Dimon: "Hidden debt is more dangerous"... Warns of leverage in financial markets

[Financial News, New York = Reporter Lee Byung-chul]Jamie Dimon, CEO of JPMorgan Chase & Co., has warned about the "hidden leverage" building up across financial markets. He said borrowing embedded not only in visible margin trading but also in hedge funds, prime brokerage, exchange-traded funds (ETFs), and U.S. Treasury arbitrage could amplify market volatility.
In an interview with CNBC on the 6th local time, Dimon said, "Margin loan volumes are at an all-time high," adding, "There is borrowing throughout the market in forms that are not labeled as margin loans." He noted, "Some of it is visible, but much of it is not," and assessed that "the overall level of leverage in the market is quite high."
The leverage he pointed to includes borrowing through prime brokerage, hedge fund investments, and debt incurred in the course of ETF management. His remarks came as concerns spread that the combination of high stock valuations, aggressive leveraged investing by hedge funds, and large-scale Treasury arbitrage is increasing vulnerabilities in the financial system.
Dimon warned that high leverage raises the risk that the failure of a particular investor or fund could spread into a broader market shock. He said, "When leverage is high, the chance that someone can shake the market in an instant increases, and investors become easily rattled."
He drew a line, however, between the current situation and a systemic crisis like the 2008 Global Financial Crisis (GFC). "I am not saying this is a systemic risk that would cause a catastrophe," he explained. "But it is true that leverage is high. The key issue in the 2008 crisis was not leverage itself, but the fact that real, massive losses occurred in mortgages."
He also referred to the recent case of the AI-focused hedge fund Situational Awareness, which effectively collapsed after suffering massive losses. The fund was hit with margin calls after failed leveraged bets on technology stocks and was forced to liquidate a large portion of its holdings. JPMorgan Chase was one of the fund's prime brokers.
Dimon said, "This case showed that the market can absorb the failure of an individual fund without major disruption."
He also predicted that if market volatility rises, financial firms will tighten their collateral requirements.
Dimon said, "When volatility increases, clearinghouses and banks generally demand more collateral," adding, "We may see that kind of move again going forward."
He also warned that widening government fiscal deficits, infrastructure investment, and rearmament efforts around the world could add to inflationary pressure over the long term.
"Global rearmament is a factor that stokes prices," Dimon said. "If these changes lead investors to demand higher yields as compensation for holding long-term government bonds, long-term rates could stay higher than expected for a prolonged period."




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