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Hummingbirds in the Air By Charles Payne

It looks as if we are lurching closer to what might one day be called "The Day of the Long Knives" as members of the euro cede over more of their sovereign rights. The twist is that the notion of a united Europe operating under a single flag had long been the dream of many conquers including Napoleon and Hitler. But, that dream was hijacked by France after WWII in a preemptive move to check Germany and avoid future conflicts.As it turns out, the European Steel and Coal Community deal also known as the Treaty of Paris, designed to keep Germany in check and its massive heavy industrial Ruhr Valley from pumping out tanks and rockets, set the stage for Germany to regain leverage over its European partners including France. The Treaty of Paris was signed on April 18, 1951, by France, Belgium, Luxembourg, Netherlands, Italy and West Germany. Members gave up their rights to control regulations and prices in key industries.

The treaty was designed to last for fifty years, and ever since, there have been several other treaties as well, but this established the model that will be exploited and expanded next week. Except it's not heavy industry but sovereign finance and budgets that will have to be handed over to a central leader. The treaty of Paris worked on the notion of a supra-natural principle as the foundation of a new democratic organization. I'm not sure about the democracy part since there was an unelected intra-government high authority that made pivotal decisions. And I'm not sure about the democratic process once the next Faustian deal is signed.

In the summer of 1934, Hitler consolidated his power through a series of murders and assassinations of mostly allies in an event known as "The Night of the Long Knives." From June 30 to July 2 at least 85 people including the head of the Brown Shirts were struck down, unleashing one of the maddest humans to ever grace the face of the planet. Obviously I'm not saying events unfolding before our very eyes are as sinister as Nazi Germany, but a lot of allies of Germany are going to find themselves losing power to a power combination of Germany and the ECB.

Yesterday, Mario Draghi made it clear the ECB would open the spigots once euro-zone nations took the appropriate steps. These steps include written commitments to fiscal austerity, but probably relinquishing things like their own future budget decisions to some kind of unelected intra-governmental high authority. Yesterday, Nicolas Sarkozy admitted the next step for this grand experiment would be the grander bargain of converging economies. The French president went on to focus on industrial and agricultural policies. He's a silly boy if thinks France will end at the power table when it's all said and done.

This is the Paris Treaty meeting the long knives.

Today, Angela Merkel will reiterate the same notions with an emphasis on deficit-reduction targets for euro-zone nations especially those with hat in hand. The big sticking block for resolution to the euro crisis has been the ECB sucking up bad sovereign debt and printing currency that would trigger inflation, which could seriously ruin Germany's amazing ride. I think she will hint at a power-sharing arrangement that sees Germany putting more elbow grease into the mix (Germany is on pace to have fewer than three million unemployed for the first time since 1991—the euro must be saved from their point of view) but assume even more leverage over sovereign issues of fellow euro nations.

Eureka!

It just hit him; I think President Sarkozy is now coming out more forceful about the antiqued idea that France can be a country swathed in leisure and little urgency and still be a world player. Yesterday's commonsense observations included:

"Between reducing pensions and working longer, I pick the second solution."
"Between earning less and working more, I believe the second solution is better than the first."
"For decades, we have spent too much and often badly."
"Frances 35 hour working week with retirement at age 60 is a grave mistake."

The 35 hour work week began in February 2000 as a scheme to create more jobs. Launched by socialist Prime Minister Lionel Jospin, the plan has retarded the nation's growth although socialist continue to defend it saying it helps employers enabling them to limit worker hours. That's a specious argument as hours above 35 require higher pay. In the meantime, a recent newspaper article pointed to the medical industry where people must work long hours and now workers there must take off 2 million days before the end of next year.

France is between a rock and hard place because it could lose its AAA rating soon, which would mean interest cost jump by at least €3.0 billion a year. The tables have been turned since the Treaty of Paris, and France can't do anything about it.

Market Shrugging Off Jobs Report

Gold is soaring and that's what one would expect after a jobs report that added more confusion and despair rather than the ray of hope many expected. I will say there is a lot of positive data out there other than the Bureau of Labor Statistics report, but it's the biggie, and it was flaccid at best. Still, the market has held in there nicely even momentarily moving into positive territory. One of those alternate economic reports came today from the Institute for Supply Management. The ISM Non-Manufacturing report came in as expected, but every single component was bullish.

Input Prices 63.2 from 68.3
Employment 52.7 from 50.9
Exports 59.5 from 55.5
New Orders 57.7 from 56.7
Imports 54.5 from 54.0

I typically let the market tell me the story rather than trying to spin trends, action, and clear messages into something that fits my theory (remember always be a student of the market). The message today is jobs will happen in part because the Bush Tax Cuts will be extended and because the new Congress will come in guns blazing. There will be 100 new sheriffs in town.