Illinois

Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).

I attempt to craft something that has a chance of working.

"They say this is not massive money printing, but first they are wrong; and second, monetary authorities in the United States did not see the crash coming and the unsoundness of the financial system. In fact, right up until the crash they were saying that nothing like what happened could ever happen... This monetary policy, $3 trillion of bond buying in the United States, $3 trillion in Europe and another $2.5 trillion to $3 trillion in Japan, is unprecedented. ... If and when people lose confidence in paper money because of repeated bouts of quantitative easing and zero-percent interest rates—it could happen suddenly and in a ferocious manner in the commodity markets, in gold, possibly in real estate—interest rates could go up at the long end by hundreds of basis points in a very short time. I’m quite concerned as a money manager that we have to manage money, not just for the boundaries of what’s in front of our faces—maybe we’ll have a little tax increase or not, the fiscal cliff, or the stock market might go up or down 10% or 15%—but for a basic shift. The thing that scares me most is significant inflation, which could destroy our society."

Tim Geithner's time is almost done, but the former NY Fed head is only one of very many whose position is expected to be replaced in Obama's second term (just so there is a non-continuous chain of command if and when the time comes for the people to demand an explanation for the state of the US economy from the talented Mr. Geithner). Who else is out and who is expected to be in? The following list attempts to cover all upcoming rotations at the top of the US cabinet. What is not attempted is a prediction of where in the private sector people such as Geithner will end up: that is considered largely self-explanatory.

Eleven states made Forbes' list of danger spots for investors including California, New York, Illinois, and Ohio. They warned (and with the cliff it is even more critical), if you have muni bonds in these states - clean up your portfolio; if your career takes you there - rent, don't buy! Two factors determine their list of 'fiscal hellholes'. The first is whether there are more takers (someone who draws money from the government) than makers (the gainfully employed). The second is a state credit-worthiness score (via Conning) based on large debts, uncompetitive business climates, weak home prices, and bad trends in employment. Conning rates North Dakota the safest state to lend money to, Connecticut the most hazardous. A state qualifies for the Forbes' death spiral list if its taker/maker ratio exceeds 1.0 and it resides in the bottom half of Conning’s ranking. See below for the 11 states to avoid...no matter what Bob Toll, Larry Yun, Bob Pisani, or Alexandra Lebenthal tells you..

There was a time when Swiss bank secrecy was the passion of every tax-challenged oligarch in the world. Then things changed, Obama made it s badge of honor to rat out anyone you know who has a bank account in Zurich or Geneva, lists of previously ultra-secret account holders started "leaking" and from an asset, Swiss bank accounts promptly became a liability to everyone involved. Such as the matriarch of the legendary Papandreou family, former Pasok Greek PM G-Pap's mother, Margaret, also wife of former PM Andreas, who according to The Telegraph has been revealed as having a €550 million ($700 million) Swiss bank account (she will hardly be happy to learn that Credit Suisse just instituted a negative interest on CHF deposits) in the Geneva branch of HSBC. Obviously lots of hard work by M-Pap went into building up that particular nest egg.

• OECD slashes 2013 growth forecast (FT)
• Fiscal Cliff Compromise Elusive as Congress Returns (Bloomberg)
• China’s PBOC Chief Search Spurs Focus on Finance Regulators (Bloomberg)
• Elected, but Still Campaigning (WSJ)
• Pentagon Readies Options for Afghanistan Force After 2014 (Bloomberg)
• Greece Wins Easier Debt Terms as EU Hails Rescue Formula (Bloomberg)
• Monti presses Cameron for EU referendum (FT)
• Welcome, Mr Carney – Britain needs you (FT)
• Argentina seeks halt to $1.3bn debt order (FT)
• Asean chief warns on South China Sea disputes (FT)
• South Korea Tightens FX Rules to Temper Won Surge (WSJ)

