J.P. Morgan’s (JPM ) lead man, Jamie Dimon, outlined a number of “trigger events” that could spark the next round of volatility across the global financial landscape in his annual letter to shareholders.
The bank’s CEO issued a subtle warning in his annual letter to shareholders on Thursday, stating that, “The trigger to the next crisis will not be the same as the trigger to the last one – but there will be another crisis.”
Different Roots, Same Volatility
History doesn’t repeat itself word for word, but it sure does rhyme. According to Dimon, some of the so-called “trigger events” that may spark the beginning of the next financial crisis are as follows with historical parallels listed in parentheses:
- Geopolitical (1973 Middle East Crisis)
- Fed-induced recession due to rapidly rising rates (1980-1982 recession)
- Commodities price collapse (oil’s decline in the 1980s)
- Commercial real estate crisis (early 1990s)
- Asian Crisis (1997 currency crisis)
- Over-inflated Bubbles (2000 internet bubble & 2008 housing bubble)
Dimon went onto note that the next crisis could spark an even more volatile reaction than the last one because the increased regulations and more-stringent capital requirements for banks could dampen their ability to act as a so-called “buffer” against shocks across financial markets.
Amid the looming risks and countless predictions for an impending crash lies a simple question — that is, what’s the average investor to do?
For conservative, long-term minded income investors, the short answer is nothing. If you need a reminder as to why we’re opting to remain cool, calm, and collected ahead of an impending storm, be sure to read about Why We Prefer Bottom-Up Analysis.
The Bottom Line
By focusing on high-quality companies that have a proven track record of raising their distributions through the good times, the bad, the booms, and the busts, you increase your chances of success over the long-haul. The key ingredients for the “secret sauce” that separates average investors from very successful ones is having a clearly-defined asset allocation strategy and the emotional fortitude to stick with it, even when the so-called herd is running in the opposite direction.
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