Fisher Investments Reviews How European Parliamentary Elections Could Impact Markets

Transcript

Ken Fisher:

Americans are used to the way US elections work. A lot of foreigners have difficulty figuring out some parts of US elections, like particularly how the Electoral College works versus the popular vote, which there's a real skew there. Different topic for a different video, one I've covered many times before. But most Americans struggle with how parliamentary elections work. And Europe, of course, is a parliamentary system, and most of Europe is a varied multi-party parliamentary election.

They don't run on the standard periodicity of American elections. Therefore, they don't have a predictable way to determine long in advance when they will occur, and therefore, their impact on markets is more entangled in an analytical way than is true when you look at US markets with a very predictable periodicity. But one thing is different and the same, and once you get it, it becomes a lot easier to understand the market impact of parliamentary elections.

When you have parliamentary elections, you can think of the voting universe ideologically as like a normal population or bell curve, where on one side you've got, as you're looking at me, the center left, and over here you've got the center right, and then more fringy left and right parties. And in the end, when you have the local elections, they're voting for members. And the question becomes, which parties get how many members in the parliament? Now, if I'm just going to make this example on the center left, it wouldn't make any difference if I did it on the center right, it'd work the same way.

If the center left party can join with a further party to the left to get the majority, then they get control. If they can't, then they have to join with some party on the right if they want to get control. Sometimes, 2 or 3 parties will join together to try to get control. But it's all about the parties who don't by themselves have majority, which is almost always the case these days. Not always. Almost always. Working with another party.

What's happening in Europe right now is a parliamentary form of gridlock. The same as we have in America, just structurally done differently. It's parliamentary gridlock where a party of one ideology, like center left or center right, gets the majority by joining forces with the party of the opposition ideology. A fringe party of the opposition, ideology. In doing so, they can't actually muster much control.

They can't get legislation through in a market way. And as I've said for decades, markets, stock markets in particular, like it when there's a lack of uncertainty, increasing lack of uncertainty, stability, they don't like election outcomes that allow for big legislative change. It doesn't really matter what the legislative change is, because in politics, you think this, somebody else thinks the opposite, somebody else is even more vehement in their views. We all think we're right.

But in the end, in politics, when we legislate everything we do, whether it's good or bad in the long term, in the short to intermediate term, it takes from somebody to give to somebody else. And the people that are taken from hate it more than the people who are given to like it, because people inherently hate losses more than they love gains. Behavioralists have proved this a long time ago, and it's more true in Europe than it is in America, which is where that concept was originally proved by Richard Thaler and Shlomo Bernanke.

The fact is, Europeans are much more prone to be risk averse than Americans are, and parliamentary gridlock creates a form of legislative stability where only the most non-controversial and small things will make it through Parliament. So controversial, big things to take from these to give to those don't happen and that's good for markets. It's one of the reasons why, for example, this year, where more of this is going on, almost every election is generating parliamentary gridlock.

We're seeing a world where European markets are doing particularly well and country after country has hit new all time highs. In a world where a lot of people in America, where it's been Tech that's led the market up mostly, can't quite envision how that's happening in Europe when there's very little Tech in almost all of Europe, and a lot of countries that have almost no tech at all are hitting all time highs.

But the parliamentary gridlock that we see there, which is only different in form from US gridlock, which started for America in 2022, is a bullish feature. Is it the only feature? Of course not. Is politics ever the only feature? No, of course not. But the gridlock creates, in terms of legislation, a reduction in uncertainty, which is a bullish feature for stocks. Thank you for listening to me.

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