Here’s How Tomorrow’s Election In The Netherlands Can Cause A Surge In The Dow And Oslo Real Estate
This is not a political article; I learned long ago that getting people to change their minds about politics never works. You end up pissing off your conversation partner or simply preaching to the choir. Neither option appeals to me much.
Instead, this is an economic article speculating on where Europe’s elite might choose to park their money if the alt-right / populist wave washes over the major EU countries this year.
With that said, let’s talk for a moment about some elections past, present, and future.
The Brexit and Donald Trump victories were quite similar in that both espoused national sovereignty by strengthening borders against immigrants, terrorists, and unfavorable foreign trade. Neither Brexit nor Trump was expected to succeed, yet both did. Evidently, each movement uncovered deep-rooted animosities that polite society (and the press) could not fathom.
Tomorrow is another important vote- Netherland’s Parliamentary election. It pits the establishment against Geert Wilders’ alt-right Party For Freedom. It probably will provide momentum one way or the other for the soon-to-follow parliamentary elections in France, Germany, and Italy.
The alt-right parties are expected to fail in all these elections, and in fact, already have in Austria last December (and Australia yesterday). But then again, even on the eve of the election, Trump was never supposed to win either.
If the Party For Freedom wins on Wednesday, it will further propel Marine Le Pen in June.
One possible scenario would be a domino effect with the alt-right movement gaining enough momentum in France, Germany, and Italy to break the bonds of the EU—eliminating the Euro as a currency and/or dissolving the EU all together. It is not totally inconceivable that in 2018, Europe will be saying goodbye to the Euro and bonjour, bonjourno, and willkommen to the Franc, Lira, and Deutsche Mark.
Below is a map of the European Union (countries in grey are not part of the EU). The nations in red are a party to both the Euro currency and Schengen Agreement, which enables free movement of people, goods, services, and capital across borders. Since the Euro and Schengen are at the heart of the alt-right complaints, those red nations provide the most fertile soil for the populists’ sentiment to grow.
So, what does all of this have to do with the Dow and Oslo?
Well, the 1 percenters in Europe who hold a lion’s share of the wealth are vehemently opposed to the alt-right, instability, and of course, losing their money.
If the dominoes start falling in The Netherlands, Europe’s elite will quickly go into wealth preservation mode—i.e. “Where can I safely stash my money?”
They don’t want to hold Euro’s because of the risk of a Euro disintegration. It is not entirely clear how the conversion of Euros in to Francs, Deutsche Marks etc. would actually work. Furthermore, no one knows how fast and how far the Euro might plunge before the exchange is even possible.
Therefore, storing wealth in a non-Euro currency seems to make the most sense.
The Chinese Renminbi is a non-starter because Beijing could erect capital controls on a moment’s notice making it impossible to get one’s money back again.
The Swiss Franc is a good choice, and undoubtedly many rich Europeans will opt for Swiss bank accounts. The problem is that tax authorities have been getting bolder and bolder, so hiding money in Switzerland isn’t the sanctuary it once was.
I contend that there are be better choices for Europeans. Here’s two of them.
Dow Jones Industrial Average ETFs- (Disclaimer, I am long $DIA)
The US dollar is a good choice for Europeans because it is relatively safe (compared to Euros, Yen, and Yuan) and might appreciate considerably vis-à-vis the Euro as foreigners from around the world similarly seek dollars.
Once the Europeans convert into US Dollars, they must then decide where to put those dollars. US Treasuries’ risk-reward ratio is out of whack given the low yields in light of a (albeit small) possibility of a government default.
The largest US companies are richer than the U.S. government and best positioned to withstand geo-political shocks. Therefore, my guess is that a majority of Europeans who chose to convert their Euros into US dollars, will park those dollars in ETFs representing the Dow Jones Industrial Average Why, specifically, the Dow, and not the S&P 500? Because the Dow is 100% composed of cash-rich massive American corporations.
Yes, I know, that most Americans think the Dow is a bubble on the verge of a collapse, because the media has been issuing daily warnings about the Dow for months on end. After all, it is up more than 150% from the 2009 lows (dotted line below).
If you look at the Dow appreciation from a Euro perspective, it is up even higher—nearly 250%– because the Euro has lost nearly 25% to the greenback since that time. My thought is that this huge bull market may be too attractive to resist for the European 1 percenters, who aren’t bombarded by ‘Dow bubble’ talk.
Oslo Real Estate- (Disclaimer, I don’t own any property there but would love to visit one day!)
There’s one other investment which could be attractive for Europeans to park their money while possibly earning a nice return- Oslo real estate. You see, Norway is not part of the EU and would be well shielded if the EU collapses. It doesn’t hurt that Oslo is relatively close to the money centers in Europe. On top of that, Norway conjures images of peace, stability, and protection. Rich people love that stuff! And just as important, the Norwegian government has one of the world’s lowest debt-to-GDP ratios, making it a solid choice for those Europeans who are worried about a worldwide sovereign debt crisis.
In Oslo there are building restrictions that make it hard to expand the supply of apartments and detached homes. In fact, since 2009, the Oslo real estate price index has increased 100%. During that time period, the Norwegian Krone is up 5% on the Euro…and that includes the stretch when plunging oil prices hit the petro-reliant Norwegian economy.
For all of these reasons, the Oslo real estate is an attractive option for Europe’s elite.
So there you have it. A win by the Dutch Party For Freedom could set off a chain reaction across Europe that ultimately results in great investment opportunities for the DJIA ETFs and Oslo real estate market.
It’s a small world after all.