How Investors Profit When Democracy Stumbles

Recent events have led me to question one of the most fundamental tenets our society is built on.

Democracy.

It is the best system. A system where everyone gets a say. And the majority decides.

I grew up believing that. It’s what my mother told me.

But now, with such polarisation in society, we’re seeing what can only be described as manipulation of democracy. And this creates huge uncertainty — but also opportunity — for investors.

Let me explain.

On 23rd June 2016, 52% of the UK voting public opted to leave the EU

Since then, Remainers have called for a second referendum, initiated a bill to prevent no-deal, opposed deals put forth, refused Boris Johnson’s request to go back to the country for a new election, attempted to delay Brexit at every possible opportunity. And ultimately have reduced negotiating power with the EU.

Speak to people in Britain, and they are fed up with Brexit. And the delays. The whole situation is looking like the Hotel California. ‘You can check out any time you like, but you can never leave!

Yet unlike The Eagles’ Hotel California, there is no luxury or excess in being part of the EU. Just a heady degree of towing the line, in exchange for the single market and freedom of movement.

Boris Johnson. Source: The Sun

Under Johnson’s promise to get Brexit done, the Conservatives are well ahead in the polls.

For investors, Remainers have built a story that the risks of a no-deal Brexit could lead to financial Armageddon.

This creates fear — but for the savvy and risk-willing, possible buying opportunity.

And we’re already seeing some uplift as commentators are now starting to admit that any sort of Brexit may not actually be that bad. Especially when it coincides with tax cuts, interest rate cuts and other stimulus.

There is still substantial risk of course. But amidst this volatility, some domestically focused UK stocks are still looking like a reasonable bet.

We cover some — and how to buy them — in our premium newsletter, Lifetime Wealth Investor.

And then there was the Trump election in the United States…

The US electoral system is defined by the Constitution and designed to ensure representation of all states in the Union, according to their population.

On 8th November 2016, Donald Trump and Mike Pence won 304 electoral votes against Hilary Clinton and Tom Kaine’s 227.

Since then, the Democratic Party opposition has made numerous attempts to remove Trump from office. The latest being an impeachment enquiry. And the nation is polarised between the conservative right and the liberal left.

Of course, there must be procedures to remove errant presidents. But we also need to consider the political motive, which has become ardent.

The Dow has been enjoying quite a run since 2016. Tax cuts, deregulation and market protections seem to be helping local businesses. Of course, tariffs are not ideal for anyone, but when you’re making things in America and cannot compete with Chinese labour conditions, many local makers experience welcome relief.

Should the odds of impeachment increase; the US dollar will likely take a tumble. As may stocks. This could present a buying opportunity amidst the uncertainty.

Here in New Zealand in 2017, the National party won 56 seats against Labour’s 46

Yet, under MMP, it could not form the government. And Labour is in power as a minority government with support from New Zealand First.

This combination does not appear to be delivering for the economy. Businesses complain over high rates of compliance, a tax burden at the upper end of the OECD, and low rates of business confidence are evident.

But with low interest rates and the hunt for yield, we’re not yet seeing value opportunities appear on the NZX. This could change in the event of recession or more serious downturn of the property market.

Smart investors will find a way to profit through the machinations of our modern democracies. Uncertainty means fear. And fear in the market provides opportunity for the greedy.

What is frustrating for the ordinary citizen is when the majority vote no longer holds sway. Sore losers and power takers will eventually get their just deserts when the next election is called. The people will speak.

Watch this space.

Regards,

Simon Angelo

Editor, WealthMorning.com


Simon is the editor of Wealth Morning and has been investing in the markets since he was 17. He recently spent a couple of years working in the hedge fund industry in Europe. Before this he owned an award-winning professional services business and online learning company in Auckland for 20 years. He has completed the Certificate in Discretionary Investment Management from the Personal Finance Society (UK), has written a bestselling book and manages global share portfolios.


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