Medicare

Do not expect any changes to the trends of polarization and party non-conformists is the message from JPMorgan's CIO Michael Cembalest. As he explains moderates like Blue Dog Democrats and Rockefeller Republicans are now artifacts in the Natural History Museum, having given way to their more ideological offspring (through retirement or after having been beaten in primaries). If anything, Cembalest believes the House may become even more partisan after apparent losses by moderates in both parties. After a better than expected night for Democrats given Senate results, the fiscal cliff looms; With the status quo maintained, a divided government goes back to work to solve the Mutually Assured Fiscal Destruction problem. However, electoral results suggest the country is in no mood to address entitlement issues right now, will defer them to another day, and continue to shift towards a high-Federal debt economic model that bears some resemblance to Europe and Japan. In the 1950’s, the solution to 80% Federal debt was not taxation, austerity or inflation, but growth.

It’s really hard to ignore what’s happening today; the election phenomenon is global. The entire world seems fixated on this belief that it actually matters who becomes the President of the United States anymore... or that one of these two guys is going to ‘fix’ things. Fact is, it doesn’t matter. Not one bit. And we’ll show you why mathematically... This is not a political problem, it’s a mathematical one. Facts are facts, no matter how uncomfortable they may be. Today’s election is merely a choice of who is going to captain the sinking Titanic.

Life imitates math.

Well, my fellow Slope-a-Dopes, I've been hearing a lot about the dreaded "Fiscal Cliff" for quite some time now.  So I decided to take a flying frog freelance free fall leap into the woefully written word abyss, to see if I could sort out for myself, when and how we would experience the coming sensational supersonic splat. 

That's another $190.1 Bn available to spend on IPad Minis and IPhone 5s in the Appleconomy!

We know two things about the future: 1) Borrowing 35% of Federal expenditures every year is unsustainable; and 2) The Baby Boom generation of 75+ million may be working longer, but they are also retiring en masse, joining the ranks of Social Security and Medicare beneficiaries at the rate of 10,000 per day, a flood that will not ebb until the late 2020s. This raises the obvious question: if Federal spending must decline, then where is the money going to come from to fund 75 million retirees? Calling the Central Bank of Mars: Greetings, Martian friends.

Whether you believe "your vote doesn't count" or taking productive time out of your day to be a part of selecting the next 'change' agent for the nation is worthwhile, Doug Casey - as ever - has strong views:

"a rational man, which is to say, an ethical man, would almost certainly not vote in this election, or in any other – at least above a local level, where you personally know most of both your neighbors and the candidates."

Don't expect anything that results from this US election to do any real, lasting good. And if, by some miracle, it did, the short-term implications would be very hard economic times. More important, however, is to have a healthy and useful psychological attitude. For that, you need to stop thinking politically, stop wasting time on elections, entitlements, and such nonsense. You've got to use all of your time and brain power to think economically.

Government programs created in the 1960s created a culture of dependency, government control, relentlessly higher debt, materialism, and willful ignorance. The incompetence, arrogance, ineptitude and insanity of government officials at the Federal, State, and Local level are stunning to behold. We need to ask ourselves whether we the people are getting better government service and efficiency today; with government spending at 35% to 40% of GDP, than we did in the 1950’s and early 1960’s when government spending was 20% to 25% of GDP. We doubt that most people are getting 60% more value from our benevolent government today than they did in the 1950’s. By encouraging dependency and reliance upon the all-powerful government, the motivation to educate yourself, get married before having children, work hard, and pull yourself out of poverty is diminished. Can a small minority of critical thinking citizens lead a revolution that topples the existing social order and restores the Republic to its founding principles of liberty, self-responsibility, civic duty, and mutual obligation to future generations?

