Who do you trust more to forecast interests rates - Jamie Dimon & CBO or Elk Grove's innovation czar?
https://www.elkgrovenews.net/2024/04/who-do-you-trust-more-to-forecast.html
UPDATED 5:50 a.m. April 10 |
Like it or not, Wall Street controls many aspects of American life. Nowhere is this more apparent than in economic issues.
JP Morgan chief executive officer Jamie Dimon is among the most influential Wall Street figures. To borrow a famous phrase from the 70s, when Jamie Dimon speaks, people listen.
In his annual letter to JP Morgan shareholders, Dimon issued a widely reported and potentially alarming warning. Dimon cautioned that interest rates could surge as high as eight percent in the near term, a development that could significantly negatively affect the economy.
Dimon wrote, in part, "Therefore, we are prepared for a very broad range of interest rates, from 2% to 8% or even more, with equally wide-ranging economic outcomes — from strong economic growth with moderate inflation (in this case, higher interest rates would result from higher demand for capital) to a recession with inflation; i.e., stagflation. Economically, the worst-case scenario would be stagflation, which would not only come with higher interest rates but also with higher credit losses, lower business volumes and more difficult markets."
The video below summarizes Dimon's thoughts on interest rates and other issues, such as the development of AI. Dimon's letter can be viewed here.
Cont. below
For those monitoring Elk Grove's relocation and construction of the multi-phase and multi-hundred-million dollar Sacramento Zoo project, undoubtedly know that like other large-scale projects, it is filled with qualifying conditions. A large portion of the financing for the project is dependent on Elk Grove's issuing of revenue bonds.
An important aspect of the bonds' issuance is that they are dependent on current interest rates. This was noted in the financing report and in a report presented last week to the Elk Grove Planning Commission by Christopher Jordan, the city's innovation manager and point person on the massive construction project.
Speaking to the five-member planning commission, Jordan expressed confidence that the interest rate will remain stable from today until the time bonds are issued in the next three to four years.
"We feel confident with where the bond market is today," he said. "Should the bond markets increase the rates we would be seeking on those bonds, be larger than estimated at this point, essentially, we would not be in the position to issue the bonds, and the project would need to be put on pause until such time that the bond market came back down."
Jordan went on to say "that we are hearing out of the Fed that they are looking at rate decreases later this year and into next year."
Unfortunately, the finance plan says the bonds will not be issued until after construction on the zoo starts, sometime in the next two to four years. Even if interest rates drop next year, will they remain low when the time comes to find an underwriter and issue the bonds?
While predicting the Federal Reserve rate's actions is a parlor game, tomorrow's inflation report is seen as a gauge of interest rate activity for 2024. If inflation gets substantially closer to the Federal Reserve's two percent inflation goal, an interest rate cut is possible.
As for interest rates in the two to three-year horizon, if predictions from Dimon and the Congressional Budget Office (CBO) come to fruition, Mr. Jordan's interest rate confidence is for nothing. The 4.25 interest rate quote in the financing report could be higher, causing the project to be "put on pause" and at least temporarily turning the facility into a ghost zoo.
So, as the zoo project moves from planning to construction to bond issuance, as taxpayers assume the responsibility, whose forecast should they trust to make sure the project doesn't become a financial albatross around their neck - Elk Grove's innovation czar or Jamie Dimon and the CBO?
UPDATE April 10 5:50 a.m.
Inflation figures released today showed the March 2024 annualized inflation rate of 3.4 percent, slightly ahead of February's 3.2 percent. The Federal Reserve has a target of two percent inflation, and with the rate ticking up slightly, no further rate cuts are predicted in the near term.
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Can you imagine the economy going into a state of Carter-era-like stagflation? Not only will sales tax revenues be lost, but zoo attendance would fall, and the city would have to press the zoo group to make their debt interest payment.
It is one thing for the private sector to roll the dice, but for the mayor and the city council to take this big of a gamble is an unnecessary risk. Hell, I'd rather see the mayor pursue her hair-brained scheme to make Old Town like the Gas Lamp Quarter in San Diego.
It is not like they are building a crucial piece of public infrastructure like a hospital which we still don't have. This is a totally discretionary project meant to satisfy politicians' fragile egos.
Put it on the ballot Bobbie!
Whenever the State proposes to issue bonds, the Measure is put on the ballot for the voters to decide. Let the Elk Grove people vote to decide whether whether we should go into debt on this animal amusement park.
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