European Politics Shifts to the Right: Investment Implications

What if the recent political shifts in Europe could change your investment strategy? Join Steve Davenport and Clem Miller as they discuss the surprising results of the latest European Parliament elections. 

We discuss the significant move from left to right, the decline of the Greens and left-wing parties who emphasized climate change and sustainability, and the rise of right-wing groups focused on control of migration. 

Despite these changes, we explain how the political center still holds crucial power in the European elections, preventing a complete right-wing takeover. 

Discover why these European political trends are more than just headlines—they're critical indicators for global investors and have direct implications for American markets.

But that's not all. We also delve into the complexities of global democracies, comparing political dynamics in France, Germany, Italy, and the U.S.  

From Macron's decision to call new  French elections, to Biden's recent state visit there, as well as to the upcoming UK elections, we visit we explore the intricate web of leadership and democracy. 

We also examine the rise of Germany's far-right AFD party and its potential future impact. 

Finally, reflecting on the Pope’s leading a G7 discussion on AI, and a recent meeting between bitcoin miners and candidate Trump, we discuss the downside of politicians and non-experts wading into with issues they don’t fully comprehend. 

Amidst all these uncertainties, we express our faith in well-established U.S. companies as reliable investment options.  Tune in for an intellectually stimulating discussion that could reshape your investment outlook.

Straight Talk for All - Nonsense for None


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Transcript

Steve Davenport: 0:26

Hello everyone and welcome to Skeptic's Guide to Investing. Today, myself, steve Davenport and Glenn Miller are going to talk about the European elections and what's happening in the world. Are we moving to the right and, if we are, how quickly Is it going to change as we go forward this year, or have we seen the worst of it? I think that this is one topic that we could talk about forever, because there is constant change in what's happening in the European Union. There's constant change in what's happening in the ground in Ukraine and there's constantly questions about energy and energy usage coming up into. You know, I've already heard that the winter in Ukraine is going to be very bad because the grid is being destroyed now by Russia. So there's a lot happening in this space and because I need somebody smarter and better at this than I am, I'm going to have Clem start to lead this topic off and we can talk a little bit about G7, recent elections and in France. There's just a lot happening and I think sometimes, as Americans, we think what we have in the 48 continuous is what really matters, but in reality, we are a global economy and we are an economy that influences where exports and imports and where we have to realize how some of these decisions that are being made away from our shores does really impact us as investors and us as citizens of the world. So what do you think is happening, Clem, with these election results, and where would you start in terms of priorities and understanding?

Clem Miller: 2:17

So, Steve, let me just say first of all, thank you very much, and there's something in what you just said now in the introduction that I really wanted to emphasize, which is how US companies really depend a lot on the rest of the world. In fact, something like 40% of S&P 500 earnings come from outside the United States, and, of course, the reverse is true as well. Many European companies depend on their, their US business, asian companies depend on their US business, et cetera. So let me to your question about the European elections and and what's going on there. I have a few points. Steve, feel free to jump in at any time, otherwise I'll just run right through my points.

Clem Miller: 3:07

So first, of all what I'm going to be skeptical of you today. Ok, thanks for being skeptical. Ok, so, first of all, the Greens and the left lost a lot of seats in these European parliament elections, so, as a result, we are likely to see less emphasis on climate change and sustainability. These will be de-emphasized to some degree. They were actually big policy initiatives of the European Commission until this parliamentary election, but now I think it's going to be de-emphasized, so that has implications, I think, for the rest of the world on the emphasis on ESG matters. Secondly, as the Greens and the left lost seats, the right wing picked up a lot of seats. Their big issue is migration, so we are likely to see much more stringent laws and action with respect to migration. And there I have to point to Giorgio Maloney, who's the prime minister of Italy and, in some ways, ways the new de facto leader of the European Union countries at the national level. That's, her big emphasis is on migration, although it's important to all the right-wing parties in Europe.

Clem Miller: 4:44

Third point I'd make is that, despite the movement from the left to the right, the center still holds power. The center held during this election. The center right even picked up some seats, while the center left pretty much held on to their seats. So we're not talking about the European Parliament being ruled now by the extreme right wing. We're talking about the center still holding power and the left losing their power to the right.

