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Page added on July 24, 2019
JPMorgan: We Believe The Dollar Could Lose Its Status As World’s Reserve Currency
Almost eight year ago, we first presented a chart first created by JPMorgan’s Michael Cembalest, which showed very simply and vividly that reserve currencies don’t last forever, and that in the not too distant future, the US Dollar would also lose its status as the world’s most important currency, since it is never different this time.
As Cembalest put it back in January 2012, “I am reminded of the following remark from late MIT economist Rudiger Dornbusch: ‘Crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.'”
Perhaps it is not a coincidence then that in light of the growing number of mentions of MMT and various other terminal, destructive monetary policies that have been proposed to kick on the current financial system the can just a little bit longer, that the topic of longevity of reserve currency status is once again becoming all the rage, and none other than JPMorgan’s Private Bank ask in this month’s investment strategy note whether “the dollar’s “exorbitant privilege” is coming to an end?”
So why is JPM, after first creating the iconic chart above which has since spread virally across all financial corners of the internet, not only worried that the dollar’s reserve status may be coming to an end, but in fact goes so far as to state that “we believe the dollar could lose its status as the world’s dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments.”
Read on to learn why even the largest US bank has started to lose faith in the world’s most powerful currency.
Is the dollar’s “exorbitant privilege” coming to an end?
In Brief
The U.S. dollar (USD) has been the world’s dominant reserve currency for almost a century. As such, many investors today, even outside the United States, have built and become comfortable with sizable USD overweights in their portfolios. However, we believe the dollar could lose its status as the world’s dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments.
As such, diversifying dollar exposure by placing a higher weighting on other currencies in developed markets and in Asia, as well as precious metals makes sense today. This diversification can be achieved with a strategy that maintains the underlying assets in an investment portfolio, but changes the mix of currencies within that portfolio. This is a completely bespoke approach that can be customized to meet the unique needs of individual clients.
The rise of the U.S. dollar
It is commonly perceived that the U.S. dollar overtook the Great British Pound (GBP) as the world’s international reserve currency with the signing of the Bretton Woods Agreements after World War II. The reality is that sterling’s value was eroded for many decades prior to Bretton Woods. The dollar’s rise to international prominence was fueled by the establishment of the Federal Reserve System a little over a century ago and U.S. economic emergence after World War I. The Federal Reserve System aided in the establishment of more mature capital markets and a nationally coordinated monetary policy, two important pillars of reserve-currency countries. Being the world’s unit of account has given the United States what former French Finance Minister Valery d’Estaing called an “exorbitant privilege” by being able to purchase imports and issue debt in its own currency and run persistent deficits seemingly without consequence.
The shifting center
There is nothing to suggest that the dollar dominance should remain in perpetuity. In fact, the dominant international currency has changed many times throughout history going back thousands of years as the world’s economic center has shifted.
After the end of World War II, the U.S. accounted for biggest share of world GDP at more than 25%. This number is brought to more than 40% when we include Western European powers. Since then, the main driver of economic growth has shifted eastwards towards Asia at the expense of the U.S. and the West. China is at the epicenter of this recent economic shift driven by the country’s strong growth and commitment to domestic reforms. Over the last 70 years, China has quadrupled its share of global GDP to around 20%—roughly the same share as the U.S.—and this share is expected to continue to grow in the years ahead. China is no longer just a manufacturer of low cost goods as a growing share of corporate earnings is coming from “high value add” sectors like technology.
China regaining its status as a global superpower
Earnings in China are becoming more balanced
In addition to China, the economies of Southeast Asia, including India, have strong secular tailwinds driven by younger demographics and proliferating technological know-how. Specifically, the Asian economic zone—from the Arabian Peninsula and Turkey in the West to Japan and New Zealand in the East and from Russia in the North and Australia in the South—now represents 50% of global GDP and two-thirds of global economic growth. Of the estimated $30 trillion in middle-class consumption growth between 2015 and 2030, only $1 trillion is expected to come from today’s Western economies. As this region grows, the share of non-USD transactions will inevitably increase which will likely erode the dollar’s “reserveness”, even if the dollar isn’t replaced as the dominant international currency.
