Heed the French connection

While most eyes are focused on Italy, France may be the bellwether for Europe's prospects, with implications for our own economic future.

By Bill_Fleckenstein Mar 1, 2013 3:00PM

Eiffel Tower © Dave and Les Jacobs, Blend Images, Getty ImagesIt's been a while since I have relayed much from my anonymous friend, whom I refer to as the Lord of the Dark Matter, but given the uptick in European angst, I thought I ought to.


First off, he noted that now that the rally inspired by European Central Bank President Mario Draghi's outright monetary transactions has been exhausted, it's time to pay closer attention to its effect on Europe.


(I say "inspired" because Draghi did not have to actually do much in the way of open market transactions, but he will in the not-too-distant future, I would guess.)


As for the LODM's views, he suggested that, "While the markets are, understandably, volatile after the Italian election, and I thought about writing about the outcome . . . do not let Italy distract you from the real and growing problem in Europe. Which is France."


Cornering the market on sour grapes

He also pointed out that one of the early signs of trouble in 2003 was when both France and Germany were allowed to breach the 3% budget-deficit-to-GDP cap in the European Union's Stability and Growth Pact.


He wrote: "So let me ask you this: how do you think the citizens of Italy, Spain, Portugal, Ireland and, especially, Greece will feel if France -- which is already begging Brussels for more wiggle room -- is given wiggle room on its 2013 structural deficit commitment? How about Berlin? The battle for EMU (European Monetary Union) was always going to be fought over France, and I would suggest to you that the past three years were just the warm-up act. So as much as we were all excited by developments in Italy this morning, I am not going to take my eyes off France."


Of course, anyone who has been paying attention knows that France has large financial and economic problems, although it is in the league of too big to bail out (if it isn't, it is damn close). I expect that we will be more focused on developments in Europe prospectively. Having said that, I believe that Draghi and the rest of the Europhiles will move heaven and earth to make sure that their experiment with that currency doesn't go down in flames, at least not right now.


Thus, though the consternation over Europe, and the recognition that the American recovery was inspired by a rising stock market spinning the news in a way it didn't merit, are both going to conspire to put equity markets under pressure. Those of us who think the bond market is the key to the long-term big picture should be interested to see where the bond market fails on this go-round.


The highs for equity markets around the world may be very near, if we haven't already seen them for this year. To repeat, if that is the case, the important market will be bonds, and where the bond rally stops.


Obviously, as developments get more dicey, worldwide money printing could accelerate, to some degree, and that may put a bit of a floor under equity markets for a while. I am not so keen to short stocks (because of money printing), but there might be a chance that gold prices rise while stocks decline as a consequence of so many people having set themselves up as short gold because they were bullish on the economy or the stock market.


That's why they call it the 'nervous system'

Bottom line: It looks as if we are heading back to an environment where there are going to be lots of moving parts, and all the standard "room temperature" bets that have been made -- long stocks, long the dollar, short bonds (for the wrong reasons) and short gold -- are going to be tested.


Where it's @

I have authorized my editor to start an official Twitter feed for my subscription site. I won't be tweeting myself, and I can't promise how long we will stick with it, but in the meantime he will be quoting snippets from my subscription site, links to interviews, and anything else that seems worthwhile. If you're interested please follow @FlecksMarketRap

15Comments
Mar 1, 2013 7:04PM
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Europe can KMA.  Every Country wants money and all they can do is print it.  Gold and the miners had a lousy week.  Stock market being pushed up by the FED.  The house of cards is a rigged game. Nothing is making any sense anymore.  Gold and silver should be at all time highs.  What is going on is so fake and full of lies that a child could do better than what we have in Government right now.
Mar 1, 2013 9:13PM
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Instead of talking to your LODM friend, you should tap some French men and women. For quite some time now, there have been no jobs worth having because to work one guarantees a shortfall in income vs. outgo. It costs more to have a job than to not to. In the markets all over Europe, small businesses pop up, sell what they've got (quickly), fold up and go. The police nor the merchants care because those mobile enterprises bring customers (who seem to know where to go). In fact, all of the GIPSI nations have thriving sub-economies and no-pulse Central Bank stoked joke businesses. Bonds? I wouldn't touch one with a 10 foot fiat dollar. The truth is-- additional fiat printing further undermines those platforms of financial shiftiness. There are few if any European or American businesses that could be converted back to indigenous enterprises that hire labor personnel that can have families, buy homes and the products they make. Greed screwed itself out of the picture!