Clem Miller: 5:18

Next point I would make is that the head of the European Commission, which essentially is like saying the EU prime minister, has to be approved by the European parliament. If she continues to get enough support from the centrist parties, she would probably hold on to her position. So we may not even see that much of a change. Well, we probably won't see a change in the prime ministership of the EU in general, that is, the head of the European commission, in the prime ministership of the EU in general. That is the head of the European commission. Next point I would make is that the European parliament elections are always kind, are always seen as a kind of a signal for where national politics are going For example, politics in France, politics in Germany, politics in Italy and as a signal it can inform what might happen in these national elections.

Steve Davenport: 6:16

So there's been l of. One of the things I think is interesting is that you went right to the issue of immigration, and if I was to ask what does the right want in the United States, I think the issue they would go to first is immigration. It almost seems like this is the you know. Whenever you want to see people's eyes bug out of their head, you simply mention immigration and you get people on both sides who are excited, right? Is this an issue because people know it, polls and it's significant, or is this an issue that we're actually bringing up and we're actually going to solve with some of these things? Because it feels to me like it's a siren call to put people into their boxes of your far left or your far right, and I can say something about immigration and that's going to upset you and push you over the you know one type of opinion, right?

Clem Miller: 7:19

Yeah, I think migration is. It's an issue that is easily exploitable In Europe and to a degree in the United States. There's a feeling that when you have lots of migration from Africa and the Middle East and so on, that the original sort of European Christian identity in Europe is being diminished and that's actually what Georgia Maloney and the right wing is exploiting. In fact, the parties that picked up a lot of the votes, the parties actually called the coalition in the European parliament, is actually called the identity party. So that goes to that nature of what is the true European identity and you have that less in the US. You have some folks in the US who abide by that, but it's less of an issue in the United States. But you're right, migration is a big issue that politicians can exploit.

Clem Miller: 8:17

There are people on the left actually who are concerned about migration as well, so it's more important on the right. But it's not something you don't have a lot have a lot of folks out there, except maybe in the business community, who are pro-migration. So you don't lose a lot of I mean, you don't gain a lot of votes by being against restrictions on you know, on migration. But it's a challenging issue. It's really hard to change conditions in those countries where the migrants are coming from. You've got internal European migration. The situation in Ukraine has sent millions and millions of Ukrainians into the EU. So that's been challenging. But it's a big issue and right now it's a much more important issue in the EU than the whole green sustainability issue. That seems more ephemeral than migration.

Steve Davenport: 9:21

Right. My only point is if everybody has this issue, does the issue become so big and so complicated that nobody can make the small steps to improve it? Because it's one of those things that, okay, if you're going to open up this Pandora box, we're going to have to talk about, you know, phds and master's degrees in countries and getting in line for citizenship and how do we handle these war-torn areas that are going through disruption. And I think that recently Biden's actions on asylum in Mexico. It's just kind of shocking that he was so much into supporting and helping the immigrants and now he seems to be stepping onto the.

Steve Davenport: 10:08

I'm a tough Democrat and I want to show you how we're seriously addressing the border. And I just don't know, with six months to go in the US, I can't really tell you whether I think the immigration situation is the same, better or worse. I think it's just filled with so much, you know, so many pictures of people at the border going through the gates and being interviewed by 60 Minutes. I mean I feel like if I wanted to get on 60 Minutes, I would take a trip to the border.

Clem Miller: 10:42

Well, I think there's. You know, this raises an interesting point and that's one of disinformation. This raises an interesting point and that's one of disinformation. It's very easy to be swayed by disinformation and I think some of what we've seen in Europe in terms of the swing from left to right actually has to do with disinformation, including disinformation coming out, including, or maybe especially because of disinformation coming out of Russia, who sees the European right wing as more susceptible to being swayed by Russia than the centrists in Europe. So, and I think that same disinformation from Russia might be influencing, you know, anti-migration politics in the US. But you know, I think you know, like I said, you know it's. You know migration cuts does cut across in the US. It cut across cuts across various political lines and there are people on the left who are, you know, who are concerned about jobs for, you know, longtime US residents trying to alleviate poverty that's already here and they see potential migration as being something that threatens the alleviation of that poverty.