In other words, in the coming decades we think the world economy will transition from U.S. and USD dominance toward a system where Asia wields greater power. In currency space, this means the USD will likely lose value compared to a basket of other currencies, including precious commodities like gold.
Dollar’s declining role already under way?
Recent data on currency reserve holdings among global central banks suggests this shift may already be under way. As a share of overall central bank reserves, the USD’s role has been declining ever since the Great Recession (see chart). The most recent central bank reserve flow data also suggests that for the first time since the euro’s introduction in 1999, central banks simultaneously sold dollars and bought euros.
Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record. To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it.
USD share of central bank reserves, %
The current U.S. administration has called into question agreements with nearly all of its largest partners—tariffs on China, Mexico and the European Union, renegotiating NAFTA, as well as abandoning the Trans Pacific Partnership. A more adversarial U.S. administration could also encourage countries to reduce their reliance on USD in trade. Currently 85% of all currency transactions involve the USD despite the U.S. accounting for only roughly 25% of global GDP.
Countries around the world are already developing payment mechanisms that would avoid using the dollar. These systems are small and still developing but this is likely to be a structural story that will extend beyond one particular administration. In a recent speech on the international role of the euro, Bank for International Settlements Chief Economist Claudio Borio brought up the benefits of pricing oil in the euro saying, “Trading and settling oil in the euro would move payments from dollars to euros and thereby shift ultimate settlement to the euro’s TARGET2 system. This could limit the reach of U.S. foreign policy insofar as it leverages dollar payments.” The European Central Bank also alluded to this theme in a recent report saying that “growing concerns about the impact of international trade tensions and challenges to multilateralism, including the imposition of unilateral sanctions seem to have lent support to the euro’s global standing.”
We believe we are at an important juncture. On a real basis, the dollar stands currently more than 10% above its long-term average and on a nominal basis has actually been trending lower for 50 years (see chart below).
Given the persistent—and rising—deficits in the United States (in both fiscal and trade), we believe the U.S. dollar could become vulnerable to a loss of value relative to a more diversified basket of currencies, including gold. As we scan client portfolios, we see that many of them have far more U.S. dollar exposure than we feel is prudent. At this stage of the economic cycle, we believe this exposure should be more diversified. In many cases, our recommendation would likely be to place a higher weighting on other G10 currencies, currencies in Asia and gold (see chart).
FX exposure
330 Comments on "JPMorgan: We Believe The Dollar Could Lose Its Status As World’s Reserve Currency"
Davy on Sun, 28th Jul 2019 6:15 pm
“Peace can be a little boring at times. We’re entering a total new phase in world history”
Yeap, like I said he is a war pig!
“the end of globalism and the return of Europe, now politically unified.”
LOL, Europe is the least unified of all big powers.
More Davy Delusions on Sun, 28th Jul 2019 6:28 pm
Davy on Sun, 28th Jul 2019 6:12 pm
Davy on Sun, 28th Jul 2019 6:30 pm
Yeap is a new word in the English language I just made up, cause I’m special.
I AM THE MOB on Sun, 28th Jul 2019 6:37 pm
A New U.S. Oil Production Peak Looks Imminent
https://www.forbes.com/sites/rrapier/2019/07/28/a-new-u-s-oil-production-peak-looks-imminent/#42c326e5ad35
Soon..Davy you will have to earn your keep..No more getting something for nothing from your family..
Good luck!
Duncan Idaho on Sun, 28th Jul 2019 6:52 pm
A New U.S. Oil Production Peak Looks Imminent
World Peak (so far) in Nov 2018.
We are flat in 2019– we will see if 2020 or 2021 can pass it.
I AM THE MOB on Sun, 28th Jul 2019 6:55 pm
Italy continues turning away refugee rescue boats as it boycotts EU meeting
https://www.independent.co.uk/news/world/europe/italy-migrant-rescue-boats-turn-away-salvini-boycott-europe-meeting-a9016111.html
No gods, no masters, no borders
juanpee is a coward on Sun, 28th Jul 2019 7:06 pm
“Davy on Sun, 28th Jul 2019 6:30 pm
Yeap is a new word”
I AM THE MOB on Sun, 28th Jul 2019 7:51 pm
Clogg and Davy appeals to those incel-types who get sucked into conservativism through this “if women had fewer/no reproductive rights, they’d value nice guys like me over men who are actually charming and sexually appealing” line of thinking..
