Thinking about potential crises which might occur soon is, for most people, a pointless and unhealthy pastime – but not for traders. This is because anticipating a crisis before it happens can be a great way to make money, even if it seems sad to profit from the fear and consternation of others. It is the nature of human psychology to underestimate the probability of crises – by definition, unexpected events are unexpected, and tend to be more unexpected than they should be.
The effect of this psychological situation is that the payout offered on crisis situations is usually mispriced in the trader’s favor. Think of it this way: if you go to a betting shop and ask to see the bets on offer which pay out at 100:1, they probably actually have a greater probability of winning than these odds imply (e.g. instead of a 1% change of winning, a more correct figure might be 2% or 3%). It is the same in financial markets, because the crowd does not like to aim for the long-shots and lose most of the time.
So, since we’ve established that trading political or financial crises is a good way to make money, let’s examine what might be likely to go seriously “wrong†in 2017.
Breakup of the European Union
Three key political events are scheduled for 2017 within the European Union. Firstly, there will be a Dutch General Election which will be held on March 15, 2017. Almost all the opinion polls conducted within the last six weeks are showing Geert Wilders’ PVV emerging as the largest single party. The party advocates a Dutch withdrawal from the European Union. A victory for the PVV will not necessarily lead to Wilders becoming Prime Minister, but the party’s attack on Dutch and European “consensus†will mean a good result for the PVV will almost certainly shake the Euro.
A French Presidential election will be held on April 23, 2017. All opinion polls have, for several months, been pointing to a two-horse race between the candidate of the center-right party and Marine Le Pen of the Front National, with Le Pen losing by a decreasing but meaningful margin. A Front National victory in this election would be a huge political earthquake and Le Pen has promised French voters a referendum on EU membership. A victory by her would certainly rock the Euro, and a French exit from the European Union would effectively finish off the entire project and lead to the demise of the Euro.
