French Election Primer
Today is the First round Run-Off in the French Election for PM. There are 11 candidates in all. The 4 profiled below encompass over 97% of likely poll results. And after this first round there will be a second and final (?) vote on May 7th. Currently, Le-Pen and Macron are the favored candidates to make it to the next round. Here is a compendium of info cobbled together from what we feel are the most informationally reliable, and where their opinions are noted, the least politically biased sources.
We think this offers potential for major market reactions, in direct correlation to the diffference between the politics of the winners of the first round. Basically, if a hard left adn a hard right candidate are in thefinal 2, then the run-off today will create MORE uncertainty, not less. AS far as Gold goes, if Le-Pen and Melenchon advance to the final round, it could be a nightmare for markets. And frankly that would we feel be a breeding ground for more entrenched protests, and worse, terror attacks either from Islamist groups, Nationalist Groups, or Leftist radicals. More on that in our next post. For now, here is the playing field. We hope this helps - Soren K. Group
The Candidates in Summary:
Jean-Luc Melenchon 65-Left Party
Total overhaul of political system, high tax, big spending on environmental transition, EU-hostile
Benoit Hamon 49 - Socialist Party
Positioned to the left end of his Socialist Party. 'Big idea' is costly social welfare reform under which the state provides a no-strings monthly income to all adults
Emmanuel Macron 39 - En Marche, an unaffiliated movement
Non-partisan political movement created in April 2016 with stated goal of transcending the limits of traditional left- and right-wing parties, with policies that would combine state protection and business freedom to innovate.
Francois Fillon 63 - The Republicans
Seeking return to power for mainstream centre-right. after five-year hiatus. Won Les Republicains ticket on proposals to slash public spending and cut state sector jobs Social conservative from region with strong Catholic roots
Marine Le Pen 48 - National Front
Seeking first presidential win for far-right party her father Jean-Marie Le Pen founded in 1972 but which she has rebranded as anti-establishment party that caters to working class voters of left-wing leaning as well as anti-immigrant, anti-EU and "French-first" voters
Voting Schedule
On Sunday 23 April, most polling stations will close at 7pm local time but some will remain open until 8pm local time. The first exit polls should be published at 8pm but may have to be taken cautiously. Press reports suggest that pollsters are worried about their ability to provide accurate exit polls at 8pm . Throughout the evening, polls are counted. By midnight local time we could expect to have a clear picture of who would make it to the second round.
- At 19:00 BST / 14:00 EDT preliminary results are released, which is perceived as a usually good indicator of the final results. This will give markets a good hour to digest before Asia markets open at 05:00 Sydney / 20:00 BST / 15:00 EDT. In 2012, 80% of the vote was counted by roughly 22:00 BST. Note that polling stations in rural areas close by 17:00 BST, urban polling stations by 18:00-19:00 BST.
- However, watch out for leaks. In 2012, journalists and pollsters circumvented the law by employing code names for each candidate, leaking the results of the exit polls to the public off. These reports were then quickly picked up and distributed by foreign new outlets which are not subject to French laws. On the night of April 23 look to the airwaves for news; perhaps #RadioLondres will be making another dramatic call to La Resistance.
Handicapping the Candidates:
Citi Research’s latest probabilities of each candidate becoming President are: Macron (35%), Fillon (30%), Le Pen (25%), Melenchon (10%). This is notable in that their analysis was a day or 2 before the recent spate of terror attacks. We suspect, and latest polls show Le-Pen's are higher now. Also note this is Citi's winning the Presidency assessment. It seems to imply that if Le-Pen and Macron were to win the first round today, that Macron would win the second. Read on for their rationale
- Marine Le Pen: The right-wing candidate is the main risk for EUR. She has repeated a campaign promise to propose a referendum on France’s membership in the Eurozone and EU within six months. She is expected to go through the first round with ease, but not likely to prevail in the second round, ultimately.
- Francois Fillon: Conservative candidate and former PM was formerly the frontrunner. However his popularity has been undermined by controversies, particularly allegations he paid his wife with taxpayer money for a job she did not perform.
- Emmanuel Macron: The independent centrist and former economy minister is Citi’s base case winner. His new party En Marche has continued to gain momentum.
- Jean-Luc Melenchon: The wildcard candidate has gained impressive momentum in the last month or so. The hard left wing candidate proposes a top income tax charge of 90% and to renegotiate the terms of France’s EU membership.
