Time for a break


The current rally is the biggest since World War II. A lot of good news are now priced in. Although the long-term outlook is still positive with the global economy getting out of recession, there is now significant risk of a short-term bear market. One could benefit from a pull-back by buying "short ETFs" like Lyxor Short CAC40 (code=SHC on Euronext Paris) or short commodities like ETFS Short Crude Oil (code=SOIL on LSE)

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French industry's competitiveness

The Gallois report about the French industry's competitiveness has just been made public (links here ) and received a lot of publicity from the French media. As a trained economist and French patriot, I was eager to read it. The author, a respected businessman - formerly head of aerospace giant EADS -  describes rather briefly the declining state of the French industry over the last ten years, which accounted for 18% of GDP in 2000 and is now down to 12.5%. What are the causes of this decline? The author cites various causes, ranging from product quality, technology, labour flexibility, cost, competition, education and regulation. Standard economic theory says the government should increase labour flexibility, promote competition, support education and enact smart regulation. For example, the Porter Hypothesis (cf Ambec et al 2011 ) states that market-friendly environmental policy can enhance business competitiveness through innovation. What are the main propositions? Create...
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Is the yield curve back to the 1950s-1960s?

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In recent years, the yield curve has flattened and shifted downwards. The flattening has received a lot of attention because it is viewed as a recessionary signal. In this article, we argue that the fact that the curve has shifted downwards as well as flattening indicates that the yield curve may have changed regime. This regime shift seems to have been caused by lower inflation expectations and lower risk premia. In an environment of lower inflation and lower risk premia, the yield curve may occasionally invert without signalling a recession as it did in 1966. 1. The recessionary signal Inversions of the yield curve have often been used to predict recessions. The 10-year to 3-month spread between US Treasury yields became briefly negative twice this year in March and the May (figure 1), spurring debate about whether this was signalling a forthcoming recession. The negative spread was mainly the result of a decrease of the 10-year yield – from 2.8 per cent on 1 March to 2.4 per cen...
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Did street unrest damage the outlook for France?

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Post date: 11 Feb 2019 As images of unrest in the streets of Paris and other French cities continue to flood in the European media, the data on France contained in our latest global forecast, published last week, painted a subtler but still concerning outlook for the French economy. GDP growth was at 1.5 per cent in 2018 and recent developments suggest that the acceleration in growth in 2019 that we were previously expecting may not occur. We have therefore downgraded our forecast of annual GDP growth from 1.9 to 1.6 per cent in 2019. Turner's famous yellow A broad range of surveys point to a marked and sudden deterioration in the business environment and consumer confidence. The business climate composite indicator, a survey of business managers compiled by INSEE, declined in December 2018 to a two-year low and the composite PMI dropped in December from 54.2 to 48.7, below the 50 mark which indicates expansion. Social protests represented by the ‘gilets jaunes’ movemen...
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