Sive Morten
Special Consultant to the FPA
- Messages
- 18,681
Fundamentals
This week we haven't got a lot of statistics data. Few geopolitical events have brought some mess, but most action were due tax period in the US, bonds auctions and banking statements. J. Powell also set the trend for this week. Results that we've got are in a row with our central view - everything is deteriorating and tension inside the system is raising. Things that we were stubbornly talking about - 2nd spiral of inflation, higher interest rates, US crazy debt only now become a central topic and all analysts around start changing their view. Although we initially have said that markets are wrong and totally misunderstand situation. Now they catch up with reality and has to be hurry with "adoption" of their analysis to it.
Market overview
A rally in the U.S. dollar is accelerating, as stubborn inflation sows doubts over how aggressively the Federal Reserve will be able to cut rates this year compared to other central banks. The dollar index rose 1.7% last week, its biggest weekly gain since September 2022. The greenback is advancing as market participants grow convinced the Fed will need to leave interest rates at current levels for longer to avoid a potential resurgence of inflation. By contrast, investors believe some global central banks - including the European Central Bank, the Bank of Canada and Sweden's Riksbank - could have a freer hand to ease monetary policy. That is a shift from a few months ago, when many believed the Fed would be among the first to cut rates.
Yield differentials between the U.S. and other economies have widened in recent weeks, contributing to the greenback’s rally as higher yields boost the allure of dollar-denominated assets. The two-year U.S.-German bond spread stood at its widest since 2022 late Friday, LSEG data showed, a day after the European Central Bank signaled it could cut rates as soon as June. Bullish investors have increased their bets on the dollar, while bears have wavered. Net bets on the dollar in futures markets stood at $17.74 billion in the latest week, data from the Commodity Futures Trading Commission showed, the highest level since August 2022. Central bank policy has diverged in recent months, reflecting economies' varying struggles to contain inflation.
Eric Merlis, managing director and co-head of global markets at Citizens, believes the dollar could continue appreciating broadly on the back of a more hawkish Fed relative to the ECB. The euro has fallen 3.6% against the greenback this year.
Other factors may also be driving the dollar. The U.S. currency is a popular destination for investors during times of geopolitical uncertainty, which has sharpened in recent days on fears over a widening conflict in the Middle East. Brian Liebovich, chief dealer for global foreign exchange at Northern Trust, believes the dollar may receive a boost from the Fed allowing assets to run off its balance sheet, a process known as quantitative tightening.
While Northern Trust expected the dollar to strengthen by up to 5% going into the U.S. presidential election, "market activity since the initial dollar rally this week suggests that move could happen sooner than expected,” Liebovich said. Others are less certain the dollar has more room to run. Shaun Osborne, of Scotiabank, wrote that the dollar’s recent strength means investors have priced in a good deal of bullish news. Rates and spreads are in the dollar’s favor, however, meaning "the trend at the moment suggests the USD will stay better supported," he said.
The dollar rose on Thursday as a mixed batch of U.S. data did little to shake views that the economy is still on solid ground, suggesting the Federal Reserve will likely delay the timing of its first interest rate cut since 2020 to later this year. Comments from New York Fed President John Williams saying there is no urgent need to cut interest rates right now given the strength of the economy, also helped lift the dollar. The New York Fed president is always a voter on the central bank's policy-setting committee
Strong U.S. economic data and persistent inflation have prompted investors to drastically rethink the chances of the Fed cutting rates any time soon. On Thursday, that strength was on display once again. Manufacturing activity in the U.S. Mid-Atlantic region expanded by the most in two years in April on the strength of new orders and shipments of finished goods. The Philadelphia Fed's monthly business conditions index rose to 15.5 from 3.2 in March, exceeding the median estimate among economists for a reading of 2.3 and overshooting even the most optimistic forecast among 34 economists surveyed.
Other economic reports on Thursday were neutral to weak. U.S. initial jobless claims were unchanged at a seasonally adjusted 212,000 for the week ended April 13, data showed, still higher than the forecast of 215,000. In the housing sector, U.S. existing home sales fell in March as higher interest rates and house prices sidelined buyers. Home sales dropped 4.3% last month to a seasonally adjusted annual rate of 4.19 million units.