I AM THE MOB on Sun, 28th Jul 2019 8:35 pm
Russian opposition leader ill after exposure to ‘undefined chemical’
https://www.theguardian.com/world/2019/jul/28/russian-opposition-calls-for-more-protests-after-mass-arrests
Looks like Putin strikes again!
i love it when a plan comes together!
lol
I AM THE MOB on Sun, 28th Jul 2019 8:47 pm
Clogg as young man
https://i.redd.it/ulguzo2983d31.jpg
Another Davy Sock Puppet on Mon, 29th Jul 2019 1:04 am
juanpee is a coward on Sun, 28th Jul 2019 7:06 pm
Cloggie on Mon, 29th Jul 2019 2:33 am
Soon..
https://i.redd.it/4mfdodznv3d31.jpg
Another clown living in the past. Russia is now on our side, you fool. Even the British press uses the phrase “Cold War EU-UK”. From now on it is US-UK against the rest of the world, what could possibly go wrong.
The future is a European mini-nuke thrown on DC (after evacuation first and in a ceremony where an invited Japanese will press the button), after millions of Eurasian troops, teamed up with 100 million US white nationalists (former Trump voters), will overthrow that ZOG of yours and force European-Amerikans to start all over again and build a new capital, this time under the firm protection of their older brothers from Europe, all 640 million of them.
It will begin with a clash over Taiwan, or SCS or the Gulf and end in North-America, enabled by CW2, that will open the door for Eurasians, just like the “European civil war” from 1939 opened the door for Americans and Soviets.
Floppy will end in a train to the East (Upstate New York).
“Senate resolution calls for antifa activists to be labeled as domestic terrorists”
https://tinyurl.com/y33hzbbq Oregon live
Haha, hit ’em hard, Donnie!
Cloggie on Mon, 29th Jul 2019 2:49 am
Clogg as young man
https://i.redd.it/ulguzo2983d31.jpg
In Holland they don’t carry the Confederate flag around, you dork.
In the seventees I was a skinny green-leftist and I looked very much like a white Jimmy Hendrix. My sister for that reason called me a “nikker” when she was angry with me, which happened a lot. In return I called her a vuurtoren (lighthouse) because of her red hair. After 25, my frizzy hair slowly turned smooth and now has a Beethovenish-look.
I still have cordial relations with my sister (and brother), no more nikker/vuurtoren, thanks in no small measure to that wonderful invention Whatsapp. Now we are watching television again together, like in our youth, in a virtual sense. Videos and photos exchanged on a daily bases.
Cloggie on Mon, 29th Jul 2019 2:58 am
Italy continues turning away refugee rescue boats as it boycotts EU meeting
https://www.independent.co.uk/news/world/europe/italy-migrant-rescue-boats-turn-away-salvini-boycott-europe-meeting-a9016111.html
No gods, no masters, no borders
No Gods (other then ourselves), no jews, no NWO.
Italy for the Italians (and paying Dutch tourists.lol), not for mud-hut-dwelling parasites!
https://i0.wp.com/www.beinspiredtoexplore.com/wp-content/uploads/2019/04/venice-above.jpg?fit=3992%2C2242&ssl=1
Recolonize Africa by Europeans and Chinese! These people can’t govern themselves.
https://www.youtube.com/watch?v=_rVSwXloXoM
I AM THE MOB on Mon, 29th Jul 2019 5:01 am
Looks like world oil production has likely peaked..Oh well we got our supplies covered via shale and middle east..
Say goodbye to Europe and Asia! It was nice doing business with ya!
Clogg your government welfare is about to be ended! Better get off your fat ass and make a living for yourself..lol
Davy on Mon, 29th Jul 2019 5:13 am
“The future is a European mini-nuke thrown on DC (after evacuation first and in a ceremony where an invited Japanese will press the button), after millions of Eurasian troops, teamed up with 100 million US white nationalists”
Who is the clown??
