Slightly Premature Victory Laps

The nightmare of nightmares of the globalist elites and France’s political establishment has been avoided: as the polls had indicated, Emmanuel Macron and Marine Le Pen are moving on to the run-off election; Jean-Luc Mélenchon’s late surge in popularity did not suffice to make him a contender – it did however push the established Socialist Party deeper into the dustbin of history. That was very Trotskyist of him (we can already picture a future Weekly World News headline: “French socialists discover giant alien dust mites”).

Lateral entrants to the business of avenging the disinherited, leavened by strawberry cake.

Around three micro-seconds after the election results became known, the entire French and European political elite immediately announced its undying support of Emmanuel Macron, with only a handful of “populist” parties outside of France saying that they were rooting for Marine Le Pen.

Just to clear this up beforehand, Ms. Le Pen may be the terror of the establishment, but she is just as statist as her competition was and is – in some respects probably more so. The run-off election is between two central planners (or at least “third way” proponents), each one of whom believes to be in possession of the “better plan”.

First round election results: the distribution of support between Ms. Le Pen and Mr. Macron reminds us a bit of the 2010 election map of Ukraine, which showed a similar East/ West split (see “Mapping the Conflict in Ukraine” for more details on this). Amazingly, Hamon didn’t even win a single department – click to enlarge.

There is no political constituency for liberty or anything remotely resembling classical liberalism (= libertarianism) in France. Moreover, in view if Mr. Trump’s recent magical transformation from putative swamp-draining rebel to slightly confused neo-con (who urgently needs a compass), it is clearly time to once again focus on the only thing that one can actually hope for in politicians, and that is entertainment value; luckily we have good news on that front.

Given unanimous establishment support for Macron, it was apparently concluded that the 2nd round voting ritual will be a mere formality, a kind of rubber-stamping exercise for the Brussels-approved candidate. Just to be safe, the French bureaucracy nevertheless mailed two ballot papers each instead of one to several hundred thousand Frenchmen living abroad so they will be able to vote twice.

That should produce a small haul of fraudulent votes for Macron, as it was decided to simply let the matter rest. Action will only be taken if fraudulent voting attempts are “detected” after the fact, which sounds like a difficult thing to do without Batman (in view of Le Pen’s anti-EU stance, most Frenchmen living elsewhere in the EU are bound to vote against her for personal reasons).

Second-round voting intentions, from the department of reasonable assumptions: after Geert Wilders “lost” the election in the Netherlands by enlarging the presence of his party in parliament by 33%, the conviction that Mr. Macron will deliver a Hillary Clinton-type landslide victory has solidified (“it doesn’t matter if the probability is 91%, 95% or 99%” – only climate science dazzles with more exactitude and prescience!). Admittedly, the recent French polls are probably more accurate than the US polls were, but we will still spend most of this post explaining why an upset could happen anyway – click to enlarge.

Confidence that the Brexit and Trump polling failures were non-repeatable one—off events seems indeed quite strong, judging from the party that was thrown in stock markets around the world. Even the sickly looking euro regained its footing.

To this we would point out the following: for a variety of unrelated reasons the euro was ripe for a rally regardless of the outcome of the first round election. Moreover, it simply doesn’t matter what the candidates say they want to do about the euro – not one of them is likely to abandon it.

Without a parliamentary majority it isn’t even possible for a French president to call a referendum on EU membership or the euro, as it would touch on a constitutional issue. We bet that would be just fine with Ms. Le Pen, since going back to the French franc would entail headaches any politician will want to avoid – unless a major crisis forces his or her hand (note: the FN has currently just 2 out of 577 seats in the National Assembly and Macron’s new party has so far not yet taken part in an election).

Buying already overbought and overvalued stocks is a different kettle of fish though – although the relief rally was not really unexpected, it still looks like mindless herding behavior. It makes about as much sense as buying gold due to rising geopolitical tensions, i.e., not much.

French stocks take off, as does the euro. The latter makes sense, the former doesn’t really – click to enlarge.

Money supply growth rates are currently slowing in every major currency area except China. M1 growth was recently still fairly high in the euro zone in absolute terms, but the ECB is beginning to “taper” QE as of this month, so a further slowdown is quite likely.