U.S. rate futures on Thursday have priced in about 38 basis points of easing in 2024, or 1-1/2 cuts of 25 bps each. That has been a steep reduction from the six quarter-point easing at the start of the year. Traders see September as the most likely starting point for the cut, versus June just a couple of weeks ago, based on the CME FedWatch Tool.
Building permits for apartments in Germany fell 18.3% in February from a year earlier, government data on Thursday showed, underscoring a continued downturn in demand in the construction and real estate industry. Germany has been jolted by the most severe slump in the property sector in decades. The number of building permits is an important indicator of future construction.
European Central Bank policymakers continued to line up behind a June interest rate cut on Wednesday despite rising oil prices and a weaker euro, but they diverged on the path for monetary policy beyond the initial move. Markets now see just three rate cuts from the ECB this year, most likely in June, September and December, a big retreat from two months ago when between four and five moves were expected.
At the same time, Fed Chair Jerome Powell late on Tuesday said stubborn inflation and a still-strong U.S. economy meant restrictive policy needed more time to work.
THe Banking Sector
A few weeks ago we've made very detailed analysis on crisis factors in the US economy and pointed that most probable the hot stage of crisis could be triggered by banking sector by two reasons - big exposure to real estate market and big amount of unrealized loss from US long term debt on the balance. This week we have some interesting news concerning this topic.
Some 1,804 depository institutions tapped the emergency lending facility set up last March in the wake of Silicon Valley Bank's collapse, amounting to about 20% of all eligible firms, the Federal Reserve said on Friday. About 95% of the borrowers, which included banks, credit unions, savings associations, and branches and agencies of foreign banks, had less than $10 billion in assets, the U.S. central bank said in its semi-annual Financial Stability Report. BTFP programme stopped making new loans on March 11, a year after its creation. At its peak it extended a total of $165 billion in loans, with terms of up to a year. It is expected to close down completely by next March.
U.S. regional banks are expected to set aside more money to cover potential commercial real estate (CRE) losses and sell more property loans as the sector remains under pressure. Most multi-family loans are made by regional banks, so when New York Community Bank, posted a surprise fourth-quarter loss it intensified fears about the industry's exposure to commercial real estate. CRE holdings are significant across the U.S. banking industry, comprising 13% of large banks' balance sheets and 44% for regional banks, an Ares Alternative Credit report showed.
Scrutiny of regional banks has increased prompted by high borrowing costs that exceeded its income from low-rate loans following the Federal Reserve's aggressive rate hikes since March 2022. Many banks have unrealized losses on securities portfolios, including mortgage-backed paper. A slew of regional banks report first-quarter earnings starting April 16. Non-performing CRE loans as a percentage of U.S. banks' portfolios doubled to 0.81% by the end of 2023 from 0.4% a year earlier, the International Monetary Fund said in its semi-annual Global Financial Stability report.
Bank of America shares on Tuesday fell more than 3% after its first-quarter profits shrank and the bank set aside more money to cover souring loans from consumers whose finances are worsening. Higher prices and shrinking savings, banks are preparing for more Americans to miss payments. BofA's net charge-offs, or debts that are unlikely to be recovered, rose to $1.5 billion in the first quarter from $807 million a year earlier, mainly from credit card losses.
Yes, other big banks have shown better reports but you could imagine what's going on in middle and small size banks across the country. The negative tendency, especially on delinquency provisions is spinning up.
Overall results of this week
USA - tax season puts markets on a diet. ️The Fed reduced its portfolio of government bonds by $36.7 billion this week, liquidity has clearly become rather poor - banks reached out to the Fed’s “discount window” and took $3.5 billion , increasing loans to $8.6 billion - this is more of a symptom, obviously somewhere it was a little squeezed against the backdrop of withdrawals by the Ministry of Finance USA.
Budget operations are, of course, the main story. The US Treasury increased its account balance with the Federal Reserve by $257.4 billion over the week to $929.9 billion thanks to April taxes. It is worth considering here that since the beginning of the month the withdrawals are not so large, only $159 billion, because spent actively in the first ten days. It could have been more, but Yellen is paying off debts (due to bills), another $33.7 over the last 7 days, partly alleviating the stress from taxes. But even then , bank balances at the Fed collapsed by $286 billion in a week to $3.33 trillion .
️Money market funds (MMFs) against this background lost $112 billion in a week, but the volume of reverse repo of the New York Fed after a local failure to $327 billion on tax day quickly recovered to ~$440 billion. The fact that a decent part of the taxes came from MMF, and they, in turn, reduced the portfolio of bills (which were again canceled by the Ministry of Finance), smoothed out the situation for the banks.
