Why A French Triple-Dip Recession Is A Bull's Dream Come True

Tyler Durden's picture

The possibility of a French recession is not exactly new: even the venerable Economist penned an an extensive article - with a humorous cover - over a year ago describing just such a possibility (the French were unamused). Yet to this date, not only has France managed to avoid the dreaded "Triple Dip" but its bonds continue to be well-bid, with the yield on the 10 Year well inside the US, at only 2.53%, nearly 1% below the wides seen in 2011. However, and especially now that Hollande's 75% millionaire tax has finally been enacted, the fuse on the baguette time bomb is getting shorter.

As GaveKal's Francois Chauchat rhetorically asks, "Is every country in Europe recovering, but France? This is the question raised by a third consecutive month of disappointing French manufacturing Purchasing Managers Indices (PMIs), which plunged to 47 in December even as the eurozone-wide PMI expanded to 52.7, a 31-month high. Such a large divergence is peculiar, since France and eurozone PMIs have historically been aligned. It could be that

France’s recovery is just a bit more painful and taking that much longer—but what if the real story is that the country is slipping back into recession?


Judged by the PMI surveys alone, and the economy indeed looks to be contracting, a pretty worrying development since the rest of the advanced economies are firmly in growth territory. Another recession would suggest that socialist President Francois Hollande’s targeted high tax agenda has hit a wall, and that a messy revision in economic policy, possibly preceded by financial market pressure, could be in store.

The divergence between France and the rest of Europe can be seen vividly on the European PMI chart below:

So a French recession would be a bad thing, right? Well, yes - for the French population, and certainly whatever is left of its middle class. However, as has been made clear repeatedly, in the New Normal in which only the trickle down effects from the wealth effect of the 1% matters, what the broader population wants and needs is hardly high on the list of priorities of the central planners. What does matter are stocks. And it is the wealthiest 1% and the stock market which, in keeping up with the old bad news is good news maxim, that may be the biggest beneficiary of a French triple dip.

The reason, at least according to GaveKal and increasingly others, is that a French re-re-recession would be precisely the catalyst that forces the ECB out of its inaction slumber and pushes it to engage in what every other "self-respecting" bank has been doing for the past five years - unsterilized quantitative easing: an event which the soaring European stocks have largely been expecting in recent weeks and months.

Quote GaveKal:

But even if the country is slipping back into recession, it is not clear that the “French tail risk” would reignite a broader euro financial crisis — a fear that has been raised repeatedly in the past few years. Would not a shockingly weak French GDP number rather increase pressure on the European Central Bank to act, weaken the euro and push Hollande to deliver more quickly and efficiently on his new pledge to regain business confidence? If this is what a still very hypothetical new French recession produces, not much lasting damage would be done to eurozone financial markets. Rather the opposite.

And there you have it: spinning bad economic news as more hopium for market bulls, and in fact setting the stage when the latest surge in risk assets just happens to coincide with that negative French GDP print, an outcome predicted by BNP two months ago, and an outcome which Draghi and the other ECB doves and which the Hawks on the ECB will theatrically complain about, but in the end, do nothing as usual. And with Merkel incapacitated, well: vive la recession!

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So Close's picture

So a third heart attack and or stroke are also a good thing?

Popo's picture

This article fails to understand that ECB stimulus doesn't actually help France.  The problem with a centralized bank, using clumsy tools like stimulus in order to selectively stimulate nations with vastly different economics is that there's no way to 'just' stimulate France.  And if you do, it doesn't change the general flow of capital out of the country and towards Germany.  In fact, it just acellerates the wealth disparity between rich Europe and poor Europe (of which France is a member of the latter, and only just now discovering it).

RockRiver's picture

We need more QE!

madbraz's picture

Correction:  France 10yr bond interest is 2.33%, not 2.53%

ebworthen's picture

Makes me hungry for a French dip sandwich.

I've got that "bad news is good news" deja vu feeling all over again.

Colonel Klink's picture

Yeah but can you eat 3 of them.  Looks like they can!  When do they pop?

disabledvet's picture

does give new meaning to the term "too big to fail." Germany said "we'll buy Greece for 5 billion." 600 billion later and "it's time to make the taxpayer...er, depositors" of Cyprus pay. "now lets all chip in here and get 'er done!" http://www.fas.harvard.edu/~histecon/crisis-next/1907/timeline.html hmmm. "create the Fed, get World War I."

B.J. Worthy's picture

Not to worry; the wealthy will do their civic duty and stick around for Hollande's 75% tax grab.

The Heart's picture

Anyone that actually thinks they will have a normal world to spend or hoard gold in the near future is living in a dream that will NEVER come true.

It is almost annoying to KNOW there are so many intelligent people? in the world, and yet this Extinction Level Event continues, while they play war games and hoaxology in the lying dying lame stream media. THIS IS THE MOST PREVALENT ISSUE OF THE DAY, AND IT AIN'T NO DREAM!

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Colonel Klink's picture

Stop spamming every article with these posts.  What a DICK!

Sudden Debt's picture

we are investing in every european country besides france. we don't even talk about france.
do you know how much it costs to fire somebody in france? you need to be crazy to hire anybody!

Rising Sun's picture

French women are such whores.

Big Johnson's picture

Just to keep it real, I wouldn't limit that statement just to French women....

Iam Yue2's picture

France has to undergo a severe adjustment . Another revolution will probably suffice.

Spungo's picture

Number of years until France goes 100% communist?

Greenskeeper_Carl's picture

Do we really need to call this a "triple dip recession"? Isn't depression a more accurate way to describe it?

Dr. Destructo's picture

"However, as has been made clear repeatedly, in the New Normal in which only the trickle down effects from the wealth effect of the 1% matters"

I mentioned it in another thread, but this "Human Centipede" version of economics will kill those further down the chain. The first person (1%er) consumes the Fiat before interest rates kick in, and as the fiat goes down it becomes worthless to the person at the end.

Nobody wants to be on the first floor in a two-story outhouse, so why in God's name would anyone support this "trickle-down" theory?