March 29, 2012 7:34 pm

France votes to shut out the world



Ingram Pinn illustration




Not so long ago François Hollande was a racing certainty to win the Elysée. In the wake of the terrorist outrage in Toulouse, France may be having second thoughts. The Socialist leader is still ahead in the polls, but Nicolas Sarkozy is not yet beaten.



What strikes outsiders about the presidential contest is its organising assumption – many would say pretence – that France is an island. Forget the rest of the world – the rising states of Asia, the eurozone crisis, Germany’s pre-eminence in Europe – the next leader of the Fifth Republic will strike out as he pleases. Never mind globalisation. France commands its own destiny.

 

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There is something of such denial in elections everywhere. National politicians can scarcely admit that whatever they say on the campaign trail is contingent on events and circumstance in the world beyond.



But France’s choices are now more limited than at any time since the second world war. A half-century-long struggle to hold on to past status and influence in the world is becoming ever tougher.



To say the voters do not much like Mr Sarkozy is something of an understatement. For some it’s the bling, for others the fact that he has never been part of the establishment. France is a monarchy in republican dress. The president, one hears at gatherings of the Parisian elite, did not attend the Ecole National D’Administration. Worse, he trained as a lawyer. Mr Hollande may be a leftie, a French acquaintance told me the other day, but at least he is an educated man.



That he is cultured is about as much as we know about the Socialist candidate. Mr Hollande rose through the ranks of his party without leaving much of a trace. Even among supporters there is a lively debate about his convictions. His loathing of the plutocrats of finance seems real enough, but these days such sentiments are widely shared across the political spectrum. So is the promise to tame the excesses of the banks. A top rate of income tax of 75 per cent may go a bit far, but is there a politician of any colour who wants to side with the financiers?



Populism on the campaign trail is one thing. Once installed in the presidency, would Mr Hollande really take a serious lurch leftward to break with the economic discipline imposed on Europe by Germany’s Angela Merkel? Or, after an initial skirmish with Berlin, would he follow in François Mitterrand’s footsteps by tacking back to the centre? I have heard both views from French policy makers. The second is by far the most common.



Mr Sarkozy’s electoral pitch is that of the seasoned statesman. As he showed during the Toulouse crisis, he carries it off well.


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You may not like me, he tells his fellow citizens, but France needs energetic and decisive leadership. Mr Hollande’s love of culture, this text continues, isn’t enough for the Elysée.



The president, of course, has his own bundle of contradictions. He has done more than is sometimes credited to modernise France’s economy. Strange though it seems in the Anglo-Saxon world, it was quite something to raise the pension age to 62. A big part of his economic manifesto has been a call for France to match German competitiveness and flexibility.

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On the other hand, the mercantilist impulse runs deep in France. Mr Sarkozy wants a “buy Europeanact to keep out cheaper Chinese imports. He also wants to put more locks on the doors of the border-free Schengen area.



Most of Europe is backing the devil it knows. At a Brussels summit this month Ms Merkel was overheard discussing the French opinion polls. Nicolas, as she called him, was difficult enough to deal with, she confided to a fellow leader. But Mr Hollande? He would be impossible. The Socialist candidate’s promise to reopen the fiscal compact that Germany has set as the price of the eurozone bailout has won him few friends in Berlin.



David Cameron has had his (often very public) differences with Mr Sarkozy, but when Mr Hollande visited London a little while ago the door of Downing Street remained firmly closed. One suspects that Mario Monti sees a potential ally in Mr Hollande in his quiet campaign to get Ms Merkel to add a smidgen of economic growth to her prescription for the eurozone. But the Italian leader has thus far kept a diplomatic distance.



For their part, Messrs Sarkozy and Hollande conspire to turn their backs on the world. What’s missing from the campaign is even the slightest glimmer of recognition of the constraints imposed by globalisation and the shifting geopolitical balance.



The uncomfortable reality is that the strategy for influence France has pursued since the mid-1950s has run out of road. The same, incidentally, is true for Britain.

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In the aftermath of the debacle at Suez, France saw the leadership of Europe as the instrument of its international influence. Britain thought it could play Greece to America’s Rome.



Both nations have been overtaken by events. The pretence that France is Germany’s equal has been exploded by the eurozone crisis.


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The Elysée’s choice now is between agreeing with Berlin or leading Europe’s second-tier south. I have not met a single French policy maker who would choose anything but the former. But submission to Germany will not be easy. As for Britain, the focus of US geostrategic interest has turned to Asia. The welcome Washington still affords British prime ministers is as much a substitute for, as a sign of, influence.



The uncomfortable truth is that these two once-great powers have slipped their moorings. Sooner or later they will have to navigate a more modest course. But these are things that cannot be said during elections.

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Copyright The Financial Times Limited 2012


The Shadow of Depression

29 March 2012

J. Bradford DeLong

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BERKELEY – Four times in the past century, a large chunk of the industrial world has fallen into deep and long depressions characterized by persistent high unemployment: the United States in the 1930’s, industrialized Western Europe in the 1930’s, Western Europe again in the 1980’s, and Japan in the 1990’s. Two of these downturnsWestern Europe in the 1980’s and Japan in the 1990’scast a long and dark shadow on future economic performance.



In both cases, if either Europe or Japan returned – or, indeed, ever returns – to something like the pre-downturn trend of economic growth, it took (or will take) decades. In a third case, Europe at the end of the 1930’s, we do not know what would have happened had Europe not become a battlefield following Nazi Germany’s invasion of Poland.