️But for the markets, of course, it all turned out to be difficult (bonds/stocks - down, dollar - up), because liquidity has become worse, and the supply of the same government bonds has grown + Powell added determination to sell with his statements...️The tax story has not yet been completely exhausted, it’s one thing to intercept overnight, another to stretch out for several weeks on a diet, but the intensive part is rather over.
Fed rate hike to 6.5% is a “real risk” for UBS strategists. And not only for them. Previously JPM J. Dimon said it might be 8.8% and almost all Fed members one by one start talking about postpone or even cancellation of the rate cut.
A series of weak US Treasury auctions is fueling investor fears that markets will struggle to absorb the rising influx of government debt. According to Vanguard, the Treasury market is approaching levels that could trigger a massive sell-off and push the 10-year yield toward 5%
Despite that media tells about healthy demand for the US debt, mostly it comes from only two countries - Belgium (EU) and Japan. Recent statistics and fast jump in the US yields point on opposite thing, that either investors are loosing interest with the debt waiting when rates will raise more or have more serious concern about general credit quality of the US debt. Because investors are selling the US debt with a huge tempo:
This has led to immediate impact on stock market. The bubble has reached the level of Great Depression crisis and insiders start moving closer to exit. Hedge funds in turn, globally have turned the most bearish they've been on equities this year, a Goldman Sachs note said, as sticky inflation and renewed geopolitical concern have dragged stock markets lower. The same stands for global equity funds.
And this already brings first fruits - something has broken with AI and Nvidia shares.
The scale of structural distortions may not coincide at all with the scale of the "bubble" in the stock market. The former may be significantly larger than the latter. So, today, structural imbalances (the excess of household spending over the "normal" level of their income) sands for ~25% of GDP, both in the United States and in China. And in 1930, they were only 15%. Therefore, the current crisis will be significantly stronger than the one that led to the "Great" Depression
Expert estimates indicate that a recession similar to the one that took place from the spring of 1930 to the end of 1932 has already begun, in the fall of 2021. But it is not following a deflationary scenario, as it was then, but an inflationary one. Therefore, there has not been a collapse of financial markets yet, although a bubble is successfully forming in them. And, of course, sooner or later it will collapse.
The real recession of the US economy reached the level of about 6% per year. 90 years ago, the recession was about 1% of GDP per month, that is, about 10% per year. We suspect that without government support, the same rate of decline would be now, but the participation of the state slows down this process. Although she can't stop him.
Persistent inflation and higher-for-longer interest rates were cited as key risks to financial stability in the Federal Reserve's latest survey of U.S. central bank contacts, with geopolitical troubles and the 2024 U.S. presidential election also mentioned as "a potentially significant source of shocks."
The world's main debt benchmark, US Treasuries, is falling in price fast, and the interest that Uncle Sam promises on borrowed money has reached 4.6% per annum: the dollar vacuum cleaner has moved to a new level of liquidity suction power. If the Federal Reserve does not calm the markets with dovish rhetoric (the promise of new dollars soon), then in the coming weeks rates will exceed 5% per annum, which is very high for the US dollar.
The fall in prices for US "safety" bonds is a pain for banks that have invested trillions of dollars in US Treasuries. These are problems for companies that are forced to borrow on the market at a premium to government bonds. This is the unavailability of loans for households.
What is now being observed in the debt markets is an echo of the freezing of Russian assets. The “innocent act” led to a sharp decrease in those willing to lend money to the US Treasury. At the same time, against the backdrop of falling debt securities, the price of gold and other capital preservation goods rose to a record level. There is only one way out - we urgently need to turn on the printing press: without it, the US financial market will be in great pain.
But we suggest that this will happen only when the Fed will have no other tools to keep situation under control. For now - they still have some reserves, like cash on US Treasury account, RRP and banking reserves. Before any collapse will start to materialize, the US should try to grab all liquidity from its neighbours - EU and Japan by using very high interest rates and tough geopolitical situation. That's why we do not expect trend reversal on EUR any time soon and suggest that dollar should remain strong for some more time. May be they could last it until elections, we'll see...
