Another US Debt Downgrade Is Coming In Just A Few Weeks

Here’s some bad news from “Business Insider” (I’m full of it today).  Bank of America said “We expect a moderate slowdown in the beginning of next year, as two small policy shocks—another debt downgrade and fiscal tightening—hit the economy. The “not-so-super” Deficit Commission is very unlikely to come up with a credible deficit-reduction plan…Since the fall-back plan is sharp cuts in discretionary spending, the whole point of the Committee is to put taxes and entitlements on the table. However, all the Republican members have signed the Norquist “no taxes” pledge and with taxes off the table it is hard to imagine the liberal Democrats on the Committee agreeing to significant entitlement cuts. The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes.” -
http://www.businessinsider.com/huge-prediction-from-bofa-another-us-debt-downgrade-is-coming-in-just-a-few-weeks-2011-10

Speaking of Bank of America, regarding yesterday’s post…the amount of derivatives that Bank of America moved into FDIC insured subsidiaries was 75-trillion (yes that’s trillion with a “T”).  The entire GDP of the US is about 15-trillion.  The only good news is that the actual potential loss from the derivatives would be a mere fraction of that number; but we don’t know the amount of the potential losses. The issue is that they are doing it to get around capital requirements “at the request of counterparties” (i.e., the counterparties are worried - so let’s stick the taxpayer.)

The NTSM analysis switched to HOLD today.  Our VIX indicator is elevated and it hasn’t been coming down fast enough.  It is reflecting the general market confusion over the European crisis.

Only the Volume indicator is positive, but it tracks down on down-days and up on up-days so a few more days like today combined with a rising VIX could bump us back to sell.  As always, I’m not making a prediction – because we don’t know which way this will go.  A drop to the 1200 area would be expected and not cause for alarm – but then if NTMS were to signal a sell, I will exit the market.

The NTSM market analysis remains BUY today. 

I bought back into the stock market at S&P 500 1155 on 7 Oct after the 6 Oct NTSM buy signal.  I remain 100% long in the long term portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the link is on the right side of this page).