Over the past year, the best performing house price performance in Australia's major capital cities have been Sydney (3.4 per cent), Canberra (2.7 per cent), Perth (2.7 per cent) and Brisbane (2.3 per cent). The only laggard amongst the eight conurbations was Melbourne, where prices were basically flat (minus 0.4 per cent).

The good people in nab's economic unit are predicting continued modest per annum recovery as follows: Perth the strongest, 5 % in 2014; Sydney next at 3.7 %; Brisbane 3.5 %; and Adelaide and Melbourne lagging at 2.0 %.  National average, a still modest 3.0 %.

More here on the current situation. 

In Great Crises of Capitalism, we boldly suggested that the housing boom of the 2010s would revive after the GFC-induced correction, and that the decade of the 2010s might be like the decade of the 1880s.

Here is an extract.

A new factor of great significance is the China boom.  While this was interrupted for a short time during the global financial crisis, China is again growing at double digit rates and Australia’s terms of trade are again at record levels.  In many ways, the past three decades are reminiscent of the thirty years from 1850 to 1880.  With good policy, sizeable overseas borrowing and a lot of luck, Australia is again seen as a ‘miracle economy’. To continue the analogy, this is another time in which Sydney is in decline while Melbourne is booming.  Australia generally, led by Melbourne, is experiencing a property boom.  This is (so far!) by no means as mad at that of the 1880s, but sufficiently strong that respected international commentators claim Australia’s house prices are up to 40 % above fair market value.

Slightly lower estimates emerge from a thorough study by three Goldman Sachs economists published in September 2010.  Depending on the valuation model they see Australia’s overvaluation at either 35 % or 24 %, with the latter estimate their preferred measure. They do conclude, however, that ‘We see an acute housing shortage developing in coming years’, which provides an obvious possibility of further overvaluation to come.

If one equates 1980 with 1850, 2010 is the modern equivalent of 1880.  If this analogy holds, modern Australia is now entering the last, maddest decade of a forty-year boom, and Marvellous Melbourne is already growing quickly, working well (despite infrastructure bottlenecks) and playing hard.

The above comments were sent to the printer in late 2010, and the temporary correction in house prices has been stronger than implied there.

Also, Melbourne is now lagging the recovery of housing prices.  But there was a small correction in the early 1880s before the last, maddest near-decade of housing and land price boom, and only time will tell how the rest of the 2010s evolves.

The following table summarises the situation in the 1880s compared with the 2000, plus the situation in Australia in the 1890s.  Readers are invited to replace the question marks in the column on the far right.

Ways to acquire Great Crises of Capitalism.

The word 'slightly' is being applied to the RBA's discussion of many changes to its predictions, and I do not see any signs that further rate cuts are imminant.  (Earlier evidence is reviewed here and here.)

However, thanks to the miracle of modern communications, you may read the 'glass less than half-full' RBA report for yourself here.

There are two storms going on as the RBA calmly but slightly alters its stance. The sporting s**t-storm and the superannuation s**tstorm.  (This being a family oriented blog, we do not wish to pollute the kiddies' eyes and minds with naughty words.)

Lance Armstrong and cycling generally, then global 'football' (ie soccer), involving organised crime as well as drugs, s*x and rock'n'roll, and finally our beloved AFL, NRL, Rugby (gasp, not the public schoolboys!) and presumably every other blessed organised sport.

One has to ask whether surpressing the use of drugs is the right thing. A medical man Henry consulted this week told me that a 'hammie' can take up to 8 weeks to fix, whereas with (currently illegal) steroid injections it gets fixed far faster.  If there is a treatment that hastens recovery, it might be better to let it be done legally by professionals. And so the arguments go ...

Maybe we need a third class of athletes - the current two, amateur and professional, with a new 'enhanced' catagory. This would be like Tea Party/IPA economics - anything goes - with consenting adults doing anything they liked that a qualified doctor would be willing to administer.  ('Why limit it to qualified doctors?' I hear you cry.)

Once America enforced prohibition, and this is now recognised as ineffective and to have created extensive black market activity and serious criminal activity.  One of the benefits of 'enhanced' is that remedies for ordinary folks would probably be developed far faster, though clearly some enhanced athletes would suffer various side-effects. Just a thought, gentle readers.

