Notes From Underground: France: No Thanks, Turkey

We  open tonight by reminding our readers that the ECB meets tomorrow and the overwhelming consensus is of course no change. The Greek Prime Minister, George Papandreou, reassured the markets and the European Union that there would be no need for an IMF bailout or that Greece would leave the European currency. The German/Greek 10-year spread immediately widened 20 basis points to 257–so we know whose credibility is on the line. The fact that the EURO held again with all the stress it is under, makes us wonder what is ailing the DOLLAR? We get a peek at December’s retail sales in the morning and the conventional wisdom is looking for .4% and ex-autos .3%. Pay close attention to the number, minus gasoline sales, as petroleum prices have risen during the last two months so their impact could be deceptive.

Another FED president, Charles Plosser of Philadelphia, spoke about the need for the FED to raise rates even though unemployment is still high. In a Reuters story, Plosser notes that the sluggish unemployment “should not deter the U.S.central bank from raising rates. Keeping interest rates too low, too long could potentially lead to a burst of inflation or sow the seeds of the next crisis.” It is interesting that some of the potential dissenters are now finding their voice (too bad Plosser is a non-voting member this year). William Dudley, the New York Fed President, gave a totally antithetical view to Plosser’s speech, in an interview with PBS. This is not surprising as the N.Y. Fed has a much softer view as they don’t wish to rock the boat, especially with all the slings and arrows falling upon the Wall Street community. The populist outcry that would arise with a FED rate hike would shake the foundation of 85 Broad St.–that is not in the cards. We don’t know what it will take to shake the FED but it probably will be found in a real DOLLAR crisis, or GOLD making new highs quickly.

A news item that makes our teeth gnash: Our friends from France are at it again. Industry Minister Christian Estroi met with Patrick Pelata, chief operating officer of Renault auto, to discuss the idea of Renault moving production of the new CLIO IV, to Turkey. Estroi said:

“I made it clear to him that we’re not in favor of producing the CLIO IV in Turkey. It would seem that our message has been understood.” The minister followed that up by saying,”the will of the state should be respected in Renault’s future choices.”

The protectionist drums are beating louder in Europe and we fear that others will join in. The French knee jerk protectionism is always a danger, but the timing of this is beyond belief. With all of the problems in the European Union, this is not something that needs to be brought to the fore now. Is there any wonder why the GOLD/CURRENCY plays are in vogue? We must wonder how long the siren song of cheap money can be the salve to keep the equity markets rallying admist all this political and economic idiocy? Yes,that’s what we need now–another G7 meeting to release some more nonsense from the idiots running the asylum. We will watch to see if there is any impact on the emerging markets now that Sarkozy and company have initiated targeted protectionism.

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