Only human, after all
Emmanuel Macron’s problems are more with presentation than policy
But he can still save his presidency
IT IS A long way down from Mount Olympus. Last year Emmanuel Macron strode into power with a mandate to reform France. This week France looked unreformable. The streets of Paris have been littered with burned-out cars and glass from smashed shop windows. Parts of the countryside are paralysed, as protesters in high-visibility yellow jackets obstruct roads and blockade fuel depots. Policy U-turns are making Mr Macron look as weak as all his recent predecessors who tried to change this most stubborn of nations. The man who once promised a “Jupiterian” presidency is looking decidedly mortal.
Mr Macron’s election in May 2017 seemed to herald new optimism about France, Europe and the world. Young, intelligent and bubbling with ideas to make France more open, dynamic and fiscally sober, he gave an eloquent rebuttal to the drawbridge-up nostalgia of Brexit Britain, Donald Trump’s America and the autocracies of eastern Europe. The hope for a broad renewal of the radical centre came to rest on his shoulders.
When this new party, a band of political newcomers powered by social media, won a thumping parliamentary majority, the Macron revolution seemed unstoppable. He swiftly passed long-needed reforms to make the labour market more flexible, working with moderate unions and facing down obstreperous ones. His education reforms offered smaller classes in poor areas and greater citizens’ control over training. The budget was knocked into shape, meeting the Maastricht deficit limit of 3% of GDP for the first time since 2007.
Yet along the way, Mr Macron forgot that a French president is neither a god nor a monarch but merely a politician in a democracy that requires the constant forging of consent. His hauteur has led to a series of individually small but cumulatively destructive missteps—scolding a teenager for calling him “Manu” instead of “Monsieur le Président”, summoning parliament to be lectured at the palace of Versailles, talking of “people who are nothing”.
Mr Macron also seems to have forgotten that, in the first round of last year’s election, 48% of voters were so unhappy that they backed extremists: Marine Le Pen on the nationalist right, Jean-Luc Mélenchon on the left and half-a-dozen less charismatic radicals. Those voters have not gone away. So it was unwise of the new president to antagonise the left-behind carelessly. One of his first moves was to slash taxes on wealth. The old wealth tax was inefficient, incentive-sapping and often avoided. But its removal should have gone side-by-side with more help for the hard-up. Likewise, his tax rises on diesel are a sound green policy, but he should have paid more attention to the people they hurt most—struggling rural folk who need to drive to work. The most damaging label that has stuck to the former banker is that he is “the president of the rich”.
Many French people believe this, which is perhaps why around 75% say they support the gilets jaunes protesters. Like Mr Macron’s election campaign, the protesters are organised via social media. Unlike it, they are leaderless and lack a coherent agenda, so they are almost impossible to negotiate with. The clashes already look to be the worst since les évènements of 1968.
Mr Macron will now be banking that his decision, on December 5th, to cancel the diesel tax rises “for the year of 2019”, will take the heat out of the conflict. This seems unlikely; for a start, the protests have in part now been hijacked by thuggish extremists with an interest in the violent overthrow of capitalism. Many of even the moderate gilets jaunes are demanding Mr Macron’s resignation, or a new parliament. And an earlier diesel tax rise which went into effect last January, has not (yet) been reversed.
Only human after all
The government’s reaction could backfire horribly. It may not be enough to draw the sting from the protests. But, by giving ground at all, it may show that Mr Macron can be pushed around by mobs on the streets, thus encouraging more mobs to form. There is pressure on Mr Macron to bring back the wealth tax; and further reform now looks much less likely than it did. Yet there is plenty of hard work still to do; the next overdue project that Mr Macron plans to tackle is France’s unaffordable pension system.
Does all this mean that have-your-cake-and-eat-it populism must triumph, and that reformers will always be thwarted? It is depressingly easy to conclude so. Mr Trump has won the support of his base by offering Americans tax cuts that are not affordable in the long term. In Italy the all-populist ruling coalition promises to lower the pension age that a more prudent predecessor raised, while also offering deep tax cuts. Even Vladimir Putin did not have the courage to face down Russian pensioners this year.
