I’m a bit tardy in following up on our conversation this week. But it’s a good one…
Last week we noticed an odd correlation – the Dow Jones Industrial Average (DJIA), the US Dollar Index (DXY), Bitcoin (BTC), and Ripple (XRP) each surged higher immediately after last month’s presidential election here in the US.
It would be one thing if these were overnight moves higher that immediately reversed. But that’s not what we saw. Each of these assets ripped higher in the 30 days following the election:
- Dow Jones Industrial Average: +6.6%
- US Dollar Index (DXY): +2.8%
- Bitcoin (BTC): +43.8%
- Ripple (XRP): +361%
With the exception of Bitcoin, each has pulled back slightly this week – which is to be expected after such a strong run. But it’s not so much their price action that’s interesting… it’s what that price action is telling us.
As we noted last week, most activity in the financial markets is driven by institutional capital flow – much of it automated. The strong moves we’re talking about here weren’t driven by individuals each investing a little bit of money into these assets. It took tens of billions – likely hundreds of billions of dollars – to drive prices higher like this.
I suggested last week that this was a signal. Institutional capital—large entities like pension funds, endowments, and insurance companies—are betting on a recapitalization of the United States.
Here’s how that applies to each of the assets that surged higher after the election…
Dow Jones Industrial Average (DJIA)
The Dow Jones Industrial Average is a stock market index that tracks 30 of the largest publicly traded companies in the United States.
These companies are considered leaders in the US economy. They span various sectors like technology, finance, and consumer goods. Prominent examples include Apple (AAPL), Microsoft (MSFT), Goldman Sachs (GS), and Walmart (WMT).
The Dow is often viewed as a barometer for the overall health of the American economy. Its movements are often seen as a reflection of economic conditions, with rises indicating economic growth and declines signaling potential economic downturns.
So the massive influx of capital into the Dow Jones that’s occurred since the election signals that institutional investors expect to see pro-business policies in the years ahead.
The Great Reorganization is upon us… and it’s going to bring about fundamental reforms and the deregulation needed to reverse five decades of financialization.
The US Dollar Index (DXY)
The US Dollar Index tracks the value of the US dollar against six major currencies – the Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD) Swedish Krona (SEK), and Swiss Franc (CHF).
These are all fiat currencies backed by nothing but the “full faith and credit” of the issuing government. As such, their value relative to one another hinges largely upon financial conditions and interest rates in the issuing country.
When the issuing government is running large deficits, running up debt, and printing money, the value of its respective currency will fall.
In just the same way, when a government seeks to push domestic interest rates arbitrarily lower, the value of its currency will fall.
A lot has been made of the BRICS+ (Brazil, Russia, India, China, South Africa + others) bloc’s plan to create a commodity-backed currency to compete with the US dollar in recent years.
There’s been a growing belief – even in mainstream circles – that the world will soon move away from the US dollar as its reserve currency. That’s due to the fact that the US government’s finances are on the verge of spiraling out of control… and Washington has shown no interest in fixing that up to this point.
Well, the massive influx of capital into the US dollar suggests that perhaps this talk is premature.
Perhaps the incoming administration is serious about cutting federal spending and shoring up government finances… and perhaps the Federal Reserve (the Fed) is serious about allowing long-term interest rates to be set largely by market forces.
If this is the case, the US dollar will continue to be a critical fixture within the global financial system for the foreseeable future. Especially if the US Treasury gets creative in the effort to recapitalize America… as I suspect it might. But that’s a topic for another day.
So it’s easy to see how the rush of global capital into the Dow and the dollar signal that the market expects serious economic reforms to be forthcoming.
But what about Bitcoin and Ripple? How do they fit into the picture?
More on that tomorrow…
-Joe Withrow