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Don Quixote

Considered by many to be the greatest fictional work ever created (we prefer several of Hemingway's works), Don Quixote chronicles the adventures of a noble named Alonso Quixano. Alonso spends his days in isolation reading novels about men of great chivalry. A combination of arrogance and isolation eventually leads to Alonso’s insanity. Alonso decides he must become a knight, like his heroes in the novels, and defend his fellow countrymen. He chooses the name Don Quixote de la Mancha. He recruits a simple farmer, Sancho Panza, as his squire. Since Don Quixote does not see the world for what it is, and prefers to imagine that he is living out a knightly story, Sancho is necessary to point out reality, often in a humorous and witty manner. Whether you’ve read Don Quixote or not, you are likely familiar with the idiom “fighting windmills”. It refers to attacking imaginary enemies. It was derived from the following passage where Don Quixote fights windmills that he imagines are giants: Just then they came in sight of thirty or forty windmills that rise from that plain. And no sooner did Don Quixote see them that he said to his squire, "Fortune is guiding our affairs better than we ourselves could have wished. Do you see over yonder, friend Sancho, thirty or forty hulking giants? I intend to do battle with them and slay them. With their spoils we shall begin to be rich for this is a righteous war and the removal of so foul a brood from off the face of the earth is a service God will bless." "What giants?" asked Sancho Panza. "Those you see over there," replied his master, "with their long arms. Some of them have arms well-nigh two leagues in length." "Take care, sir," cried Sancho. "Those over there are not giants but windmills. Those things that seem to be their arms are sails which, when they are whirled around by the wind, turn the millstone." Could it be that today’s Don Quixote is the Federal Reserve and the giant windmills are inflation? We’ve been arguing this for a long time in our insights section. https://www.greenportcapitaladvisors.com/insights-1 The Fed, under the new leadership of new Fed Chairmen Powell, believes it is their knightly duty to fight inflation. Never mind that high inflation is neither present nor the enemy. Globalization, technology, and demographics are strong structural forces that have created disinflation. The Fed seems willing to crush the economy with higher rates in his quest to defeat this windmill. This most recent sell-off in equities marked the 3rd time in 2018 that the S&P 500 has sold off more than 10%. (It was actually almost exactly 10% each time). Our contention has been, and continues to be, that there is nothing wrong with the market, only with The Fed. They tightened too much, too quickly. We never thought we’d say this, but we miss former Chairwoman Janet Yellen. In our prior write-ups we have said that this bull market will end, and it will be because of The Fed. We still believe that. The challenge is distinguishing between market temper tantrums and secular changes. For all the analysis of trade deals etc., it comes down to this. If The Fed moderates it’s tightening cycle we should be fine, albeit volatile. If they decide to continue playing Don Quixote against the imaginary boogey man named inflation, the bull market will end. As evidence to our thought process, this latest sell-off started on October 3rd when Powell said, "interest rates are still accommodative, but we are gradually moving to a place where they will be neutral. We may go past neutral, but we are a long way from neutral at this point, probably". Markets tanked. Earlier this week at the Economics club of New York the Fed Chair walked back his October 3rd message and stated, "interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy". Markets bounced back strongly. Our guess is Powell learned his lesson that words have consequences. The verdict is still out, we are watching closely. The Green Book - Now that we’ve reviewed a book, it is only right that we also review a movie. We really enjoyed The Green Book a couple of nights ago. It is currently in theatres. It’s like a reverse Driving Miss Daisy movie. Dr. Don Shirley, an African-American classical piano virtuoso hires Italian- American Tony “Lip” Vallelonga, to drive him through southern states on an eight-week music tour before Christmas in the 1960s. While quite humorous, it also deals with racism and stereotypes that negatively impact both Tony and Don. At the risk of giving way too much of the movie, we will simply give it a thumbs up if you’re looking for something to see this weekend. Have a great weekend, The GreenPort Team

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