Clem Miller: 12:08

But, steve, let me continue on talk a little bit about some of the implications of this election at the national level in Europe. So there's been a lot said about the big vote loss of Macron's Renaissance Party in France and the big vote gain of Le Pen's National Rally Party, which is a right wing party. So, as a result, macron dissolved parliament and called for new elections and called for new elections. So this is a gamble in that Macron is thinking that this will force the French to decide if they really want a French assembly controlled by the right wing. So it's that kind of a gamble.

Clem Miller: 12:52

You might also be thinking that if they do win and they have a period of governing, that people will grow quickly tired of their way of governing and actually throw them out.

Clem Miller: 13:07

So that might be the long view position. I tend to think that it's more the forced people to think about who they vote for objective people to think about who they vote for objective. But the important thing to note in France is that the president is elected separately and Macron has no intention of stepping down before his term ends in May of 2027. So in France, the president has a lot more power than does the prime minister, who's elected by parliament. So the relevance of this of you know, whoever might take over in parliament is less significant in a strong presidency government. Still, a lot of analysts have looked at periods of so-called cohabitation. A lot of analysts have looked at periods of so-called cohabitation president and prime minister from different parties and say that it actually complicates policymaking, very much like if the Republicans in the US hold one house and the Democrats hold another house. So it's very, very similar to that.

Steve Davenport: 14:19

So one of the things that struck me last week was when Biden went to France and he was treated like, you know, royalty. It was a state dinner, it was a very much pomp and circumstance meeting. And I look at it and I said if I were the president, would I want my meetings to be thought of as pomp and circumstance and celebration, or would I say I'm just four years in on my eight year mission? I'm not like it almost felt like he might not be here in six months or nine months. So we're going to honor Biden for all he's done for the world democracy and it felt a little bit like it was his goodbye tour and I think that for somebody who looks to be the leader like I don't know who you consider to be the leader of democracy in the world I guess I would say it's the US president, followed closely by Prime Minister of England and you know, francis. How do you look at democracy today, clem? Is it better, worse or the same, clem?

Clem Miller: 15:35

P, then when Clem.

Steve Davenport: 15:37

P, then four years ago, when Biden took office than four years ago when Biden took office.

Clem Miller: 15:45

I think it's about the same as it was. I think we were it's not like it's taken some hits. I think the US was perilously close. This is my own personal political view. I think we were very perilously close to having an overthrow of our government back in 2020 or early 2021. And I think that we're in a similar perilous mood right now in this country. So I can't say whether it's worse. It's not worse and it's not better. It's, I think, essentially the same in this in this country.

Steve Davenport: 16:29

Do you feel like it's a? It's a, it's a movement looking for a leader, like I feel like all of these 80 plus year old people in government make me feel like they're not really looking to lead, they're just looking to survive, and that we don't have somebody with that energy, that feeling of excitement that people get behind a new leader who you know it seemed like Trudeau was that leader and then he's gone through his miscues. It seemed like Macron was that leader, then he's gone through his you know. It feels to me like where Russia and China are making more of a statement about their alliance and how strong they are. I'm not sure I see the democratic powers. You know the way they came together around Ukraine was not inspiring to me. It was. It was kind of like we were pointing fingers and we're trying to figure. It feels to me like democracy is more challenged now than it was four years ago and I think it puts us into a bad position going into this election.

Clem Miller: 17:56

But maybe I'm just being too skeptical bad position going into this election, but maybe I'm just being too skeptical. Well, I think I think democracy is messy. I think you have uh different uh political systems and different uh political viewpoints in all the different countries in Europe and also the US and Canada and Japan. I think they all have different emphases. Personally, I'm actually surprised at how much they were able to do in a collaborative fashion with respect to Ukraine. A lot of that has to do with the NATO alliance. I don't think if it were the EU, I don't think if there weren't a NATO, ukraine would be here today. I think the NATO alliance and the fact that there's a command structure there and not sort of this loosey-goosey G7, I think actually actually helped on that, steve. Should I turn to my views on on Germany?

Steve Davenport: 19:08

Yep.

Clem Miller: 19:10

So in Germany, the AFD party alternative for Deutschland, the alternative for Germany took a lot of seats in the elections in the European Parliament elections. They are an extreme right-wing party. In fact, they're so extreme that even the far right in the European Parliament doesn't want to associate with them. So there's some thinking that basically they're kind of a successor to the nazis, a far uh, a far-right party, um, they're sort of um ensconced in parts of the former eastern europe. That's where they draw their support from. So there are elections for the Bundestag, for the German parliament, in 2025, which must be held before September 2025. So it's still some time away. Center left can remain chancellor, although there may be some probability he could step down and let somebody else in his party compete in the elections. But you know, even so, he's got a fairly weak coalition. His coalition is very weak. It's all over the board. It's possible one of them could pull out unlikely, because they won't want to see the AFD enter the government at all.

