadline day in the United States, and reports continue to pour in detailing how the IRS is closely scrutinizing returns that feature NFT and crypto trades. Bonus read: The NFT bubble is about to burst, warns Nassim Nicholas Taleb, author of the 2010 New York Times bestseller The Black Swan. Fortune

This edition of CEO Daily was edited by Bernhard Warner.

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