Trump’s Impact On The Market May Be Both Short And Long Term

In the Western world, the political elites and mainstream media are almost universally globalist, but a large number of the ordinary people don't share these views. Today, a gaping hole has opened up between the two groups. The anti-globalist forces did not have great success until their big wins in the European parliamentary elections in 2014 (they took about 25% of all seats). The UK BREXIT vote in June 2016, when the British voted to leave the EU, was the real breakthrough. It has many lessons for the 2016 U.S. presidential election and provides some warnings for investors.

Almost the entire UK "establishment" was opposed to BREXIT, just as is the case with the U.S. establishment and its views on Donald Trump's presidential candidacy in the United States. Four major political parties - the Conservatives, Labour, the Liberal Democrats, and Scottish Nationalists - all opposed BREXIT. Only UKIP, which had a single seat in parliament despite having received 13% of the vote in the 2015 general election, opposed it. The UK mainstream media, also almost universally against BREXIT, and published a number of "doom and gloom" articles explaining the dire consequences of voting Leave.

The political polls indicated the Remain (anti-BREXIT) vote was ahead almost the entire time. Between 10 and 20 days before the election, the Leave faction pulled ahead. This was quickly reversed, however, and the stock and currency markets reacted with confidence that BREXIT would fail (at the time, I wrote an article saying that this market confidence wasn't justified: "No Justification For Big Rally on Latest Brexit Polls"). The last poll taken the day before the vote (by the polling firm Populus) had the Remain side ahead by 10 points. When they tallied up the actual votes, Leave won by four points - a 14 point difference from what the 4700 sample size Populus poll had predicted.

The UK stock, currency, and bond markets went into shock. The FTSE100 stock index, which had rallied strongly the week before the vote on the "good" polling news, was down 9% two days later. The British pound (FXB), which also rose before the vote, was down 11%. Bonds, which had been selling off, rallied strongly, with the yield on the 10 -year Gilt falling around 30%. Investors on the wrong side of the trade, and there were many, because the large investment houses in the UK and the U.S. advised their clients BREXIT would fail, had big losses.

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