Did You See The Election Results?

No, not ours. We’ve been over that. We are over it. We’ve moved on. To new highs in the equity markets. US Bond markets are acting as if the much anticipated rate rise is coming and we’re on our way to economic glory. Let’s recap; Brexit – Yawn, US Presidential – Snooze. So now what? ITALY! Are we numb to these populist movements at this point? Do they no longer worry us? Or have we digested as much of this as we can and it’s on to holiday shopping, football playoffs, etc.

Italy just had a vote, in the nice and simple YES/NO format. The populist explanation of the vote explained that it was a referendum on whether to effectively expand the power of the Prime Minister at the expense of the regional governments and the citizens, of course. And the resounding defeat of the vote has resulted in the effective defeat of Matteo Renzi as well, who resigned when the results became clear. I’ve spent my career looking for patterns, and this one is one easily spotted on your first day trying. WE, no longer believe in what has worked relatively well for a long time. WE is becoming a pretty big group. And yet, while all these movements seem to believe that their votes will bring on substantive change, I’m not so sure that any of them are or will be getting what they think WE’ve bargained for.

Why not? The turnouts aren’t terrible. The balance of the votes are relatively convincing. And the messages being sent to the incumbents and those that would replace them are very clear. But from watching the markets react, and from watching elections as an interested party for quite a while now, I don’t really think these make much difference in the big (macro?) picture.

We do need to pause for a moment here to bring up the fact that this is Italy. Perspective. Before Donald Trump was the US President-elect, Italy endured Silvio Berlusconi and his scandals. This is not to suggest that the incoming administration will have scandals. In fact, that was far worse than even the ugly Trump accusations. And Italy still stands. They have survived enough to have this vote on their future. So as panicked as the British might have been from Brexit, and as traumatized as many were here at home by Trump’s “surprise” election, the countries survive.

There are more votes coming up in Europe. The future of the European Union seems to be in jeopardy as these votes come up and the populists ride to victory. France’s will come in 2017 with much of the same momentum building. As for momentum, Angela Merkel, once seemingly guaranteed re-election could be losing hers, and in turn Germany’s own elections next year. Each time a country goes through this type of vote, the doomsayers are out. Well, they’re basically always out, at times like this they are just are louder and more visible. But let’s look at what actually happened when we’ve had these recent events.

bp-brexit

Currently, the British Pound is approximately 12% from where the currency opened vs. the Dollar the week of Brexit vote, when we thought they would stay. Lower? Yes. Disaster?…not so much.

sp-election

I believe we’ve covered the all-time highs in US indexes.

euro-italy

The current (right most) bar is this week in the Euro. While low, its reaction was to sell off and bounce right back. Not a big indicator of an EU breakup

So how do we reconcile the doom saying with the reality? I believe that these charts are merely a representation of crowd beliefs and behaviors. We often over react to a piece of information as evidenced in these pictures by the enormity of the moves immediately following the election and their earliest results.

So as we look at populist voting patterns, maybe we can look at this in a positive. It’s the beginning of people becoming more involved and paying attention. The markets don’t seem to view it as the big negative many on the other side will portray. In fact the market moves seem to indicate that many of those looking for substantially negative reactions were taught that valuable lesson we all learn, many multiple times (point finger at self). Your opinion is just that, the market is always right.

Look at the situation today. The markets are stable. The US is rallying, and many would argue that this can’t hurt the global markets. No matter the rhetoric around no free trade pacts, global trade itself certainly is not going to cease. This is today’s normal. It’s not a new normal. It has come about from the progression of technology and the ability to trade, manufacture and conduct business globally in general. It’s here to stay. This is a genie that doesn’t go back in a bottle. And it looks like the markets know this, accept it, and maybe even like it. Keep calm and keep investing.

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