Then there is the superannuation s**tstorm.  This is almost certainly the final nail in the Gillard government's coffin and shows the value of advice about not interrupting your enemy while she is making mistakes.  The threat of further meddling with superannuation is just one example of this government's activities scaring the horses and spreading uncertainty and unhappiness.  And then the kiddies in ministerial offices wonder why the economic prospects are looking dimmer by the day.

Capitalism red in tooth, claw and cassock

Nescafe manages to arrange a meeting with the Pope at the  Vatican.

After receiving the  Papal blessing, the Nescafe official whispers 'Your Eminence, we have an offer for you. Nescafe is prepared  to donate$100 million to the church if you change  the Lord's Prayer from 'give us this day our  daily bread' to 'give us this day our daily coffee.'

The Pope  responds, 'That is impossible. The prayer is the word of the  Lord. It must not be changed.'

'Well,' said  the Nescafe man, 'we anticipated your reluctance. For this reason we will increase our offer to $300  million.'

'My son, it is impossible. For the prayer is the word  of the Lord and it must not be  changed.'

The Nescafe guy says, 'Your Holiness, we at Nescafe  respect your adherence to the faith, but we do  have one final offer…. We will donate $500 million  - that's half a billion dollars - to the great Catholic Church if you would only change the Lord's Prayer from  'give us this day our daily bread' to 'give us  this day our daily coffee.' Please consider it.'

And he  leaves.

The next day the Pope convenes the College of  Cardinals.

'There is some good news,' he announces, 'and some bad  news. The good news is that the Church  will come into $500 million.'

'And the bad news your Holiness?'  asks a Cardinal.

'We're losing the Baker's Delight  account.'

Image of the week. 'Its bad out there'.

  Courtesy AFR

This is the attitude of Wayne Swan, whose reckless spending and promises impossible to keep  have caught up with him.

Fortunately, major players are refusing to cop it sweet, and the fuss over super-theft will make the mining tax imbroglio look like a teddy bear's picnic.

First we have the fact that 'Swannie' has the usual politician's defined benefit pension, equivalent to a lump sum of over five million dollars.

JULIA Gillard moved promptly to rule out taxes on income from superannuation balances over $1 million for people over 60 years of age (Disclosure: sadly, this lot includes Henry.) Moderately well-to-do retirees all over the nation heaved a huge sigh of relief (with fingers crossed on the matter, as previous promises have famously been broken). But Henry suspects that considerable further damage has been done to this government's reputation.

The board of the Business Council of Australia (BCA), seemingly more ready to tell it like it is under the leadership of Tony Shepherd, said that talk of cutting superannuation tax breaks for top earners is damaging the super system and its ability to help address the pressing issue of how to absorb the costs associated with an aging population.

'Philosophically, I object to the term 'concessions', BCA president Tony Shepherd said.

'The money is ours. We go to work, we get paid. The money is ours. It's up to government to justify how much they take from us. It's not theirs, it's our money. It's not a concession, it's our money'.

Wesfarmers Ltd chief executive Richard Goyder said politicians should not consider changing the system, which until now has encouraged income earners to put more into their super. He said that taxing withdrawals from super accounts will punish those who have saved for their retirement based on the structure of the existing super scheme.

'Why should [income earners] be penalised for doing that?' Mr Goyder said.

One of the architects of Australia's compulsory superannuation scheme, Industry Funds Management chairman Garry Weaven, more or less immediately said 'don't meddle, comrades'.

Just about everyone except 'Swannie' accepts that saving for retirement is a good thing and that taxing such savings is a really stupid thing to do.

Of course, the books must be made to balance.  Item 1 of Henry's economic policy reform list published earlier this week would be a far better way to begin the hurculean task before the nation.

On the other matters in that article, especially the mooted tax on capital inflows, there has been so far little explicit response, but there is ongoing powerful news and comment on the state of industries being severely handicapped by the high dollar.

A colleague reported to Henry that Professors Ross Garnaut and Bob Gregory have said the answer lies with lower interest rates.

Do you not accept that monetary policy cannot serve two masters, Professors?

Or is it just that you think the local economy is in such dire straits that it needs interest rates below the levels needed during the depths of the GFC crisis?

The report in the AFR, linked here for subscribers, suggests it is the latter reason.

