European Debt Crisis Hammers Markets
Apr 28, 2010
Posted by Jody Eisenman | Filed under Uncategorized
About 2500 years ago, Greece was a world power and Greek culture was considered to be the finest in the world. Nowadays, Greece is a small country that is part of the European Union (EU).
Today, Standard and Poors downgraded Greek debt to BB+ and in a surprise move, dropped Portugal two notches to A-. As Greek bond prices plunged, the contagion spread to the US markets, where the Dow fell over 200 points, with the selling accelerating late in the day. The markets fell despite continued strong earning results from Ford and UPS. Treasuries soared as investors fled to safety. Right now, you can get a yield of 19% on 2 year Greek paper…if they don’t default.
The real fear is this: Germany is considered to be the strongest financial country in the EU, and one that has led the Greek bailout talks. However, should Portugal also need help, could weaker countries like Ireland and Spain be far behind? We are in a paradoxical situation, where the industrial nations of the world (including the US) are pretty much all heavily in debt. Simply put, these countries refuse to live within their means, and now must face the tough decisions of either raising taxes or cutting services. Of course, neither course is very popular but you cannot continue to have soaring deficits without plans to deal with it.
Although the US market dropped, one must remember the dramatic runup in prices over the last 13 months. Therefore, a correction is almost to be expected. How long it lasts will be played out shortly.
