Is the market suffering from a case of mistaken identity?
Public Domain. Scene from “Great Expectations.” Source: Wikipedia
In Charles Dickens’ novel “Great Expectations,” his main character Pip is a poor orphan who suddenly starts to receive money from an unknown source. He thinks his mysterious benefactor is the cold and eccentric Miss Havisham. Miss Havisham is wealthy but mysterious, and she had taken Pip on as a companion for herself and her adopted daughter, Estella.
In reality, though, Pip’s money was coming from a formerly escaped convict, Magwich. Pip brought Magwich some food and a file after the convict scared Pip into helping him. Even though Magwich was recaptured and sent off to Australia, he remembers Pip’s kindness and starts to support him after Magwich gains his freedom in New South Wales.
Today, the market is hyper-focused on our global central banks—obsessing whether Janet Yellen’s Fed will raise rates ever-so-slightly in December, or put off the decision to a later date. Like Miss Havisham, the Fed is mysterious and full of strange omens. And our economy keeps moving forward, in spite of the many problems we’re facing.
In fact, however, the economy’s real support is coming from China. China’s economy has grown by almost $5 trillion over the past five years, while the US, Europe, the UK, and Japan combined haven’t expanded by even $1 trillion. All the machinations of our various central banks haven’t been able to overcome the problems posed by the hangover from the financial crisis, the Euro, terrorism, and other issues. Although China faces some serious difficulties, they are the complications that come from growth—from over 300 million peasants moving from the countryside into an urban, industrial economy. Frankly, these are problems the rest of the world would like to have.
Source: World Bank
Towards the end of Dickens’ novel, Miss Havisham eventually tells Pip that all her actions were designed to make him miserable—shortly before she accidentally sets fire to her dress. Let’s hope we never find our central bankers with their hair on fire.
Douglas R. Tengdin, CFA
Chief Investment Officer