Wednesday, February 8, 2017

Scarecrow Union

There is always something to worry about in Europe.  It is full of financial scarecrows.  You have US equities, which is immune to pretty much anything.  On the other end of the spectrum, you have Europe, which is scared of its own shadow.  It is not the EU. It is the SU.  Scarecrow Union.

Oh, it is the French elections now.  Frexit.  Europe is shuddering in fright over Marine Le Pen.  I am looking at the polls over there, and it is nothing like the US elections.  She is down by over double digits.  Trump always maintained a single digit margin behind Clinton, and was the candidate for a major party.  Le Pen is a candidate for the Far Right.  Big difference.  Just by being in one of the main two parties, you collect default votes from those who always vote their party.  That was what put Trump over the edge.  You could have the living corpse, Bernie from Weekend at Bernie's as the Republican candidate and it would still collect at least 35% of the national vote.  Le Pen doesn't have that advantage.

Even if Le Pen becomes French president, she will not be able to convince France to leave the EU.  The only way they leave is if they get kicked out.  And that's not happening.  The only country that would benefit from getting out of the EU is Germany.  Obviously they would be just fine without the EU, even with a stronger currency, they actually sell a lot of things other countries want.

Anyway, the Scarecrow Union will get frightened about something.  Even when it is from a member that doesn't even use the euro(Brexit)!  Italian referendum was a nothing burger.  So will these French elections.  This is such a slow and boring market that little bits of news that have no meaning suddenly grow in significance.

Treasuries and Bunds have been the main beneficiary of this worrying, and we are now heading towards the year's lows in 10 yr yields of 2.31%.  The S&P is hardly moving, and there is a busload of dip buyers waiting to buy any small decline.  Same as its always been.... The BTFD crowd has the strategy down pat.  And it keeps working, and it will keep working until we get that fiscal policy euphoria.  Nowhere close to that yet.

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