Steve Davenport: 20:52

To me. I'm a middle child, so I always look at things as a messy middle. It feels to me like a lot of these governments well, they were leaning one way, now they're being pulled another way, and it feels like there's more uncertainty in all of the government elections. And that's just because I think we are in a period of time where there's so many things that are under attack as to what's the right way. How should we do this? How should we do this environmentally? How should we do this from social economics in terms of subsidies, and how should we do this in terms of, you know, onshoring and bringing things back to our country? There just seems to be a lot of issues out there that are making it hard for people to feel behind one type of direction or leadership, and I think it's going to create. If it keeps going and we don't have some leadership established, I think there'll be a vacuum and it'll create an opportunity for Russia or China an opportunity for Russia or China, I agree.

Clem Miller: 21:59

You don't hear about, at least in the center, you don't hear about new leaders coming forward, you only hear about these existing leaders. I mean, I think it's interesting that the one leader who seems to have her power enhanced out of these European parliament elections is, as I mentioned this, uh, the prime minister of Italy, Georgia Maloney, when even her party, her party, grew out of a fascist party from world war two, the so-called brothers of Italy, and you know it's, it's, it's not fascist today, it's not the AFD, but it's still very right wing, very anti-migration, um, and she seems to be the one who has come out, uh, of this, uh, the one major European leader, the one G7 leader who's come out of this parliamentary elect European parliamentary election strengthened rather than weakened. I just want to mention one more thing and I'm done through my notes, steve, which is why which is that, while the UK is not in the EU, as you all know, it's notable that the conservative prime minister, rishi Sunak, has himself called elections he's likely to lose them to Labour Party leader Keir Starmer, and that would actually take the UK to the left. So that's kind of interesting because, even as the rest of the rest of Europe tilts somewhat to the right, or at least loses. Where the left is losing a lot of influence. Uh, in the uk the left is likely to gain some influence now.

Clem Miller: 23:45

Admittedly, pierce darmer is not like uh, he he's sort of the new labor, the kind of tony blair, uh type labor, uh, more centrist left and not like more hardline labor left, not quasi-Marxist left. So I mean, that's what I would say about these elections and it's going to be very interesting to see how it goes and some of the analogies you're drawing between Europe and the US. Some of the analogies you're drawing between Europe and the US are kind of interesting too, especially the points about migration being an issue in both areas. I think that's relevant. Also, steve, I would say we haven't really talked about inflation and other economic issues, and I think that's in the background. In what's been high inflation has somehow highlighted the migration problem, as maybe people tend to blame economic conditions on migrants, and I think that's the situation.

Steve Davenport: 25:11

That's what you're going to be drawn to, right.

Clem Miller: 25:13

Yeah, so I think that's the situation in the US as well as in Europe. But I don't think fundamentally that European elections, and maybe not even the US elections, are primarily driven by economics, because on the margin, the economies, the inflation rate, they're improving in Europe and the US. This is not like a year ago, two years ago, three years ago. We're in a situation of economic improvement. It's less likely to affect elections than I think some of these social issues like migration and other issues.

Steve Davenport: 26:02

I just want to wrap with one concept, which is at the G7, they've invited since it's being hosted by Italy they invited the Pope to come and lead a conference on, or discussion on, ai. Sometimes go on to the cynical side, but to me this is just like, first of all, if we thought the G7 leaders together could come up with an AI solution that was going to be good for all the economies, I think we would probably be taken to, you know, for some heavy medication. I think that then you say we're going to take this leader of a religious group and have him lead the discussion, as a man in his late 70s, about artificial intelligence. And I'm sitting there going. Is this really happening? Are these people looking for answers? Are these people looking to grandstand? Are these people looking for answers? Are these people looking to grandstand? Are these people looking to move this forward?