Latest Polls
These are polls for first round outcomes. First is a historical timeline. underneath are 3 popular pollsters numbers. Note Melenchon's rapid rise as a hard left reactionary candidate. Also note the very at the very end Melenchon's downturn is Fillon's gain. We view this as in part due to moderates becoming less reactionary to Le-Pen's hard right stance and starting to compromise. or it could be Leftist leaners turning moderate post the terror attacks. Point is, throw out the polls, especially with event risk real up until the actual voting is closed. It is truly a 4 way race. - Soren K Group
h/t Reuters
Candidates in Depth
Melenchon - Left Party
Economy: Lower pension age to 60 from around 62/63 currently, keep work week at 35 hours, raise minimum wage to €1,300 a month net versus €1,139 now; repeal recent labour reform that makes hiring and firing easier; increase number of income-tax bands, with top rate of 100% on annual income over €400,000.
Security and immigration: On immigration, has said he wants immigrants generally to stay away, that what needs to end is forced exile of immigrants from their native country and thus the war and austerity that drives them to exile.
Europe and the world: Opposes EU treaties, says change them or leave. Wants France to leave NATO, opposed to TAFTA/CETA trade accords.
Society and governance: Wants sweeping constitutional reform to end a "presidential monarchy", establish more citizen power over politicians and more political accountability as well as cement guarantees on rights such as abortion.
Hamon - Socialist
Economy: 10% rise in minimum wage, benefits payments and civil service pay. Shift to basic welfare income model, starting with 10% rise in benefit payments, to €600 monthly, extension of that payment to people aged 18 upwards versus 25 upwards now. Aim is to raise this to €750 and award it to all adults, costing at least €300 billion a year. Funding to come from tax reform including introduction of 'robot tax' on increasing number of digital- or robot-platform businesses.
Security and immigration: Hire 1,000 police officers per year and boost defence budget to 3% of GDP, from well below 2% of GDP now. Introduction of temporary 'humanitarian visa' for migrants plus work permits pending asylum decisions.
Europe and the world: Recognise Palestian state. Seek moratorium on EU's stability and growth pact pending reform and exclusion from Maastricht deficit rules of defence spending. Oppose various international free trade pacts. Favours EU convergence on tax and social policies as well as defence.
Society and governance: Legalise cannabis. Presidential mandate to be changed to one term of seven years, versus more than one five-year-term now. Members of parliament limited to three mandates. Introduction of citizen-initiative legislating where parliament must consider bills that are proposed with backing of 1% of voters.
Macron - En Marche Party
Economy: Reduce public spending by 60 billion euros over five-year term, in part by reducing public service payroll jobs by 120,000. Public investment spending of 50 billion euros and 10 billion euro reduction in local tax (taxe d'habination) . Cut corporate profit tax to 25 percent from 33 now. Public spending to be cut by thrree points to 52 percent of GDP by end of mandate. Keep 35-hour work week in law but allow negotiation of true work hours at branch and/or company level; broaden the existing CICE tax credit scheme for low-wage staff; exempt low-wage earners from health/unemployment taxes, boosting take-home pay by as much as 500 euros/month, with cost to state offset by rise in broader-based CSG tax. Extend healthcare cost reimbursement to full cover of dental, optical and hearing treatment.
Security and immigration: Hire 10,000 police in first three years of mandate. Fight cannabis use with introduction of on-the-spot fines. Fight crime gangs by use of 'barring orders' to remove gang-members from their neighbourhood. Keep EU's Schengen pact but boost external frontier policing by 5,000. Adopt common European asylum policy.
Europe and the world: Firmly pro-European Union: wants common defence funding while remaining pro-NATO and wants euro zone governments to forge closer ties. Like most others, does not like TAFTA free trade agreement, which France among others has refused to back. Says free trade accords need more democratic process of negotiation.
Society and governance: Clean police/court record a prerequisite for all ministers. Ban holding of more than one elected office. In schools, halve size of early primary school classes in areas classified as priority zones. Give all young people a €500 token they can use for cultural activity such as going to cinema, theatre and music events. Says will be ardent defender of gay and lesbian rights.
Fillon - Reupublicans
Economy: Reduce public expenditure by €100 billion over five years of mandate, in large part by cutting public service payroll jobs by 500,000 and also raising legal workweek in private and public sectors–with instant rise to 39 hours, paid 37, in the public sector. Retirement age to rise to 65. Two-percentage-point rise in upper-band VAT sales tax, scrap wealth tax and lower official company profit tax to 25% from 33%. Free eye-glasses, hearing aids and dentures for all by end of term as well as health-care insurance revamp that will help people pay top-up fees some doctors demand over and above standard rates. Big initial deficit rise.
Security and immigration: No rise in national police numbers. Says Europe/EU needs an external frontier police force. Annual quota for intake of immigrants. Health benefit: foreigners eligible after two years of residence, free hospital treatment limited to serious illness. General free medical care abolished for foreigners.
Europe and the world: Pro-EU but muted in rhetoric on this issue, with focus on consolidating and improving euro currency area decision-making. Wants closer ties with Russia, meaning end of EU sanctions over Crimea/Ukraine conflict and alliance in dealing with Syria.