'Professor Gregory predicted that Australia’s real income could fall by 15 per cent in the next few years and whatever government gained power would have to convince people to accept lower living standards.

“The investment boom is going to peak and I can’t see something filling the hole quickly,” he said.

He said even if the exchange rate fell and Australia became more competitive, it would take some time for sectors such as manufacturing, home construction and tourism to pick up the slack. Even on an optimistic scenario, unemployment would rise to 6 per cent.

G & G I judge both to be good Labor men, and what a judgment they are making on this Labor government. We are facing a domestic slump of considerable moment despite Australia's biggest resource boom going from 'red hot' to merely 'hot'.

It's not just the superannuation plan that is in strife. It's all of us, if the professors are right. Who was it who said the situation in this government's bunker is like an episode of Downfall?

'The group putting the views of Australian business at next year's G20 meeting will focus on the strong Australian dollar, trade and access, the flow of funding, food security and the push to reduce the regulatory burden on companies, its head, Wesfarmers chief executive Richard Goyder says'. (AFR, p 10)

This is some shopping list, and Henry doesn't even know what some of the items mean.  What is 'the flow of funding' Mr Goyder, and what is the state of 'the push to reduce the regulatory burden on companies'?  But we do have a plan to fix the Aussie dollar, and other things you'd like to see done.

The RBA of course agreed with Henry about the wisdom of holding its fire on interest rates.  Curiously there has been no call from a junior official to say in the usual frosty tones 'your views have been noted, Henry'.  Not an institution that reponds well to unsolicited advice, although one notices the fulsome thanks to invited guests at their annual talkfests.

Still, there is no other plan Henry is aware of to get the dollar down, except more graft and corruption, interest rate cuts and general governmental incompetence. This will work in the end, more's the pity.

The press have various views about the next move in cash rates. The AFR says 'End may be nigh for rate cuts', the Oz says 'RBA holds off with eye on the future' (but may not need to cut further), while others note that the RBA has said there is room to cut if necessary. One brave ex-RBA man has said the next move is likely to be up.  Henry will not name this brave lad to avoid having him cut from the list of  'friends of the Bank'. We remember Lou Richards, whose footy tips were widely regarded (with good reason) as the kiss of death.

The footy season is just about upon us and it has started with a bang - Essendon in possible drug scandal. As previously reported, a Caaaarlton! player supposedly said 'We don't do drugs and shit like that'.  Henry's advice to this bloke is 'lie low and say nothing to draw attention to yourself, son'.

Todays poll stories say 'Labor slumps on all issues'.

The always careful Paul Kelly says on video 'Poor start for Gillard' - available when one opens Dennis Shanahan's article linked above.

The Oz's lead editorial is far more savage, listing as it does the many examples of what it sees as the PM's gross political ineptitude.

Last year you will recall Henry frequently reiterated that Australia's problems could not, and would not, be solved by easing monetary policy.  Instead what we needed was economic reform, reform that focussed on making the Australian economy more productive.

However, reform was not on the agenda, and with a squeeze on many industries it was desirable that interest rates be cut, and we were largely in accord with the RBA in the speed and size of rate cuts.

The mining boom has however driven the currency to levels where many non-mining industries, and most 'junior' miners (especially exploration juniors) were struggling to survive, and at the same time even the big mining companies were battling excessive costs.

By the end of 2012, we were more or less of the view that further rate cuts would be futile. If rate cuts continued to a point where the excessively strong Australian dollar was driven down (even if this could be achieved) this would ignite inflation and create further pain for all Australian industries, big and small, mining and non-mining.

Australia needed, we asserted in early January, a variable tax on capital inflow, to help keep the Australian dollar from excessive strength, while monetary policy focussed on the state of the domestic economy and domestic inflation in particular.

'The authorities', including the RBA and Treasury, did not appear to show any interest. Economists who responded all agreed that I had nailed the problem of two targets and one control lever ('instrument' in economist's jargon) but were unsure if a tax on capital inflows was the solution. Warwick McKibbin pointed out that widespread economic reform would be a better response, and I am in keen agreement with this diagnosis. But, on sober reflection, I think even if we got such reform, the Australian dollar might experience even further upward pressure, as Australia would be an even more attractive destination for footloose capital.

Today the RBA board reconvenes after its extended summer holiday. My first advice advice to it is to encourage Governor Glenn Stevens to inform the Treasurer that a tax on capital inflow is needed and then get on with the implementation.

