By Bob Seeman (This conference is a private event and invitations are for J.P. Morgan clients only.)
I am at the J.P. Morgan Healthcare Conference in San Francisco today where Jamie Dimon, CEO of J.P. Morgan spoke about the global economy and cyber security.
He spoke first about his own recent treatment for cancer and how the most important things to him are family, humanity, country and J.P. Morgan – in that order.
On the global economy, he explained how, as a part of his job, he must travel the world to meet staff, clients and governments.
Japan, he says, is recovering. “They know that they have to change. The old fashioned way is on way out. Companies there are now more aggressive.”
China, he says, will grow at 7% for next few years since they have the cash and government control. However, they do have serious corruption, micro-management and capital allocation issues – but that will only surface in about four years.
He cautions about Europe. “Europe is really difficult since they have to get 18 separate countries that must work together. If they don’t work together, it could be disastrous.”
He thinks that the risk of deflation, particularly in Europe, is greatly exaggerated. “There is more hysteria about deflation than is deserved. Computer prices going down. Oil prices going down. That’s good. It is rational to go negative but not too negative for too long.”
In the USA, all indicators are looking good, he says. “Government is better than it was. The major economic driver is capital expenditure by major companies. However, that drives small business formation since small businesses provide the support.”
On oil, he quips, “I am surprised that people are so surprised that oil is a volatile commodity.” All commodities, he says, overshoot or undershoot because of supply and demand. “The recent collapse in the price of oil may be negative to real estate in Texas but will be positive elsewhere, including consumer credit.”
Dimon handled the delicate question of Russia well. “Russia is tough. They need oil at much higher prices. Where is the country going to go? I would like to see Russia friendlier and better than today.”
Dimon sees that normalizing interest rates and letting markets set rates is a good thing. “The world has suppressed rates. A normal rate will be 4 to 5%. Sure, some will be hurt. It will be volatile. There will be stories in the papers when rates go to 2.5% that inflation is back. That will not matter as long as the economy is doing well.”
Cyber security will affect the future in a massive way. “Cyber security is a big deal. Banks and J.P. Morgan are very good at it. We move $6-10 trillion dollars a day,” he says.
“Perimeter security is intended to prevent hackers from getting into our network. Government and business need to work together in real time. This is a real-time battle. We can inform other banks in real time.”
However, perimeter security is not the biggest problem. Internal controls are the biggest problem. “If people lose a password, you have a real problem. Everything must be dual authenticated and encrypted. Hackers are looking for unencrypted files,” Dimon says. “I am particularly worried about losing passwords through both bribery and threats.”
Hackers are going to get through, he says. “We would be naïve to think or act otherwise. We have disaster recovery plans and backups. For example, we know exactly what to do if 10 million cards are suddenly stolen.”
Ominously, Dimon says that, “dealing with cyber security is going to be for the whole rest of your life.”
Dimon concluded his talk with a book recommendation, Henry Kissinger’s World Order. The book explains how, over a period of 1,500 years, nation states came into being, how the world emerged to today and how the world has self-organized –without destroying itself.
Bob Seeman is Chairman of The RIWI Corporation.
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