Category Archives: Economy and Meltdown

The French Government Gets Whacked, Even The Left Is Angry, And Hollande Gets Slapped In The Face

Wolf Richter

France is mired in a stagnating economy. The private sector is under pressure, auto manufacturing is heading into a depression. Unemployment hit a 13-year high of 10.2%, leaving over 3 million people out of work. Youth unemployment of 22.7%, bad as it is, belies the catastrophic jobs situation for young people in ghetto-like enclaves, such as the northern suburbs of Paris. The “solution”—fabricating 150,000 jobs for the young at taxpayers’ expense—has been tried before, with little success. Gasoline and diesel prices are hovering near record highs. So there are a lot of very unhappy campers.

In a BVA poll, 55% of the respondents were dissatisfied with President François Hollande’s efforts to tackle the economic crisis. By comparison, only 31% were dissatisfied with Nicolas Sarkozy in 2007 at the end of his honeymoon. Devastatingly, for a socialist: 57% believed that he didn’t distribute the “efforts” equitably—same as Sarkozy, the president of the rich.

The problem with voters is Hollande’s “inaction,” after some initial half-measures, such as the partial reinstatement of retirement at 60 and raising back-to-school aid for families. Now people “seriously doubt his ability to change things.” They believe that the government spends its time trying to “unravel Sarkozy’s legacy” and “sitting around in meetings,” rather than making decisions.

In an OpinionWay poll, satisfaction with the job Hollande is doing crashed a vertigo-inducing 14 points from 60% in July to 46% in September—compared to the 64% satisfaction score voters heaped on Sarkozy in 2007. And 58% believed Hollande, after four months in office, is already going “in the wrong direction.”

People have the “strange impression” that the government is “only now becoming aware of the crisis,” and they’re worried that the government lacks “clear vision” and “a war plan” to combat it, said Bruno Jeanbart, deputy general director of OpinionWay. Anxiety is engulfing the middle class, and it pummeled Hollande with a 19-point drop in the satisfaction score. During his campaign he’d promised that he’d demand “efforts” from the rich and from large corporations, but now the middle class fears that it will be asked to step up to the plate and pay even more in taxes.

It gets worse. Only 34% are confident that Hollande can tackle the unemployment fiasco, 33% are confident that he can control budget deficits, and 29% believe that he can maintain purchasing power (a formula based on inflation and a slew of other factors, such as social payments). Prime Minister Jean-Marc Ayrault got knocked down by 13 points to 46%. Luckily for Hollande and his ilk, the entire classe politique, including the opposition, got hammered, and even right-wing Marine LePen was knocked down 10 points to 21%.

To turn things around, Hollande addressed the nation on Sunday night TV (TF1) … and lowered growth expectations for 2012 from the already measly 1.2% to 0.8%. To keep the deficit in line, he’d have to come up with €33 billion in new measures. He’d “save” €10 billion in public service—though he’d already committed to hiring more civil servants for education, law enforcement, and the decrepit justice system. Deep unnamed cuts would have to be made elsewhere. A mystery, because the resulting strikes would paralyze France for weeks.

And he outlined tax measures, some of which he’d already proposed during his campaign, to extract another €20 billion from households and businesses—the 75% top income tax bracket among them. Once again, he emphasized to his incredulous middle-class compatriots that these taxes would hit only the largest corporations and richest households.

Hence the explosive impact of the “affaire Arnault,” as it has come to be called. Bernard Arnault, richest man in France, fourth richest man in the world, top honcho at luxury retailer LVMH, and close associate of Sarkozy, has applied for Belgian citizenship.

France gasped. Liberation ran a front-page article, “Hit the Road, Rich Idiot.” It lambasted him for his tax-avoidance strategy and called him a “deserter.” Arnault decided to sue the paper. Economy Minister Pierre Moscovici said on BFMTV that he was “shocked” and called for renegotiation of the tax treaties with Belgium, Luxembourg, and Switzerland (unlike Americans, who are taxed on their worldwide income, French citizens are not taxed in France if they don’t live there).

In November 2011, Arnault called Armand De Decker, the mayor of Uccle, a swank French-speaking community in the Region of Brussels, to let him know that he’d buy a residence there and apply for citizenship. Arnault had explained to him that his decision was based on the current tax climate in France—”If certain tax measures are implemented,” De Decker said, “that would mean for him that the taxes he’d pay would exceed his income.”

But Brussels isn’t a hot tax haven—we used to live there, and there are lots of reasons to live in Brussels, but you pay taxes out of your nose for almost everything. Yet it’s 1 hour 22 minutes by train from Paris; and there are some tax advantages over France, including inheritance taxes. Hence, the dominant group of the many French escapees, the 45-60 year-olds, want to protect their moderate fortunes. But the super-rich tend to go elsewhere. If nothing else, Arnault’s move is a deft slap in Hollande’s face.