Ending the world's ultra-easy monetary policy - which has to happen sometime - will involve severe economic unhappiness, with recession or worse in the major countries and a global crunch that has the potential to hurt Australia far worse than the recent crisis.  Australia's economy is already weakened by excessive domestic costs and a high exchange rate.

What we need to do is strengthen our economy to the maximum extent possible to minimise the damage from the coming global crunch. Henry's article today makes this point and contains my recommended reform agenda. While this package is of course available to the current government, it is highly unlikely to pick it up and run, despite Paul Keating's doing something like that in 1986.  As an important point of political economy, my approach focusses on process, meaning that if the opposition was attracted to such a package it is the commitment to the process, not ludicrous (and impossible) 'costings', that will give the electorate confidence.

Australia can protect itself from the coming global crunch, and make its economy far stronger by doing so. A brave RBA governor would take such a package to the Treasurer and convince him that its adoption is vitally necessary. I believe Glenn Stevens has the bottle to do this, but he may not share my concern at the need to do so.

New Bank of England boss, Mark Carney, should revamp UK monetary policy, says The Economist.

'Mr Carney, hired away from the Bank of Canada, has recently given hints that he wants to shake up British monetary policy. He has talked about the need to stimulate an inert economy until it reaches “escape velocity”; he has said that a central bank might need to “tie its hands” by announcing thresholds to be reached before it reduces stimulus; and he has suggested that the level of nominal GDP—the cash value of output without adjusting for inflation—might be a better target than inflation alone. This willingness to think afresh is admirable. But Mr Carney must now connect the dots between his ideas'.

Henry must confess to be worried about all this.

The tangible sign of all this stimulus is a global equity market boom and rebound in commodity prices. (See early December info on this matter.)

How the world can emerge without a major recession from this era of very easy money and near-zero official interest rates is obscure, but Henry is certain it will be difficult and painful.

More on this in Henry's regular column on Australia's monetary policy and related subjects tomorrow.

David Uren has joined the line of guru's saying the RBA will 'likely' leave rates on hold tomorrow.

The key issue is will they do anything apart from sitting pretty?

Newspoll slumps for Labor, Abbott's popularity rises.

'LABOR support has slumped back to levels seen at the end of last year and Tony Abbott has surged against Julia Gillard as the nation's preferred prime minister after the start of the record-breaking seven-month election campaign was marked by chaos and confusion in government ranks.
 
'As Labor MPs returned to Canberra last night for the first sittings of the parliamentary year - and as senior ministers publicly expressed support for the Prime Minister and her tactics - the latest Newspoll, conducted exclusively for The Australian at the weekend, puts the Coalition in a clear, election-winning position.

'Government MPs have been unsettled by Ms Gillard's surprise decision to name September 14 as the election date - a move that was immediately overshadowed last week by charges against former Labor MP Craig Thomson and the resignation of two ministers that some inside government believe could herald more senior departures. It was revealed last night that the Victorian branch of the ALP is expected to delay the search for a replacement for former attorney-general Nicola Roxon in the Melbourne seat of Gellibrand in case other ministers or backbenchers also resign'.

The generally negative tone of Fairfax Newspapers about the guv'mint over the weekend was also noteworthy, and even The Insiders seemed to be striving for a more balanced coverage that at the end of 2012.

And Michelle Gratten on ABC radio this morning seemed far more subdued than usual about 'Isshues' faced by Julia Gillard.

Good news from China - major manufacturing output down a tad but still in positive territory, and smaller manufacturing companies improving strongly - helped boost US stocks and will flow on here on Monday.

Ambrose Evans-Pritchard reports that: 'European regulators have the means to shut down key parts of London’s financial centre at a stroke if Britain left the European Union and would not hesitate to do so, leading central bank experts have warned'.

Read on here, from one of Henry's favourite journos.

Warm congratulations to the AFR for leading the charge against plans to increase taxation on superannuation. If additional tax on saving is implemented, Tony Abbott's accession to government will become a rolled gold certainty. Have they not heard of the stupidity of taxing savings twice?

Still, many of the other actions of the current government seem to exhibit a death-wish, so why should we be surprised?

Politics 2013

Politics 2013 Aussie style is reviewed in the Weekend Oz by Dennis Shanahan.