"Bottom line: It looks as if we are heading back to an environment where there are going to be lots of moving parts, and all the standard "room temperature" bets that have been made -- long stocks, long the dollar, short bonds (for the wrong reasons) and short gold -- are going to be tested."

What will get really intriguing is how you expect these all to fare without a viable currency flowing through them. Everything is the same- it has a posted value that moves only when the 6 or so big hoarders pay attention to them, then long periods of stagnation. The likelihood any will have legs isn't likely at all. The future is small fast and probably not as cash-oriented as tradition expects or needs them to be. In less than 10 years, every arrogant stalwart will be dead. When they topple... you get rubble, not transition.

Mar 4, 2013 9:33AM
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ONE THING THAT SEPARTS FRNCE FROM GERMANY IS THAT GERMANY IS THE ONE FINANCING THE BAILOUTS WHILE FRANCE HEADS TO BANKRUPTCY.  THE FRENCH'S WHAT IS IT NOW 32 HOU WORK WEEK AND MOST GENEROUS BENEFITS CN'T GET ITS ECONOMY MOVING AND WITH PROMISES FROM THE URRENT GOV OF NO AUSTERITY PROGRAMS THERE IS LITTLE HOPE THAT FRANCE WILL HAVE ANY FISCALLY SOUND FUTURE ANYTIME SOON. FRANKLY I BELIEVE WHAT THE RECENTLY REPORTED TIRE CEO SAID OF THE BUSINESS CLIMATE IS FACTUAL ---HE SHOULD BE PRAISED FOR TRUTH TELLING.
Mar 4, 2013 2:26PM
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"Very few pundits especially Bill have academic credentials to comment on macro economics. They have been self-taught"

 

I have been self-taught many things. One of the most important being-- if it is in a textbook, somebody either theorized it or somebody else did it. Rather than believe the author, I sought out the do-er and swept his floor. Lemmings follow, as you will soon know. Wear a bathing cap, Fat. Macro-economics? Are you serious? You are probably a wizard at armchair quarterbacking too. Jump in, let us know how your own self-created non-administrative, consulting or financial venture is doing. Anybody can push paper, not everyone can push a broom. When where you're at is full of crap, knowing how to sweep it clean is the real thing. BTW, I don't own cleaning businesses but my businesses are very clean. You should try that.  

Mar 11, 2013 9:26AM
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Few French seem to actually work. How can one base an economic forcast on France without breaking into a laugh?
Mar 2, 2013 7:53AM
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Welcome to the Shift. There are and will continue to be all sorts of articles about sequestration. When things happen, the blame will be dished out o'plenty. Essentially, this is now more a mind game than anything else. Shift happens. It has to. Everything in existence is circular or cyclical. Ergo, the more a linear or fixed agenda is attempted, the stronger the force promoting movement pressures that wall and strains it to and through all resistance. If you haven't guessed what straining- it's organized business models. Are we going to build a Keystone Pipeline through the United States, or crush sprawl and redesign our civilization to shun oil and gas dependencies? Some say- can't do it. Too bad, people did it for much longer than the century we drove cars and trucks. Will we continue to invent technology that kills employment? No. Will we legislate technology and remove business's unbridled compromises of humanity through technology? Yup. Will we forego corporate farms for local sustaining? Absolutely. A national reconstruction for the 21st Century isn't a dream, it literally lifts all ships while sinking some aged dogged billionaire empires. Will we resort to gold? No. Every civilization that did wound up in wars over it. Stop Oil & Mineral Rights exploitation. Map it and tap it as needed. End control and manipulation. All we need is one ethic as an index-- work. There is a fairly simple and transparent formula that ties the issuance of currency to the working capacity of living people. People work and get paid, they spend it and it causes new work, new pay. Technology is an aid, it has genuine purpose but it isn't fulfilling those purposes right now. If my brain can assess Credit Risk, why is a machine attempting to homogenize that which cannot effectively be so because change is constant and formulation is not? Welcome to-- The Shift. It's going to hurt but not in a bad way. Change is good. Congress was Out to Lunch yesterday. The only aspect of The Shift we now know is-- that not one of them will be returning next election and neither Party has credibility. Though corruption will again attempt to buy our vote through device and division, the truth is, simply having a workable position and willingness to discuss cooperate and SHIFT as needed, will be worth more than all the sleezy campaign cash crooks can collect. I for one, welcome opportunity. It keeps strong minds young, it buries the rigid and unyielding. We have choices again. What will yours be?

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This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.

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