This week we haven't got a lot of statistics data. Few geopolitical events have brought some mess, but most action were due tax period in the US, bonds auctions and banking statements. J. Powell also set the trend for this week. Results that we've got are in a row with our central view - everything is deteriorating and tension inside the system is raising. Things that we were stubbornly talking about - 2nd spiral of inflation, higher interest rates, US crazy debt only now become a central topic and all analysts around start changing their view. Although we initially have said that markets are wrong and totally misunderstand situation. Now they catch up with reality and has to be hurry with "adoption" of their analysis to it.
Market overview
A rally in the U.S. dollar is accelerating, as stubborn inflation sows doubts over how aggressively the Federal Reserve will be able to cut rates this year compared to other central banks. The dollar index rose 1.7% last week, its biggest weekly gain since September 2022. The greenback is advancing as market participants grow convinced the Fed will need to leave interest rates at current levels for longer to avoid a potential resurgence of inflation. By contrast, investors believe some global central banks - including the European Central Bank, the Bank of Canada and Sweden's Riksbank - could have a freer hand to ease monetary policy. That is a shift from a few months ago, when many believed the Fed would be among the first to cut rates.
Yield differentials between the U.S. and other economies have widened in recent weeks, contributing to the greenback’s rally as higher yields boost the allure of dollar-denominated assets. The two-year U.S.-German bond spread stood at its widest since 2022 late Friday, LSEG data showed, a day after the European Central Bank signaled it could cut rates as soon as June. Bullish investors have increased their bets on the dollar, while bears have wavered. Net bets on the dollar in futures markets stood at $17.74 billion in the latest week, data from the Commodity Futures Trading Commission showed, the highest level since August 2022. Central bank policy has diverged in recent months, reflecting economies' varying struggles to contain inflation.
Eric Merlis, managing director and co-head of global markets at Citizens, believes the dollar could continue appreciating broadly on the back of a more hawkish Fed relative to the ECB. The euro has fallen 3.6% against the greenback this year.
A stronger dollar could complicate the inflation fight for other economies as it pushes down their currencies, while helping the U.S. tamp down consumer prices by tightening financial conditions. Dollar strength can also be a headwind for U.S. multinationals as it makes it more expensive to convert their foreign profits into dollars, and make exporters' products less competitive abroad.
Other factors may also be driving the dollar. The U.S. currency is a popular destination for investors during times of geopolitical uncertainty, which has sharpened in recent days on fears over a widening conflict in the Middle East. Brian Liebovich, chief dealer for global foreign exchange at Northern Trust, believes the dollar may receive a boost from the Fed allowing assets to run off its balance sheet, a process known as quantitative tightening.
While Northern Trust expected the dollar to strengthen by up to 5% going into the U.S. presidential election, "market activity since the initial dollar rally this week suggests that move could happen sooner than expected,” Liebovich said. Others are less certain the dollar has more room to run. Shaun Osborne, of Scotiabank, wrote that the dollar’s recent strength means investors have priced in a good deal of bullish news. Rates and spreads are in the dollar’s favor, however, meaning "the trend at the moment suggests the USD will stay better supported," he said.
The dollar rose on Thursday as a mixed batch of U.S. data did little to shake views that the economy is still on solid ground, suggesting the Federal Reserve will likely delay the timing of its first interest rate cut since 2020 to later this year. Comments from New York Fed President John Williams saying there is no urgent need to cut interest rates right now given the strength of the economy, also helped lift the dollar. The New York Fed president is always a voter on the central bank's policy-setting committee
Strong U.S. economic data and persistent inflation have prompted investors to drastically rethink the chances of the Fed cutting rates any time soon. On Thursday, that strength was on display once again. Manufacturing activity in the U.S. Mid-Atlantic region expanded by the most in two years in April on the strength of new orders and shipments of finished goods. The Philadelphia Fed's monthly business conditions index rose to 15.5 from 3.2 in March, exceeding the median estimate among economists for a reading of 2.3 and overshooting even the most optimistic forecast among 34 economists surveyed.
Other economic reports on Thursday were neutral to weak. U.S. initial jobless claims were unchanged at a seasonally adjusted 212,000 for the week ended April 13, data showed, still higher than the forecast of 215,000. In the housing sector, U.S. existing home sales fell in March as higher interest rates and house prices sidelined buyers. Home sales dropped 4.3% last month to a seasonally adjusted annual rate of 4.19 million units.
