Tag Archives: quantitative easing

Mood Board

Last week my quarterly investment statement arrived. I flipped to the last page and there in italicized mouse-type was the tally. Given the recent lacklustre performance of the markets, I was not surprised by the soggy number.

It’s foolish to expect investments to only go up. Pundits will even say that for accumulators a down market is a boon. Your favourite mangoes now sell for 75-cents a piece instead of a dollar. But emotionally it’s a downer. And, like a bout of melancholy, the sluggish stock market invites introspection, not only about mundane things like asset allocation, but also about the hazards of tying one’s personal worth, or at least daily mood, to the vagaries of global finance.

I have an unproved theory that people who are prone to melancholia may be better equipped to withstand the ups-and-downs of the market than those who feel compelled to be commercially, relentlessly cheery. Melancholics don’t expect the world to always be filled with unicorns and cotton candy. Thus down market days are not exactly welcomed but nevertheless accepted  as old friends bringing sad news.

In her recent essay in The New York Times, Laren Stover writes about melancholy perfumes and how “rainy” scents can be matched to our wistful moods. Given our society’s current fascination with happiness, (judging by the raft of books on the subject), it’s not easy to find one of these gems. One has to reach back to some of the Guerlain classics from the early 20th century like L’Heure Bleue, Jicky, and Mitsouko (my favourite), as well as some new-ish ones from niche “noses” Serge Lutens (Iris Silver Mist) and Frédérick Malle (En Passant). Stover neglects to mention Guerlain’s Après L’Ondée, literally, “After the rain shower”, a green fragrance with top notes of aniseed and rose and heart notes of violet and hawthorn.

Some years ago I took a perfumery workshop in Grasse, the heart of France’s fragrance industry. Each member of our small group had her own station equipped with a miniature “fragrance organ” of different essential oils. Our guide, a charming older gentleman who had worked for leading French perfumeries, gave us some basic instructions and off we went.

I already knew the fragrance I wanted to create: the olfactory expression of looking out a window on a rainy day in London, a good book and a tray of strong black tea (with milk) on the nearby table. It was to be a wisp of a scent composed of bergamot, chypre, licorice, lavender, lemony rose de mai, and a dash of iris root for that powdery, flinty touch.

My little masterpiece was coming along nicely, one tender drop at a time. As we were all novices, the instructor was free with praise. Until he came to me. He took one sniff and immediately reached for the aldehydes to “brighten” the scent. It was the equivalent of a burst of fluorescent bulbs where previously there had only been soft candlelight. I’m sure he meant well but I think he couldn’t imagine that I wouldn’t want an “up” scent.

This is like a lot of investors. We imagine that the market can only go up, up, up. When it pauses or reverses, panic sets in. You could say that quantitative easing, the US government’s program of printing money to buy bonds, was the financial equivalent of dosing perfumes with aldehydes, synthetic compounds that juice a scent giving it sparkle and fizz like popped Champagne. (The 1980s blockbuster fragrance Giorgio Beverly Hills is the Frankenstein of aldehydes.) Come December, when U.S. interest rates are likely to go up, equity markets may wilt like meadow flowers under a cool, steady rain.

When this happens it will be good to remember that there’s a season for everything. Much of the recent market froth was related to abnormally low interest rates, highly-leveraged trades and speculation. When the bubble bursts—and it will—say ‘Ciao, Giorgio Beverly Hills’ and ‘Bonjour, L’Heure Bleu’.

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Meh Day

Photo courtesy of Julian Fong

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.