From Mayhem to Moderation

What else could go wrong?

An ecological disaster in the Gulf Coast; threats of sovereign default in Europe; trouble in the Middle East; a political crisis in Japan; and a broad-based slowdown in the nascent worldwide economic recovery. Will we ever see any good news?

Actually, there’s a lot of good news. We just don’t notice. The US economy is accelerating in the second quarter. Wages are up, payrolls are up, hours worked are up, and manufacturing and temporary employment are still growing. Individuals are repairing their finances and corporate profitability, the best leading indicator of employment, has been particularly strong.

For another thing, the weak Euro is likely to stabilize Europe. When a currency falls, exporters gain. Germany’s export machine is benefiting from Greece and Spain’s budget troubles. That gives the Germans at least some reason to support the weaker countries in the monetary union. The weak Euro has also eased, for now, the pressure on China to appreciate its currency.

There are a whole host of reasons why last week’s volatility is likely to moderate in the coming months. Market corrections are always necessary and healthy until you’re in one. But it’s not different this time. Just as excessively stable markets sow the seeds for their own future volatility, excessively volatile markets create conditions where patient investors can prosper.

Douglas R. Tengdin, CFA
Chief Investment Officer
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