GIC in Paris

Message from my friend David Kotok in

Paris au Printemps – 2
March 26, 2012

Words cannot capture the weather in Paris during these past five days.  Every day was sunny, with a morning temperature reaching 50 degrees Fahrenheit and an afternoon high of 75 degrees.  After a decadent lunch, glass of wine, and pleasant conversation, the prime location to enjoy springtime in Paris was in the shade, where the light breeze wafted its way through the bustling cafés.

Approximately 150 participants have converged on Paris for the GIC meeting at the Banque de France, beginning on Monday.  Some have traveled thousands of miles; some came from just a few blocks away.  The public conversations intensified with the discussions concerning monetary policy, actions of central banks, and how to deal with sovereign debt.  Other issues included: What is the distortion in the yield curve of the world telling us?  How do we confront negative output gaps in the OECD countries?  Lastly, the final public panel addressed the issue of how to invest.

My colleague Peter Demirali wrote a recent piece on the direction of interest rates.  He captured points of view, and readers who missed it may find it on Cumberland’s website,  Peter presented a perspective on state and local government debt.  That $3.8-trillion-dollar asset class is of profound importance to American investors and financial institutions.  It is also important to Europeans.  There is an issue involving cross-over buying of state and local government debt.  The interest rate on the tax-free portion of that debt is higher than the interest rate on the corresponding maturities of US Treasury debt.

In Europe and other places in the world, the structure and nature of the credits backing state and local government debt are little-known, and therefore Europeans are reluctant to take on risk without gaining more understanding.  Peter has enlightened them during his presentation at the Banque de France.

Our private meetings here involved bankers, central bankers, investors, and money managers – the gamut of those interested in financial markets and economics.  We find that one theme persisted.  All of them were watching the credit spreads involving Portugal and Spain.  They realized the market was sending a message of concern.  The market was saying that the episode with Greece is not over, and the contagion could spread in spite of the massive liquidity injections of the European Central Bank.  They observed and discussed the use of collective action clauses and how they have to adjust their portfolios now that a government has inserted itself in a retroactive forced alteration of a debt structure.  In public, they were polite, but they dissected the risks strenuously.  In private, the debates became fierce.

We now look forward to the discussions at the private round table on Tuesday.  The round table is now fully subscribed and there is a waiting list.  The conference was full as well.  This was the largest and most successful foreign conference in the history of the Global Interdependence Center.  The GIC is most appreciative of the assistance and cooperation from the Banque de France in providing such support and a marvelous venue.

One final note about Paris.  One of the great museums in Paris is the Museé de l’Orangerie.  Virtual tours are available on their website,  The museum sits on the Place de la Concorde at the end of the Jardin des Tuileries.  On this wonderful spring day in Paris, a walk across the gardens presents you with an array of budding trees, a wonderful outdoor experience as Parisians enjoy their weekend in the gardens.  I also hear a dozen languages being spoken, as this city attracts 20 million tourists every year.

L’Orangerie is mostly known for its collection of Monet panels, Les Nymphéas.  I have seen those panels on several occasions.  However, I have found the museum’s exhibits located downstairs to be its true jewel.  There, one can view a collection of Impressionist and modern works from Modigliani, Monet, Manet, Derain, Soutine, and Gauguin, among others.

The l’Orangerie also prepares special exhibits.  They are currently celebrating the musical work of Claude Debussy.  For details, follow the link:  And on the ground floor of the museum one can view a collection of great Impressionist works celebrating Debussy.  Famous French artists, among others, painted Debussy, attempting to depict the moods of his music through oils and pastels.  They illustrated how water and its condition, whether stormy or calm, evening or dawn, allowed the viewer of a painting to experience the sensations that are aroused when one hears the music.

We walk along the streets of Paris.  Our gaze passes over the Seine.  We reflect on the music of Claude Debussy.  We think about the paintings that were inspired by his ability to translate the notes into a message and how the message influenced these famous artists in such diverse, powerful ways.

It is springtime in Paris.  The serious issues have to do with Spain, Portugal and debt, and banks, capital and financial markets.  Those discussions were private and intense.  I relish the few minutes of an interlude – a budding tree, a scooter flying past, a young couple sharing a kiss, oblivious to everyone around them in the Jardin de Tulieries.  All the while, Debussy’s La Mer floats along in my mind.

A bientôt.


David R. Kotok, Chairman and Chief Investment Officer


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