All is not lost for Mr Macron. He could help himself in several ways. First, he should demonstrate where his priorities lie. It will be expensive, but some form of earned-income tax credit is needed: a proper wage subsidy for the low-paid that enhances their incentive to work, rather than draw the dole. (One exists already, but it is too small. Mr Macron has promised to beef it up, but only slowly.) That should have gone hand in hand with scrapping the wealth tax. Second, he and his government need to do more to promote and explain the good things they have already done but which are underappreciated—such as the investment in apprenticeships, or the moves that will make it more likely that businesses will hire young people on long-term contracts. The unemployment rate is down by half a percentage point, though still much too high at 9.1%.
And third, Mr Macron himself needs to change. His notion that the French want their president to be aloof and Jupiterian is misguided. As our chart shows, the most popular French president of recent times was the least remote—Jacques Chirac, a beer-swilling, heavy-smoking mec with a twinkle in his eye. In an age where populists will do and say anything, a politician who cannot persuade ordinary people that he or she understands them, likes them and wants to help them will struggle to get anything done. It will not take superhuman powers to reform France—just the very human ones of patience, persuasion and humility.
ONLY HUMAN, AFTER ALL: EMMANUEL MACRON´S PROBLEMS ARE MORE WITH PRESENTATION THAN POLICY / THE ECONOMIST
MARKET PREDICTIONS: 2019 TO BRING NEW LEVEL OF UNCERTAINTY / THE FINANCIAL TIMES OP EDITORIAL
Markets predictions: 2019 to bring new level of uncertainty
Strategists give their forecasts on what could happen to equities, gold, cash and securities
Robin Wigglesworth
Danish physicist and Nobel laureate Niels Bohr famously quipped that “prediction is very difficult, especially if it’s about the future”. But as 2018 enters its final stretch, Wall Street’s analysts are once again dusting off their crystal balls and attempting to map out what the coming year will look like.
An always tricky task is now nearly impossible. Economists and analysts are actually reasonably good at getting the general direction correct, but awful at anticipating turning points. And as 2018 showed — with virtually every major asset class heading for a loss — markets appear to be entering a new, more uncertain phase. Is 2019 the year when the post-crisis bull run falls completely apart?
“All good things eventually come to an end. But when? Answering this question represents the fundamental 2019 investment challenge for portfolio managers,” David Kostin, chief US equity strategist at Goldman Sachs, wrote in his annual outlook.
Big picture: the median forecast of strategists polled by Bloomberg indicates the US economy will grow 2.6 per cent in 2019, while the S&P 500 will end the year at 3,090 points, with the 10-year Treasury yield at 3.44 per cent. Pretty much everyone expects the dollar to weaken next year, as the Fed interest rate cycle peaks.
But diving into the details of the outlook reports, there are some more interesting predictions. Here are some of them.
Return of the bear
Most analysts, even bearish ones such as Morgan Stanley’s Mike Wilson, think the S&P 500 will end 2019 higher than its current level. But Société Générale’s 2,400-point end-2019 prediction — and for a recession by the first half of 2020 — stands out as the most negative one by far.
It implies another 10 per cent drop from the current level, which would mean a bear market for US equities (typically defined as a 20 per cent drop from the recent high). “We expect a more restrictive monetary policy to push equity valuations lower, while political gridlock and trade tensions will likely be a source of volatility,” SocGen said in its outlook, fittingly illustrated by a waving grizzly bear.
But SocGen is also gloomy on European equities — eyeing another 8 per cent drop to take the Euro Stoxx 50 into a bear market — thinks Japanese equities will tread water and forecasts that the FTSE 100 will tumble by another 14 per cent.
Gold regains its glitter?
Gold bugs have had a frustrating year, as a splurge of Treasury issuance has failed to shake faith in the greenback, and a the strong economy and the Fed’s rate increases have sucked in money from abroad. This has led gold to shed almost 5 per cent of its dollar value in 2018 to trade at about $1,240 per troy ounce.
But both JPMorgan and Bank of America reckon a renaissance is coming, as the US central bank slows its rate increases and financing the US deficit becomes more challenging. BofA sees gold appreciating a modest 5 per cent, but JPMorgan predicts a juicier 15 per cent return, “as US real rates peak and focus turns to financing the US’s twin deficits when the Fed cycle is near an end”.