U.S. rate futures on Thursday have priced in about 38 basis points of easing in 2024, or 1-1/2 cuts of 25 bps each. That has been a steep reduction from the six quarter-point easing at the start of the year. Traders see September as the most likely starting point for the cut, versus June just a couple of weeks ago, based on the CME FedWatch Tool.
Building permits for apartments in Germany fell 18.3% in February from a year earlier, government data on Thursday showed, underscoring a continued downturn in demand in the construction and real estate industry. Germany has been jolted by the most severe slump in the property sector in decades. The number of building permits is an important indicator of future construction.
European Central Bank policymakers continued to line up behind a June interest rate cut on Wednesday despite rising oil prices and a weaker euro, but they diverged on the path for monetary policy beyond the initial move. Markets now see just three rate cuts from the ECB this year, most likely in June, September and December, a big retreat from two months ago when between four and five moves were expected.
At the same time, Fed Chair Jerome Powell late on Tuesday said stubborn inflation and a still-strong U.S. economy meant restrictive policy needed more time to work.
In fact, he said this even more radical - " Latest data shows no further progress in reducing inflation"
THe Banking Sector
A few weeks ago we've made very detailed analysis on crisis factors in the US economy and pointed that most probable the hot stage of crisis could be triggered by banking sector by two reasons - big exposure to real estate market and big amount of unrealized loss from US long term debt on the balance. This week we have some interesting news concerning this topic.
Some 1,804 depository institutions tapped the emergency lending facility set up last March in the wake of Silicon Valley Bank's collapse, amounting to about 20% of all eligible firms, the Federal Reserve said on Friday. About 95% of the borrowers, which included banks, credit unions, savings associations, and branches and agencies of foreign banks, had less than $10 billion in assets, the U.S. central bank said in its semi-annual Financial Stability Report. BTFP programme stopped making new loans on March 11, a year after its creation. At its peak it extended a total of $165 billion in loans, with terms of up to a year. It is expected to close down completely by next March.
U.S. regional banks are expected to set aside more money to cover potential commercial real estate (CRE) losses and sell more property loans as the sector remains under pressure. Most multi-family loans are made by regional banks, so when New York Community Bank, posted a surprise fourth-quarter loss it intensified fears about the industry's exposure to commercial real estate. CRE holdings are significant across the U.S. banking industry, comprising 13% of large banks' balance sheets and 44% for regional banks, an Ares Alternative Credit report showed.
Scrutiny of regional banks has increased prompted by high borrowing costs that exceeded its income from low-rate loans following the Federal Reserve's aggressive rate hikes since March 2022. Many banks have unrealized losses on securities portfolios, including mortgage-backed paper. A slew of regional banks report first-quarter earnings starting April 16. Non-performing CRE loans as a percentage of U.S. banks' portfolios doubled to 0.81% by the end of 2023 from 0.4% a year earlier, the International Monetary Fund said in its semi-annual Global Financial Stability report.
Bank of America shares on Tuesday fell more than 3% after its first-quarter profits shrank and the bank set aside more money to cover souring loans from consumers whose finances are worsening. Higher prices and shrinking savings, banks are preparing for more Americans to miss payments. BofA's net charge-offs, or debts that are unlikely to be recovered, rose to $1.5 billion in the first quarter from $807 million a year earlier, mainly from credit card losses.
Yes, other big banks have shown better reports but you could imagine what's going on in middle and small size banks across the country. The negative tendency, especially on delinquency provisions is spinning up.
Overall results of this week
USA - tax season puts markets on a diet. ️The Fed reduced its portfolio of government bonds by $36.7 billion this week, liquidity has clearly become rather poor - banks reached out to the Fed’s “discount window” and took $3.5 billion , increasing loans to $8.6 billion - this is more of a symptom, obviously somewhere it was a little squeezed against the backdrop of withdrawals by the Ministry of Finance USA.
Budget operations are, of course, the main story. The US Treasury increased its account balance with the Federal Reserve by $257.4 billion over the week to $929.9 billion thanks to April taxes. It is worth considering here that since the beginning of the month the withdrawals are not so large, only $159 billion, because spent actively in the first ten days. It could have been more, but Yellen is paying off debts (due to bills), another $33.7 over the last 7 days, partly alleviating the stress from taxes. But even then , bank balances at the Fed collapsed by $286 billion in a week to $3.33 trillion .
