• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Industrials

Trump Victory: Actually, Don't Short the Euro

Trump's victory could unite and invigorate Europe's moderates against the populists.
By ANTONIA OPRITA Nov 10, 2016 | 08:00 AM EST
Stocks quotes in this article: EADSY, DUAVF, FINMY

In the wake of Donald Trump's victory in the U.S. presidential election, my colleague Mike Norman argued investors should short the euro. I think they should do no such thing.

Forget for a moment the fact that shorting currencies is extremely dangerous, as they move very fast following government and central bank announcements. (As a reminder, in January 2015 when the Swiss National Bank removed the currency peg, stop losses did not work and many traders lost more than they thought they would.)

I don't believe Trump's victory spells the end of the euro or that of the European Union. The main argument of those who say it does is that his victory, so soon after the Brexit vote in the U.K., encourages populist movements across Europe, such as France's Front National, which wants the disintegration of the EU.

Some commentators in the British media now say that Trump's victory will make it easier for the U.K. to get favorable terms for its exit from the EU. The reasoning is that Trump is a big supporter of Brexit and Britain now has a powerful ally in the U.S. that could twist the Europeans' arm.

These arguments are interesting, but they do not take into account a paradox: While it is true that Brexit and Trump are encouraging populists in Europe, they equally may serve as a catalyst among those who are against the populists.

So far, the moderate voice has been missing -- or, to be more precise, drowned --by the shouting on both sides of the argument; at least, this is what happened in the case of Brexit. It was either doom and gloom -- the world will end if Britain leaves the EU -- or Britain will end up invaded by European immigrants and stripped of the last vestiges of sovereignty if it doesn't leave.

What I am saying is that positive discourse has been completely missing from public rhetoric over the past couple years. European moderates -- those who want the European project to succeed -- are now mobilizing to face the danger that it faces.

For too long, Europeans have taken for granted the advantages the EU offers -- passport-free travel, ease of getting a job anywhere in the 28 member states, being able to invest, set up a business or buy a property with minimum hassle, a basic set of shared values.

Many of those who felt uninspired by conventional politicians and did not turn out to vote in previous elections probably will make the effort in future ones as they become more aware that these rights need to be defended.

On the economic front, Trump's victory likely will focus European policymakers' minds on fiscal stimulus in recognition that growth must be given more of a boost. Some commentators in the U.K. note that the new U.S. president could give Britain the upper hand in negotiations with the EU as Trump promised to cut U.S. spending in NATO. The U.K. is the second-biggest spender in the alliance.

But another way to look at it would be that it would force the other countries in Europe to boost their own defense spending, creating new jobs and benefiting European companies such as France's Airbus (EADSY) and Dassault Aviation (DUAVF) or Italy's Leonardo-Finmeccanica (FINMY) and their hundreds of sub-contractors.

Some commentators say investors would be better off buying the British pound (available at a big discount) and shunning the euro. However, the Brexit vote has knocked the British pound off its "safe haven" pedestal and Trump's victory only served to show it is unlikely to regain it soon.

Samuel Tombs, chief U.K. economist at Pantehon Macroeconomics, noted that after the U.S. presidential election result became known on Wednesday, the pound did not appreciate against the dollar and yields on U.K. government bonds went up while bond yields fell in Europe and the euro, yen and Swiss franc all rallied. It shows that investors did not take refuge in the British pound.

This brings me to another point in favor of going long, not short, the euro. The British pound has been used as a reserve currency by central banks across the world due to its stability and liquidity despite the U.K. economy's relatively small size. But post-Brexit, the share of the British pound in world foreign exchange reserves is likely to shrink further; the euro is the easiest replacement.

Donald Trump's remarks about "playing" with the U.S. debt, if confirmed by action, are likely to encourage investors and national central banks to diversify more into other currencies in order to cut exposure to the dollar. Again, the euro is the most likely alternative as it is backed by a big economy and it is a very liquid currency.

The proponents of the theory that Trump's victory spells the end of the euro and of the European Union forget that the opposite equally could be true. His victory may have sparked the ranks of the moderates with the same kind of enthusiasm that fires up the populists.

In front of the European Council of Ministers' building in Brussels there is a beautiful sculpture by Dutch-born sculptor Hanneke Beaumont. It shows a figure carefully balanced and purposefully looking ahead before stepping forward, very slowly but with determination.

At a superficial look, there is nothing that stands out about the sculpture. No fancy shapes, no shocking expression, no wide gestures. You could almost walk past it without noticing it, if you are in a hurry.

But take a closer look, and the subtle optimism of the figure slowly draws you in. That sculpture is the embodiment of the ideal behind the EU. Unassuming, pragmatic and sensible, it is still stepping forward.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricted from trading individual securities.

TAGS: Currencies | Markets | Industrials | Investing | Politics | FOREX | How-to | Risk Management | Short-selling

More from Industrials

Deere Rips the Cover Off the Ball: Here's the Trade

Stephen Guilfoyle
May 19, 2023 11:15 AM EDT

Performance and guidance are solid across all segments.

Deere Should Break Its Downtrend on Earnings Beat and Raised Outlook

Bruce Kamich
May 19, 2023 7:34 AM EDT

The stock of the agricultural equipment giant appears poised to plow to higher ground.

Expeditors International Is Poised for an Upside Breakout

Bruce Kamich
May 17, 2023 2:17 PM EDT

Here's what traders could do now.

Watsco: Bearish No More?

Bruce Kamich
May 15, 2023 3:10 PM EDT

Take a look at the long side.

Bearish Bets: 3 Stocks You Seriously Should Think About Shorting This Week

Bob Lang
May 7, 2023 10:30 AM EDT

These recently downgraded names are displaying both quantitative and technical deterioration.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 01:51 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Adjusting Your Trading Approach to Shifting Market...
  • 06:54 PM EDT CHRIS VERSACE

    AAP Podcast: A Tongue -- and a Market -- Twister: 'Get a Debt Deal Done'

    Listen in as the Action Alerts PLUS Podcast tackle...
  • 12:07 PM EDT STEPHEN GUILFOYLE

    Selling Some of This Surging AI-Related Stock

    This isn't the only name in the Stocks Under $10 p...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login