It’s Over

French elections are over.

The Populist hydra has been slain (for now) and the world has taken a step back from a repeat of pre-WW2 political turmoil. Center globalist Macron bulldozed the “French Trump”, winning 66.1% of the vote.

Macron did very well among the rich and educated white collar demographic. Le Pen on the other hand attracted the blue collar, less “sophisticated” rural working class.

In essence, the vote was a battle between the “haves” and “have nots”. If you’re doing well in life, you don’t want Le Pen rocking the boat. But if you’re out of work and struggling, then you want someone who can overturn the established regime.

This is the exact dynamic we saw with Trump. The “haves” wanted the stability of Hillary. The “have nots” wanted Trump to shake things up and make factory jobs great again. In America’s case, there were a lot more “have nots” than what people thought — hence the Trump upset.

So what happened in France? Why wasn’t Le Pen able to do the same?

It’s because she didn’t persuade the old folk.

Both the Brexit and Trump events were heavily supported by older demographics. The older you were, the more likely you were to vote for the populist option.

But this wasn’t the case in French elections.

Le Pen supporters actually topped out around 40 years of age and then rapidly tailed off. Only passionate young people, still jockeying for position in the work force, wanted to upset the apple cart. The old folks didn’t want to live out their golden years in the midst of an EU breakup, with a currency change to boot.

Despite the bad beat, Le Pen actually took it pretty well. She was caught dancing away at a nightclub on the night of her defeat in classic French “C’est la vie” fashion.

Anyone paying attention to the markets knew what was coming. On the Friday before elections, investors were so confident in Macron, that they pushed French equities to new highs for the year.

Our team still covered our downside risk with EURUSD option spreads just in case of a surprise. A fluke upset would have decimated the risk-on holdings we’ve been nurturing since earlier this year.

To make money on this theme you would’ve had to be long equities well before the 2nd round of elections. In early April the markets were still scared of a Le Pen win. You could see this through the expensive options and stagnant equities. The crowd wasn’t privy to the coming retrace in populist sentiment.

But the Macro Ops team was. We bet on a likely Le Pen loss well before the trade became consensus.

Since the beginning of April, we’ve been pounding the table about how the populism cycle had reached a short-term top.

Politics, like price action, doesn’t travel in a straight line. It moves in waves. Large impulse moves higher are followed by corrections to the long-term trend. Then, once doubters have been shaken out, the trend resumes again, with another impulse move higher.

Our favorite chart of 2017, the World Economic Policy Uncertainty Index, made our analysis easy. It became clear that anti-establishment sentiment was overstretched post-Trump. We were due for some mean reversion.

This was a major reason why we called for a Le Pen defeat. Beggar-thy-neighbor politics had moved too far too fast.  

And like clockwork, the index continued to revert back to its long-term trend line on the back of a Macron win.

Going forward we can finally take a breather from politics (thank god). German elections should be a non-event and Italy’s election isn’t until next year.

Now that political risk has subsided, there’s not much data pointing to a reversal in trend. It’s not just Europe that’s strong, econ data is picking up around the globe.  

Since mid-2016, global PMI numbers have rapidly improved and continue to hold at expansionary levels.

And Citibank’s macro risk index is back near lows.

Notice the last time the chart was down to these levels — the end of 2009, the end of 2012, and now. All these periods were followed by major market rallies

The classic “risk-off” trades are all in the dumpster too. Gold looks weak. It’s stuck trading below its down-sloping 200-day MA.

And the rebound in bonds has proven to be short-lived as well.

For now, we’ll keep to the long side of markets while enjoying a respite from politics.

“It’s a bull market, you know.”



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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.