Narrow euro area money supply aggregate M1 (~equivalent to TMS) – the y/y growth rate has slowed from a high of ~14.5% to ~8.5%, with a further slowdown likely. That is usually not the best time to buy stocks, especially if they have already rallied for a while. Obviously, a Macron victory isn’t going to persuade the ECB to print more money – click to enlarge.

Rise of the Deplorables

The default assumption should be that Macron will indeed win the second round, but he does have some problems that may be masked in the polls by the “Bradley effect”. One advantage of Ms. Le Pen that reminds us a bit of Donald Trump’s campaign is that her voters seem more engaged and less likely to switch sides. The same cannot be said of Macron’s supporters.

Not only Macron’s supporters are less sure of their choice than Le Pen’s: note how fickle Hamon’s voters are. How certain is it that only 3% of them will vote for Le Pen vs. 70% for Macron? What they are telling an interviewer may not really be indicative of where they will put their cross in the contemplative quietude of the voting booth – click to enlarge.

In recent years security, immigration and terrorism have become increasingly important issues. It is fair to say that a great many French voters have by now migrated closer to Le Pen’s views on these topics (so to speak), in spite of the fact that the population of France once was one of the most tolerant in Europe.

After its election results fell intermittently to a low point from 2006 to 2008, support for Marine Le Pen’s Front National has grown noticeably. There seem to be more deplorables in France than previously suspected – click to enlarge.

That has changed significantly after the big surge in terror attacks over the past year (here is a list of French voter priorities posted by Mish in February; security and terrorism are sharing third place with purchasing power, right after jobs and government handouts). It should be no surprise that the Front National has become a bit of a fan favorite in recent years.

Last week’s terror attack in Paris elicited a comment by Macron that was faintly reminiscent of Marie Antoinette’s idea about people lacking bread. In an editorial for the Guardian he essentially told people to “get used to it”. That may simply have been a realistic assessment, or a less than ideal way of putting it. Still, when emotions are sufficiently stirred up, it may be taken as a sign that he won’t do much about it. That is quite different from Le Pen’s activist attitude.

Le Pen doesn’t seem to consider the problem “imponderable” – she would simply close the borders to immigrants from Isistan. Once upon a time this stance was widely decried as racist, but France has been on the receiving end of numerous terror attacks and many people’s attitudes have changed accordingly.

This doesn’t look like something one would want to get used to.

Macron: Hidden Entertainment Value

It may in this case be to Macron’s advantage that he frequently dispenses fascinating outbursts of verbiage that seem deserving of being entered into an incomprehensibility competition. He sounds at times as if he has a built-in postmodernism generator, or as if his speech hasn’t been decrypted just yet. People may therefore not be worried too much about what he says, since it is always possible that he has switched to philosophical bon-mot mode, and that stuff is generally beyond the ken of mere mortals.

It is incidentally also the good news we alluded to above, in the sense of entertainment to look forward to. We were previously fairly certain that only Marine Le Pen and perhaps the French Hugo Chavez would be able to deliver a satisfactory performance entertainment-wise. It turns out they have company.

After taking a closer look at Macron’s antics, we realized we had overlooked an incredibly gifted artiste. Because of this exciting discovery we can now look forward to the election with complete equanimity – any outcome will do. Here are a few remarks by other observers and critics commenting on his rare talent:

François Baroin: “He says nothing about nothing, and probably doesn’t think much more than that about it either.” Unknown (to us, anyway) observer: “That is to say, a little elusive… it sounded hollow, in my opinion” Another unknown observer (faintly reminiscent of Sherlock Holmes): “It is the most brilliant encryption system in history.” Desperate woman standing in a fog bank: “I don’t understand… I don’t understand a word.” Yet another anonymous observer: “This surpasses everything I could imagine.” Marine Le Pen, speaking to Macron in a debate: “You have an insane talent, you end up speaking for seven minutes, I cannot even summarize your train of thought, you have said nothing, it is like the absolute void between the stars.”