In only one instance was the long-run growth trend left undisturbed: US production and employment after World War II were not significantly affected by the macroeconomic impact of the Great Depression. Of course, in the absence of mobilization for WWII, it is possible and even likely that the Great Depression would have cast a shadow on post-1940 US economic growth. That is certainly how things looked, with high levels of structural unemployment and a below-trend capital stock, at the end of the 1930’s, before mobilization and the European and Pacific wars began in earnest.



In the US, we can already see signs that the downturn that started in 2008 is casting its shadow on the future. Reputable forecasters – both private and public – have been revising down their estimates of America’s potential long-run GDP.



For example, labor-force participation, which usually stops falling and starts rising after the business-cycle trough, has been steadily declining over the past two and a half years. At least some monetary policymakers believe that recent reductions in the US unemployment rate, which have largely resulted from falling labor-force participation, are just as valid a reason for shifting to more austere policies as reductions in unemployment that reflect increases in employment. And much the same processes and responses are at work – with even greater strength – in Europe.



Most important, however, has been what looks, from today’s perspective, like a permanent collapse in the risk-bearing capacity of the private marketplace, and a permanent and large increase in the perceived riskiness of financial assets worldwide – and of the businesses whose cash flows underpin them. Given aging populations in industrial countries, large commitments from governments to social-insurance systems, and no clear plans for balancing government budgets in the long run, we would expect to see inflation and risk premiumsperhaps not substantial, but clearly visiblepriced into even the largest and richest economies’ treasury debt.



Sometime over the next generation, the price levels of the US, Japan, and Germany might rise substantially after some government short-sightedly attempts to finance some of its social-welfare spending by printing money. The price levels are unlikely to go down. Yet the desire to hold assets that avoid the medium-term risks associated with the business cycle has overwhelmed this long-run fundamental risk factor.



But the risk that the world’s investors currently are trying to avoid by rushing into US, Japanese, and German sovereign debt is not a “fundamentalrisk. There are no psychological preferences, natural-resource constraints, or technological factors that make investing in private enterprises riskier than it was five years ago. Rather, the risk stems from governments’ refusal, when push comes to shove, to match aggregate demand to aggregate supply in order to prevent mass unemployment.



Managing aggregate demand is governments’ job. While Say’s law – the view that supply creates its own demand – is false in theory, it is true enough in practice that entrepreneurs and enterprises can and do depend on it.



If the government falls down on the job, John Maynard Keynes wrote 76 years ago, and “demand is deficient...the individual enterpriser...is operating with the odds loaded against him. The game of hazard which he plays is furnished with many zeros,” which represent “the increment [by which] the world’s wealth has fallen short of...savings,” owing to “the losses of those whose courage and initiative have not been supplemented by exceptional skill or unusual good fortune. But if effective demand is adequate, average skill and average good fortune will be enough.”



For 62 years, from 1945-2007, with some sharp but temporary and regionalized interruptions, entrepreneurs and enterprisers could bet that the demand would be there if they created the supply. This played a significant role in setting the stage for the two fastest generations of global economic growth the world has ever seen. Now the stage has been emptied.


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J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau for Economic Research. He was Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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Copyright Project Syndicate - www.project-syndicate.org

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Precious Metals – Silver, Gold, Gold Miner Stocks On The Rise?

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March 30th, 2012 at 8:34 am
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The past couple months investors have been focusing on the equities market. And rightly so with stocks running higher and higher. Unfortunately most money managers and hedge funds are under performing or negative for the first quarter simply because of the way prices have advanced. New money has not been able to get involved unless some serious trading rules have been bent/broken (buying into an overbought market and chasing prices higher). This type of market is when aggressive/novice traders make a killing cause they cannot do anything wrong, but 9 times out of 10 that money is given back once the market starts trading sideways or reverses.


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While everyone is currently focusing on stocks, its important to research areas of the market which are out of favor. The sector I like at the moment is precious metals. Gold and silver have been under pressure for several months falling out of the spot light which they once held for so long. After reviewing the charts it looks as though gold, silver and gold miner stocks are set to move higher for a few weeks or longer.

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Below are the charts of gold and silver charts. Each candle stick is 4 hours allowing us to look back 1-2 months while still being able to see all the intraday price action (pivot highs, pivot lows, volume spikes and price patterns).

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The 4 hour chart is one time frame most traders overlook but from my experience I find it to be the best one for spotting day trades, momentum trades and swing trades which pack a powerful and quick punch.

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As you can see below with the annotated charts gold, silver and gold miner stocks are setting up for higher prices over the next 2-3 weeks. That being said we may see a couple days of weakness first before they start moving up again.
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4 Hour Momentum Chart of Gold:

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4 Hour Momentum Chart of Silver:

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Daily Chart of Gold Miner Stocks:

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Gold miner stocks have been under performing precious metals for over a year already. Looking at the daily chart we are starting to see signs that gold miner stocks could move up sharply at the trade down at support, oversold and with price/volume action signaling a possible bottom.




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Daily Chart of US Dollar Index:

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The US Dollar index has formed a possible large Head & Shoulders pattern meaning the dollar could fall sharply any day. The size of this chart pattern indicates that if the dollar breaks down below its support neckline the we should expect the dollar to fall for 2-3 weeks before finding support.

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Keep in mind that a falling dollar typically means higher stock and commodity prices. If this senario plays out then we should see the market top late April which falls in line with the sayingSell In May and Go Away”.

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Precious Metals Conclusion:

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Looking forward 2-3 weeks precious metals seem to be setting up for higher prices as we go into earning season and May. Overall the market is close to a top so it could be a bumpy ride as the market works on forming a top in April.

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Chris Vermeulen


The Confidence Game


Leon Wieseltier

March 29, 2012 | 12:00 am
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