Photo courtesy of Julian Fong
If you can’t find inspiration in Paris, you can’t find it anywhere. Having just returned from a two-week sojourn in France only confirmed that the general malaise of milquetoastness has also taken a perch in the City of Light.
As pretty and as skillfully art-directed as the shops and bistros are, it’s clear that there are no new ideas in the air—and sometimes even no merchandise. A stop at Marie Helene de Taillac’s jewelry boutique on Rue de Tournon was a harbinger of reduced expectations.
“Je suis desolé,” replied the handsome store manager when we asked to see a gold bangle. “Out of stock.” Instead, he disappeared to the back office and returned with a matchbook-sized slip of paper with a photocopied image of the bracelet. We looked at the paper. (“Yup, that’s a bangle”), but declined the espresso he offered.
Next stop, Place Vendome, home to Cartier, Boucheron, Van Cleef and Arpel, Buccellati, Chanel and every other major purveyor of sparkle in the Western hemisphere. This week the posh square is also temporary home to Paul McCarthy’s sculpture, a 24-metre Christmas tree, or massive green sex toy, as some have said, as part of the International Contemporary Art Fair.
But wait! Where is it? Apparently vandals cut the scaffolding causing the sculpture to collapse. Earlier the artist had been physically attacked on the street. Talk about deflation.
One morning over a breakfast of pain au chocolat and frothy café au lait, I read Vanessa Friedman’s column about the “new mediocre” inspired by a comment by Christine Lagarde. (Lagarde, managing director of the International Monetary Fund, had referred to the subpar growth of the global economy at a speech at Georgetown University.)
The ‘new mediocre’, argues Friedman, is everywhere, not only in the global economy. She’s right. From fashion (high-fashion sneakers? Really?) to investing (ETFs for everyone!), our appetite for innovation and excellence is flattening. Old ideas and fashion labels are recycled— and the popularity of ETFs suggests that few investors think they can beat the market.
You can literally see this flattening of optimism in a country’s yield curve. A steeper yield curve implies good credit growth which spurs economic growth. A flattening curve indicates expectations of slower economic growth and lower inflation in the future. (Yield curve 101: Yield curves naturally slope upwards because investors expect to receive a premium for making longer-term investments. The slope flattens when the “spread” or difference between short-term and long-term rates narrows.)
Despite dovish monetary policies like the massive bond buying program by the U.S. Federal government, economic growth remains muted at best. Europe appears to be on the cusp of deflation and will likely begin its own bond buying spree to attempt to juice its moribund economy.
So, in a world of diminished expectations and slower growth, where does one invest?
Like your mama said, it’s the company that you keep. No one ever went astray by holding shares in high-quality companies and high-grade bonds. So, say bye-bye to hedge funds, private equity, small caps, high-yield corporate bonds and real estate.
Oh, also take a pass on over-priced designer sneakers, start-ups with no earnings, and—especially—on giant inflatable sculptures. They’re bound to burst.
Luck & Gravity 