Inflation in the nation
Most analysts expect US inflation to stay subdued in 2019. The core “personal consumption expenditures” price index — the Fed’s preferred inflation measure — is expected to tick up from 1.9 per cent to 2.1 per cent next year, but some strategists fret that this is complacent.
Macquarie expects core PCE to accelerate a touch faster, to 2.2 per cent in 2019, and warns that even this may be too low an estimate, given the danger of tariff costs being passed on to consumers, a weaker dollar, rising natural gas prices, spendthrift fiscal policy and the labour market reaching a “pinch point” that causes wages to shoot higher.
Given how sensitive financial markets have proven to any hint of accelerating inflation this year, this could be the still-unlikely but most dangerous risk to watch in 2019.
A value renaissance?
Cheap, stolid “value” stocks have been left in the dust by racier “growth” stocks since the financial crisis, but Morgan Stanley reckons that 2019 will see “a major leadership change occurring from growth to value which could be more long-lasting than most appreciate”, pointing to their relatively low prices and how growth stocks are more sensitive to higher bond yields.
After a long bout of underperformance, which by some measures stretches back decades, this is an out-of-consensus call by Morgan Stanley’s analysts. As they noted in a follow-up report: “While pushback wasn’t overwhelming, clients didn’t exactly embrace our views, with the least support for value over growth and international stocks outperforming the US.”
Securitised shocker
The alphabet soup of securitised bonds has done fairly well in 2018, especially products such as collateralised loan obligations and floating-rate asset-backed securities, which benefit from rising Fed interest rates.
However, BofA reckons that the poor performance of “agency” mortgage-backed securities created by Fannie Mae or Freddie Mac — which have faced headwinds from the Fed shedding MBS from its balance sheet — could be a “harbinger of what’s to come in other securitised sectors in 2019”.
“Chances are good that 2019 ultimately sees a major blowout in securitised products spreads,” the bank’s analysts wrote in their outlook. “The key driving factors we see are macro in nature: continued monetary policy tightening, in the form of rate hikes and accelerated balance sheet wind down, further trade war escalation, fading fiscal stimulus and slowing home price growth due to affordability constraints.”
King Cash
Cash has been one of 2018’s surprise performers, with the returns from Treasury bills beating broad bonds and equity and commodity indices — an exceptionally unusual occurrence. Many investors point out that this happening two years in a row is almost unheard of, but JPMorgan warns that they should gird themselves for disappointment once again.
JPMorgan’s chief cross-asset strategist John Normand sees returns of plus or minus 1 per cent for most asset classes, but thinks rising US interest rates will mean that cash will return 2.8 per cent in 2019. Goldman Sachs predicts cash returns will hit 3 per cent. Rate increases from all developed country central banks will also lift global cash returns from zero in 2018 to 1 per cent next year, JPMorgan forecasts.
However, that will weigh heavily on developed market bonds, and inflict another 2.4 per cent loss on investors. That would be the first consecutive yearly loss for bonds since modern bond benchmarks began in the early 1970s.
Size matters
Smaller US company stocks have been pummelled lately, tumbling more than 15 per cent since their summer high to underperform the “large-cap” S&P 500, despite being in theory more immune to any deepening trade wars.
Deutsche Bank’s chief US strategist Binky Chadha reckons this is way overdone, pointing out that small-caps are now pricing in a sharp US economic slowdown and are unusually cheap compared with large-caps. Given the relative positioning — traders are now net short the Russell 2000 small-caps index but long the S&P 500 — he recommends investors look for opportunities there instead.
TRACING THE ORIGIN OF VENEZUELA´S CRISIS / GEOPOLITICAL FUTURES
Tracing the Origins of Venezuela’s Crisis
By Allison Fedirka
Defending the Government
Is Fake News Here to Stay?
Experience from European elections suggests that investigative journalism and alerting the public in advance can help inoculate voters against disinformation campaigns. But the battle with fake news is likely to remain a cat-and-mouse game between its purveyors and the companies whose platforms they exploit.
Joseph S. Nye
CAMBRIDGE – The term “fake news” has become an epithet that US President Donald Trump attaches to any unfavorable story. But it is also an analytical term that describes deliberate disinformation presented in the form of a conventional news report.
