First, the majority of U.S. Treasuries are held by domestic financial institutions. Second, there are a number of powerful financial tools available to manage this—most notably regulatory relief via the Supplementary Leverage Ratio (SLR).

SLR (Supplementary Leverage Ratio) is a regulatory capital requirement for U.S. commercial banks. Normally, if a bank holds US$50 billion in Treasuries as part of a US$100 billion balance sheet, they must hold 15% of that—US$7.5 billion—as core capital. Under the proposed SLR easing, banks will only have to apply this capital requirement on the remaining US$50 billion (excluding Treasuries), freeing up significant capital to hold more Treasuries. This is crucial: if foreign holders—Japan or China—begin selling, domestic banks would have ample capacity to step in. In recent weeks, this proposal has been prioritized by regulators, with explicit mentions from the Fed, U.S. Treasury, and even JPMorgan CEO Jamie Dimon.

Another mechanism considered is a “Treasury twist”: the U.S. Treasury could repurchase its own bonds as old ones mature and reissue them, effectively boosting domestic holdings and curbing default risk.

Crucially, over the past two days, the Fed itself has begun buying U.S. Treasuries—three-year T‑Bills and ten‑year notes—during recent auctions, signaling a form of quantitative easing. This is further evidence that default risk remains extremely low, with powerful tools in place to maintain demand for Treasuries.

Next, consider a comparison of sovereign debt risk globally. Despite social media hysteria about a looming U.S. debt crisis:

• Japan: Debt-to-GDP ≈ 260%
• China: ≈ 150% (includes central and local government)
• Italy: ≈ 140%
• U.S.: ≈ 120%
• France: ≈ 110%, UK: ≈ 100%; Germany exhibits the soundest public finances, though its tight fiscal stance has prolonged economic stagnation.

Regarding domestic vs. foreign bond holdings:

• Japan: ~90% held domestically
• China: ~95%
• U.S., Italy, UK, Germany, France: ~70% domestic, ~30% foreign

High domestic holding ratios in Japan and China mitigate their sovereign risk, despite elevated debt levels. The U.S., with a typical ~30% foreign share, is not unique.

Expanding the scope to total debt (government + corporate + household):

• Japan tops at ~440% of GDP
• China at ~375%
• U.S. at ~278%
• France at ~252%

Much of U.S. debt is corporate and household, which remain relatively healthy—household at 75%, non-financial corporate at 81%. In contrast, U.K. households approach ~90% debt-to-income, signaling lower resilience. France and Italy carry moderate household debt but heavier government obligations, limiting fiscal flexibility. Germany is conservative across the board, contributing to intra-EU strain as it underwrites other members’ fiscal efforts.

Summary: Dollar, Equities, Treasuries

1. Dollar: Hard to replace in the short term, especially due to the global Eurodollar (USD-denominated) “shadow banking” market, which may exceed tens of trillions. The dollar remains dominant in global liquidity. Its recent depreciation aligns with U.S. export policy objectives, not structural decline.
2. U.S. Equities: Strong businesses and favorable valuations can survive cycles. Many U.S.-listed companies derive 40–50% revenue internationally, providing a hedging effect against a weaker dollar. Stock selection is key.
3. U.S. Treasuries: Despite elevated yields, supply-demand is supported by regulatory easing (SLR), Fed/Treasury purchases, and solid domestic market depth. Default risk is very low.

Overall view: While the structural quality of the dollar and Treasuries may have marginally weakened, historical advantages, macro strength, and domestic policy tools lend resiliency. Relative value matters: many global economies are debt-driven; U.S. bonds remain mid-to-high quality in that context. We are bullish on U.S. equities, cautious but constructive on the dollar and Treasuries.

II. Market Outlook Framework

Here is our systematic framework for analyzing short-, mid-, and long-term outlooks—useful for guiding asset allocation decisions:

1. Short-Term: Liquidity & Risk Appetite

Short-term returns are driven by two factors:

• Liquidity: Is cash available?
• Risk Appetite: Are investors willing to deploy it?

