Liquidity squeeze, French shock, Chinese trade

Plus, some charts on the potential impact of US tariffs

“Who’s the more foolish: the fool or the fool who follows him?” —Obi-Wan Kenobi ||

Hi all! So, Q1 now put to bed… I have a feeling that Q2 is going to be even more dramatic.

Be careful out there today, don’t believe everything you hear or see – April Fool’s Day is treacherous.

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Yesterday I chatted with Zach Guzmán on the live Coinage show – you can see the replay here (if you get stuck in an ad loop, just hit refresh, that worked for me).

And tomorrow, we’re doing a livestream for Bits & Bips! Come join myself, James Seyffart, Ram Ahluwalia and a surprise guest for a Liberation Day debate – we’ll be kicking off at 4:30pmET, you can sign up for a notification here.

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IN THIS NEWSLETTER:

• France: the risk in tough decisions

• Macro-Crypto Bits: US tariffs, China, India

• Podcast notes: Michael Howell on the liquidity squeeze

If you’re not a premium subscriber, please consider becoming one! You get ~daily commentary on markets, tokenization, regulation and other signs that crypto IS impacting the macro landscape. As well as relevant links and music recommendations ‘cos why not.

WHAT I’M WATCHING:

France: tough decisions, unintended consequences

Yesterday, a French court convicted France’s far-right leader Marine Le Pen of embezzlement, sentenced her to four years in prison (reduced to two years of house arrest), a fine of €100,000 and – the contentious part – banned her, effective immediately, from running in any election. She is able to appeal the fine and prison sentence, but cannot officially contest the election ban.

The embezzlement in question is for roughly €4.4 million of EU funds that was used to pay the salaries of party aides that were not working for the EU. That was an astonishingly stupid thing to do, and “everyone does it” is not sufficient justification. But, Le Pen’s National Rally party (formerly the National Front) has had financial difficulties over the years, taking a €9 million loan from a Russian bank in 2014. (This is a complex story in itself – the loan was eventually sold to a, cough, aviation systems manufacturer with ties to Russian intelligence which eventually sued for recovery and was paid off at a significant haircut in 2023.)

Evidence does point to some misuse of funds going on – what is unclear is whether the amount is as high as alleged, and whether an election ban is justified or is more a political decision. Many high-profile political figures from other parties, including France’s current prime minister and justice minister, have expressed concern at the ruling, preferring to have Le Pen defeated at the ballot box rather than become a martyr to the judicial system.

That reveals the crux of the issue: trust in institutions. Politicians have been jailed before, often with good reason, but not when they are leading in the electoral polls, and not so soon after a high-ranking EU official said that they could just cancel election results they didn’t like. Surveys published before sentencing showed that roughly 50% of respondents believed the candidate was being unfairly treated.

I’m not defending Le Pen here, I would not be a supporter even if I were French – and the strong protest from the Kremlin over the verdict is a reminder to never complacently assume democracy is “safe”.

I am, however, questioning the wisdom of politicizing the judiciary. The judges will insist they applied the law, and that is probably true, but the immediacy of the election ban took pretty much everyone by surprise.

And everyone knows there is some flexibility. In 2016, current ECB chief Christine Lagarde was found guilty of misuse of public funds when she was France’s finance minister, but no sentence was applied. The amount in question was roughly ten times that alleged in Le Pen’s case, and had the taint of corruption in that it favoured a then-popular businessman. In deciding not to apply any penalty despite the verdict, the ruling judge cited Lagarde’s “good reputation and international standing”. Lagarde is not a political figure in that she has never (as far as I know) run for office. But she does wield considerable power while representing the “establishment”.

In sum, France has deep political divisions as it is. Any hint that the 2027 elections are not “legitimate” could trigger social reactions that weaken the country’s ability to finance the much-needed increase in defence spending.

And with Europe’s attitude towards democracy increasingly in question, given cancelled elections in Romania and key budget manoeuvres in Germany, at stake is a lot more than what could come to look like the disenfranchisement of a significant percentage of French voters.

Macro-Crypto Bits

This section offers brief comment on some of the news items I’ve seen today that are relevant for the macro and crypto narratives I talk about. I’ll try to keep this short, but there is SO MUCH going on.

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