Correlation

History has shown us that when investors get scared they think in a "risk on" / "risk off" mentality - regardless of the asset class.  These knee-jerk reactions cause an unprecedented amount of correlation in the market.  The following chart does a nice job of showing how fear contributes to the overall correlation of stocks in the S&P 500 dating back to 1986.

More recently, you can see peaks in correlation around the Great Recession, fear of a double dip recession, uncertainty surrounding the Eurozone's debt calamity, and the possibility of global contagion.

Source:

www.ritholtz.com

Fiscal union ahead for Europe?

This video gives a good description of the "fiscal union" many leaders are speaking about in order to aid Europe's current issues.

European Fear Factor

Debt problems in Europe have overwhelmed the news recently. Specifically, the rest of the world is very concerned that Portugal, Ireland, Italy, Greece and Spain will not be able to pay back their current debts. As a result, no one will lend them new money unless they are handsomely rewarded for taking on increased risk. That being the case, new bond auctions from these countries have had to offer bonds with very high yields in order to entice lenders. This graph from Bloomberg is a nice illustration of that point:

 

With Greece being at the forefront of this mess, this graph from Reuters demonstrates which countries stand to lose the most if Greece defaults on their obligations. One thing is clear, a Greek default would resonate throughout Europe and the rest of the world.

Sources: 

Bloomberg

Reuters

Trouble in the Euro-zone

This is a great illustration from Mint showing Euro-zone public debt as a percentage of GDP. You can easily see why the PIIGS are in trouble.