The French Are Arm-Wrestling with the Invisible Hand

10.01.2018 • France

Simone Wapler – La Chronique Agora (France) –

The fall of GoPro reminds us that the market does its job of selection, when it is allowed to do so.

GoPro’s action cameras did not feature prominently under the Christmas trees this year and the penalty was brutal.

The turnover stagnates (hopefully), the profits collapse, the company practicing significant discounts to sell. GoPro withdraws from drones.

Yesterday in session, the price collapsed by 30% before recovering and finally close at -13% on rumor of a possible sale.

GoPro

The financial markets are not totally anesthetized by the manipulations of the central banks and certain listed securities still react to the classical logic.

According to this logic, the price of a company reflects speculation about its future profits.

There is no doubt that in France, the nanny state would flood GoPro with taxpayers’ money and would already consider a bailout plan in order to preserve an “economic gem”.

IREF has examined the composition of the national CAC 40 index. Our national stock market index has the distinction, compared to the others, of having old companies.

“The index is also a reflection of political interventionism. Politicians love industry, like large groups and, in France, have the power to change the destiny of companies, whether public or private. They did not miss it. 

The CAC 40, symbol of the aging of French companies , IREF

This study reminds us that the youngest listed company was born in 1973, testifying to the difficulty of our companies to reach a critical size.

IREF continues ruthlessly:

“The taste for cartelization policies has led to ever-greater groupings of companies in the sector, often led by the State services. As a result, France is famous for having a rather small network of medium-sized companies, unlike Germany. This particular attention of the State however did not prevent to precipitate many public ‘fleurons’ far from the summits of ACC, such as Thomson, Alstom or EDF. 

This public money (the taxpayers’ money) has been diverted from other projects that might have been a real success.

Certainly, the American markets are far from perfect and the “invisible hand” is often crushed by the steamroller of fake money.

My British colleague Tim Price noted that in 2017, the Facebook, Amazon and Netflix courses had increased by 50% without being justified by the evolution of their profits.

In fact, it is the FAANGS (Facebook, Apple, Amazon, Netflix and Google) that are behind the performance of the Standard & Poors 500 index in 2017. The capitalizations of these companies are such that their progress has masked the fall of the 496 remaining companies!

Change in the capitalization of the FAANGS compared to the 496 other S & P500 companies

In general, the big excessive gaps end painfully …

It would not be very wise today to have a lot of money invested in these five values.

The evolution of the capitalization of the other 496 companies in the index tells us that investors think their profits will fall.

Here is a story a little different from those who occupy the front page of our financial newspapers since the beginning of the year.

As for us French investors, crowdfunding now gives us the opportunity – free from state manipulation or market excesses – to find new companies that can make real profitable growth and reward their shareholders.

-Read more at la-chronique-agora.com (French)-

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