The Dow has given up its gains for the week, and financial stocks like Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM) Citigroup (NYSE:C), Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) are all down on the downgrade of Spain’s debt by Fitch Ratings from its prior AAA rating to AA+. Spain had had a AAA rating since 2003.
This signaled to the market that the European sovereign debt crisis isn’t going to go away any time soon, and it’ll probably get worse.
At 2:00 p.m. EDT, the Dow Jones Industrial Average (DJIA) was down by 139.59 to 10,119.40, or 1.36 percent. The Standard & Poor’s 500 Index stood at about 1,085 near the same time, a drop of 17.92, or 1.62 percent. The S&P is down 8 percent so far in May, the worst since February 2009.
According to David Kovacs, head of quantitative strategies at Turner Investment Partners, “The credit issues are not going away in Europe — it’s a simple fact that everyone has to accept. Credit markets are seizing up because investors are concerned. So when they see further downgrades by the credit agencies it reminds them that these issues are not going away and on a Friday before a long weekend you can expect selling off of equities.”
Spain is one of the more important countries in the European Union in the debt crisis, when measured against Portugal, Ireland, Italy and Greece (PIGS). If Spain were to default, most watching the situation don’t believe the EU could save them. If they had to offer close to $1 trillion in response to the Greece crisis, it would be extraordinary what they would have to offer to shore up Spain along with them. And if Spain were to default, the others would assuredly follow.
The approximate $1 trillion would be targeted at all of the EU, with $146 billion for Greece, but it’s unlikely that amount would come close to handling the situation if the crisis continues, and growing opposition to the socialist/welfare countries living beyond their means is growing.
People are getting tired of being productive and having to bail out those who take their wealth and redistribute it to those who are unproductive and lazy.
Limited government is the answer to this, as people would be forced to work harder and create something useful when the misguided props are removed and they have to work for what they want and the lifestyle they want to live.
This isn’t limited to the so-called PIIGS though, as other nations, even Britain are in debt far beyond the guidelines implemented by the EU, and even though these nations are farther above them than others, like Greece with its 13.6 deficit and Spain with its 11.2 deficit, as measured against its GDP.
No country in the EU is adhering to the guidelines, making them all risks going forward.
Unless Europe is willing to follow their own rules, there isn’t a real Europe operationally, and that will remain the same until it is followed.
The EU may need to cut back to the more economically healthy countries until they’re able and willing to adhere to and enforce the debt guidelines in place.