Event Driven Investing: Preparing For Le Pen

Event Triggers: What If Le Pen Wins France?

Are you ready for this? The betting markets are still picking French nationalist Marine Le Pen. It’s still a nail-biter between her and Emmanuel Macro, but on Friday, PredictIt.org was still giving the euro skeptic Le Pen a 43% chance of winning the election in May. If she wins, it could spell curtains for the euro.

W. Ben Hunt, a Chief Investment Strategist for Salient, thinks the next big volatility play is going to come from the euro zone. France is center stage on this one. “The market still pays attentions to polls, even when they know political ideologies are so polarized today which makes it hard to trust them,” says Hunt. Salient runs a tactical, long-short fund (Unfortunately, we could not get stock quote SBTIX this time.) that pays close attention to event triggers like the one that may be taking place in May out of France. For Hunt, European politics is a regime change moment. “Especially if Le Pen wins,” he says. “She wants to dump the euro. If that happens, the European banking system gets a collateral problem like we had with mortgage backed securities after 2008.”

During market hours on Friday, Bretton Woods Research, a macro economic research firm with a supply-siders eye for the markets, warned that National Front candidate Le Pen has the potential to shock the European political establishment and financial markets in the same way that Brexit and Trump did last year. She continues to have the lead in the first round of voting but polls, if you can trust them, show her losing to austerian candidate Macron in the second round of voting. Investor like Hunt who watch politics for clues on market direction need to pay attention to headlines out of France.

Bretton Woods did not make any particular trade recommendations in their note to clients on Friday.

French bonds are down relative to German bunds after news that socialist candidate Benoit Hamon may join with far-left leader Jean-Luc Melenchon for a single candidacy. He is dead last in the betting markets, while Hamon is a distant fourth. Melenchon is anti-free trade, anti-NATO, and leader in the fledgling one year old Unsubmissive France movement, made up largely of French communist party members. Bretton Woods warned that the combination of both camps would allow either candidate to win almost 30% of the vote and this could set up a strong three-way presidential race. In other words, this very important election is still hard to call despite being just three months away.

“We believe this scenario would ultimately be positive for Le Pen because it would establish her as the candidate competing against an austerian in Macron and socialists in Hamon/Melenchon,” says Vladimir Signorelli, founder of Bretton Woods Research. Signorelli’s advise for Le Pen is to advocate for pro-growth tax cuts like Trump did. If she can do that, she may win support from elites hoping she softens her talks of leaving the euro. New commitment to a pro-growth program could be a key facet of her campaign, and one that puts her in the driver’s seat and surprises the world, Signorelli says without making any election calls at this time.

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