Moving Mostly To Cash In The 401K As Sunday’s First Round Of French Presidential Elections Take Place This Sunday

Moving Mostly To Cash In The 401K As Sunday’s First Round Of French Presidential Elections Take Place This Sunday

     As we move past 12:00 noon today, I am moving mostly to cash, with French presidential elections looming on Sunday.  It is really anyone’s guess as to who is going to finish first, second, and so on Sunday; and, depending on who you listen to, or read, you should sell everything in the short-term, or do nothing.  I either have the luxury, or the curse of managing my own 401k portfolio; and, I trade often daily.  So, for me to move mostly to all cash for the weekend is not really a big deal, since I can — if I choose — get back into stocks Monday morning.  Having said that, I am moving mostly to cash heading into the weekend because………

     French voters will go to the voting booth on Sunday in what is the first round of presidential elections.  Whoever finishes first/second Sunday, will then face each other in a two-week runoff campaign that culminates in two weeks on May 7.  As of now, the two candidates who are expected to finish one/two are:  Center-Left candidate Emmanuel Marcon who right now is polling at 23 percent; and, Marine LePen, the Far-Right candidate is right behind at 22.5 percent.  Center-Right candidate Francois Fillon, considered the French Margaret Thatcher candidate, has been slipping and is polling around 19.5 percent; while Far-Left candidate Jean-Luc Melenchon, an avowed Communist and the French Bernie Sanders, has been gaining ground and is hovering around 19 percent.  The remainder of the candidates are in the single-digits and aren’t expected to be a factor in Sunday’s vote.  Ms. LePen and Mr. Fillon have both strongly condemned yesterday’s terrorist attack and the the murder of a policeman in Paris, and are emphasizing their national security credentials and hard stance on militant Islam.

     There is much riding on this first vote; and, depending on who comes out on top Sunday — could presage the selling of equities in Europe early Monday morning; and, well before Wall Street opens at 0930.  Should Marcon finish first, as most traders and investors think, then European stocks likely rally; and, could provide a tailwind for U.S. stock futures Monday morning.  If Ms. LePen finishes first, the consensus in Europe and here seems to be bad for stocks both here and Europe.  Mr. Marcon is pro-European Union (EU), and considered a status quo candidate, while Ms. LePen is staunchly anti-EU, and favors a Frexit, and like Britain, wants France to return to using its own currency, and much more border control and stricter immigration policies.  Wall Street forecasters contend that if Ms. LePen finishes first, the concern will be that the EU and the Euro currency will be in mortal danger, thus the fear of a selloff in equities.  Their view is that only one more country, in addition to the U.K.’s decision to leave the EU, would be enough to begin the dissolution of the entire EU.   That seems to be the prevailing consensus on Wall Street.  Except, the prevailing consensus on Wall Street was that a Trump victory would be disastrous for stocks and the complete opposite happened.  Having said that, I do think if Ms. LePen finishes first this weekend, it will be enough to unsettle the markets Monday morning.  If Mr. Marcon finishes first, that will be seen as a reprieve from the populist wave that has swept the globe in the past eighteen months.  

     In a two-candidate race, Mr. Marcon handily beats Ms. LePen on May 7 by 65-35 percent.  But, as we all know, if the polls were right, Ms. Clinton would be the POTUS.  Is there a silent majority in France, as there was here; and, does Ms. LePen become the next President of France.  Her win in two weeks, assuming she finishes first or second on Sunday, is certainly far from being a fluke. Her victory would send shock waves across Europe and seriously jeopardize the EU.  

     I understand why the EU was created — to stitch together a continent that has birthed two world wars.  It was a noble idea/concept.  Integrate the countries in Europe to the point that there is little to no chance that World War III can occur.  But, one cannot subordinate one’s sovereignty to a distant, disconnected bureaucratic entity in Brussels. Unemployment among Europe’s youth is over 20 percent in many places, and even much worse elsewhere such as Greece and Italy.  Many leaders have spoken of a lost generation when referring to those 20-35; but, they have done little if anything to address the anti-competitive,overly regulated, stagnant economies that plague most of the continent.  And of course, there is the largest, and most profound displaced refugee problem not seen since World War II.  The larger influx of Muslims, lack of full integration into the economy and their neighborhoods, has provided the Islamic State and militant Islamists a fertile recruiting base; and, we are witnessing, with much more frequency, terrorist attacks like the one that occurred in Paris this week.  But, the EU is not the answer; and, POTUS Obama was on the wrong side of history — something he made a habit of — when he advocated voters in the U.K. to vote against Brexit.  I believe the EU, as presently conceived, is doomed.

     In addition to French elections, there is the North Korea nuclear issue that is ripe for miscalculation and strategic surprise.  

     So, I believe it pays to be cautious for investors, heading into the weekend.  No need to be a hero here.  V/R, RCP

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