Since 2019, global M2 expanded sharply, peaking in 2020 with COVID-era money printing. In 2022, Fed hikes temporarily drained liquidity, leading to equity weakness. Today, liquidity appears to reverse upward—evidenced by:

• China’s PBOC: 7-day reverse repo rates lowered by 10 bps (effective May 8), RRR cut by 50 bps (effective May 15), injecting ~RMB1 trillion.
• ECB: Lowered key rates by 25 bps in March—sixth cut since June 2024—to counteract euro strength and disinflation risk.
• Bank of England: Cut rates again to 4.25%—fourth cut in nine months.
• Fed: Yield curve inversion and market forecasts suggest rate cuts starting July 2025.
• 
  

Thus, central banks globally are easing, unlocking additional liquidity.

Turning to risk appetite, the VIX peaked in April amid tariff fears—mirroring the trough in liquidity. Once both fear and liquidity align, the result is a rebound—and that appears to have occurred.

Copper prices—a proxy for industrial activity—have risen 15% this year, driven largely by U.S. commodity funds. This bullish signal reflects optimism that U.S. manufacturing and economic activity are reviving.

2. Mid-Term: Fundamentals & 10-Year Treasury Yield

Mid-term focus remains on liquidity, but shifts to:

• Corporate earnings (EPS growth)
• 10-year U.S. Treasury yield—a key economic health indicator in a debt-fueled consumer economy like the U.S.
• Inflation: Real-time indicator from Truflation shows U.S. CPI ≈ 1.58% (data as of May 7), far below consensus levels. Notably:
• Rents: Post-pandemic slowdown in rent inflation due to housing inventory growth, especially in the Sun Belt and Southwest.
• Energy: OPEC production increases and slowing global growth have restrained oil prices, cooling inflationary pressure.

Though trade war threats dominated headlines, tariff inflation appears overestimated. Early Q1 hoarding masked the impact, but demand fatigue, easing tensions, and rising tariff avoidance (e.g., through Southeast Asia transshipment) point to disinflationary trends.

Fed Outlook: Characterized by “slow to act, but forceful when it does.” If growth weakens and inflation remains contained, expect aggressive rate cuts. Lower rates would reduce long-term yields, stimulate housing and corporate investment, and restart the U.S. real economy—especially construction and related industries.

Empirical support: Housing starts remain at 2008–09 lows; the real estate chain could provide a powerful multiplier effect once unlocked.

Key metrics to monitor:

• EPS resilience
• 10-year yield direction

Current data show consumer spending rebalancing and relative inflation control, suggesting room for the Fed to ease—feeding a virtuous cycle of lower rates, economic reacceleration, and equity strength.

III. Risks, Scenarios & Contingencies

Despite our bullish bias, we recognize key tail risks and have hedges in place:

1. Geopolitical conflict: Escalating regional wars (e.g., Middle East, Ukraine, South Asia) could shock markets.
2. Extreme natural disasters: Potential for major events—e.g., Japanese earthquakes—remains high, posing economic and human risks.
3. Severe global recession: While holdings are quality-defensive companies, even strong corporates are not immune. We maintain exposure to real assets (e.g., gold, Bitcoin) to hedge market-wide shocks.

Our portfolios emphasize inflation-resilient businesses, minimal direct China exposure, and strong earnings defensibility. If our bullish view proves wrong, risk is limited by robust, diversified allocations and explicit de-risking via hard assets.

IV. MAGA Strategy Focus & U.S. Policy Continuity

Finally, addressing U.S. strategic direction and policy orientation:

Using Porter’s “Diamond Model” for national competitiveness, the U.S. ranks highly on:

1. Production factors: Rich in energy, water, minerals; energy independence bolstered by Canada.
2. Firm structure & rivalry: U.S. corporations are globally best-in-class in management, flexibility, and innovation.
3. Regulatory environment: Moving from tight ESG/left-leaning controls toward deregulation—streamlining approvals, cutting bureaucratic drag.

For example, Micron’s multi-million-dollar chip plant in New York was stalled for two years due to state-level environmental delays. Now, de-regulatory reforms and job cuts at SEC (15%), IRS (planned 50%), and FDA (20%+) are accelerating approvals. U.S.-led deregulation is cascading globally (Canada, Hong Kong).

Tax policy complements deregulation: accelerated expensing of domestic capital expenditures offers immediate tax relief to industrial firms. This carrot, coupled with tariff sticks, incentivizes domestic investment—evidenced by rising copper interest among hedge funds and commodity traders anticipating a rebuild in U.S. manufacturing.