And here is an excellent piece by Blankfiend: as the Eurozone careens down the path of its fate….. The European Central Bank Thumbs Its Nose At The Law.

The Zero Hedge Daily Round Up #123 – 10/09/2012

My computer has had some sort of major technical error every day since posting on Zero Hedge, always just before releasing another episode. Today’s mayhem is inclusive of my screen turning off indefinitely, whenever a video file is openned. Plus the image in the video editor decided to turn the brightness and contrast to a merry ‘zero’. How excellent. This bastard was ready well before 8pm. Now it’s 8:40pm. The same goes for every other episode.

It doesn’t help that I’m atheist. “Comedy and finance is a great fit”, they said. I should’ve simply allowed the preist molest me as a child and go on to reap the future benefits of being delusional and old. I think they call it wisdom, although my psychiatrist doesn’t know. He’s not Jewish. 

Maybe I wouldn’t be left with this appaling premise… gee, I feel like Letterman. The punchline is obscured be my arrogance and lame outlook on the typical global citizen. Any moment now… I think I see a predator drone overhead. This is the Zero Hedge Daily Round Up.

1. Obama executive order for cybersecurity. 2. Employment free 2016. 3. FBI arrest mayor of Trenton. 4. 51% admit they’re American consumers. 5. Baltic dry index dries up. 6. Chevy volt stalls indefinitely. 7. 54% Germans ‘nein’ to ESM. 8. College degree burden. 9. $1 trillion of TARGET2 south extortion. 10. A statistic. 11. Extended last minute bulletin.

Alternatively, you can download the show as a podcast on iTunes or any RSS capable device.

RSS Feed:

Julius Reade

PS: Or for those paranoid about the government:

D.C. Finalizing Plan for Assault on Metro NYC


Bloomberg has a story today that has special meaning for me (Link):





– The USA has a tax that very few pay. It is called the AMT (Alternative Minimum Tax).


– AMT became law in 1969 when it was (shockingly) revealed that (get this):


155 people earned more than $200,000 and legally didn’t pay any taxes.

What is it today? 15Mn?


– AMT (functionally) eliminates most tax deductions (the mortgage deduction is excluded).


– AMT is not linked to inflation. As a result, the threshold for being subject to this tax has fallen every year.


– If applied to all taxpayer today, the AMT would clobber the middle class. It would change the way charities and churches are funded. It would discourage people from having children. It would discourage home ownership. It would crush people who live in states where there is an income tax.


-Congress is well aware of the problems with AMT. Every year for the last ten they have rolled over a "patch". The yearly exemption reads (sort of):


If you didn’t pay AMT last year, you don’t have to pay this year either! Vote for us early and often!


The language from Congress could also be read:


If you were unlucky enough to have been socked with AMT last year, we’re going to stick it to you again. Sucker!


Note: I’m one of the suckers. I’ve been paying this for the last 15 years. It has added up to big bucks.


Consider the Fiscal Cliff as a Wordle:



AMT sticks out. It is the basis upon which some compromise could be reached to avoid the most significant consequences of falling off of that cliff. A few examples of why AMT could become negotiating bait.


-If applied as the law is now written, AMT would raise a ton of revenue ($1Trillion++ over ten years). But politicians could say that “they” did not “raise” taxes, or create “new” taxes.


-The cost of AMT rises with income. It is a “progressive” tax. Democrats like that.


-Republicans want to broaden the base. AMT accomplishes that as well.


-Everyone wants to eliminate deductions (a stealth tax increase). AMT most certainly accomplishes that.


-AMT minimizes petty fraud of the IRS.


Note: How many people create an extra thousand or two of deductions out of thin air every year? Answer: Many. The IRS has no resources to find out. But with AMT, there are no deductions at all. Problem solved.


So who is going to get hit with AMT? A lot of folks is the answer. In 2010 only 4.4 Mn souls got hit with AMT. If Congress does not vote on another patch, that number will jump to 33Mn in 2013 (750% increase!).


Bye bye child deduction. You can’t deduct those charitable contribution you make. But by far the worst hit comes from the loss of deductions for local property taxes and income taxes paid to the state. The question of who will get hit the worst narrows down to the states that have high income taxes and also ridiculously high property taxes. Numbers 1, 2 and 3 on D.C.'s target list:


New York


New Jersey


The Big Apple is in the middle, and will suffer the most. Not only do NYers pay their state 8%, but they have to kick in another 2% for the privilege of living in town. Very big money is involved. All of these deductions could be lost on New Year’s Eve. Ten million people in Metro NY could get hit. It would be like Congress dropping stink bombs on Times Square.

