Giving Thanks Amid Volatility

Markets continued their recent volatility Wednesday, seemingly tied at least partly to Germany’s latest bond auction. Germany sold 10-year debt at an average 1.98% yield, but about 35% of the offering wasn’t sold. Now, an undersubscribed German auction isn’t all that unusual, but the amount of unsold bunds was relatively high. And in the wake, many cite “technical reasons” specific to German auctions as being behind the weak amount of bidders. But the timing plays right into concerns debt contagion may be touching Germany now, or that markets have begun losing confidence in the eurozone more broadly, rather than just the periphery.

And that could be part of the story. The eurozone has faced significant difficulties this year—they’ve been hard to ignore—so the fact markets may be indicating some concern about Germany’s affectedness wouldn’t be terribly surprising. Especially considering rumors regarding both far broader ECB action (which could cause higher inflation) and the issuance of a collective eurozone bond (which could mean Germany takes a bigger direct role in peripheral issues) continue swirling, though at this point, they’re merely rumors.

But taking a step back, it’s important to remember Germany has a very competitive economy, relatively low debt and deficit levels, and has seen just fine economic growth recently. Not only that, but consider lower demand needn’t indicate risk aversion on buyers’ parts—it could indicate buyers just aren’t so keen on the near record low yields German bonds currently offer. So to conclude this most recent auction is a sign of the eurozone’s impending doom seems premature at best.

Market volatility has undoubtedly challenged investors in 2011—and could very well continue to for awhile. But it’s important to remember volatility moves in both directions—up and down—and while downward volatility’s uncomfortable, most are quite comfortable when the volatility overall moves markets up.

Also important to keep in mind this time of year are the myriad reasons we have to be thankful—seemingly easier to lose sight of amid a back-and-forth swinging market like 2011’s witnessed thus far. So with that, our editorial staff would like to share a few of our reasons to be thankful this Thanksgiving, in no particular order:

• Improving unemployment. No doubt we’d all be grateful for faster improvement. But the reality is, unemployment’s slowly begun to fall, and we think it likely that trend continues, albeit probably in fits and starts.
• American consumers continue to spend—a fact many seemingly overlook.
• Continued economic growth. Like unemployment improvement, economic growth has waxed and waned. But as we’ve said many times, growth is growth, and we’re thankful for what improvement we’ve seen recently. And despite the eurozone’s travails, weak growth and pockets of contraction, the roughly three-quarters of global GDP that isn’t the eurozone is growing just fine.
• Corporate earnings have continued to notch solid growth—another oft-overlooked positive.
• Free trade! We’ve seen a raft of new agreements this year—and not just in the US, either. Free trade has expanded globally—a trend we’d gladly see continue.
• Capitalism. An economic system that’s proven to create the most wealth and productivity for its citizens—not without the occasional hiccup along the way. But overall, we’d infinitely prefer to live in a capitalist society than any other existing or historical alternative. Just ask the North Koreans. Or the Cubans.

Happy Thanksgiving from the MarketMinder Editorial Staff!