Although former President Trump frequently posted contradictory statements on social media—at times threatening additional tariffs on China, later claiming that China had called to negotiate, and then unexpectedly extending invitations for talks—many observers interpreted this behavior as inconsistent and disorderly. However, if one looks past the surface-level rhetoric, it becomes clear that the structural objectives pursued by both Trump’s “Make America Great Again” (MAGA) agenda and President Biden’s current economic strategy are broadly aligned.

 

These objectives include:

1. Rebuilding domestic industrial capacity
2. Achieving national energy security
3. Securing access to critical natural resources
4. Coordinating tariffs, tax policy, and regulatory policy in service of industrial development

On the issue of tariffs and tax policy, Trump emphasized the use of punitive tariffs to force manufacturing firms to return to the United States, while simultaneously reducing corporate taxes and implementing large-scale deregulation. Biden, by contrast, prefers to rely on direct industrial subsidies, such as government funding for companies like Micron to build semiconductor fabrication plants. However, his approach is hampered by persistent regulatory bottlenecks, such as lengthy environmental permitting processes. The key takeaway here is that tariffs alone are not sufficient; unless they are combined with coordinated fiscal incentives and streamlined regulations, efforts to revive American industry will remain stalled.

Regarding energy strategy, Biden's economic agenda supports a transition to green energy and includes significant investment in renewable infrastructure. Yet in practice, the United States remains heavily dependent on China for key components in the green supply chain, especially solar panels. This creates a clear dissonance between policy ambition and strategic execution. In contrast, Trump focuses on tapping into abundant domestic oil and natural gas reserves to reduce energy costs and ensure national energy independence.

When it comes to securing strategic resources, Trump has taken a more aggressive, deal-oriented approach to diplomacy. For example, his administration sought to obtain direct control over up to 50 percent of Ukraine's reserves of rare earths and energy minerals, including lithium and titanium. This move reflects a broader shift away from value-based foreign policy toward a realpolitik strategy centered on resource security. By linking national defense and manufacturing policy directly with access to strategic materials, the United States is adopting a fundamentally new diplomatic posture under MAGA-style leadership.

Where Will People, Capital, and Resources Come From?

First, in terms of human capital, Trump has directed pointed criticism at the ideological orientation of American higher education. He has called for cutting federal funding to humanities departments, reducing government support for elite universities such as Harvard and Yale, and eliminating DEI (diversity, equity, and inclusion) programs across academia. As Marc Andreessen, co-founder of PayPal and a prominent venture capitalist, has noted, American universities have shifted their purpose from educating professionals to promoting ideology. Trump’s efforts are aimed at pushing elite educational institutions toward the political right. This strategy appears to be having some effect: reduced federal funding has contributed to a growing trend of international students choosing to study in Canada rather than the United States.

Second, with regard to financial capital, the policy goal of large-scale reshoring is no longer merely aspirational—it is already being executed by major American and global corporations. Apple is significantly increasing investment in U.S.-based chip manufacturing. Nvidia has proposed domestic semiconductor investments exceeding $500 billion. TSMC is continuing to expand its manufacturing capacity in Arizona. Hyundai has committed over $21 billion in new investment in Texas. These moves exemplify a new industrial logic: corporations are expected to localize their operations and, in return, receive favorable policy treatment in the form of tariff exemptions, tax credits, and streamlined regulatory approvals.

Third, in the realm of strategic resources, Trump’s administration began negotiating global resource acquisition agreements as early as 2020. One notable case was a deal to secure access to 50 percent of Ukraine’s rights to extract critical minerals such as titanium, lithium, graphite, and rare earth elements. This reflects a broader shift in U.S. foreign and economic policy, where securing resource supply chains is no longer treated as a purely commercial or environmental matter but is now directly integrated into national defense and industrial strategy.

In summary, Trump’s economic playbook constitutes a three-pronged effort to reconfigure the foundations of American power:

1. Launching a values-based campaign to reshape the ideological alignment of elite universities
2. Compelling multinational corporations to reinvest domestically and align with U.S. industrial policy
3. Employing hardball diplomacy to secure global access to natural resources essential for advanced manufacturing

Although these measures may be controversial, they are consistent with the strategic logic of the MAGA agenda: reshape key domestic

institutions, extract investment from large corporations, and assert control over critical international resource flows.