Our latest Week in Review Video is now available online. This end-of-week update on markets generally features equities, bonds, and trading highlights. Thank you for joining us. 
 

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Cumberland Advisors 
 

Political risk in the forthcoming French snap election is a developing issue. At the worst, a new government might attempt a French version of Brexit. The situation with regard to such an attempt is much different than in the UK case since France is part of the eurozone and the Brits were not. The French part of the euro monetary union is huge and second only to Germany in size. And the provisions for leaving include the requirement to settle and pay all liabilities. Essentially, the provisions are such that there is every incentive to remain in the eurozone once you’re in and every possible financial and monetary disincentive to try to leave. One need only examine the TARGET2 (T2) balances to see this monetary situation as it currently exists.  
  
I see no way that France abandons the euro. It would be an act of madness in both political and economic terms. Sensationalist media and social media is just that: sensationalism at work. 
  
Other risks include distortion and disruption of the European Central Bank (ECB) and other government-related economic activity. For perspective, France has a deficit-to-GDP ratio about the same as the US’s, according to my colleague David Berson, Cumberland’s Chief US Economist.  
  
The difference between the US and France is that we finance ourselves in the US dollar, and it is the world’s largest reserve currency (about 60%), while France is financed in euros, the second largest reserve currency (about 20%); but decisions about the euro are made by the ECB, of which France is a voting member of the governing council but not the sole authority. There is risk of a new French government regime attempting a politically induced disruption of the ECB. We consider that to be a remote risk.  We are familiar with this type of threatened political disruption in the US, but so far, in America, it has not affected the independence of the Federal Reserve as America’s central bank. IMO, a French election outcome that was disruptive wouldn’t stop the ECB from conducting policy debates and making decisions, but it would make some headlines and therefore risk being distortive.  

Commentary continues: https://www.cumber.com/market-commentary/france 
 

Podcast: “Kotok Celebrates Half Century of Navigating Fed, Inflation & Markets,”   Kathleen Hays Presents: Central Bank Central Podcast

You're invited to join David R. Kotok for a recent a podcast interview with David's  longtime friend and journalist, Kathleen Hays. There is also an edited transcript at link below. Please enjoy. 
  
“Kotok Celebrates Half Century of Navigating Fed, Inflation and Markets,” Kathleen Hays Presents: Central Bank Central Podcast  
https://kathleenhays.substack.com/p/kotok-celebrates-half-century-of 

Transcript for “Kotok Celebrates Half Century of Navigating Fed, Inflation and Markets,”podcast: https://www.cumber.com/market-commentary/51-years