Should you be worried about Europe? The headlines seem so overwrought.
The European Central Bank bailing out Italian and Spanish bonds. French President Nicolas Sarkozy cutting short his vacation on the French Riveria to noodle over the trouble with finance ministers.
Imagine, a French president working in August! Quelle d'hommage!
Continue Reading Below
I know it seems far away -- an ocean away -- and completely unconnected to you and your money. But the truth is that because markets are all so intertwined these days -- palais de la bourse -- is closer than you think.
So much nicer than the NYSE, no? Here's why you should care.
After all, prime money market funds have half their assets in debt related to European banks. And, those banks have been under assault.
France's big bank: Societe Generale rebounding slightly today - after falling around 20% yesterday The banking sector led Paris' CAC-40 to close down yesterday nearly 5.5%.
Experts say those fears are overblown. While these funds do have a large exposure to French banks, they say ratings on the short-term debt of these banks remains high. The very nature of the investment means that holdings turn over quickly leaving less exposure to risky notes.
Over the last few months funds have been whittling away at their exposure to these banks. But what really matters to these funds' health is the amount of new money coming in the door.
And, on that score, the funds are doing very well. Investors are putting $50 billion into money market funds on a weekly basis as they seek safe havens in a volatile market. And, that, of course is bringing yields down.
According to Crane Data, money market yields average three one hundredths of a percent. At that rate, you can double your money every 1,700 years.
Clearly, sitting on the sidelines has it costs. More important than money funds or even the sympathy selloff we had yesterday in stocks is the damage the problems in Europe could wreak on the credit markets.
One of the news stories circulating this morning that brought down us futures was a report that Asian banks were cutting credit lines to French banks. In other words, some Asian banks were afraid to lend to French banks.
It's just those kinds of rumors that can force markets to seize up -- just like they did in 2008 and cut off credit, money and loans to everyone -- companies, governments, small businesses, even consumers.
And, that's why you should care about Europe. Because stock markets and banks are all tightly connected. Because investors move in all markets, not just one. Because we don't live in an isolated world bounded by the New York Stock Exchange and the Federal Reserve.
Their world is our world and our world is theirs.