Why Macron’s Backflip Won’t Work

Put some pollies in a room and watch them go wild.

US broadcasters knew it would make good TV.

In a room with Democrats, Trump couldn’t come to any sort of agreement.

After just a few minutes, both sides were trading barbs.

Maybe they felt pressured to put on a show under those lights and cameras.

After all, that’s what politics is, isn’t it?

Who can put on the better show and win over voters.

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The market overreacts to political news

Of late, the markets seem to overreact to any kind of political news. Trade talks, Trump tweets, the latest rumble with Trump and Democrats.

It’s pushing and pulling markets every which way.

It’s not surprising that US stocks are falling. But what is surprising, to me at least, is why stocks in Europe aren’t a hell of a lot lower.

It’s Europe, not the US, that’s in trouble after all.

The French in particular will have to make some tough decisions very soon. And their decisions could destroy even more lives.

There are riots in France. I wrote about it Friday last week. Here’s a snippet…

You might already be aware that taxes are high in Europe. The government offers a lot of stuff for free.

Education. Medicine. Retirement.

A lot of it is paid for or subsidised by the government.

Of course, none of this stuff is actually free. Taxpayers are the ones who pick up the bill.

The last thing I thought a highly taxed country would want is more taxes.

According to the OCED, the French are some of the most taxed people in the world.

Now add more taxes to that — which the poor can ill afford — and you get mayhem.

The people of France took to the streets. All of them wearing yellow high-vis vests. These aren’t just peaceful protesters either.

They are very, very upset by further taxes.

They are fire-bombing police cars. Beating up officers. Hundreds are injured. Three are dead. And it’s all because Macron (the president of France) wanted to reduce emissions.

Macron’s plan to make up with Yellow Vests

Now Macron wants to make up. He now knows it was silly to tax the poor.

And he’s got a solution to make it all better.

But it won’t.

Macron is planning to raise the minimum wage.

He wants to increase the minimum wage in France by 100 euros (about $158) a month.

From the Australian Financial Review:

The announcement, delivered in a brief televised address, came as Macron faced the most significant crisis of his young presidency: the so-called “yellow vest” movement, a popular uprising that began as a reaction to a carbon tax he had proposed but quickly became a revolt against Macron himself, who is widely perceived as out of touch with the concerns of ordinary people.

Although he roundly condemned the recent violence, Macron acknowledged that people have a right to be angry. “I don’t forget that there is an anger, an indignation, which many of the French can share,” he said, noting that he wants to declare a “state of economic and social emergency” to address their needs.

But higher minimum wages will just create more problems, more anger and more riots.

Macron is making a bad situation worse

You wouldn’t think paying low income earners more disadvantages the poor.

But it does.

Labour is like any other input price for businesses. The higher it costs, the less businesses demand it.

And if Macron lifts minimum wages, this is exactly what will happen to low wage workers. There’ll be less demand for them.

Jobs will go to the qualified and experienced.

Those who have neither will get pushed out of the job market. And by keeping the minimum wage inflated, the poor can’t gain the professional experience they need to climb up the job market towards middle-income-hood.

They end up doing nothing, sitting at home collecting welfare, angry that Macron’s new policy has left them jobless.

So rather than improve living standards for those that really need it, Macron is proposing to condemn the poor to remain poor.

And before long, France will have more angry mob riots in the streets.

The CAC 40, which measures the top 40 French stocks, is down just 10% this year.


MoneyMorning 12-12-18

Source: google finance

[Click to open in a new window]

But if Macron has his way with minimum wages, I wouldn’t be surprised if it falls significantly further as we head into 2019.

Time will tell.

Your friend,

Harje Ronngard,
Editor, Money Morning

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Harje Ronngard is the lead Editor at Money Morning. He’s also the Editor of Wealth Eruption and co-Editor of the Third Wave Portfolio.

The aim of both Wealth Eruption and the Third Wave Portfolio is to find misunderstood opportunities. These are the type of investments that multiply small amounts of money five- to 10-times in size.

Harje has an academic background in investments and valuation. He’s had experience across a range of asset classes, from futures to equities.

For any investment, Harje believes you only need to ask two questions. What is it worth? And how much does it cost? These two questions alone open up a world of opportunities, which Harje shares with Money Morning readers five days a week.


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