Here we go again. Europe’s debt problems (spending more money that you earn) caused significant problems in North American markets last year. Many American and Canadian banks and insurers have investments either directly in European sovereign debt, or in European banks and other companies with such exposure. The problem was acute in the fall of 2011 but seemed to subside in January 2012. A deal was struck for investors in Greek bonds to take a haircut, and an austerity program was agreed with European lenders to rebalance Greece’s deficit over the next few years.
Now there are more problems. Well, actually it’s the same problem really. On 6th May, Greek electors threw their Government out (as did France) and voted for a mosaic of parties, including extreme left and right wing parties. Some of these parties are opposed to the austerity program. This mosaic has been unable to form a Government. There is now open speculation that Greece will need to leave the Euro.
North American markets are down on these developments. When markets closed on the Friday before the election the TSX (^GSPTSE) was at 11,871.23. When markets closed the following Friday the TSX was at 11,694.67: down 1.5%. Selling in May and going away is looking like a smart move for a third year in a row.