What does the rise of One Nation mean for your stocks? – Fat Tail Daily
It’s my mother’s funeral today. I’m in Germany to say goodbye.
Her plot lies beyond a forest of war graves. But before the graves of prisoners of war who were worked to death by the local industrialists.
It’s a good reminder of why we left the mess of Europe behind for Australia, back on New Year’s Eve in 2003.
Like the bear markets, sports hooligans and unpasteurised cheese, politics hits different in Europe.
Australia remains comparatively stable, whatever locals might think.
But Europe’s politics have been catching up with me ever since I left.
For a decade now, Australian politics has noticeably followed Europe’s. The amount of time delay has varied. But the mimicry was persistent.
Our rising Net Zero and green energy scepticism lagged Europe’s by a few years.
Our tax raids are echoing those in Europe.
The shift to a multi-party system and the rise of populism is the same as Europe’s.
The struggle with inflation and rising interest rates hit Europe first.
Anti-immigration sentiment copied Europe’s.
The divergence of nominal GDP and GDP per capita followed Europe.
The importance of sectarian and ethnic votes became a major political issue in Europe before it did in Australia.
The rapidly rising share of GDP from government spending is us catching up to Europe.
DEI, ESG, culture wars and identity crises all unravelled in Europe about the time they became popular here.
Ballooning welfare programs, anti-resources policies, super profits taxes, and countless other inventions of Australian politics have all long-since been swallowed, digested and vomited back up again by the old continent.
This effect has made Australian politics surprisingly easy to predict. I saw the rise of Pauline Hanson coming years ago, for example.
Today, I’d like to tell you about where her success will leave us.
Not politically, because I’m not much interested in politics for its own sake. A plague on all their houses, as far as I’m concerned. And a pox too.
But one of the things we can learn from Europe is that politics is more important to investors than at any point in your investing lifetime.
So, we reluctantly have to pay attention. Politics is no longer just an expensive form of entertainment. It matters to your wealth.
Firewalls burn fingers
In each country that has a rising right-wing populist party, the legacy parties have united against it.
In each country, they call this collusion by a different name. Germany and the UK call it a ‘firewall’. The French call it a ‘sanitary cordon’.
It successfully kept the populists out of government for many years. There were few exceptions. And they were quickly dealt with.
The Italians voted for populists in 2018. They got a series of Davos-elite, globalist, deep-state, quango, technocratic Goldman Sachs alumni as Prime Ministers.
Despite winning the largest vote share, Belgium’s Geert Wilders was excluded from much power in a four-party coalition government in 2024. And so he soon left it.
Admittedly, Belgium is famous for its inability to form governments at all because of the many parties. But aren’t we heading that way in Australia?
What does an economy and stock market look like when governments are divided and dysfunctional?
Actually, it matters more what types of stocks are listed there. For example, no amount of political chaos could have held back the US stock market lately. But that’s because it hosts the stocks that make up the AI bubble.
Similarly, Australia’s stock market can boom during rough periods for the country, thanks to our global resources sector.
The UK’s stock market soared after the Brexit vote, but mostly because the pound crashed. This made global companies listed in London worth more…in terms of pounds.
So, you’ve got to be careful about equating government and stock market performance.
The real issue is that divided governments cannot take much action.
Usually, that’s a good thing. I prefer my parliaments hung, drawn and quartered. Pointless politicking is great if it keeps politicians too busy to interfere in my life. The more problems governments try to solve, the worse things get. In a Mexican standoff between parties, the taxpayer usually wins.
However, governments today are divided because their economies and policies are doing so badly. We need change.
And political division is rubbish at delivering that. A house divided against itself cannot stand up to a sovereign debt crisis, high inflation and a trade war.
Am I saying a vote for Pauline is a vote for a combination of stasis and chaos?
Not necessarily…
In Italy, the first wave of populists quickly folded to the ECB, the EU, and the IMF. But voters simply shifted further right. Right-wing firebrand Georgia Meloni took power more convincingly than the more moderate populists in 2018.
The Italian stock market bottomed out the month she was elected. And has more than doubled since…
All to play for in Australia
The real question for Australia is how exactly the rise of Pauline Hanson plays out.
Will she give us a four-party system? Or will she unite the right to win outright?
Will governing Australia come down to horse-trading preference votes?
Will regional divisions worsen?
Will the firewall hold, giving us precisely the opposite of the policies One Nation stands for?
Will the legacy parties fight off One Nation by adopting its policies?
This worked well many times in the past in Europe, by the way. Populist parties shaped politics without getting elected. Instead, they forced governments to adopt their policies to keep the populists out.
Nigel Farage was described as the most influential politician of a generation long before he got anywhere near the UK Parliament.
But the Conservatives betrayed the Brexit Party voters who lent them their vote. Immigration soared after Brexit. So now Nigel Farage’s party is topping polls.
Perhaps Australia needs another such betrayal before One Nation peaks?
Too early to tell
What I’d like to leave you with today is that the outcome of One Nation’s rise is yet highly uncertain.
It’s simply not clear whether investors should cheer the rise of Pauline Hanson because she’ll liberalise the economy or whether she’ll paralyse the government.
In Europe, electoral success for populists was all too often followed by policies and outcomes that were the opposite of what they stood for.
That uncertainty is what decades of this type of mess in Europe tell us.
As Pauline Hanson’s political fortunes play out, part of the country will celebrate. Another wail and gnash their teeth.
But I’m not sure either group’s reaction will match their subsequent fate.
At a time like this, it’s better to invest your money in assets that don’t depend on the domestic political scene remaining stable. Indeed, some assets are likely to benefit from the Australian political chaos to come.
