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Charles de Gaulle 

Commentary & Analysis

I suggest you short the French franc today. 

From the Financial Times:

“Business activity in the eurozone’s two largest economies is diverging sharply, with France’s private sector contracting after two months of growth while in Germany it accelerated to a 10-month high, according to a survey.”

France’s large dose of “socialism with French characteristics” under President Hollande doesn’t seem to be working.  I guess people who make money and employ others don’t enjoy having to share 90% of their earnings with their government, regardless of how wonderful and altruistic said government may be.

Given the size of France—the zone’s second largest economy—it is important France work in order for the zone to be on sound footing (not to mention its critical role as a political buffer to Germany).  Despite the fact that the largest player in the zone—Germany—seems to be doing just fine, weakness around the edges coupled with France is pulling down the whole, as you can see in the chart below showing PMI (left scale) and GDP (right scale):

France’s PMI has fallen into contraction at 48.8 in November, down from a reading of 50.9% in October.

A lot of the other numbers seem confirm this contraction in France….

  • French Unemployment:  Ouch!

  • Current account balance is bleeding red.

…but don’t worry France, Germany’s got your back…

This set of numbers clearly reflects weakness in France.  That compares to some pretty good data for the United States lately.  Therefore, I think it’s a good time to sell short the French franc.  You say there is no French franc anymore?  Well, I used to trade the French franc.  Hmmm….oh yeah, that’s right.  The euro zone has a single currency, no matter there is a huge divergence in the economic fortunes amongst the various countries.

I hope you can seem my point here and why I have written before about Germany as a stealth currency manipulator in order to gain export advantage; regardless of the fact the Germany government so selflessly squanders the hard earned money of German taxpayers to save the euro.

If you don’t get my point, it is this:  If Germany were operating under the D-mark at the moment, it would possess a much stronger currency than the euro.  That would likely mean (no guarantee though given Germany’s industrial might) the huge and consistent current account balance shown in the chart above, would likely not be so huge.  This is of course an insensitive time for an ugly American like me to be critical of Germany given the fact our National Security Agency (NSA) now knows what German President Merkel eats for dinner on a regular basis; all thanks to the NSA’s global cell phone listening initiative. [It is on reason why the NSA recently added about 80 gazillion terabytes of data collection capacity in the Utah desert—our tax dollars at work.  Oh joy!]

The abilities of the NSA would make the leaders of INGSOC— the socialist/totalitarian state from Orwell’s novel 1984—green with envy.

Okay, now that I have managed once again to inflame my German and socialist readers (assuming I have any remaining), I suggest before you hit the unsubscribe link you consider shorting the euro with a longer term perspective, since you can’t short the French franc anymore (at least not yet).

A breach of the recent high in EUR/USD tells you this trade idea is wrong.  The downside potential is unknown.  But it sure seems like a decent risk/reward setup when you consider the second largest economy in the Eurozone is struggling mightily.

[Editor’s Note: If you are reading this Mr. NSA; I was just kidding… :)]