Society and governance: Personally opposed to abortion and same-sex marriage but would not change basic rules on either, except on adoption by same-sex couples. He would ensure filiation link with birth parents would remain, whereas it would be cut in the case of adoption by a man-and-woman couple. On programme generally, government would roll out key measures including tax cuts in first 100 days.
Le Pen - National Front
Economy: Raise salaries of up to €1,500 a month by €200 a month. Cut retirement age to 60 and raise pension benefit. Cut gas and electricity prices by 5%. Cut tax on car fuel by 20%. Add higher income tax band of 46%. Reform or maintain wealth tax. Company profit tax change to bands of 15%, 25% for small and medium-sized firms alongside existing 33% rate.
Security and immigration: Referendum on restoration of death penalty and unchangeable life prison sentences. National preference rule for hiring French-origin people in public and private sectors. Add 10% employer tax where non-French EU nationals are hired. Reduce legal immigration to 10,000 a year from 200,000 a year. No welfare benefit for recidivist offenders. Legal migrants urged to leave country after one year of unemployment. Abolish free healthcare of illegal migrants and accord benefits to legalmigrants only after two years of residence. Hire 15,000 police over five-years term.
Europe and the world: Re-establish French franc currency and make central bank answerable to French Treasury. Renegotiate relationship with European Union/Call referendum on EU membership. Pull out of EU farm subsidy programme and replace with a French one that limits payments to Brussels.
Society and governance: Bring back seven-year presidential term and make it non-renewable. Strict secular rule, with ban on all forms of religious clothing and apparel in public service and among users of public services. Not part of official programme but she has said the abortion-on-demand law should not be changed. Introduce school uniforms. Put French flags on public buildings and remove EU flags.
Market Risk:
WSJ- "Investors are contemplating their nightmare scenario: a choice between far-left and far-right candidates. In recent days, a surge in opinion polls has placed Jean-Luc Mélenchon, a left-wing firebrand who promises higher wages and fewer working hours, as a potential candidate to move past this Sunday’s first round of voting. That could set up a second-round vote in May 7 with Marine Le Pen, an economic nationalist who wants to pull France out of the euro."
We couldn't agree more and will be posting some analysis by firms that have gamed out possible outcomes and the likely market reactions. Stay here for that post in a few.
Gold: Our Quick Take
Immediate reactions to results:
- Very Bullish:If Jean-Luc Melanchon and Marine Le Pen both make it into the next round, this will be viewed as a major heightening of geopolitical risk, which will likely bring with it an large extension higher in Gold prices
- Bullish: If get a second round with either of those missing, fears of ‘bigger issues’ in Europe recede a bit as the possiblility of 'cooler heads' (in our view boiled frogs) may prevail. Bullish despite a pullback potential. An old phrase "violently unchanged" comes to mind. The bullishness is predicated on either cultural war now (extremist win), or cultural collapse (moderate "stay the course" win) from unsustainable globalistic policies in the future.
- Bearish: Neither extremist candidate makes the cut. This will opiate markets, and in our view Gold will take a serious hit from the "risk On" crowd once again trampling themselves to get out.
Short Gold Now: Nice knowing You
Since April 19th, Gold has outpaced even the USD as a 'safe haven'. This is not just from Eu issues. it is part of the Trump "weak dollar" diatribe. Point is, regardless of the outcome in France, the USD must weaken over the next 5 years. It's inevitable.
We do not recommend buying Gold going into an event because of the cliff diving potential of exiting lemmings if all is "well". Do not bet on coin flips either way. The only thing worse than being long gold as a risk-off bet going into an event is being short it. Buy calls, buy puts, but don't spec is our opinion. keep your powder dry if you think the market is longterm going up. There will be plenty of dips to buy. Central banks need to buy more yet. They won't permit it to run until they are done.
Be speculatively flat, buy popcorn and chill.
h/t kitco
Long Term Implications if Moderates Win
Kick the Bucket Bearish: As a comment on #3 we do not think elections solve the problem. Putting a moderate in power only slows the inevitable. That being EU culture clash from immigration, Strained socail infrastructure, and the grass roots nationalist backlash that will come back only stronger as economies collapse under the strains of immigration on top of the already tenuous EURO situation. So yeah, it is bearish. Just like when it was bearish when the BOe sold in the late 1990's right before a huge 10 year bull market. So feel free to be selling Gold in the hole if the moderates win. For us, it is another bandaid on a bullethole in what is the slow death of Europe's culture and semi united economy.
For What it is Worth: Predictions
Note: The 2 firms below are predicting the final outcome, not the first round being held today. Other firms are much different in their assessments. Point is, nobody knows.
Here is the bottom line: if on Sunday night the two candidates left standing are Melenchon and Le-Pen, it may be too late to late to buy Gold and too late to sell everything else.
h/t zerohedge
Read more by Soren K.Group