'FOR years, stress and a sense of feeling pressured in daily life has been increasing for the majority of people living in the outer reaches of suburban Australia. This unifying sense of pressure is reported to members of parliament and pollsters with varying reasons given for its cause.
 
'Some voters volunteer that it's "the rising cost of living", while others are more specific, nominating the size of their housing mortgage and the need for both parents in a family to work to service their loan. For a long time rising power prices, particularly electricity bills, have been at the top of other voters' concerns.

'The physical embodiment of this financial stress and claustrophobia is to be trapped in a traffic jam as part of the ever-increasing commuting time, spent in the family car or on a crowded and unreliable bus or train, for two or three unpaid hours of the day away from the family.

'Job insecurity and suburban crowding add to irrational fears about foreign workers and asylum-seekers arriving illegally by boat. This is why MPs in western Sydney report asylum-seekers continue as a real political issue'.

The race is on and, despite the PM's promise that the electioneering will not start, official opinion now gives equal time to the opposition of funds from government coffers.

The movie world

Django Unchained is Tarrentino's latest.  It is violent, it is definately a boy's movie, grown-up boys may wish to sneak out to see it with a friend.

Here is a whole bunch of stuff, courtesy Rotten Tomatoes.

Argo is taking Tehran by Storm

'"Argo" is taking Tehran by storm, circulating hand to hand and house to house. Young hipsters in northern Tehran, fruit peddlers in the bazaar, teachers in the suburbs, parliamentarians and members of the plainclothes Basij militia loyal to the regime have seen it'.

More here. 

And if you liked Argo you may love Zero Sub Thirty, but it is not for the faint-hearted.  Here is a trailer.

Cricket'n'footy'n'shit

Great one day win over the once fearsome Windies in Perth.

They will improve, but the Australians will be keen to perform well with an Ashes tour coming up.

Jason Gillespie provides a fine overview here.

One of the junior Thorntons said recently 'It's only a month until the footy begins'. All except Mrs T agreed this was A GOOD THING, but our matriarch at least does not complain when we hit the 'G' for another win over the Collywobbles. Richmond looms as a difficult hurdle, and Henry winced when a Caaaaarlton! player said 'We don't do drugs and shit like that'.

Image of the week.

  Courtesy The Oz

The PM calls an election for 14 September. This generates theories: she is heading off a challenge from Kevin, or Greg, or Bill, or even Simon; she knew about Craig Thompson's arrest and (so the smarties say) that means he could not be forced out of his seat, if found guilty, thereby creating a by-election); the Obeid family agreed in court that they had used inside information to get rich quick turning prime farming land into a coal mine or mines. (Henry is no lawyer, but suspects this defence may just work, on legal but no of course moral grounds.) And there is the Peter Slipper prosecution bubbling along, and constant reports of the 'Fair Work' legislation allowing union harrasment in mines and the struggling construction industry.  And the Labor loyalists say Ms Gillard is trying to force Tony Abbott to 'come clean' on policies.

The PM says, if reelected, she will soak the rich, meaning anyone with a few assets and who are thereby assumed not to be a hard core, rusted on Labor voter.  Karl Marx must be on his knees in Highgate Cemetery preparing for resurrection.

Tony Abbott presents a perfectly good vision of the policies of his future government, only to be told by a lovely young thing on a television news channel it is 'long on vision and short on specifics'.

More from the tabloids here. 

Economic update.

Credit growth is still minimal, great news for the economy, but not for retailers, presumably.

However, today's press says: 'THE checkouts of the nation's supermarkets are ringing up big sales numbers, but the giants are having to claw for every dollar'.

Helps to explain low inflation, comrades.

The Aussie dollar has slumped in a minor way as a rating agency cottoned on to the fact that the peak of the investment boom is sometime soon and growth is likely to slump.

Overnight trade saw a modest rebound, so don't hold your breath, Glenn Stevens. The only way this problem will fix itself - short of Henry's tax on capital inflow - is if the economy hits a real pothole.  A pothole must be odds on now, so Glenn might be saved by a domestic slump, just as your predecessor was saved from embarrassment over inflation by the Global Financial Crisis.

Floods have caused great heartache in Queensland as another 100 year flood event hits for the second time in three years. Insurance companies will be hit hard also, and BHP's coal mines will take time to recover.