️Money market funds (MMFs) against this background lost $112 billion in a week, but the volume of reverse repo of the New York Fed after a local failure to $327 billion on tax day quickly recovered to ~$440 billion. The fact that a decent part of the taxes came from MMF, and they, in turn, reduced the portfolio of bills (which were again canceled by the Ministry of Finance), smoothed out the situation for the banks.
️But for the markets, of course, it all turned out to be difficult (bonds/stocks - down, dollar - up), because liquidity has become worse, and the supply of the same government bonds has grown + Powell added determination to sell with his statements...️The tax story has not yet been completely exhausted, it’s one thing to intercept overnight, another to stretch out for several weeks on a diet, but the intensive part is rather over.
Fed rate hike to 6.5% is a “real risk” for UBS strategists. And not only for them. Previously JPM J. Dimon said it might be 8.8% and almost all Fed members one by one start talking about postpone or even cancellation of the rate cut.
A series of weak US Treasury auctions is fueling investor fears that markets will struggle to absorb the rising influx of government debt. According to Vanguard, the Treasury market is approaching levels that could trigger a massive sell-off and push the 10-year yield toward 5%
Despite that media tells about healthy demand for the US debt, mostly it comes from only two countries - Belgium (EU) and Japan. Recent statistics and fast jump in the US yields point on opposite thing, that either investors are loosing interest with the debt waiting when rates will raise more or have more serious concern about general credit quality of the US debt. Because investors are selling the US debt with a huge tempo:
This has led to immediate impact on stock market. The bubble has reached the level of Great Depression crisis and insiders start moving closer to exit. Hedge funds in turn, globally have turned the most bearish they've been on equities this year, a Goldman Sachs note said, as sticky inflation and renewed geopolitical concern have dragged stock markets lower. The same stands for global equity funds.
And this already brings first fruits - something has broken with AI and Nvidia shares.
The scale of structural distortions may not coincide at all with the scale of the "bubble" in the stock market. The former may be significantly larger than the latter. So, today, structural imbalances (the excess of household spending over the "normal" level of their income) sands for ~25% of GDP, both in the United States and in China. And in 1930, they were only 15%. Therefore, the current crisis will be significantly stronger than the one that led to the "Great" Depression
Expert estimates indicate that a recession similar to the one that took place from the spring of 1930 to the end of 1932 has already begun, in the fall of 2021. But it is not following a deflationary scenario, as it was then, but an inflationary one. Therefore, there has not been a collapse of financial markets yet, although a bubble is successfully forming in them. And, of course, sooner or later it will collapse.
The real recession of the US economy reached the level of about 6% per year. 90 years ago, the recession was about 1% of GDP per month, that is, about 10% per year. We suspect that without government support, the same rate of decline would be now, but the participation of the state slows down this process. Although she can't stop him.
Persistent inflation and higher-for-longer interest rates were cited as key risks to financial stability in the Federal Reserve's latest survey of U.S. central bank contacts, with geopolitical troubles and the 2024 U.S. presidential election also mentioned as "a potentially significant source of shocks."
The world's main debt benchmark, US Treasuries, is falling in price fast, and the interest that Uncle Sam promises on borrowed money has reached 4.6% per annum: the dollar vacuum cleaner has moved to a new level of liquidity suction power. If the Federal Reserve does not calm the markets with dovish rhetoric (the promise of new dollars soon), then in the coming weeks rates will exceed 5% per annum, which is very high for the US dollar.
The fall in prices for US "safety" bonds is a pain for banks that have invested trillions of dollars in US Treasuries. These are problems for companies that are forced to borrow on the market at a premium to government bonds. This is the unavailability of loans for households.
What is now being observed in the debt markets is an echo of the freezing of Russian assets. The “innocent act” led to a sharp decrease in those willing to lend money to the US Treasury. At the same time, against the backdrop of falling debt securities, the price of gold and other capital preservation goods rose to a record level. There is only one way out - we urgently need to turn on the printing press: without it, the US financial market will be in great pain.
But we suggest that this will happen only when the Fed will have no other tools to keep situation under control. For now - they still have some reserves, like cash on US Treasury account, RRP and banking reserves. Before any collapse will start to materialize, the US should try to grab all liquidity from its neighbours - EU and Japan by using very high interest rates and tough geopolitical situation. That's why we do not expect trend reversal on EUR any time soon and suggest that dollar should remain strong for some more time. May be they could last it until elections, we'll see...
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