Why aren't the markets worried about Greece?
I have said for some time that the consequences of Greece leaving the euro zone may be far greater than anyone realizes, but the market thinks otherwise.
The German stock market is rallying today, and is flat on the week. European markets are down only about 1 percent for the week. European bond yields are up, but not too dramatically. The S&P 500 is up 1.3 percent this week, and the CBOE Volatility Index is near the lowest levels of the year.
I've had many discussions with analysts and traders about this seeming indifference. Opinions vary, but there are four factors that show up in everyone's list to explain the phenomenon:
1) Fatigue: After five years of crisis, everyone is over it.
2) Complacency: Most feel that a deal will be made, even if it is just a "kick the can" deal.
3) No contagion: Traders believe the European Central Bank when it said it would do "whatever it takes" to keep the euro together.
4) Containability: Finally, even if Greece leaves the euro, many have now convinced themselves the damage could be contained. Peripheral bond yields are only modestly elevated, with Spanish 10-year yields, for example, is at 2.24 percent.