The problem is not completely novel. In 1925, Harper’s Magazine published an article about the dangers of “fake news.” But today two-thirds of American adults get some of their news from social media, which rest on a business model that lends itself to outside manipulation and where algorithms can easily be gamed for profit or malign purposes.
Whether amateur, criminal, or governmental, many organizations – both domestic and foreign – are skilled at reverse engineering how tech platforms parse information. To give Russia credit, it was one of the first governments to understand how to weaponize social media and to use America’s own companies against it.
Overwhelmed with the sheer volume of information available online, people find it difficult to know what to focus on. Attention, rather than information, becomes the scarce resource to capture. Big data and artificial intelligence allow micro-targeting of communication so that the information people receive is limited to a “filter bubble” of the like-minded.
The “free” services offered by social media are based on a profit model in which users’ information and attention are actually the products, which are sold to advertisers. Algorithms are designed to learn what keeps users engaged so that they can be served more ads and produce more revenue.
Emotions such as outrage stimulate engagement, and news that is outrageous but false has been shown to engage more viewers than accurate news. One study found that such falsehoods on Twitter were 70% more likely to be retweeted than accurate news. Likewise, a study of demonstrations in Germany earlier this year found that YouTube’s algorithm systematically directed users toward extremist content because that was where the “clicks” and revenue were greatest. Fact checking by conventional news media is often unable to keep up, and sometimes can even be counterproductive by drawing more attention to the falsehood.
By its nature, the social-media profit model can be weaponized by states and non-state actors alike. Recently, Facebook has been under heavy criticism for its cavalier record on protecting users’ privacy. CEO Mark Zuckerberg admitted that in 2016, Facebook was “not prepared for the coordinated information operations we regularly face.” The company had, however, “learned a lot since then and have developed sophisticated systems that combine technology and people to prevent election interference on our services.”
Such efforts include automated programs to find and remove fake accounts; featuring Facebook pages that spread disinformation less prominently than in the past; issuing a transparency report on the number of false accounts removed; verifying the nationality of those who place political advertisements; hiring 10,000 additional people to work on security; and improving coordination with law enforcement and other companies to address suspicious activity. But the problem is not solved.
An arms race will continue between the social media companies and the states and non-state actors who invest in ways to exploit their systems. Technological solutions like artificial intelligence are not a silver bullet. Because it is often more sensational and outrageous, fake news travels farther and faster than real news. False information on Twitter is retweeted by many more people and far more rapidly than true information, and repeating it, even in a fact-checking context, may increase an individual’s likelihood of accepting it as true.
In preparing for the 2016 US presidential election, the Internet Research Agency in St. Petersburg, Russia, spent more than a year creating dozens of social media accounts masquerading as local American news outlets. Sometimes the reports favored a candidate, but often they were designed simply to give an impression of chaos and disgust with democracy, and to suppress voter turnout.
When Congress passed the Communications Decency Act in 1996, then-infant social media companies were treated as neutral telecoms providers that enabled customers to interact with one other. But this model is clearly outdated. Under political pressure, the major companies have begun to police their networks more carefully and take down obvious fakes, including those propagated by botnets.
But imposing limits on free speech, protected by the First Amendment of the US Constitution, raises difficult practical problems. While machines and non-US actors have no First Amendment rights (and private companies are not bound by the First Amendment in any case), abhorrent domestic groups and individuals do, and they can serve as intermediaries for foreign influencers.
In any case, the damage done by foreign actors may be less than the damage we do to ourselves. The problem of fake news and foreign impersonation of real news sources is difficult to resolve because it involves trade-offs among our important values. The social media companies, wary of coming under attack for censorship, want to avoid regulation by legislators who criticize them for both sins of omission and commission.
Experience from European elections suggests that investigative journalism and alerting the public in advance can help inoculate voters against disinformation campaigns. But the battle with fake news is likely to remain a cat-and-mouse game between its purveyors and the companies whose platforms they exploit. It will become part of the background noise of elections everywhere. Constant vigilance will be the price of protecting our democracies.
Joseph S. Nye, Jr., is a professor at Harvard University and author of Is the American Century Over?
Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
Paulo Coelho

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