Will The Unthinkable Occur?

By: Kent Engelke | Capitol Securities

In the early 1980s, during an “Introduction to Political Science Class,” I was introduced to the concept that there are generational geopolitical/sociological changes every 35-40 years. I vividly recall discussing LBJ’s “Great Society” programs, the social angst of the Vietnam War, the nascent rise of globalism and the beginning of the close collusion between big government and big business and how such commenced a new era of activist and redistributionist government.

The professor stated these trends stay in place until there is some finale equivalent to the conclusion of a Fourth of July fireworks display where the current trend goes on steroids believing the status quo is all knowing and powerful. Radical change then occurs.

I believe I live in the congressional district that commenced the battle against the Establishment. David Brat defeated House Majority Leader Eric Cantor in a primary, a primary that Cantor all but dismissed as meaningless and unthreatening.

This was first time that a major leader was defeated in a primary since the late 1800s. Brat won because Cantor’s constituents — one of which is me — believed that Cantor lost contact with the electorate. That Cantor was all about himself and the perpetuation of the Establishment.

The professor dogmatically stated these changes will occur, not questioning as to if, but rather as to when.

Fast forward to today. Brexit. Trump. Italy. And now France.

For the first time in many generations, a candidate from a major political party is not in contention for France’s presidency. This would be equivalent to neither a Republican or a Democratic candidate being a candidate for the US Presidency.

On May 7th, France’s citizenry is faced with a dichotomy. The choice is a far right populist, who espouses economic nationalism and “Frexit,” or a moderate who supports closer ties to the EU. Neither candidate is from a national party and the moderate is a political neophyte who most thought had little chance of succeeding to the “finals” as little as 60 days ago.

In other words, a strong argument can be made the survival of “The Federation” is at hand. There is a clear battle between a commitment to dramatically changing the current economic system or one to maintain the existing structure.

To write the obvious, the entire Establishment is supporting the moderate and at this juncture is projected to win by a considerable margin.

Will Le Penn do the unthinkable and win?

Why the attention on this election? Today’s financial system is predicated upon globalism. The top performing equity issues are mega capitalized global growth issues, a term that I find oxymoronic. According to Bespoke Investment Corporation, the concentration of wealth into a handful of mega sized global growth companies is unprecedented. What happens if globalism dies an inglorious death in 2 weeks?

Perhaps the only certainty to write is that regardless who is France’s next president, today is radically different than yesterday. The electorate is speaking very loudly and it is very anti-Establishment.

Equities advanced on the French election with many declaring that Le Penn will lose by a wide margin. I think I wrote these same words in late June 2016 referencing Brexit.

Last night the foreign markets were up. London was up 0.26%, Paris was up 0.38% and Frankfurt was up 0.03%. China was up 0.16%, Japan was up 1.08% and Hang Sang was up 1.31%.

The Dow should open nominally higher, perhaps the result of tax reform optimism. The 10-year is off 8/32 to yield 2.31%.


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