Davy on Mon, 29th Jul 2019 5:25 am
“Sales Of Venezuelan Gold Spike Around World, Could Be “Fundamental” To Maduro’s Survival”
https://tinyurl.com/y66zyn2y the epoch times via zero hedge
“The report, “Venezuela, the Smugglers’ Paradise,” details how the gold is carried from mines in Venezuela run by armed gangs in the country’s mineral-rich “mining arc” in the south, under the watch of the Venezuelan National Guard, smuggled across the porous Venezuelan-Colombian border by desperate migrants fleeing the country, then shipped to the United States and Switzerland under false papers. It’s then sold to some of the countries’ biggest refineries, and could end up in the products of the world’s largest companies, such as Apple or IBM. The United States is working on sanctions to combat the trade as the billions generated from the illegal gold empire have now become so valuable to corrupt Venezuelan elites that regime leader Nicolás Maduro may not be able to survive without it, Douglas Farah, president of IBI Consultants who also researches the topic, told The Epoch Times.”
“Our work shows that gold is now more important than the drug trade for the survival for the Maduro regime,” Farah said. “The laundering of illicit products and the ability to move illegally mined gold to the world market are fundamental to Maduro’s survival. Without the resources to pay the military leadership and maintain a privileged business class, the regime would fall.”
“The United States is working on sanctions to combat the illegal trade, but blocking official routes could push the practice further underground, benefiting the armed gangs who profit from it, such as Colombia’s ELN guerrillas who are expanding rapidly into the country. “With a product that is illegally mined but not illegal to sell on the world market, finding ways to cut off the flow is very difficult,” Farah said. “It isn’t like dealing with a substance like cocaine that is universally defined as illegal.”
Davy on Mon, 29th Jul 2019 5:42 am
“South China Sea time bomb threatens to go off”
https://tinyurl.com/yxct2f8n macro business
“Asia has just taken a giant leap towards disaster: The combat jets of four nations have squared off above a disputed island. Vietnam is challenging an aggressive Chinese spy ship. And the Philippines has appealed to the US for protection. Overnight, a chaotic confrontation unfolded above a tiny island claimed by both South Korea and Japan. Chinese and Russian bombers infringed the territory, with Tokyo and Seoul fighting over the right to defend the airspace. South Korea says it fired more than 300 warning shots at the Russian bombers. Meanwhile, Hanoi has accused Beijing of violating its sovereignty by sending a survey ship to Vanguard Bank, which sits within Vietnam’s UN-recognised 370km (200 mile) exclusive economic zone (EEZ). Beijing arbitrarily claims the South China Sea — in its entirety — as its own. …It came shortly after a demand by Philippines President Rodrigo Duterte for the protection of the US Navy after a deadly collision in the disputed Spratly Islands. “I’m calling now America. I am invoking the RP-US pact, and I would like America to gather their Seventh Fleet in front of China. I’m asking them now,” he said during an interview.”
Davy on Mon, 29th Jul 2019 6:26 am
“EV cars only go half as far in freezing weather”
https://tinyurl.com/y3ed8kgf energy skeptic
“Consumer reports tested cars in cold weather, less than freezing, and found they lose about half their normal driving range. So cold state EV buyers have to spend more than warmer states for longer ranges or they may be left stranded in a cold snap. The colder it gets below freezing, the worse the battery performance, and especially pronounced below 0° F. It’s not just the cold draining the batteries, extra demands are put on them for heating and defoggers. Consumer reports recommends keeping the car in the garage plugged in until you leave (Olsen 2019).”
I AM THE MOB on Mon, 29th Jul 2019 6:44 am
Russian Opposition Leader Navalny May Have Been Poisoned, Says Doctor
https://www.themoscowtimes.com/2019/07/28/russian-opposition-leader-navalny-may-have-been-poisoned-says-doctor-a66601
Another murder in cold blood..Putin is the new Hitler!
Hit em hard!
DerHundistLos on Mon, 29th Jul 2019 7:02 am
Cloggie-
Hate to break the bad news but President Chump suffers from historically low approval. The last time Chump broke 50% was on Day 15 of his administration. Since then, his approval numbers have consistently remained under water. A compilation of the most accurate polls places his approval at an anemic 42.6%. To put this in perspective, the day of the Midterm election when Trump and party got destroyed at the ballot box his approval was 42%.