Steve Davenport: 27:10

And so, when I think about these issues, at the end of the day, clem, I want to ask one question what do I do to take our views on any of these issues and make my portfolio stronger because of it? And when I look at artificial intelligence, it's the issue of 24, right, it is going to be the issue of the next five years or 10 years, and my question is is it clear how we take advantage of it, is it clear what we do? And is it clear that even the governments who sit around at these conferences and say, oh, we understand the issue, we understand the opportunity and we're going to come together and deliver this for our citizens, so that our world is a better place? I think I know my answer, clem, but maybe you can tell me something that's not completely different.

Clem Miller: 28:11

Well, I think, steve, you've pointed out that this AI discussion kind of is similar to all the discussions that have occurred regarding climate change and sustainability and ESG. I'm not putting those issues down. They're serious issues, very serious issues, and I'm not putting down AI. Ai is a very serious issue with potential social benefits.

Steve Davenport: 28:40

When unserious people approach a serious issue, do you get an unserious result.

Clem Miller: 28:46

When unserious approach a serious issue. Well, that's the whole point. You got to wonder about politicians or public servants who may or may not be experts in a field, especially a cutting edge field, making decisions that could translate into law.

Steve Davenport: 29:08

I would go one step further. Clint, you said politicians who may or may not be experts. I would even say they may not even be aware of what the issues are, never mind being experts, I mean, I think you're giving the ruling class a whole lot of ability here. That I don't understand their investment thesis.

Clem Miller: 29:33

Yeah, I'm a little hedged because for a number of years, I worked for a government agency that espoused a certain expertise in some areas expertise in some areas and I knew that they were. They're very good experts in that organization on their field, and so they have something to offer. But I also know that politicians come in every four years this is in the US, every four years or every eight years and they reinvent things and they think they know better than the politicians who were there before, and, of course, the civil servants take their cues from the politicians. So one has to be very skeptical to use that expression of what's going on in terms of these agencies trying to regulate AI. Already there's a regulation that's come out of the EU on AI and I don't know. It's got some basic principles, but I don't know if they're going to stand up to the test of time, because this is a very fast evolving area and a lot of people don't understand.

Clem Miller: 30:51

I'll mention one other thing this reminds me of Steve, at the risk of spending another minute here or two and that is I saw that Trump met with some Bitcoin crypto people and he had lunch with them yesterday or the day before, and they were trying to convince him that crypto and Bitcoin would be a good thing for the US energy sector.

Clem Miller: 31:23

Now you and I and a lot of people know that Bitcoin and crypto or Bitcoin mining right consumes a ton of energy, consumes a lot of energy and actually, to the extent, bitcoin as Bitcoin approaches its remaining Bitcoin over the next few decades starts making Bitcoin at a more expensive rate, so to speak. It's going to consume more and more energy and make energy prices higher if that continues. But they spun it the Bitcoin crypto people actually spun it for Trump and he bought the way they spun it. They were spinning it as the Bitcoin industry by mining more and more Bitcoin is going to help use US energy production and make the US more of an energy power. That's how they spun it to him and he kind of bought that. You know we're. He says the Bitcoin people can make us more energy independent.

Steve Davenport: 32:29

Well, yeah, but it's going to be costly in terms of when we go into politics and we go into these ideas about these governments and the voting and how it changes things, I still come away with the feeling that it's a lot like yesterday.

Steve Davenport: 32:45

You know what I mean, that tomorrow is going to be a lot like today and that there isn't a lot of change for the good from these governments, because they're not great allocators of capital. So my last thing today is I'm not sure there is a better way to allocate capital than in the markets, and I think that the private markets and some of the things that are going on with crypto and others, I still think are not really markets and there's no real value there. I guess I would tell people that during the chaos or during any uncertainty in these next six months with disinformation, we should all just hold and believe in companies that have led and will lead going forward. I still think they're the best companies in the world and I still think we have some of the best thinkers and the best leaders in our business community.

Clem Miller: 33:39

I 100% agree with you, and it's tech, but it's not just tech. There are other areas, too, where there's strong US leadership, very strong companies, and certainly my portfolio includes a lot of tech as well as tech-oriented companies, and I hold no Bitcoin.

Steve Davenport: 34:01

Yeah, all right. Well, thank you for joining us today and I appreciate all your insights. Clem, you did a lot of work and I think we will go from there. Our next podcast is going to be about Costco, and hope you can join us. Thanks again, bye.