Debt Dominos

What will you do when you get lonely
No one is waiting by your side?
You've been running and hiding much too long
You know it's just your foolish pride
--Derek and the Dominos

Credit spreads on sovereign debt of the PIIGS are widening big time this am. If this isn't on your radar yet it should be.

Nearly three yrs ago credit problems reared their ugly heads in 'sub prime' residential real estate sectors. Although many viewed the problem as contained (remember that word?) to a fraction of the market, the next yr and a half proved otherwise. Leverage, expressed via debt and derivatives, has a way of spreading in a contagious manner.

A parallel may be forming here. Iceland was the initial shot across the bow last yr. Now the PIIGS are coming apart. There will be talk that this is an isolated problem, that it is 'contained' to a fraction of sovereign debtors.

But nearly every country in the world is a debtor. And the world is levered at multiples of global GDP.

Potential for the domino effect seems pretty high here.