More bad news, the Democrats are winning the generic congressional ballot 46.3% to 39.8%, same as on November 6, 2018.
https://fivethirtyeight.com/
I AM THE MOB on Mon, 29th Jul 2019 7:45 am
Clogg’s future vision is so far fetched..But I am sure he will just keep repeating it over and over..Just like he keeps calling me a jew even though I have never claimed to be one and there is no evidence I am..
I AM THE MOB on Mon, 29th Jul 2019 8:34 am
The Republicans are quite simply a cult behind a lawless wannabe strongman, led by cable news conspiracy theorists. Cults guarantee total unanimity, expel dissenters, and seal themselves off from outside information — and the GOP now does all three.
I AM THE MOB on Mon, 29th Jul 2019 9:47 am
Virtually all (92 percent) of the 27 million in net US population growth in the first decade of the new millennium was nonwhite.
About 56 percent of the growth was Hispanic. Meanwhile, the non-Hispanic white fertility rate over about the past 20 years has been about 1.9, below the 2.1 needed for replacement.
Davy on Mon, 29th Jul 2019 9:56 am
I’m with you MOBSTER. That’s why I’m voting for Tulsi in the next election. Did I mention she’s a veteran anti-war volunteer Iraqi war fighter? I think I might of.
Davy on Mon, 29th Jul 2019 10:04 am
“EV cars only go half as far in freezing weather”
Alice is so pessimistic. I prefer to think that EVs can go twice as far in nice weather.
Hello on Mon, 29th Jul 2019 10:12 am
>>> nonwhite
Amazing isn’t it? Only whites can be as stupid to import an endless stream of 3rd world sludge into their home. It amazes me every day.
I mean, MOB, we all know that you are not very smart and that you represent the 3rd world/negro on this board. YOU wouldn’t be as stupid as importing scores of whites into your negro home. Right?
Yet here we are with whites opening the doors to their homes wide, importing truck load after truck load of sludge.
It makes no sense at all.
JuanP on Mon, 29th Jul 2019 10:48 am
“EV cars only go half as far in freezing weather”
I am so stupid. I prefer to think that EVs can go twice as far in nice weather.
JuanP on Mon, 29th Jul 2019 10:50 am
I’m with you MOBSTER. That’s why I’m voting for Putin in the next election. Did I mention I masterbate over his naked body
More Davy Identity Fraud on Mon, 29th Jul 2019 11:08 am
JuanP on Mon, 29th Jul 2019 10:48 am
JuanP on Mon, 29th Jul 2019 10:50 am
Cloggie on Mon, 29th Jul 2019 11:26 am
“Ann Coulter: How we became the world’s suckers on immigration”
https://thehill.com/opinion/immigration/455126-ann-coulter-how-we-became-the-worlds-suckers-on-immigration
Dissidents always become presidents “after the break”.
Examples in recent history: Lech Walesa and Vaclav Havel.
Confederate president: Richard Spencer and veep Ann Coulter.
Cloggie on Mon, 29th Jul 2019 11:33 am
@DerHund – didn’t say anything else than third, triggered by German ARD prime time news:
https://www.nbcnews.com/politics/donald-trump/trump-reaches-highest-approval-rating-presidency-latest-poll-n1027171
“Trump reaches highest approval rating of presidency in latest poll”
Expect Donnie to get reelected. Tulsi Gabbard would be the only good “dissident” candidate on the Dems side, but she is not oligarch certified.
JuanP identity fraud on Mon, 29th Jul 2019 11:40 am
Davy on Mon, 29th Jul 2019 9:56 am
Davy on Mon, 29th Jul 2019 10:04 am
JuanP on Mon, 29th Jul 2019 11:41 am
I can’t help it I love fuckin this board up with my Davy obsession
JuanP on Mon, 29th Jul 2019 11:45 am
“@DerHund – didn’t say anything else than third, triggered by German”
Der bund is a crack pot old man. Just ignore him.
More Davy Identity Fraud on Mon, 29th Jul 2019 12:11 pm
JuanP on Mon, 29th Jul 2019 11:41 am
JuanP on Mon, 29th Jul 2019 11:45 am
I AM THE MOB on Mon, 29th Jul 2019 12:13 pm
Hello
America and Europe are like one big salad.