The U.S. has a three-and-a-half class society. According to demographer Joel Kotkin, California has become a two-and-a-half-class society, with a thin slice of "entrenched incumbents" on top (the "half class"), a dwindling middle class of public employees and private-sector professionals/technocrats, and an expanding permanent welfare class: about 40% of Californians don't pay any income tax and a quarter are on the Federal Medicaid program. I would break it down somewhat differently, into a three-and-a-half class society: the "entrenched incumbents" on top (the "half class"), the high-earners who pay most of the taxes (the first class), the working poor who pay Social Security payroll taxes and sales taxes (the second class), and State dependents who pay nothing (the third class). This class structure has political ramifications. In effect, those paying most of the tax are in a pressure cooker: the lid is sealed by the "entrenched incumbents" on top, and the fire beneath is the Central State's insatiable need for more tax revenues to support the entrenched incumbents and its growing army of dependents. Let's start our analysis of the three-and-a-half-class society by noting that the top 25% pay most of the Federal income tax, and within that "middle class" the top 10% pay the lion's share of all taxes.

Permanent adolescence is the state of resolving insecurity, fear and social defeat by buying things that promise the invulnerability of a fantasy self and world, and by indulging in instant gratification to mask the self-destructive derangement of broken ecosystems: not just in the natural world, but in our bodies, in our society, in our economy and in our politics. Nurturing permanent adolescence, anxiety and alienation are highly profitable, for people responding to the fear and anxiety of Thanatos (the instinct for destruction) will not only become malleable consumers, they will lose their grip on Eros, the instinct for life and love. Once lost to the Dark Side, they have no way to experience health or intact ecosystems; their world darkens as there appears to be no alternative to the Status Quo. Health is horribly unprofitable; illness, anxiety and alienation are highly profitable. That is the destructive essence of our sociopathological "engine of growth," narcissistic consumerism.

With 20 days left to the big day and the candidates seemingly in a tighter race than many expected it seems appropriate to look at how the equity market is and will be positioned for a potential changing of the guard if Mitt Romney wins or if incumbent Barack Obama remains in charge. Credit Suisse has created a comprehensive 'cheat-sheet' outlining key issues for the election for each candidate, the sector impact of an Obama or Romney victory, and the extent to which that impact is already factored into current market prices. Everything you wanted to know about gaming the outcome of the election but were afraid to ask.

For those who watched last night's pre-presidential theater, our condolences. You were not alone, however. Art Cashin was there too and here is his post-mortem.

If the US government cut all government services except Social Security, Medicare, Medicaid, and interest payments, federal spending would still outpace revenues. As we noted here, these four mandatory items dominate costs. All the arguing over sequestration and the fiscal cliff are moot since as Professor Antony Davis notes in this brief clip, there are no specific cust that will enable government to balance the budget; in fact "nothing less than a complete redesign will solve the problem." That redesign begins with determing the proper role of government.

The overhwelming majority of investors seem to believe that some compromise will be reached to resolve the looming fiscal drag, and as we noted here, this fact is more than priced into markets. As Barclays notes however, a big deal that encompasses entitlement and tax reform is very unlikely before year-end. Hence, if the ‘cliff’ is avoided, it will be because Congress extends all expiring provisions for some time while it works on a bigger deal. Such an 'extension/compromise' move would not reduce investor uncertainty if it were only for a few months; bond markets would simply start counting down to the new date. More importantly, the discussion about the fiscal cliff misses a broader point: the US will probably have significant fiscal tightening over the next decade that is a drag on medium-term growth. Yet more investors dismiss last year's reaction to the debt-ceiling debate - a 17% decline in 2 weeks - as any kind of precedent, claiming (falsely) that this was more due to European financial difficulties. We expect fiscal issues to be the defining drivers of the next several quarters and as BofAML notes, Washington's view of this 'process' as a 'slope' combined with the dangerously negative election campaign (which will need a 180-degree reversal for any compromise) means the likelihood of a Wile E. Coyote Moment is considerably higher than most expect.

One-year "money" is offered at .9750. The .9700 bid is vulnerable. I don't get it.