Wednesday Market

US debt issues are now front and center. What is clear is that the two parties have no ability to work together (which isn’t a bad thing actually) and their battle lines for 2012 are clear. Republicans will not raise taxes under any circumstances and they may or may not actually cut spending. Democrats will not cut actual spending under any circumstances and they will twiddle around with irrelevant class-warfare taxes. The Dems have won this round of PR/spin — but I think both of them (as is the media) are truly clueless as to the tsunami that is on its way. If congressional districts are already so broken and gerrymandered – or if the 2012 electorate does not resolve this with a convincing win for one side or the other – things will go from really pathetic and corrupt to downright violent.

Market technicals deteriorated today to full-out bearish – both short and intermediate term. And the breadth of the bearishness is pretty ugly. There will be a bounce when the debt ceiling legislation is passed and it will be important to monitor it. That will occur within a week. But for the first time, markets are really contemplating the problems with public debt and a AAA rating for the US. The chances that the US will be downgraded from AAA by the end of the year are probably 90%+ — regardless of what happens with the debt ceiling — and that will freeze up some aspects of the market and cause serious problems.


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