I AM THE MOB on Mon, 29th Jul 2019 12:17 pm
Ann Coulter is a tranny. Another fear mongering crank trying desperately to stay relevant while her looks fade.
More JuanP lies on Mon, 29th Jul 2019 12:26 pm
More Davy Identity Fraud on Mon, 29th Jul 2019 12:11 pm
Cloggie on Mon, 29th Jul 2019 1:21 pm
“where? Last time I was down there it was pretty negro-ish. At least every major and minor city.”
Here the numbers:
https://en.wikipedia.org/wiki/Rome#Ethnic_groups
“According to the latest statistics conducted by ISTAT,[101] approximately 9.5% of the population consists of non-Italians. About half of the immigrant population consists of those of various other European origins (chiefly Romanian, Polish, Ukrainian, and Albanian) numbering a combined total of 131,118 or 4.7% of the population. The remaining 4.8% are those with non-European origins, chiefly Filipinos (26,933), Bangladeshis (12,154), and Chinese (10,283).”
I was a week in Rome two years ago and could verify that Rome is a white city, Milan likewise and so are all Spanish cities. Eastern Europe: 100% white. The only disaster zones are pc fokking protestant cuntries in the north: Britain, Holland, Sweden, France and Switzerland. Germany is making great efforts to “catch up” too.
Another Davy Sock Puppet on Mon, 29th Jul 2019 1:21 pm
More JuanP lies on Mon, 29th Jul 2019 12:26 pm
More JuanP bad behavior on Mon, 29th Jul 2019 1:46 pm
“Another Davy Sock Puppet on Mon, 29th Jul 2019 1:21 pm “
Another Davy Sock Puppet on Mon, 29th Jul 2019 2:00 pm
More JuanP bad behavior on Mon, 29th Jul 2019 1:46 pm
Multiple personality JuanP on Mon, 29th Jul 2019 2:12 pm
Is making all this shit up even this comment is his. ROFLOL at the dumbasses on this forum
M“Another Davy Sock Puppet on Mon, 29th Jul 2019 2:00 pm “
Cloggie on Mon, 29th Jul 2019 2:15 pm
“Ann Coulter is a tranny. ”
Liar.
https://en.wikipedia.org/wiki/Ann_Coulter
Cloggie on Mon, 29th Jul 2019 2:16 pm
Time to start digging who are the money men behind BoJo…
https://m.jpost.com/Opinion/Grapevine-Holocaust-tensions-that-wont-go-away-596826
Davy on Mon, 29th Jul 2019 2:22 pm
Oops, sorry everyone. I’m a compulsive liar. I can’t help myself.
Cloggie on Mon, 29th Jul 2019 2:49 pm
Sturgeon and BoJo: match made in hell
https://www.dailymail.co.uk/news/article-7296781/Boris-Johnson-runs-Brexit-gauntlet-talks-Nicola-Sturgeon-Scotland.html
“Nicola Sturgeon says Boris Johnson is putting UK on ‘dangerous path’ by secretly pursuing No Deal Brexit after he tells her UK will quit EU ‘come what may’ on October 31”
Sturgeon accuses Johnson of not being interested in any deal whatsoever. The two skipped diplomatic niceties:
“But his comments during a head-to-head in Edinburgh sparked a furious response, with the First Minister accusing him of secretly wanting a No Deal Brexit instead of a deal with Brussels.”
“Ms Sturgeon said today: ‘The people of Scotland did not vote for this Tory Government, they didn’t vote for this new Prime Minister, they didn’t vote for Brexit and they certainly didn’t vote for a catastrophic no-deal Brexit which Boris Johnson is now planning for.’ ”
“Scotland has been ignored throughout the Brexit process and it is now time for everyone who cares about the future of Scotland to come together to chart our own course and say to the Tories – stop driving our country towards disaster.’ ”
JuanP on Mon, 29th Jul 2019 2:53 pm
Oops, sorry everyone. I’m a compulsive cyber bully who will lie and degrade this forum to satisfy my compulsions. My intentions are to ruin this place for everyone. I don’t care I hate humans and consider myself a different species. I can’t help myself.
JuanP on Mon, 29th Jul 2019 2:54 pm
clog, stick your bexit shit up your ass I am through with you