Jamie Dimon Warns of Stagflation Risk with Rising Debt Concerns
JPMorgan CEO Jamie Dimon warns of potential stagflation in the U.S., drawing parallels with the economic difficulties of the 1970s.
Jordan B.
April 28, 2024
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Good morning. Welcome to the weekend edition of CRE Daily.
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📰 Feature: Jamie Dimon highlights the risk of stagflation
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⏪ Catch up: The most-read stories from the week
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👍️ Reviews: 4 new product reviews on CREDaily.com
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📈 Chart: Multifamily cap rates vs. the yield on the U.S. 10-yr TSY
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ECONOMIC REPORT
Jamie Dimon Warns of Stagflation Risk with Rising Debt Concerns
During a recent appearance at the Economic Club of New York, JPMorgan CEO Jamie Dimon discussed the looming threat of stagflation in the U.S., drawing parallels to the troubled economy of the 1970s.
Historical echoes: In the 1970s, the U.S. economy suffered from stagflation, a term describing the simultaneous occurrence of slow economic growth, high unemployment, and high inflation. This period was significantly shaped by the departure from the gold standard and the impact of the OPEC oil crisis.
Current concerns: Dimon expressed concern over the current U.S. debt-to-GDP ratio, which now far exceeds the levels seen during the 1970s. He warned that this fiscal imbalance, alongside geopolitical tensions and potential disruptions in supply chains, could set the stage for a similar economic crisis.
Preparations and predictions: In his annual letter to shareholders, Dimon prepared for a range of economic outcomes, from strong growth with moderate inflation to stagflation, with interest rates potentially hitting between 2% and 8%. He has consistently voiced these concerns, noting as early as 2018 that Treasury yields could climb much higher—a prediction that came true several years later.
➥ THE TAKEAWAY
Looking ahead: Dimon warned of a "hockey stick" projection in national debt, which he fears could reach 130% of GDP by 2035 without serious economic growth strategies. With a significant portion of the U.S. economy driven by consumer spending, the impact of stagflation could be particularly severe. Dimon’s warnings serve as a call to action for policymakers to address these challenges but warned against excessive government spending, which could exacerbate debt levels even more.
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⏪ Weekend Wrap-Up
Catch up on the most clickworthy stories of the week.
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Marketing magic: CoStar Group (CSGP) reported record site traffic and revenues for several of their residential networks, including Homes.com, with 156M unique visitors in March.
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Insurance insolvency: Seven property insurers in Florida went bankrupt in 2021–2022, with thousands struggling to find new coverage and forced to swallow higher costs.
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Missing middle: In San Francisco, 84% of apartments for households earning $130–$195K annually are empty, due to limited market options and lots of red tape.
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Exit of Noncompetes: The FTC's final ruling to ban noncompete clauses could reshape the commercial real estate industry by heightening competition for talent across all levels.
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Policy update: Pennsylvania House passed a tax abatement initiative to convert shopping malls into mixed-use housing developments.
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Troubled tides: In May, Tides Equities faced foreclosures on three Fort Worth properties amid struggles with its troubled multifamily portfolio.
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Brooklyn boom: RXR Realty (RXRA) and LBA Logistics paid $123M for a 760KSF portfolio on the Gowanus waterfront in 2021, and just secured another $62M for the Red Hook project.
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Fall from grace: S&P cuts San Francisco's debt outlook to negative due to the city’s slow recovery and rising budget. Now, the embattled city risks a credit rating decline.
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Hot (cold) spot: Minneapolis continues to dominate RentCafe's most searched markets, maintaining its lead for four consecutive months, while a rapidly rising southern city ascends 134 spots to seventh place.
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Tenant tiptoe: U.S. industrial tenants are showing a very cautious approach, resulting in the slowest pace of leasing since 2012 after record signings in 2021–2022.
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Deal: CoStar Group (CSGP) will acquire Matterport (MTTR) for $1.6B, or $5.50 a share. MTTR soared 181% on the news.
👍 Product Reviews
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📈 CHART OF THE DAY
The chart from Marcus & Millichap displays the multifamily cap rates versus the U.S. 10 Year Treasury yield over the past 30+ years, highlighting a near all-time low spread by the end of 2023. However, since then, the 10 Year yield has increased by about 70 basis points, while multifamily cap rates have remained stable, pushing the spread to a new record low of approximately 90 basis points.
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