Brexit, French Election, and Geopolitical Influence
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A good Friday to all of you out there in the land of global investment, and an eventful week its been.
In the past eight months we have seen various countries go to the polls for different reasons.
Firstly, we saw the UK voters hdecide to leave the European Union and as Article 50 has been triggered the wheels have been set firmly in motion for a more independent Britain and, in the wake of a 2018 Brexit proper, a further snap general election announced to take place in a couple of months from now.
In the last twelve months we have seen the GBP fall from $1.49 in June last year to a low of $1.20 in January.
Thats a shocking 19%! The biggest fall since the collapse of the ERM (Exchange Rate Mechanism) and Britains exit from it in 1992.
Any ruling or change that the Brexit outcome may have does not and will not come into play until 2019 in earnest.
So why does something so distant have such an impact in the short term??
Well, I’ll tell you:
Economic growth in major corporations, countries or shall we say sovereign wealth funds, etc. is determined by what will happen over the next five or ten years.
This article by Tejvan Pettinger clearly explains the UK and pound situation.
Firstly, a currency exchange rate is simply a reflection of the supply and demand of a currency in the market and how much that is going to cost a buyer against the currency they are holding.
Sure, this will have a positive affect on the foreign investment into the country but that alone won’t have any major impact on the state of the currency on the index.
Now, when you factor in that the UK borrows more from other countries than it lends you’ll quickly arrive at the fact that this decreases the demand of the GBP, therefore we see a depreciation of the currency due to investors simply pulling funds out of that due to panic selling.
This kicks off a trend created by those who can’t afford to ‘sit it out’ and wait for all the panic to subside. This trend is watched by fence sitters who may have had the guts to see another 3-5% movement, but see 5% in the blink of an eye, and then dump what they’re holding. Thus your 19% drop in value…
When Donald Trump’s election win was confirmed in November we saw the Dow Jones exceeding all expectations with a surge of 257 basis points Nasdaq and S&P 500 both went up 1.1%.
To sum up, there is an indication towards a steady flow of money and investment of those funds that is undoubtedly predictable and available.
To those entities in the know that have a wealth of experience and all manner of resources at their disposable won’t have any doubt how to react to the next big market rally or the affect that the next big election result will have on global markets or say when the next bubble will expand and burst. Hey, they are already planning for it.
Not only are they making arrangements for any possible outcome, but they are most certainly doing so with their clients monies.
Using the Brexit and GBP 19% drop as an example it doesn’t take a market analyst to work that there was of course an unaccounted-for high percentage of people who did in fact get it right.
We’ve seen the first round of the French presidential elections and far right nationalist Marine Le Pen will go head to head with left of centre and virtual, political new kid on the block Emanuel Macron.
The two front runners will enter into the second and final round that will decide the outcome of who will be the next president of France. All very exciting stuff.
Now, using the French election two horse race run-off between Le Pen and Macron, and given that with a clear 2.5% advantage Macron has over his opposite number, the voter and the capital markets have favoured a Macron victory.
Macron being the centre left, middle of the road eurocrat will undoubtedly choose to remain in the Euro and thwart an almost certain ‘Frexit’ should the candidacy for the French Presidency go to Le Pen.
The reaction we have seen on the currency market particularly the Euro against the US dollar, have seen a very strong reaction and a strengthening of the Euro. We can see the strengthening of the Euro rising around 1% in a few short hours in the past half day only!
Double your money in a few hours
What I’m about to say here goes against all normal trading practices and disciplines that a conscientious and caring advisor such as myself would recommend.
My suggestion here would unequivocally be to buy more Euro against the USD.
Had I been writing this post 24 hours earlier and the advice was acted upon, for every $10,000 USD invested a further $10,000 would have been made and the choice to continue trading or take profit would be one that the investor had been faced with now.
Thats a doubling of your money in a few short hours.
The door to making profit is still open and there will be a fluctuation of the currency throughout the day (don’t forget volatility is our friend here),