The fact that Taibbi’s iconic phrase had appeared in Rolling Stone, widely seen as a touchstone of US culture at the time, further cemented it into the minds of the general public. But while Taibbi might have cast Goldman Sachs as the squid, its rival, JPMorgan, is taking the analogy one step further. For JPMorgan, it is the US itself that is demonstrating squid-like characteristics.
“Behold the Aquilaceph, half-bald eagle and half-octopus,” writes JPMorgan Asset Management’s chairman of market and investment strategy, Michael Cembalest, in “Semiquincententacles”, a special report commemorating the US’s 250th birthday on July 4. “On the semiquincentennial 250th anniversary of the US Declaration of Independence, this imaginary beast is a metaphor for the continued US grip on financial markets.”
Cembalest’s report, released on June 23, arrives at an interesting time for the US. After all, the US’s position as the world’s leading superpower appears to be in peril given its recent political setbacks. What was meant to be a swift decapitation of the Iranian regime in late February morphed into a months-long conflict that ended with an emboldened Iran. Iran’s newfound control over the Strait of Hormuz has given it even more power at the negotiating table, a bargaining chip it did not have before the war.
This would not be the first time the US has discovered the limits of its power. In April 2025, China retaliated against President Donald Trump’s tariffs by imposing export restrictions on rare earth elements. China produces around 90% of the world’s rare earths, meaning its restrictions would kneecap US production of weapons and electronics. Both countries eventually agreed to a one-year trade truce in October.
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As such, it is easy to look at the US today and conclude that its best days are behind it. Such a pessimistic view risks understating the US’s longstanding strengths, whether it be the dollar’s reserve currency status, the strength of its capital markets, or its dominance in AI, Cembalest argues in his report.
US dollar still reigns supreme
The US dollar’s status as the global reserve currency gives it significant economic and geopolitical advantages. Aside from lowering its borrowing costs, the US can weaponise its currency through trade sanctions on its enemies.
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Countries such as Russia and Iran were on the receiving end of such sanctions. Critics argue that trade sanctions would erode the US dollar’s reserve currency status. Russia and Iran, for instance, have started using the Chinese yuan to bypass US sanctions.
“Despite these negatives, the US dollar has ignored the doomsayers. Other than an immediate selloff of about 10% when Trump took office, the trade-weighted dollar has been resilient,” Cembalest writes.
“I’m not surprised by the dollar’s resilience,” he adds. “The six metrics we track regarding the dollar’s reserve currency status are mostly stable: the dollar’s share of cross-border loans, international debt securities, foreign exchange (FX) volumes, FX reserve asset allocation, export invoicing and Swift payments.”
One often-cited indicator of the dollar’s waning influence is the growing demand for gold by central banks. The European Central Bank (ECB) said in a report on June 2 that gold has overtaken US Treasuries as the world’s top reserve asset. According to the ECB, the share of gold in total official foreign reserves went up from 20% at end-2024 to 27% at end-2025. The share of US treasuries fell from 22% to 20% over the same period.
“This may not mean what you think it does,” Cembalest says of gold’s seeming popularity. “Almost the entire increase in the gold share of central bank reserves since 2009 is a function of rising gold prices rather than higher gold allocations.”
“If we hold central bank gold allocations constant at their March 2009 level of 963 million troy ounces and value them at today’s gold price, the gold share of reserves would be 26%, very close to today’s 29% level. But if we keep gold prices flat at 2009 levels and use actual central bank gold holdings, the gold share of reserves actually falls to 8%. So, what you’re seeing is a gold price effect rather than a physical gold allocation effect.”
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Cembalest does not expect the Chinese yuan to replace the US dollar as the global reserve currency, going so far as to call it a “frankly preposterous idea.” He argues that even though China’s economy is larger than the US economy, other factors such as market depth, liquidity, and clarity of default resolution also matter. This was why the US dollar did not replace the UK pound as the global reserve currency until 1929, when US GDP was at least 3.5 times UK GDP.
“There’s a huge disconnect between its soaring money supply and much slower growth in FX reserves and central bank assets,” he says of China’s monetary system. “This arrangement may only be sustainable when accompanied by a closed and highly regulated capital account, which is entirely inconsistent with reserve currency status.”
Sell America? More like buy America
When Trump unleashed his Liberation Day tariffs last April, traders began to lose confidence in the US market and started to reduce their exposure to it. The sudden selloff, also known as the “Sell America” trade, resulted in absolute and relative declines in both the S&P 500 and the dollar. Treasury yields rose during the same period as well. The selloff, however, was short-lived.
“Over the long term, US equities have crushed the rest of the world, even after accounting for the recovery in non-US stocks in 2025,” Cembalest says. “An investor starting the clock in 2012 would have earned 12.5% annual returns in the US versus just 2.9% on the rest of the world equities for excess returns of 9.6% through the end of 2024. Through today, that annual excess return has declined but is still enormous at 8%.”
“Whatever your time horizon as a long-term investor, US equities have delivered enormous excess returns since the early 1980s even after accounting for the non-US equity recovery in 2025.”
In fact, the US market has remained attractive to investors despite ongoing turmoil and policy uncertainty. Compared to countries such as China and India, the US runs the largest negative net international investment position, Cembalest says.
“The US is effectively the largest net debtor nation and absorbs a lot of foreign capital,” Cembalest says, noting that while the share of US Treasuries outstanding held by foreign investors is falling, foreign holdings of US Treasuries are still rising, albeit at a slower rate than US debt.
“The same rising trend is seen when looking at foreign holdings of US corporate bonds and US equities,” Cembalest adds. “There’s limited evidence that non-US investors are shunning either category.”
What AI gives, it can take
Even though US companies have continued to outperform Chinese, Japanese or European equities in return on assets and return on equity, Cembalest cautions against the concentration risk posed by AI.
“There are signs of investor exuberance in the AI trade, which has driven 65%–80% of S&P 500 returns, profits and capital spending since the launch of ChatGPT in 2022,” he adds, noting that the rally in semiconductor stocks has generated technicals breaching levels that were not seen since the dot-com boom.
Other signs of exuberance spotted by Cembalest include growing hedge fund exposure to semiconductor and hardware stocks, as well as a rise in leveraged exchange-traded funds (ETFs) on such companies.
“To deliver leveraged returns each day, the providers of such products buy into rallies and sell into declines, amplifying whatever price momentum is occurring,” he says, adding that the impact of leveraged semiconductor ETF rebalancing on global equity markets has gone up fivefold since early 2024.
Concentration risks aside, Cembalest notes that AI’s growing contribution to GDP has helped to offset the “growth-dampening impacts” of some of the Trump administration’s policies.
For now, Cembalest expects the US to maintain its lead in AI, given how well it has fared on several measures of AI readiness, including those from Stanford University and the International Monetary Fund. China, a close competitor, trails closely behind the US on some measures and has been steadily building up its capabilities.
“Chinese frontier models are not far behind the US on intelligence scores, and when considering total cost of ownership, chips from Huawei and Cambricon are reportedly comparable to Nvidia GPUs (graphics processing units),” he says.