Note. I absolutely promise that you come to hate the AMT. It will cost you, but worse, it will influence your decisions as to where you live, how much you give, how you invest, whether you should have a child and a whole bunch of other things. Oh, and you can forget about inventing those charitable expenses every year (and sweating an audit).


David Rosenberg's New Normal: "The Economy Does Not Drive The Markets Any More"

Bill Gross may be credited with inventing the term ‘the New Normal‘, although his recommendation to purchase gold above all other asset classes, something which only fringe blogs such as this one have been saying is the best trade (in terms of return, Sharpe Ratio, and the ability to sleep soundly) for the past three and a half years, he is sure to be increasingly ostracized by the establishment, and told to take all his newfangled idioms with him in his exile to less than serious people land. Which takes us to David Rosenberg, who today revisits his own definition of the New Normal. And it, too, is just as applicable as that of the Pimco boss: “The new normal is that the economy doesn’t drive markets any more.” Short and sweet, although it also is up for debate whether the economy ever drove the markets in the first place. But that would open up a whole new conspiratorial can of worms, and is a discussion best saved for after Ben Bernanke decides to save the “housing market” by buying more hundreds of billions in MBS and lowering mortgage yields further, even though mortgage rates already are at record lows (something that mortgage applications apparently couldn’t care less about as we showed last week), while “avoiding” to do everything in his power to boost the S&P, which recently was at 5 year highs, and certainly “avoiding” to listen to Chuck Schumer telling him to do his CTRL+P job, and “get to work” guaranteeing Schumer’s donors have another whopper of a bonus season.

From Gluskin Sheff:


Markets are going in the opposite direction of the world economy if you’re positioned fundamentally, you’re positioned against these clowns.

John Burbank, Passport Capital, ECB Bazooka Faces Pefipherai Tests. page 12 of the weekend FT

What’s extraordinary is that the euro is rallying almost because the ultimate taboo of central banking is being violated, the proactive financing of fiscal imbalances through the central bank balance sheet Before this all other QE was to further monetary policy when the interest rate lever had been exhausted. Here it’s financing a government deficit because the market won’t is the ECB going to be a fiscal inquisitor or enabler?

Louis Bacon. Moore Capital (same article)

Indeed, the data and the markets have gone their separate ways just about everywhere on the planet because of this ever-rising threat of additional policy stimulus (see Optimism over Central Banks Lifts Risky Assets on page 11 of the weekend FT). Shorts are getting squeezed as a result. Wednesday is a key day from that perspective … the consensus is now widespread that the Fed will announce a $600 billion QE extension, likely in MBS.

Who would have thought that in a week that saw such an awful pair of data from two critical reports like ISM and nonfarm payrolls that the S&P 500 would have managed to rally 2_2% and the Nasdaq hit a new 12-year high? Not even the main earnings development, Intel cutting its sales guidance, could elicit much of a market reaction.

Page M3 of Barron’s (The Trader) cites three reasons for the extended bullish sentiment last week_

1.    An electrifying speech by former President Bill Clinton.

2.    Mario Draghi pronounced the euro to be “irreversible- and laid out a plan to stabilize beleaguered euro-zone nations_

3.    China did its part for the markets Friday when it announced a plan to spend $157 billion on 60 different infrastructi ire projects.
Clinton. Draghi. China.

The horrible employment data? That showed up in the tenth paragraph (imagine zero job growth outside of three sectors- leisure, professional services and health/education).

The new normal is that the economy doesn’t drive markets any more.

The correlations today are tighter with yield spreads between Spain and Germany (the overall positive tone globally coincided with Spanish 10-year yields sliding below 6% for the first time since May alongside a 20 basis point jump in German bund yields … this has become the pulse for financial market confidence in general). In fact, we ran correlations between daily changes in 10-year spreads and in the S&P 500 level and found that the correlation has gone from -13% from 2000-2011 to -33% since 2011 (2011 to now, meaning widening in spreads is associated with negative returns on the S&P500 and that inverse relationship has been magnified nearly three-fold in the past two years).

The Historic Demise Of The Ever-Shrinking Dollar: An Infographic

The almighty Dollar is looking less mighty these days. By almost every measure, the purchasing power of the US Dollar is in precipitous decline. The following infographic, whose contents should be well-known to our readers, visualizes the sad state of affairs that the average American seems to have ignored for far too long. And since the whole world is now engaged in the 4th year of all out currency debasement one can safely channel Lester Burnham and say it’s “all downhill from here.”

Shrinking Dollar Infographic

Infographic By Wholesale Gold Group