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How to invest in Jamie Dimon's market forecast

Jamie Dimon
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Jamie Dimon

After Warren Buffett's annual letter, JPMorgan chief Jamie Dimon's yearly opus to shareholders is one of the most read on Wall Street. Here are the highlights investors must know and how to put money behind the Street seer's outlook.

The missive released Wednesday didn't disappoint, given its sharp views on why large banks are still needed, the geopolitical risk in Europe and which foreign country is the next "incredible opportunity."

The most surprising thing in the letter is likely Dimon's outlook on rates.

"No, we are not worried about negative interest rates in the United States," Dimon wrote. "I am a little more concerned about the opposite: seeing interest rates rise faster than people expect. "

The JPMorgan Chase chairman and CEO cited solid job growth, rising home prices, record auto sales and strong consumer balance sheets, which are "in the best shape it's ever been" as reasons why he's optimistic the domestic economy will continue to grow.

Rising rates historically occur in expanding economies and periods of higher inflation. Dimon sees the deflationary effects of a "stronger U.S. dollar plus low commodity and oil prices" will likely recede and wages will to start to go higher.

Contributing to his rising rates thesis is the changing supply-demand picture for domestic government bonds. The largest buyers of Treasury bonds since 2008 were the Federal Reserve, foreign countries such as China and U.S. banks meeting new regulatory requirements, according to Dimon. "These three buyers of U.S. Treasuries will not be there in the future," Dimon wrote.

He added, "If this scenario were to happen with interest rates on 10-year Treasuries on the rise, the result is unlikely to be as smooth as we all might hope for."

If you want to trade Dimon's rate outlook, check out the...