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We'll Always Have Paris
By Stephen J. Butler |
 Archives |
To gain some
perspective on the world economy, I just spent 10 days in France
--- a country I last visited thirty-eight years ago while hitch-hiking
around Europe on $5.00 a day. At one time, France was the center
of the universe, and the French would argue that it still is.
For several hundred years, the international language of business
and politics was French in the same way that today's airline traffic
throughout the world is conducted in English. Everyone from Brave
Heart to Ben Franklin had to speak French in the old days if they
expected to accomplish anything outside their own country's borders.
Today, when you travel around a developed European state, you
can observe a lot about how a well-run country functions. You
also see how people outside the United States live with different
priorities that may add up to a better quality of life. For anyone
approaching retirement, it is important to be reminded that the
escape hatch from the work environment opens out to a sea of unlimited
opportunities. And most of the opportunities, interestingly enough,
have little to do with money.
French people just seem to enjoy life more than we do. In the
first place, they all eat out at restaurants a lot more. Some
of what we spend on houses, SUV's and big-screen TV's our French
counterparts will spend on food and wine. As if to emphasize the
point, they now strictly control the further growth of supermarkets
to protect neighborhood grocery retailers. They have also instituted
a national law that makes it illegal to work more than 35 hours
a week. This may prove to be problematic for a country that continues
to compete in a global economy, but for the moment it offers a
pure expression of how France differs from the United States.
The Euro is the new currency of Europe today, and comparing it
to the dollar offers a glimpse of how our cultures compare. At
the moment, it is strengthening rapidly against the dollar and
this means that the cost of traveling or living overseas may become
a lot more expensive in the near future. Perhaps by as much as
25% according to estimates put forth by Morgan Stanley economists.
Fifteen years ago, it was a nightmare to travel in Europe when
the dollar was really weak. Breakfast of a roll and coffee in
Paris was costing $20 to $30. Considering that those days could
return again, the time to consider overseas travel may be now.
Our government's imperative to deliberately weaken the dollar
stems from the need to make American products cheaper and easier
to sell overseas. For the past two years, our dollar has been
unusually strong compared to other currencies, and this has hindered
the growth of American companies that sell product worldwide.
Suddenly within the past week, European investors have begun to
accomplish overnight what our government was hoping to do over
a broader period of time. The Europeans' sudden lack of confidence
in the American securities industry has precipitated a flight
of capital that threatens to drive the dollar's value down independently
of what the government has planned to do.
Practically speaking, all this points to just a few positive steps
to consider. First, if you were planning a trip overseas for any
reason, this is the time to do it. Airfares are still inexpensive
and travel facilities in general are not crowded. A week's car
rental in France right now is about $350. A Big Mac at McDonalds
is $2.85. You get the picture. Secondly, this may be the time
to consider allocating some assets into European or foreign stock
mutual funds. Generally speaking, I have recommended against this
in recent years because large American companies have so much
invested overseas anyway. Approximately 30% of the revenues for
companies in the S&P 500 come from their overseas operations,
so an investment in a broad cross section of American stocks offers
quite a bit of foreign exposure. However, when I actually compare
the results of American mutual funds with those of foreign stock
funds, there is at least some history of inverse correlation.
In other words, when our domestic stock funds are down, the foreign
ones can often be up. During the prolonged period of flat stock
market results during the seventies (averaging about 5% per year,)
foreign index funds gained about 9%. Ironically enough, I have
not been a fan of foreign stock funds in recent years because
foreign stock markets were "not as rigorously policed as
our domestic markets." In the light of accounting scandals
and other indiscretions buffeting our markets, I clearly should
have spent more time looking in the mirror.
The market downdraft
may be disconcerting to some, but like all such pendulum swings,
it represents opportunities. For those who continue to contribute
to retirement plans, the second plunge within the past twelve
months offers just another opportunity to buy. For those with
taxable assets, the events of the past month offer a chance to
sell some funds or individual stocks to lock in a tax loss and
then repurchase the same or comparable investments 31 days later.
For those hoping for more immediate gratification, a partial shift
to foreign or small company funds offers at least a historical
basis for a faster recovery than broader markets. In short, a
noose around our necks can prompt us to focus, so the events of
the past month may offer a catalyst for change.
Back in France, meanwhile, life goes on with a certain joie de
vivre that can teach us something. Our taxi driver on the way
back to the airport pointed out that Bill Clinton was in town
and that the French just loved him. What does that say? They also
love Jerry Lewis. French cities are clean and beautiful with little
evidence of a homeless population. Trains, unlike Amtrack, are
a paragon of efficient transportation as some travel almost 200
miles an hour. America is admittedly great, but for retirees free
of obligations, France offers some intriguing opportunities to
relax and enjoy life with the people who invented the concept.
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