Why aren't the markets panicking about looming Greek default?

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(MoneyWatch) In two days we will know if Greece is going to default on its debt and yet, despite indications that a financial disaster looms, the markets are showing little concern. Are they in denial or do they know something we don't?

Private holders of $272 billion in Greek bonds are under a deadline to decide if they will trade the bonds they currently hold for a package of bonds and cash worth about 53 percent less than the original bonds. If three-quarters agree then the deal will be designated as voluntary and Greece wouldn't default. Over the weekend the European Central Bank started warning that it didn't think enough people would agree to the deal and Greece would have to officially default on its debt. And today comes news that a consortium of Swiss investors are "exploring means to address its concerns and to protect the rights of holders of the bonds."

Even so -- and with more news of China's economy slowing down -- world markets closed down only slightly yesterday. Through midday Tuesday the S&P 500 was showing its "biggest decline of 2012" - a not-very-big 1.5 percent drop. There are a number of reasons for this astounding lack of panic.

First, these aren't the markets you think they are. The only people or institutions trading right now are ones who absolutely have to be in the markets. That's computer-driven action and fund managers who will lose their jobs if they perform worse than the markets. The trading volumes are very thin in many markets and have been for a while. As a result it doesn't take much action to create large movements in the averages. Also, the stock markets right now aren't the markets as we usually think of them because they don't represent the number of investors they have in the past.

Then there is meltdown fatigue. The Greek crisis feels like it has been going on since Alexander the Great was in grade school. In the past two years we have been told about literally dozens of moments that were supposed to "critical" and weren't. If Aesop had written this it would be entitled "The Boy Who Cried Greek Default."

There is also the odd belief that the possible outcome of default is so disastrous enough of the bondholders will act to prevent it, even if it means losing a lot of money. I have heard this from a couple of money managers. This is the enlightened self-interest case and it is a good one. It is easy to believe that the ECB warnings over the weekend were an attempt to spook more people into agreeing to the deal. Whether this is a reasonable view depends on how much faith you have that people will act rationally.

When the stock markets are questionable as indicators of investor intent people usually turn to the bond markets for insight. Even they are oddly quiet. 

U.S. and German bonds are seeing very slight decreases in yields, which means more people are buying them in the belief they are safe. However, Italy, Spain and Portugal all look to be hit very hard if Greece defaults and their bonds are pretty close to flat. Again, no signs of panic. However, before you start thinking the bond markets are totally rational consider this: Greek 1 year bonds - which at this point have as much chance of paying off as a lottery ticket -- are also down. After closing at 1006 percent yesterday (meaning if you could buy a $10 Greek bond it would pay off $10,000), they are at 949 towards closing time on the European markets.

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.