How to Trade a Marine Le Pen Upset

The French election hasn’t surprised…yet

Emmanuel Macron and Marine Le Pen, the two frontrunners, won the first round of voting on Sunday.

Macron, a centralist candidate and former investment banker, won 24.01% of the vote. He’s supported by the mainstream establishment and press, vowing to retain the euro and unite France within the European Union.

The far right’s Le Pen won 21.30% of the vote, coming in a close second. As you probably know, she wants to take France out of the European Union and Eurozone.

As no candidate won the majority, which is usual in France, the two candidates will face off in a second round of votes on 7 May. The political poles expect a landslide victory for Macron:

French presidential election

Source: The Guardian
[Click to enlarge]

Macron is shown by the orange line and is expected to win 57% of the vote — a majority victory. With that prospect in mind, the US Dow Jones Industrial Index has rallied back to the 21,000 point level, and gold has lost ground to $1,261.76 per ounce. The euro, meanwhile, has bounced, with the US dollar hitting five-month lows.

Is this the calm before the storm though?

Breaking down the French election

For the first time since the Second World War, an established party candidate — on the left or right — didn’t make it to the second-round runoff.

François Hollande, the current French President, didn’t bother running for the top job. That’s unusual. As we know, politicians tend to run for a second term. Hollande, however, knew it would be pointless. His popularity remains at an all-time low, hitting 4% late last year. Hollande’s approval rating could be the worst for any president in history.

The scandal-hit conservative candidate François Fillon (who paid his wife hundreds of thousands of euros for ‘fake’ work), and socialist candidate Benoît Hamon, both conceded defeat after the first-round vote.

The candidates, and multiple others, want their supporters to back Macron for the final vote.

The situation reminds me of 2002…

French politicians at the time united behind Jacques Chirac — a centralist candidate — in a phenomenon dubbed the ‘Front Republican’. The goal was to prevent the far-right National Front candidate, Jean-Marie Le Pen (Marine Le Pen’s father) from winning. Jacques Chirac eventually won 82.2% of the vote and became the French president.

It’s tough to say whether history will repeat. Marine Le Pen holds a support base of 21.30%. For that reason, unless greater numbers show up on 5 May, she may not be popular enough at this time.

Don’t believe that victory for Macron is guaranteed, however. The silent majority could easily show up with force on game day.

Remember, the polls have got it wrong multiple times over the past year. Brexit and Donald Trump were major upsets against the establishment. Le Pen could easily seal the deal for the silent majority once more.

If she does win, which admittedly looks like an outside chance, it would send a fresh round of shockwaves across financial markets. And, while they aren’t specifically anticipating that outcome, a number of investment legends believe stocks are overvalued and financial market turmoil is imminent.

The experts are worried

Bloomberg reported over the weekend:

Billionaire investor Paul Tudor Jones has a message for Janet Yellen and investors: Be very afraid.

The legendary macro trader says that years of low interest rates have bloated stock valuations to a level not seen since 2000, right before the Nasdaq tumbled 75 percent over two-plus years. That measure — the value of the stock market relative to the size of the economy — should be “terrifying” to a central banker, Jones said earlier this month at a closed-door Goldman Sachs Asset Management conference, according to people who heard him.

Jones is voicing what many hedge fund and other money managers are privately warning investors: Stocks are trading at unsustainable levels. A few traders are more explicit, predicting a sizable market tumble by the end of the year.

There hasn’t been a 10–15% correction since January 2016. That’s over 15 months ago, which is unusual for financial markets. That said, there must be a trigger to send financial markets over the edge. The US Fed raising interest rates, and Chinese stocks capitulating, sparked the last correction. A Le Pen victory could easily kick-start the next one — few people expect it to happen.

I wouldn’t be buying stocks yet…

Scott Minerd of Guggenheim Partners, a global investment advisory firm with US$250 billion under management, agrees. He’s expecting a ‘significant correction’ around winter. Philip Yang, a macro manager at the helm of Willowbridge Associates, sees a stock plunge of between 20–40%.

Billionaire Larry Fink, CEO of BlackRock, Inc. [NYSE:BLK] — a global investment management company that oversees US$5.4 trillion — has also changed his tune. Fink has been a stock market bull for years. But he now believes that stocks could fall by 5–10%.

My colleague, Vern Gowdie, Editor of Gowdie Family Wealth and The Gowdie Letter, is strongly in the bearish camp. Vern believes a 50–80% stock market crash is imminent. And he’s written a new book explaining how you can protect your wealth before the meltdown occurs. Find out how to claim your copy, here.

I believe that a 10% correction — at least — should hit global markets. But I can’t see it happening without a trigger. Corrections don’t happen without reason. A Marine Le Pen victory is the perfect event for a stock market correction.

So, how should you trade a Le Pen victory?

It’s simple — sell stocks and buy gold.

You see, most people are buying stocks and selling gold, believing Le Pen has no chance of winning. If you short stocks and buy gold just before the final vote, and Le Pen doesn’t win, you’re unlikely to lose much money. The mainstream doesn’t expect that outcome, so a Len Pen loss has already been priced into the markets. But if Le Pen wins, well, you could easily see gains of 20%…or more.

To find out the specific recommendations I’ve given to readers of Resource Speculator, go here.


Jason Stevenson,
Editor, Markets & Money

Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:

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