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On Sunday, centrist candidate Emmanuel Macron turned back right-wing challenger Marine Le Pen to win the French presidential election … now the real work begins.
Macron’s victory over the anti-EU candidate wasn’t much of a surprise. After all, he enjoyed a large and growing lead over Le Pen in the run-up to the vote, so the outcome was largely as expected.
It was also no surprise to me when the euro sold off overnight Sunday on the news while the dollar strengthened, just as our Edelson Wave cycles correctly forecast. It was a classic sell-the-news reaction.
In fact, the euro rallied into the election as support for Le Pen steadily eroded. It’s ironic that the euro-USD rate traded up through the 1.10 mark – a seven-month high – just as voters went to the polls, then sold off sharply from those levels in the aftermath.
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| Dark clouds over The Louvre seem like harbingers of the hard times that newly elected French President Emmanuel Macron will face. |
Here’s why…
Macron billed himself as the middle-of-the-road candidate in a field full of extremists. He claimed to be a political outsider who promised to unite France with a new kind of politics. Does that sound familiar?
The truth is, he’s got his work cut out for him if he expects to lead an increasingly fractured nation. In his victory speech, Macron declared: “I will fight with all my strength against the divisions that are undermining us…”
Well, he’ll need to muster every ounce of his strength to prove that his one-year-old political party can even win a majority in the French legislative elections coming up next month. Good luck with that …
That’s because this election revealed growing fault lines among the French electorate as millions of voters fled traditional parties for candidates on the extreme left and on the far right. And it’s easy to see why.
As in so many other Western socialist democracies, the people of France are fed up.
As you can see in the graph above, French government spending
accounts for a staggering 57% of GDP, the most of any major developed economy!
Everyone can see that France can’t sustain its social-welfare model, but they don’t know exactly what to do about it. And entrenched interests run deep, thwarting every attempt at real reform.
The French are also fed up with losing their jobs to EU nations that boast lower labor costs (Ireland, Poland). France’s youth unemployment rate is 24%! But powerful labor unions still resist cutting their lavish benefits, including the coveted 35-hour work week and up to 10 weeks paid vacation.
But mostly, the French are fed up with being told what to do by EU bureaucrats in Brussels, just like every other EU nation, and not unlike the way U.S. states are fed up with being told what to do by Washington, D.C.
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All this means that, while France may remain in the EU a bit longer as a result of this election, the handwriting is on the wall. French politics has become fertile ground for future radical candidates, while the traditional mainstream parties shrink in importance. This means more polarization among the French electorate, more volatility in election outcomes and policies, and less-effective governance.
The outcome in France is right on cue with my colleague Larry Edelson’s forecasts that the EU will break apart, and the euro currency is doomed. It’s only a matter of time. The best way to profit from it is to short the euro, which will soon reach parity – or lower – versus the buck. Or, easier still, buy into the U.S. Dollar Index Spot (DXY), since 58% of its value is relative to the euro!
Good investing,
Mike Burnick
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Mike Burnick, with 30 years of professional investment experience, is the Executive Director for The Edelson Institute, where he is the editor of Real Wealth Report, Gold Mining Millionaire, and E-Wave Trader. Mike has been a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. He also served as Director of Research for Weiss Capital Management, where he assisted with trading and asset-allocation responsibilities for a $5 million ETF portfolio.
{ 9 comments }
Macron has been falsely declared a centrist by the media….he is actually a Trotskyite.
Hello Mike,
I have been in the FX market since 1971, if that particular year means anything to you. I saw the withdrawal of European Central Banks from supporting the Dollar and its subsequent demise over the décades. Paul Volcker’s tight monetary policy caused a violent Dollar rally, but the US called upon their European counterparts to intervene to weaken the Dollar, together with the Fed, the so-called Plaza agreement. Roughly 3 or 4 years later, another agreement (Louvre accord) stopped the rampant demise of the Dollar.
In the very early 2000’s, the Euro fell to something like 0.85 to the Dollar and the US promply intervended to sell Dollars again.
As to the Euro, I too think, in fact since its inception, that it will fail ultimately. The French wanted it badly, but it will most likely be the French who will cause its breakdown, to the joy of the US, since they hate having something competing with the Dollar. Remember Saddam Husseins desire to sell his oïl against Euros instead of USD, which was the unspoken argument for the US to invade Iraq.
Since the Reagan years the indebtedness of all Wester nations has become unsustainable. It started in the US, and was happily adopted by all others. Some very interesting and hard times lie ahead.
Regards
Werner
The most obvious fact on that graph is that almost ALL Europe is in the same condition, give or take. So the siren call to leave the EU/Euro works if you are going to something better, but whoever leaves will be in no better shape OUT than IN
Populists do well with YOUNG people because they believe the dreams peddled by politicians like LePen, but all of Europe is aging and old people are terrified of radical change & the risk of old age in poverty…so Europe is not a boiler fit to explode, but the biggest retirement village in history and the unsustainable welfare promises will chipped away slowly but ceaselessly with continued complaints for the next few decades…… Devaluation of the Euro will occur but in a slow-motion car crash not a violent explosion.
Could you tell me where Spain is in the up mentioned graphic ?
Macron is puppet stooge of the banking cartel and centralized govt.
Q: why is DXY not a recommendation in RWR?
Marcon is a deceptive little man, pretending to buck the main stream line while actually being an enabler for it. He’s so deep into the Saudis pockets he should call himself “lint” Macron. Worst thing for France since hitler
I’d be deeply surprised if there isn’t social unrest to the level of civil war within 5 years.
France should have taken their chance as the UK proudly did to vote out of Europe; France’s torture will only continue I fear.
Your interesting perspective on the French elections misses 2 important points:
1. In a major pre election voters poll, 3 out of 4 French voters did not want to leave the Euro or the EU. Why? Most French know that their biggest trading partner is Germany, then the rest of the EU – so no more EU, no more jobs! Marine Le Pen had some attractive rhetoric about Buy French, Eat French, control immigration, etc., but she failed on her anti Europe and anti Euro policy. Her party – Front National – is now revamping its strategy, to include staying in the EU and maintaining the Euro!
2. Macron is seen as being “clean”. All the other parties, including Marine Le Pen, are riddled by scandals and corruption charges, creation of false jobs, etc. Macron is not long enough in politics to be tainted by scandal. Here in France he’s seen as being the new boy with a clean sheet. For how long…..watch this space!
Next step is the legislative elections in one month, and the creation of a new government, which will be an uphill task for Macron, but with already so much in fighting within the major political parties, maybe not……!
Time will tell, but in the meantime its clear – we want to stay as part of the EU and we want to keep the Euro! The alternative will be disastrous.
I agree with Gregg in that France should have chanced the arm. Problem was, and the only reason they didn’t, is that the Me Penn change vote was just too damned scary. An interesting stat is that the total French vote, icluding abstentions, was low in comparison to the record turn out in the UK.
As an FX trader I look forward to the devolution of the Euro!