Vive la difference in the French election

The French election was held over the weekend as no candidate won a majority, a second balloting will take place on May 7 pitting the two alternate political party front-runners.

The runoff will pit Emmanuel Macron of the En Marche! party and Marine Le Pen of the National Front party. This is the first election in recent memory where neither candidate is from the leading political parties.

Macron is the more traditional leftist candidate saying he will standby the euro and wants a strong EU. For this reason his coming in first with 24% in the election Sunday was the catalyst  behind the soaring global stock markets on Monday. Hell, even Deutsche Bank’s stock shot up 11% on his showing.

Le Pen’s stance is more far right and like Donald Trump’s plank, she is reaching out to disenfranchised middle class voters, wanting to see France exit the euro like Britain.

Le Pen’s 21.3% tally edged out François Fillon, the Republican party candidate, who ran a scandal-scarred campaign.

In early polling Macron has a  61%-39% lead over Le Pen. These numbers seem eerily similar to Hillary Clinton’s poll numbers during last fall’s election in the US. And we know how accurate that polling was. I would wager that at some point the Brexit vote had the same margin of passing prior to that vote in Britain.

I believe Le Pen will be able to give Macron a tough campaign in the run-off election, since there is much discontent with the French middle class on a host of issues related to its place within the euro zone.

From farming restrictions and regulations to its decades-old battle with immigration, the middle class has seen its way-of-life degrade, as more decisions affecting their lives were made in Brussels and not Paris.

The Sunday polling saw one of the largest voter turn outs in recent history, suggesting that all is not well within the 5th Republic of France and that change may be in the air.

Macron, 39, is a former investment banker for the Rothschild Bank and as such sees the European Union as the savior of a more socialistic society. He started his own party just last year in order to run. He left government in 2008 to work in finance.


Brexit means entering the bond market

The equity market churn with a volatility that’s almost nonexistent is creating huge moves in the bond pits.

As stocks move in a range for the last week or so and the VIX moving toward single digits, the 10-year note is trading at 2.3%.

This is about where it was right after the election when rates jumped from 1.7% level on Trump’s win. The Brexit trigger had plenty of new money coming in this week looking for safe haven until some of the details and ramifications shake out.

Look out on the medium term, there does not appear to be anything to change the fundamentals behind this trading philosophy until the end of April when the Fed meets again. Trump legislative agenda will be mired in two steps forward three steps back for most of the Spring moving tax cuts and infrastructure spending into second half of 2017 at the earliest.

So as I wrote earlier this week, I believe the bias is to the downside for stocks, and bonds will trend lower as early unforeseen Brexit fallout manifests itself.

Prime Minister May signs EU divorce papers

British Prime Minister Theresa May signed the EU divorce papers on Tuesday.

Brexit has officially begun as foreign exchange response seems to be muted as both the pound and euro traded off slightly against the dollar. US equities and bonds were also nonplussed by the much-anticipated move by the Brits.

City of London bankers from US banks such as Goldman Sachs, Morgan Stanley and JPMorgan are still awaiting news whether they will be moving before March 29, 2019 to the continent in order to smoothly transition to servicing EU-based clients.

Now May has to deal with the Scots wanting independence to rejoin the EU.

2016 sowed the seeds of change. Now what?

As 2016 draws to a close, I am one who thinks the year has been monumental for the change it will bring to the world both economically and politically in the near future.

Historians will begin to see the import probably ten years from now, but the seeds were sown for a dramatic shift towards nationalistic politics in an attempt to pull these economies out of the decade-long malaise.

You could start with Iceland’s treatment of bankers and the enormous debt the island nation took on to pull itself out of the financial crisis as the possible ignition switch.

Then in 2016 you have Brexit. The surprising vote from the UK, where the British people approved the leaving of the European Union. Whether it was right or wrong, the exit party played on the fact that the unelected EU regulators had too much control over their daily lives.

The fear that Brussels could dictate policy more than Parliament, played to the voter fears that hordes of immigrants would be coming ashore because of these continental dictates.

Brexit — you could say — greased the skids for President-elect Donald Trump’s win over Hillary Clinton. Trump’s focus on keeping jobs in America and draining the swamp of life-long political hacks directing policy regardless of who occupied the White House, also resonated with voters in the same way as the British felt with Brussels.

History tells us that a turn to nationalism is generally seen as a negative, as countries turn to look inside generally leads to bellicose attitudes by the leadership. However most of the nationalistic warring leaders are far left-wing politicians.

Over the last 75 years with Germany, Russia and China the moves towards a socialistic society have had dramatic effects on their people and for the planet. Generally speaking a right-wing leadership takes on a globalist view, so these moves under the UK with Prime Minister Theresa May and in the US under a Republican Trump is something of an anomaly.

How 2017 will play out with all the developments, which happen this year is still too early to tell, but as the Chinese proverb states: May you live in interesting times, seems to have come to fruition.

Market get mixed message from central banks

Most markets are looking for direction as central banks moved the goalposts over the last 24 hours.

Yesterday Fed chief Janet Yellen said that the central bank now sees an additional rate hike needed for next year as its policies appear to be working.

Laugh at that. The reason Yellen & Co are seeing improvement is because of the expectations of the Trump Administration’s pro-growth business policies.

And just Thursday morning, Bank Of England chief Mark Carney said the central bank will unexpectedly hold rates at 0.25% and will proceed with an $88 billion program of bond buying program because the outlook is far from rosy.

So who is right? Yellen or Carney? Neither?

Dollar strength will rule the day in 2017. So until that plays out growth in the US and globally will be curtailed as China, Japan and other export countries suffer the slings and arrows of currency revaluation.

The UK by beginning the Brexit talks with EU next year will be buffeted by a pound trading lower against the greenback.

The euro could also be trading below par with the dollar in early January as the ECB takes on a two-front war between the UK and its southern flank of Greece and Italy.

So King Dollar will rule the roost during the Trump’s Administration’s honeymoon period, which could hamper the push to keep jobs here in the US.

This makes the need for tax policy reform so much more critically important to get done soonest to stem the call for exporting jobs.