Axel Merk, Merk Investments, on the Impact of the French Elections

On Sunday France elected a new president's -- swamp or blonde. He is a socialist. And he'll take office later this month we're joined now by Axel Merck from Merck investments he's gonna talk to us about the ramifications. Of that election. Good afternoon or good morning -- Daria Dolan. Good morning that we California so early. Yes whipped out what's your perspective on this what does this mean to the investing environment in over in Europe the fact that we of the socialist who's now the going to be the president of France. Played it doesn't really matter what political color he has remember it in Spain basically have absolute majority of a conservative government that was voted in last November. Firmly in charge in Europe -- markets not the politicians. And indeed what happens is -- -- a politician has an office they get kicked out because people don't like the medicine that have to be prescribed and relevant all -- put it put a shortcoming is the parliamentary elections in -- what will the -- different people give him and -- authority to implement whatever reform that is appropriate or what at what he wants to do now unlikely -- all of the previous socialist. President he will not have two years to fiddle around -- -- he tried for two years random number -- -- policies. He just doesn't -- -- votes still yet to go back to business the future of the Euro is truly -- it and it's because if your friend is deciding to go against the trend of what's been happening in recent years then from the well then the European experimental project is is increase them jeopardy. -- help me air help our listeners understand you say that the bond market is going to. Make the decisions in Europe and make a lot of listeners might be hearing men say what does that talk about that if it. Consent economic policy I know you're talking about but it's put it in layman's terms if you don't mind. But think about it. European policy makers have made great strides but why have they made them is that out of the goodness of their hot is it because they think it's the right thing to do now is because the politicians always choose between the cost of acting and the cost of not acting in the US we have. Have not. Come up with a sustainable budget because the bond market let -- get away with it because the cost of borrowing is so well in Spain and France in Greece. And all this -- have been made to do quote and quote the right thing and and and as a reside and they have moved forward now the difference between a as Spain and agrees is that that Greece is utterly dysfunctional -- day with some at what it just doesn't work. But if -- in Spain might be the best example. At the moment that the that the Europeans and the banks have -- the -- moment depression -- All the promises go out of -- spoke on out of the window and then at the market as a sour note again to go out this out. Fully yet at half empty and and and and politicians say yes will engage in these reforms will -- pursued it will be tough and that was really the bond market dictate the talent that context that they say those things. -- EU the Euro has declined in value but I I expected to decline in value further and that's why I've been avoiding buying European stocks in my client portfolios and in my own portfolio. Do you expect that the Euro would decline further in value how far in win. But remember the Euro was as low as 118 -- a while ago and and we used to -- put on Mickens said none of these issues in the Euro -- have to be expressed the spreads in the bond market not the -- itself and what we mean with that is the Euro is on the other side of what because of -- -- and -- is engaging quantitative -- trying to weaken the currency. With that it makes us feel bad when you don't do that you have a boatload of problems. But you can have a stronger currency and we don't expect Europe to be strong but the reason why the purest as weak as most people that predict this is precisely because while -- -- -- some money they have not print that as much money as we have in the US. And and that's -- -- have to -- tackle these problems they had of the borders -- has said that one of the good things and we fully -- of of these higher rate that Spain is saying is that it provides them with an incentive. Do provide to -- to engage in reform and so we think that we live in the world what everybody hope for the best but plan for the worst and -- everybody prints money that that the Bank of England the Bank of Japan. The European Central Bank in -- sort of environment we don't think the -- is going to all the pot. But what we think is going to happen economy better opportunities the better opportunities in the in in these areas that I help -- and most notably those would be what we call the commodity currencies. Like in Australia like -- and -- can't Netflix. Do you let actually talked it and so those are currencies -- your bullish on the Australian dollar the Canadian dollar. What about the yen would about the Japanese yen. They have the yen is doing based when the government is most dysfunctional and what being mean with that is that in in Japan -- epic current account surplus which means that. And Japan is not dependent on point us to by the currency. And it went in the US for example where the deficit in point of -- to my about two billion dollars every business states just to keep the dollar from all that's why in the country like the US. -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Increasing pressure on the Bank of Japan such as introduction of that 1% inflation target they did. If they can actually execute on that. The Japan and the Japanese CNN's going to weaken but in the meantime the Japanese yen is gonna hover around and strengthen but it would as a crisis -- up elsewhere. All right well -- we appreciate your time is always terrific in but thank you very much -- -- Merck Merck investments joining us today on the financial exchange.