What Does Spain, Italy the EU and the Dow have in Common

The Dow Jones climbed upwards to the tune of 8.1% for the first quarter of 2012, which, at least in terms of total points gained for a 1^stquarter period, placed it at the very top of the heap. Not too shabby, when you consider that the Dow’s history encompasses a timeline of roughly 128 years and the world is still in the midst of an economic crisis.

As for the S&P 500, it ended the quarter up 12%, a first-quarter performance not seen by the benchmark index since the heady days of the dot.com era. The most incredible performance of the quarter by a far margin, however, was the Nasdaq Composite, which gained 18% over the same time period. Apple’s otherworldly 40% gain over the course of the first three months of the year certainly served as the fuel that fired the Nasdaq into outer space, though the tech heavy index certainly had a lot of room to move up, having been something of a laggard.

Which side of the line the Dow ends up spending the majority of its time on in the immediate future will depend on the same two factors that have served as the primary influence on the equity markets for the last year: the domestic economy and the eurozone? Although the US economy is definitely showing recovery, there are no good signs coming from the EU except a lot of money being promised.

As for the eurozone, anyone who accepts the notion that the structural problems of that monetary union have been handled with the Europe Central Bank’s own version of quantitative easing, may be surprised when the next round of serious problems breaks out among the PIIGS (Portugal, Ireland, Italy, Spain and Greece) in 2012.

Oh, perhaps you are subscribing to the notion that all is well on the Continent? You might want to recalibrate your objectivity meter along with Angela Merkel.

There should be serious doubts remaining that the deeper sovereign debt issues of the region have really been put to bed.

You need not look much further than to Spain, where it just might be possible for one to notice that a slow moving disaster may be well in the works.

Spain’s government had agreed just last month to the demands of the European Commission, which insisted that the country with the fifth largest economy in the European Union cut back on its 2012 deficit by a staggering 3.2% of GDP.

When your back is against the wall you will agreed to almost anything, as proven by Greece. Considering the fact that the Spanish economy is estimated to shrink by close to 2% this year, an indicator of recession by just about any measure, and that the Mediterranean country has the highest rate of unemployment in the EU, it is hard not to figure out that additional austerity measures may not be wildly popular with the locals.

Recent national strikes have been called in response to the belt tightening, and, with almost half of those who are 25 and under currently unemployed, it is not a stretch to anticipate some level of social mischief to manifest in response to the deteriorating economic situation.

You can wager that, if the song of more austerity at the cost of growth remains the same, the Dow 13,000 line will assume the role of a sturdy level of resistance. And we have not yet addressed Italy’s woes.