Guest Post: Another FU?

Via Kevin Muir of “The Macro Tourist” fame


When BREXIT happened, it was easy to understand why the market assumed the REMAIN side would win. Until that point, there had been no dramatic populist upsets, so the market’s optimism was understandable. Then came Trump. And I can say about that is, well, it was Trump, so the market again erred in assuming there would be no dramatic surprise.

After these two upsets, the market finally caught on to the game. When the French election rolled around, worried about a potential Le Pen win, market participants took a much less sanguine view. Ahead of the first election round, hedges were bought, worried op-eds were written about the dangers of a Le Pen victory and all in all, markets took the potential of another populist win quite seriously.

Yet, since it was announced that Le Pen and Macron had advanced to the second round, the market has become convinced Macron will be the next leader of France. Yeah, I get it, the math definitely seems to indicate that Le Pen will not be able to defeat Macron.

After having a look at the polling numbers, there seems to be some large market players who are setting themselves up ahead of the actual election. Yesterday there was a monster buyer of European risk assets. Actually, it started the day before, with European stocks closing on the highs both days. Even in the face of a moribund US tape, Eurostoxx pushed to new highs.


I have been one of the biggest European bulls out there, lugging around a large Eurostoxx position for some time now (“Pretty Sure I am alone in this Trade”), but I am lightening up ahead of this weekend’s election.

If I am wrong, then I am willing to buy back my Eurostoxx position a hundred or two points higher on Sunday night’s open. That’s the most I think I will give up if everyone’s forecast of a Macron win comes to pass. In fact, that’s probably too high. Given how much they are squeezing it going into the election, it might be fully baked in by Friday afternoon.

The market is way too cavalier about this weekend’s election. In modern history, there has never been a French election without one of the two main parties being in the second round. This is unprecedented. If someone tells you they know how the French electorate will behave, they are deluding themselves.

There is no doubt Le Pen is at least as a polarizing figure as Trump. It will once again be difficult for many citizens to admit they plan on voting for her. Therefore the polls might be underestimating her support.

Yet when I look at Macron, I can’t believe he will appeal to many but the 1%’ers. Look at his resume. A philosophy major with a Masters in Public Affairs, before heading off to work as an investment banker at Rothschilds. It is obvious the media love him. Have a look at this French newsstand:


His policies are pro-Euro, business friendly, and can best be summed up as near perfect for the establishment as one could ask for. No wonder the elites all favour him.

Le Pen is much more difficult to swallow. She has been accused of being populist, racist and in general, radical.

I am not endorsing either candidate. All I care about is how this will affect the market.

But I have to admit, Le Pen’s strategy of making Macron seem like a puppet for the establishment is awfully effective. Le Pen has trotted out a great line recently – “Come next week, France will be ruled by a woman – either me, or Mrs. Merkel.”


The French people are frustrated. Their economy has been underperforming for some time. They have a problem with youth employment, the immigrant situation is straining their declining resources, and their future seems uncertain. Macron is asking the French people to dive even deeper into the globalization/EU pool, stressing the elites know how to lead the people to prosperity.

The Macron situation seems remarkably similar to another elite who didn’t bother listening to the average working class voter. She assumed that because they weren’t rioting in the streets, they were happy. Yet nothing could have been further from the truth. Hillary Clinton learned the hard way that people were fed up with the current policies, and there was only so much they would take before giving her the collective “FU.”

If there was ever a sign of how Macron is the continuation of the status quo, it happened yesterday, when Barrack Obama got Richard Branson’s yacht to head into shore, to tape a quick endorsement of Macron.


Given how well the former President’s endorsements have gone (ask the BREMAIN and Clinton camps about Barrack’s help), I am not sure Macron should be saying Merci.

I don’t know if the French are ready to stick their middle finger up at Brussels and the rest of the Davos elite, but I do know the market is overly confident that the French will once again line up and say, “thank you sir, may I have s’more?”


Trading these sorts of situations is often about determining what odds are built into the market’s price, and taking advantage of times when those odds are out of line with reality. Like watching your favourite sports team’s odds of winning a game become so mispriced that you are willing to fade your own team, just because you know the price is wrong.

Chances are Macron will win this weekend. That’s the most probable outcome, yet it’s not the correct bet. At this point, the market has almost given up on any chance of a Le Pen win.


Remember, anything can happen in politics, and when it comes to French politics, that is especially true. After all, these are the people who put Félix Faure in power. And for those who aren’t familiar with good ‘ole Félix, let’s just say even Bill Clinton would have a lot to learn from the master himself. Too bad it ended up killing him…

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2 thoughts on “Guest Post: Another FU?

  1. How many examples are there of a politician losing an election that they went into with a 20-digit lead in the polls?

    I do not know the answer to this question but presumably that would help determine what weight the markets would give to the scenario.

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