Greece, Italy, Portugal, Spain – also known derisively in the Euro Zone as Club Med these days, are once again in focus this morning. And it ain’t about sunshine and topless beaches.
Spain’s IBEX Index dropped 2.2 percent to the lowest level since August at 10:19 a.m. in London, Portuguese credit-default swaps jumped to a record and the Budapest Stock Exchange Index declined 1.4 percent, the most in two weeks. Greek two-year bonds tumbled, with the yield rising 9 basis points to 6.57 percent. Futures on the Standard & Poor’s 500 Index slipped 0.6 percent. The dollar strengthened against all but one of its 16 most-traded peers.
Traders I talk to mostly dismiss the notion that a Grecian or Spanish default will mean anything to US markets. I’m somewhat conflicted.
For starters, I see the dollar upticking with every nasty headline about Club Med’s unemployment data or commercial real estate or CDS rates or sovereign debt. The other concern I have is that as small as Greece and Portugal really are, I have yet to see any of these types of crises truly be contained. And Spain is not small.
The Greece thing is being waved away like subprime was in 2006-2007, like it’s a distant bout of unpleasantness that no one really wants to hear about right now. We know how that turned out.
So are Greece and Spain the Subprime and Alt-A of 2010? If we pull on those loose threads, does the entire sweater unravel?