• Israel Ready to Invade Gaza If Cease-Fire Efforts Fail (Bloomberg)
• Petraeus: A Phony Hero for a Phony War (NYT)
• IMF'S Lagarde says Greek deal should be "rooted in reality" (Reuters) "rooted" or "roofied"? And where was it until now?
• ECB's Asmussen says Greece to need aid beyond 2014 (AP)
• EU makes budget plans without (FT)
• Japanese Poll Shows LDP Advantage Ahead of Election (WSJ)
• Shanghai Composite Dips Below, Regains 2,000 Level (Bloomberg)
• Bond investor takes big punt on Ireland (FT)
• Noda defends BoJ’s independence (FT) Indewhatnow?
• Inaba Says BOJ Could Ease More If Government Reins in Debt (Bloomberg) Actually it's the other way around
• Miles Says Bank of England Can Do More If U.K. Slump Persists (Bloomberg) So much for the end of QE
• US tax breaks worth $150bn face axe (FT)

Secession:  Exploding Movement, Tempest In a Teapot … Or Something Else?

28 million taxpayers would be faced with a very large, unexpected tax liability for the current tax year (2012).

The questions of who are the 1% and what level of income demarcates the fat cats from the rest of Americans are likely to become more and more polarizing in the coming weeks. What is perhaps the most intriguing is the apparent dichotomy between the demographics (youth - who face considerably worse employment trends) and state-wealth who voted for Obama. As ConvergEx's Nick Colas notes, of all the U.S. states with an above-average incidence of their citizens earning over $200,000 (14 in total), all but one (Alaska) went for President Obama in last week’s election.  At the other end of the income spectrum, only 2 states in the bottom 10 for +$200K earners (Maine and Iowa) had a majority of voters who sided with the President. The central irony of this straightforward math is that any increase in income taxes on the “Wealthy” will be disproportionately borne by the states which secured the President’s reelection. Perhaps, just an intriguing is the fact that - if you look at the GINI Index – a measure of income inequality – Republican leaning states enjoy more equality on these terms than the citizens of traditionally Democratic areas of the country.

It will take two weeks+ to resolve the election of 2012

People are going to be pissed off no matter who wins this election and that is a very important social dynamic we believe is vastly under appreciated by the majority of mainstream pundits and analysts out there.  This is also very distinct from the environment that prevailed in 2008. Should Romney win, the 28% of Americans that identify as Republican will be thrilled, and the remaining 72% will be largely upset and on edge.  Should Obama win, similarly, the 32% registered Democrat with be thrilled and the remaining 68% will be upset and on edge.  Hence, the 70% referred to in the title of this article.  This is a recipe ripe for social unrest and it will be coming to our shores as we outlined recently in The Global Spring.

The irony of Monster Beverage's absolute 'Baumgartnering' cannot be lost on many in the market as news of incident reports released by the FDA show five people 'may' have died in recent years after drinking the energy drink. While the NYTimes notes that these reports do not prove a link between Monster Energy and the deaths or health problems, it would appear by the 18% plunge in the stock price that investors are not second-guessing. The company states it is "unaware of any fatality anywhere that has been caused by its drinks" but we suspect, just as NYC is now under the cosh of 16oz coke limits, soon enough we will see Caffeine Caps and Taurine Tariffs subjected on our un-Darwinian selves. In the meantime, may we humbly suggest the makes of the sugary energy drink undertake the (potentially job-saving or creating) manufacture of a giant catapult in an effort to be the first rubber-band-powered manned satellite launch in order to draw attention to the more important capabilities of people who drink Monster.

The state of Americans’ retirement accounts is dismal is how ConvergEx's Nick Colas begins his critically important-to-read note on the reality that millions face. According to an early 2012 study by the Employee Benefit Research Institute, Colas notes only 58% of us are currently saving money for retirement – and 60% of those that are have less than $25,000. Thirty percent have less than $1,000. Needless to say, it’s a far cry from the 8x-10x final earnings suggested by most retirement planners. So why are we so far behind? Americans aren’t exactly known for impressive savings habits, but that alone does not explain our poor preparation for retirement. Rather, Colas cites a general lack of financial literacy, including basic understandings of savings growth and retirement income needs, superseding financial obligations, and basic behavioral finance biases keep us from putting cash away. But if we keep up at this pace, you can expect the ongoing political debate about Social Security to take on new and more strident tones.