Do we really care who runs France? Does it matter if the British have a snap election? Do we have to be concerned about German elections come fall?
If you are a hedge fund manager, yes. If you are a fixed income manager, definitely.
But if you are a business person, you should be focusing on auto sales, which were extraordinarily strong yesterday. Overall registrations were up 11% including 6% for Volkswagen (VLKAY) , 14% for Renault (RNSDF) and 15% for PSA.
I think we have been stuck in a rut of thinking here in the U.S. We tend to read everything negative into elections in Europe because of the initial reaction about Brexit and the shocking declines it caused.
But if you think about the rebound after the June 23 shocker, you will realize how total "hedge fund" that decline was.
The Dow Jones dropped from 18,078 to 17,099 in two days. But then in three days it was right back and a week later it was up 500 points.
Yet it's that volatility, that elusive volatility that the hedge funds search for to make quick money that makes the headlines such a loud drumbeat.
In retrospect, it meant less than nothing. It was just a panic and a buy.
So many times we see that. When it is non-systemic and when it isn't in our country, it is panic and then buy.
But as we know from Goldman Sachs's (GS) call yesterday, the panic is what matters. The insane drive to trade something, anything, to the downside, the love and lust for volatility and the despair over the lack of it is behind so much of the discourse.
It makes me sick.
Now, yes, if you are in France and you are a business person, you do not want a hard leftist to win because there will be tax considerations. You sure don't want French bonds, because I can't recall many hard left socialists really giving a damn about the bond market.
They typically want to tax the rich and print a lot of money with the proceeds to help the poor, and they want to make it so business pays more. That leads to lower growth, higher inflation and the need to get out of French bonds at all costs.
So, the most you should care about a leftist winning in this French election is if you are trading fixed income, because you want to buy our bonds and sell theirs.
That's exactly what's happening.
You might want to care about car sales slowing from here. But given that no one here seems to care that they are accelerating, I don't know if we will care if they stall out, especially with General Motors (GM) leaving that market.
If a hard right candidate wins, then there will be a rush to buy our bonds because of fears that the euro will roll over as a nationalist will want to exit the EU.
More pressure on Treasuries to go higher and rates lower.
Hmm, in all cases you get higher bonds and lower rates.
So, my takeaway?
If you are worried about stocks because of European elections, you need to focus on the quick blip down, à la Brexit, so you can buy. Or, you can just forget about it and hold. Either one is fine.
The one addendum? If you are going to let yourself be dictated by the algos, you will have to deal with a decline in stocks, because rates will go down, and that triggers S&P 500 selling. It doesn't matter why they go down -- France is as good as any reason for rates to come down because of escaping European money to here.
Nevertheless, my overall point is this: stay focused on the fundamentals and the flow of funds. Notice that the flow of funds can distort asset prices, notably bonds. Rates then distort our equities over the short term, unless you are owning bank stocks. That's because the Fed may slow hikes based on the low rates caused, in part, by European fund purchasing, as the Fed wants to know the "true" reasons why rates are going down.
Otherwise, just carry on and stop being obsessed by the volatility that the hedge funds need so badly to make their numbers, and start being obsessed about how companies are doing.That's where the equity money is made.