Known Unknowns

Known Unknowns

“I know something you don’t know.”

© MGM 1987. Source: IMDB

In The Princess Bride one of the characters smiles during an epic sword fight as he is forced back, step-by-step, towards the edge of a cliff. When his assailant asks why, he says that he knows something the other doesn’t: he’s not left-handed. As he changes hands, the tide of the fight turns.

As the market struggles with fears of a Chinese economic slowdown, concerns about energy stocks, and questions about Europe, many participants are quietly smiling: they know something many don’t: we’ve been here before.

Not at this specific point in history with these specific problems. But the problems that we are facing are fairly well understood. Developing nations with a bloated public sector needing economic restructuring? Latin America in the early ‘90s. A stagnant, jobless recovery and fears of deflation? The US in ’03-’04. Oversupply of a key economic component leading to structural issues? Oil in the late ‘80s—just like oil today.

The triple challenges of China, Europe, and oil are weighing on the market, but they are fairly well-understood, and the global economy has faced them before. There are lots of ways for policy-makers to address them. The more the market worries about these issues, the more opportunities there are to invest profitably.

It’s not the problems we know about that should worry us. It’s what we don’t know about.

Douglas R. Tengdin, CFA

Chief Investment Officer

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