US shares have tested previous highs, as Ben the beneficent prints money, and Australia's share market follows suit. A key part of the US Fed's latest post-meeting statement was: 'To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent'.

All but one member endorsed this policy of 'active ease'. Esther L. George voted against this policy, 'concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations'. Smart woman, Ms George.

Full statement here. 

Election 2013

Prime minister Julia Gillard today told us all she would in mid-August ask the Governor-General to agree to an election on 14 September.

Our feisty Prime minister looked both very determined and quite happy, especially when promising to 'soak the rich'.

Mrs Thornton's view is that this shuts the door on any challenge, except of course by Tony Abbott.

More news here courtesy Sid Maher. 

The good people at nab report the better global news while acknowledging the risks.

'Financial markets have lifted as confidence in the global growth outlook firmed but late 2012 data for world exports and industrial output remained soft, showing modest expansion in activity at best. Central bank action in the Euro-zone, US and Japan has boosted market hopes of sustained growth by removing tail risks like a Euro-zone break-up or premature US interest rate rises.

The nabsters have even defied the might of the IMF, whose global growth forecast has been edged down.  But nab says: 'While the forecast global upturn is initially modest as activity is held back by weak conditions in Western Europe and Japan, things look brighter for 2014 with global growth predicted to finally rise above trend. The emerging market economies are still driving most global output expansion through the forecast period but a broad-based, albeit fairly modest, upturn should start later this year across the developed economies'.

'The Australian economy has softened', say the nabsters, 'with leading indicators suggesting the first half of 2013 will be difficult. Near-term outlook very soft – GDP forecasts 2.0% in 2013 and 3.3 % in 2014. CPI inflation surprisingly low for Q4 2012. We see core inflation (inc. carbon) of 2.6 % through 2013 and 2.8 % through 2014.

'Downward demand and price pressures have shifted the balance of risks towards an RBA rate reduction in February (rather than March). But with unemployment rising to 5¾ % by mid-2013, we still see the need for two additional 25 bp rate cuts – possibly in May and August, taking the cash rate to 2.25 %'.

Yet buried in the detail is a statement that Adam Creighton deemed worthy of a headline on page 2 of the Oz.  'Business confidence on the mend'.

And there's more.  Alan Oster, nab's chief economist, has said explicitly that he sees a rate cut in February, followed by two more - in May and August - to a new record low of 2.25 %.

Mr Creighton starts his article as follows: 'Business confidence bounced back from record lows in yjr lead up to Christmas, boosting the chance the Reserve Bank will keep interest ratesnext month'.

Clearly Mr Creighton trusts UBS more that the nab. UBS's chief economist. Scott Haslem of UBS, Mr Creighton said the confidence spike might signal a 'turning point' in Australia's economic fortunes "because economic fortunes"because confidence tends to lead conditions'.'

Yer pays yer money and get what yer deserve, I reckon.

Henry's aorta in good shape.

Henry has been attending to more cosmic matters today, having scans and seeing the surgeon who performed Henry's emergency aortic repair over seven years ago - report here. 

Readers will be relieved to hear that all the bits are in their proper places, there are no dangerous balloon-like structures about to pop and Henry need only return for another scan'n'consultation in three! years. 

There are two reasons for optimism although the veneralble mag says three. The main point is that several disasters have been avoided.

The Eurozone has not imploded, taking Euroland banks with it. America's politicians have avoided going over the 'fiscal cliff' but have a fair way to go to solve America's fiscal problems. China's economy is roaring back, with recent economic statistics beating expectations.

A second reason for optimism comes from 'central bank activism'. The ECB has promised to 'do what it takes' to save the Erro, the US Fed has promised to keep printing money intil the US unemployment rate is 6.5 %.  What happens when the wall of money being created by this 'activism' reaches the point where traditional caution is required is uncertain.

Investment gurus - eg in today's Wall Street Journal - have cottoned on to the major risks for holders of bonds, who have prospered mightily thanks to near zero cash rates driving bond yields lower and creating capital gains for bondholders.

The bottom line is that the gap between exuberence and reality is wide and will get wider if current trends persist.

Enjoy the rise while you can, gentle readers, and soon Henry will provide some research that may be helpful.

More here.

 Courtesy The Economist