Asset manager raises the specter of the Great Depression, High Taxes

JPMorgan manages $2.2 trillion for wealthy clients across the country. Its institutional alternative investment arm (JPMAAM) continues to grow and specialize for high-net-worth individuals. So, it’s always intriguing to hear what they are telling those clients about the year ahead.

According to a new private bank report, the biggest threat to the markets this year isn’t a war with Iran or a speculative bubble in equities. The biggest threat is a “progressive overhaul” of the economy in the form of higher taxes, centralized planning, and increased redistribution of wealth.

The firm also warned that the U.S. economy could face a potential inflation scare in the year ahead.

JPMorgan Warning About The U.S. Economy

Michael Cembalest, chairman of market and investment strategy for J.P. Morgan Asset Management, was the author of the report. He explained that the economic plans of Elizabeth Warren and Bernie Sanders would dramatically increase taxation to pay for universal healthcare, public education (free college), and other top-down proposals.

“Warren’s tax increase proposals are roughly 2.5 times the level of FDR’s tax increases that took place during the Great Depression, a time when US unemployment reached 22%,” Cembalest wrote.

The report called both candidates a legitimate threat to the economy. However, the report suggested that President Trump has the most favorable election tailwinds in more than 120 years.

“Current conditions compare favorably for Trump as an incumbent compared to history,” he wrote.

The author also noted that this year could provide an opportunity for value stocks. He was also optimistic about IPOs despite recent challenges at firms like WeWork. The report stated that IPOs represent a good buy so long as  investors know they are actually buying “a real technology company.”

Related: Alternative Investments: Breaking Down the BlackRock 2020 Forecast