Global Elections in 2012 and Possible Investment Opportunities

Before the world ends on Dec 21, 2012, a record number of elections will be held globally. Of these, some may provide entertainment with son et lumiere, but few will have financial investment implications. Some of the more important elections this year include:

US Presidential, full house and portion of Senate. Definitely the most expensive elections in this list, but unless Ron Paul wins the Presidency, not much will be different. Republicrats and Demonicans will continue their dithering ways, unable to solve the budget problems or improve the economy. The present system of checks and balances has become a system of checkmate and budget imbalances. Only if Ron Paul wins would the effects be dramatic, though he would have a hard time with the Congress. With no Fed, and no QE, the absence of steroids the markets have become used to could lead to a huge withdrawal syndrome. In the short term, if Obama wins, expect the markets to go up slightly, and maybe a bit more with Romney or Gingrich, but decline a lot with Paul. It would be time to load up on inverse funds such as TZA or SPXU. Since he is a believer of the gold standard, it would be time to buy gold Mexico Presidential elections, with the opposition PRI most likely to win. Most significant effect will be in drug enforcement policy, but other than that, the elections will be of of little global economic or investment impact. Venezuela Presidential elections. All depends on whether it will be free or not. If Chavez rigs it, he will obviously win, even if felled by cancer. No doubt the good Cuban doctors will miraculously resurrect him. On the other hand, if the opposition wins, expect significant changes, most importantly in the oil sector. Venezuela has enormous oil reserves but falling production, thanks to nationalization of the oil industry. An opposition win could trigger the return of big oil as the country tries to revive its oil output – Chevron (CVX), BP, etc could be long term winners, other than the people of Venezuela. This is one I will be watching and trading on should the opposition win. French Presidential and legislative elections. For the Presidency, it’s going to be Hollande versus Sarkozy, with Marine Le Penn as the wild card. Expect fireworks only if Marine Le Penn wins, more from social, religious, and immigration viewpoints. Not much will change from an economic point of view. France has lost its AAA S&P rating, and that is not coming back any time soon. Ms Penn also wants to ditch the Euro and bring back the Franc. She may get her wish, whether she wins or not. Other than shorting the Euro, not much from an investment perspective here. There are many reasons to short the Euro, apart from the likelihood of a Penn (led) state, starting with the likely Greek default. Greece parliamentary elections, due by end of Feb. The field is very fragmented, with the two major parties (Socialist PASOK and Conservative New Democracy) falling out of favor with the electorate, thanks to their mishandling of the national debt. The smaller parties (the Communists, right wing LAOS, and left wing Syriza) that may gain are against austerity, and prefer default. Which may not matter since Greece may default before that. The outcome is likely to be a muddled parliament that is unable to take decisive course. Avoid Greeks bearing bonds. Russian Presidential elections. It’s Putin versus not-Putin. Depends on the level of intimidation and how free the elections are, which means that Putin will probably will win. Expect more of the same – with little global effect. In the rare event an opposition candidate wins without losing members of his/her family or body parts, there still won’t be a significant economic effect. The only field that Russia has an economic impact on is oil and gas, and unless the winner decides to stop exporting those (which is impossible from an economic point of view), the elections really do not have much of an investment hypothesis. Egyptian Presidential Elections . Under the plans, a series of elections will take place to ultimately elect a body that will draft the constitution. Also planned is a Presidential election. If present trends hold, expect the Muslim Brotherhood to win big with the Salafists coming a close second. There will be changes if the military does not step in. With North Africa now coming under greater religious sway, and the tide turning against Assad in Syria, it is only a matter of time that Israel is surrounded by inimical forces. I don’t expect dramatic changes this year, other than Syria’s Assad going down, but do see a rising role of Islam in the Middle East. Sooner or later, Saudi Arabia will be threatened, as will Israel. Once again, oil will be the one to watch. Oil is a must have long term – whether it is ETF/ETN such as OIL, USO or big oil such as Exxon (XOM), Royal Dutch Shell (RDS), BP, etc. Indian state elections will be held in 7 states. If the ruling Congress does poorly, the hapless Prime Minister Singh may be gone. A new PM from the equally hapless Congress may be sworn in, but no new economic liberalizations will take place. This lack of economic progress has led the Indian stock market down some 20% this year, with the Rupee coming under significant pressure. If the Congress does well, it would strengthen Singh to finally undertake reforms. Avoid India stocks or India ETFs such as IIF or IFN until the situation clears. South Korea National Assembly (April) and Presidential elections (Dec). For assembly, the country seems to be headed to a two party system, with smaller parties fading out. For the Presidential elections, the favorite at present is the opposition GNP’s Park Geun-hye, though Ahn Cheol-Soo, a businessman, is making strong gains. Elections will have domestic economic and social implications, but few global ones. Unless North Korea goes ballistic, in which case the at least that part of the world may truly end in 2012. Communist Party of China’s 18th National Congress in 2nd half of 2012. Without a doubt the most important election this year. A new Central Committee and Politburo Standing Committee members will be elected. The current President Hu Jintao and Premier Wen Jiabao will make way for the next wave of leadership. The “Princelings”, the sons and daughters of former Communist chiefs are vying seriously for power. These include Bo Xilai and Xi Jinping, the latter expected to become President. The “Princelings” are very much in the mold of the pigs in the book Animal Farm, and face opposition from the “Youth Leaguers” who want China to be more equitable. What is significant is the nationalistic and aggressive foreign policies of the former that could lead to conflict with its neighbors and the US. Wait to see what happens, but should such conflicts materialize, gold (GLD) and silver (SLV) could be a winners. Doubt the US treasuries would benefit – in fact, they could decline tremendously if China decides to use its reserves as an economic weapon. Consider going short TLT or going long inverse funds such as TBT

In summary, there are many elections this year, but few that will produce meaningful changes. The themes I see benefiting the most include oil and possibly gold and silver. As a cautionary note, one should not use single events to trade, but consider all factors, including sentiment, fundamentals, etc. So use your own judgement and make informed investment decisions.

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