What is it that so excites and at times perplexes his fans? We give you a few examples below (and will provide proof that he really said those things):

Macron at a feminism conference: “The identity is “A” equals “A”. There exist at least “A’s” and “B’s”. I didn’t want that “A” equals “B”.” Macron during an interview: “You don’t want to live in a box, do you? I don’t. And so, our life always happens “at the same time”, it is more complex than what we want to reduce it to.” Macron writing in “Le Journal du Dimanche”: “I have always accepted the vertical dimension, the transcendence, but at the same time, it has to be fully anchored in the immanent, in the material.” Macron delivering a speech: “I, my life, my memories, they are made of childhood memories of my grandmother and that professor of philosophy, whom I have never seen… and yet, I have the feeling I know his face.” Another Macron interview: “What constitutes the French spirit is a constant aspiration to the universal, that is, this tension between what has been and the part of identity… this strict ipseity, and the aspiration to a universal, that is to say, that which escapes us.” [ed. note: “ipseity” = “selfhood” – a term to be found – no kidding – in the “Dictionary of Untranslatables”; apparently French deconstructionist philosopher Jaques Derrida used the term ‘ipséité’ frequently in his writings. We incidentally also have to thank Derrida for books like “Specters of Marx” and sayings like “To pretend, I actually do the thing: I have therefore only pretended to pretend. And lastly, from another interview comes what we would at this stage call Macron’s piece de résistance… something for true connoisseurs, the high point – so to speak the Mount Everest of his pseudo-philosophizing and improbable reasoning. Just a few sentences of oddly poetic nonsense, declaimed with such moving sincerity one sits spellbound as the magniloquent imagery unfolds – until either the last sentence, or… We made the terrible mistake of watching the facial expression of the TV presenter, who listened to it live when it premiered and managed to preserve a deadpan, slightly bemused expression throughout, with a degree of self-control worthy of a Shaolin warrior monk. We probably sprained something in the process (the septum transversum? If Macron were in the US, we could sue him now). So here goes, Macron has the word: “We all have our roots. And because we are all deeply rooted, there are trees next to us… there are rivers, there are fish… There are brothers and sisters…”

Stunning. We have in the meantime found out there is more… the man is a veritable fount of memorable quotes. Here is a video that shows him actually saying all of the above (in French, which somehow makes it even funnier):

The reincarnation of Socrates… or someone like him. Sort of.

What If?

We have to briefly consider what happens if the bête noire Marine Le Pen – unlikely as it seems – manages to pull a Trumpian upset. When Donald Trump won, the big surprise was that risk assets only went down for about an hour and immediately commenced to rally, a state they have been in every since. We don’t believe situation in France is going to be similar, if a surprise victory is achieved by the apparently greatly feared populist candidate.

The reason is mainly that market participants have decided to celebrate already. Prior to the US election, a mild undercurrent of “he might just pull it off” was always detectable. Also, the markets were a bit nervous, with volatility premiums high until D-day and the market weakening somewhat into election day.

This more recent flipping of the switch from semi-sobriety to full-on party mode is almost disrespectful by comparison. Anyway, it also tells us that the election outcome is widely regarded as predetermined and anything else is therefore going to upset the markets to varying degrees (in the short term).

She looks like she’s about to take off… can she actually fly? Her first round result was the best the FN has achieved in its history (see insert). Oh, and she’s wagging two fingers at once, for extra-emphasis. Finger-wagging by politicians is usually not a good sign, since it is most often employed when talk turns to perfectly harmless voluntary activities that the speaker wants to make illegal or regulate into near-death type catatonic compliance.

Conclusion

This is probably the last time we will write about the French election, unless the unlikely happens somehow. As we said though, that is a possibility that shouldn’t be dismissed. Other than that, we just hope that Macron continues with his creative impromptu wordsmith career.

Bonus Chart: Long Term Approval Bear Market

French presidents seem to have impressed their subjects less and less as time has gone on. Mr. Hollande saw his approval rating tumble to levels so low they were previously unimaginable; he didn’t even try for a second term as a result. To add insult to injury, at the time his approval rating hit its low it amounted exactly to 100 minus Putin’s approval rating. Wining the French presidency is evidently easier and more fun than actually governing.

As a final aside: five of seven post WW2 French presidents of France were “conservatives” – and yet, France is by many measures one of the most socialistic countries in the EU today, with government spending amounting to a breath-taking 58% of GDP (no wonder they are liked less and less).

The people increasingly disapprove… – click to enlarge.

Charts and tables by: Economist, Guardian, stockcharts, ECB, Ifop, Anatoly Karlin/votrejournaliste.com, Boomberg

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