Bond investors get the message. On Thursday they sent Italian 10-year spreads over German bonds to a one year peak of 226 basis points. In a more drastic measure, they sent Portuguese 2-year yields to a new one-year peak of 16.25 per cent.
Yet North American equity markets have barely moved. Rather than worrying about full scale national defaults, or running for the hills after extremely soft U.S. job numbers, they don't do much of anything. No one here seems to be woried about the speed at which a new crisis could spread across the globe.
The typical bears, like Nouriel Roubini, are out with some strong words to get at least some people to act. Referring to the U.S. job numbers, Mr. Roubini said that the U.S. economy is now no longer just going through "temporary soft patch," and instead the mess is "rather a deep ugly swamp."
While you may automatically tune people like him out because he's always so negative, be aware that some reasonable strategists are starting to make some pretty drastic calls.
Over in Europe, when Moody's downgraded Portugal, the rating agency argued that the country would have trouble accessing soverign markets at "sustainable" yields until after 2013. Now Vladimir Pillonca at Societe Generale argues that the same argument applies to Ireland, and called for another soverign downgrade.
But he also worries that Italy falls into the same category. "Italy's persistent lack of growth coupled with Europe's second highest debt ratio -- and two recent negative outlooks from S&P and Moody's -- suggest that Italy looks on course for a downgrade."
And here's the clincher. "This may not come as a surprise, but Italy's downgrade, as the third largest economy and founding member of the EMU, may signal the deepening nature of the sovereign and banking crisis."
So why don't North American equity investors seem worried? Even though the European soverign debt crisis is escalating, markets here are flat, and even extremely soft U.S. job numbers have barely sent markets lower today.
You might argue that markets have already come down, citing stats such as the Toronto Stock Exchange shedding 1000 points since April. But if you look closely, the stocks that have really come off are junior resource names. Blue chip companies like the Canadian banks are still expensive.
The geographic and economic divide between Europe and North America is also big factor, and it's a fair point. But something deeper has to be at play. You can look at all the economic numbers and corporate profits but I argue that investors here are simply sick of being fearful. It's been a long three years since the financial crisis kicked into high gear (arguably four if you count the debt drama in 2007) and people are wiling to look the other way on a lot of things because they've already endured so much.
Plus, investors don't like sitting on cash. When they get dividends, or have new money to invest, they like to put it into play. That's especially true in Canada, where the economy is slowly growing and there's a feeling of more security.
Whether that comes back to haunt investors or not is to be determined. But just remember how quickly fear can spread in today's interconnected capital markets.