May 6 (Bloomberg) -- The 13-month rally in credit markets is unraveling as Europe fails to contain its debt crisis.
Money markets showed banks may be more reluctant to lend to each other than at any time over the past six months and a derivatives index used to protect against European bank failures soared the most on record. U.S. company bond sales are poised for the slowest week this year, while in Europe they all but disappeared, according to data compiled by Bloomberg. Emerging market and mortgage bonds also tumbled.
Investors are increasingly concerned that a 110-billion euro ($139 billion) rescue package for Greece won’t work, escalating into a sovereign crisis reminiscent of the subprime mortgage meltdown that pushed Lehman Brothers Holdings Inc. into bankruptcy. U.S. stocks plunged the most since 1987, before paring the decline, while Treasuries surged.
“I don’t think we’re in panic mode, but there’s a little bit of a whiff of 2008 here,” said Scott MacDonald, head of credit and economics research at Aladdin Capital Holdings LLC in Stamford, Connecticut, which oversees $12.5 billion. “We had the subprime debacle in the U.S. Does Europe relive that in terms of the massive leveraging they’ve done to keep the social model running? Because then it’s a worry of not 110 billion euros for Greece, but it’s potentially a project that could go up over 1 trillion euros or more.”
The Dow fell almost 1000 points today until it ended down "just" 347 points.
The Dow is down close to 600 points the last three days, though they blamed today's plunge on a "glitch."
Or maybe the subprime crisis is back, only this time the subprimers are Greece, Portugal, Spain and Ireland.
And maybe this is only the beginning of the next phase of the Great Crisis of '08.
Remember, the market recovered a bit in 1930 before heading south again in late 1930 and really plunging from there.
Should be an exciting rest of the month at the casino down below Fulton Street...