It is certainly the year in which the gilt is coming off the economic gingerbread in the miracle economy, and new policies are needed urgently.

Now even the official labor market statistics are looking worse, and will look more worse as the year wears on.  More here.

Yesterday, Professor Warwick McKibbin commented on our attempt to cap, or even reduce, the Aussie dollar by taxing capital inflow.  His comments outline exactly the wide-ranging policy revamp that Australia needs.

We replied in part as follows: 'The chances of both those policies – actually an entire set of policies – being implemented is I fear about zip.  If by a miracle after years of debate we got such policies then my tax could be reduced to zero and we would probably be coping well with a dollar far higher than at present'.

Here is a link to McKibbin's comments, and our reply, along with comments of others.

Overnight's news is that mining giant RIO has sacked a much respected CEO and his head of strategy, presumably for overpaying for assets in the boom. True blue Aussie Sam Walsh is to take over.  Having delivered the 80 % of RIO's total profits from his iron ore empire, Mr Walsh is well placed to keep the show on the road, and potentially to restore the sizable slice of Henry's retirement income lost in the massive fall in RIO's shares during the GFC. RIO had already announced sizable cuts to costs (ie jobs), and presumably this was Tom Albenese's last hurrah.  Job losses in Australian manufacturing continue to rise and, as previously reported, the smaller mining companies and most other small businesses are retrenching staff or going broke at a hefty rate.

It seems Boeing's Dreamliner has dud componants that put the plane at risk. Fingers are being pointed at the 30 % of the product made offshore, in some cases in unregulated sweatshops. I can hear the confident bloke from XYZ-consulting saying: 'Boeing is spending too much on safety. You could raise your EBIDTDA by outsourcing, and while you are at it reducing safety checks to global best practice'.

The world's greatest Treasurer, Wayne Swan, has been giving advice to his betters. The USA, he said earlier this week, should get its fiscal house in order. And China should press ahead with its currency reforms. Surely he has some sage advice for the Eurozone leaders, or is that problem just too hard even for Swannie?

Mr Swan is certainly no shrinking violet when it comes to giving messages to the RBA. He was reported to have told a meeting in Hong Kong that he 'has deliberately built Labor's budget strategy on Reserve Bank of Australia rate cuts'. This presumably means that he is very confident that the Bank will continue to cut interest rates, since he is also reported as having told the same meeting that it 'was unlikely that the budget will be returned to surplus this financial year'.

Like Bernard Tomic and that American president, it would be far better if Mr Swan spoke softly (and prudently) and carried a big stick (raquet in Bernard's case).

Yesterday's AFR says that Wayne Swan has told a meeting in Hong Kong that he 'has deliberately built Labor's budget strategy on Reserve Bank of Australia rate cuts'. This presumably means that he is very confident that the Bank will continue to cut interest rates, since he is also reported as having told the same meeting that it 'was unlikely that the budget will be returned to surplus this financial year'.

The front page of the Australian says 'Big projects ordered to buy local'. Nice idea, but if the government does not know the owners of 'big projects' are not good Aussies but rather capitalists red in tooth and claw, they haven't taken seriously the fiasco of the mining tax. 

Meanwhile, Henry has had some interesting academic feedback on his solution, which is to add a variable tax on capital inflow to the RBA's armonary, but no response from the powers.  Olympian detachment is, of course, the first refuge of the incompetent.  If previous form is followed, it will be followed - eg an independent, inflation-fighting central bank -  by the powers claiming ownership of the idea, then implementing it.  (Comments here, including from Professor McKibbin of ANU, and former RBA board member.)

Boral is the next big manufacturing company to announce retrenchments - 700 in Australia and 2,400 around the world.  These numbers were extracted from a cautious CEO on PM last night, along with reports from analysts suggesting it may be too little, too late to save Boral.

New 'official' labor market numbers released today, shows the rate of unemployment at 5.4 %, a net loss of jobs and still declining participation rate. There was a fall in full-time jobs of over 16 K, partially offset by a rise in part-time jobs of over 8 K.  These trends will get worse, and the earlirr prediction of 'most economists' of an unemployment rate of 5.5 % is rapidly being replaced by 6 %, still highly conservative in Henry's view. 

And, as Alan Kohler demonstrated on the ABC news ('Its as simple as ABC') last night, hours worked are falling faster than job numbers, and hoursa worked are not far off the low levels of the GFC.  The good news is that companies are (again) protecting jobs by having people work shorter hours.  The bad news is obvious.

Of course we know from the Roy Morgan survey that matters are far more grim than these trends suggest.

'JOB advertisements are at their lowest levels for three years after falling for the tenth straight month in December, a leading employment survey says. ANZ senior economist Justin Fabo said weak jobs ads, coupled with an economy expected to grow below trend in 2013 and a high currency, paved the way for further interest rate cuts from the Reserve Bank of Australia (RBA).

'The total number of job ads placed in major metropolitan newspapers and on the internet fell 3.8 per cent in December, according to the ANZ job advertisements series published today.

'Mr Fabo said the number of job ads in December was 20 per cent below the most recent peak in February 2012 and were almost half the level reached before the global financial crisis'.

Not many jobs being advertised at BlueScope Steel, which has just told its workers that there are to be another set of redundancies and dismissal of contractors.

This is why Australia needs to revamp monetary policy.

The US Fed is sticking to its promise to keep interest rates low until the rate of unemployment is 6.5%, not expected until 2015.

Investors remain convinced that a 'great rotation' from bonds to stocks may this time be for real.

Read on here, if you subscribe to the Wall Street Journal, or read the story in the fish'n'chips version of the Oz.

As if to underline this theory, overnight news from the USA saw blue chip equities surge.

Despite the playful cover - see image below - the venerable mag is quite serious, and summarises the academic debate well.

The summary is equivocal - 'Fears that innovation is slowing are exaggerated, but governments need to help it along' - but you will be confused at a higher level when you have absorbed the analysis.

By chance, Henry spent some time over the weekend reading the articles recommended for an economic history course at Melbourne U, provided to Henry's younger son by the estimable Professor Jeff Boreland.

These articles discuss the sources of Australia's economic growth over the more than two centuries since Captain Cook claimed our wide brown land for Britain.  They also discuss the productivity debate as it impacts on us all.

Historians such as Boris Schedvin, Rod Maddock, and Ian McLean, and many others, contribute to the debate, and in fact I am also reading (and will shortly review) Ian McLean's very recent book Why Australia Prospered.  But I have gotten the idea from his articles that it had a fair bit to do with mineral discoveries as well as happy accidents - including more or less wise decisions by the British Colonial Office (officials it seemed learned from losing America) and most of the representatives of the crown in the days before federation.

However, the article that comes closest to answering questions about Australia's recent productivity performance is that by David Gruen of Treasury and Glenn Stevens of the RBA, 'Australian Macroeconomic Performance in the 1990s', written for one of the RBA annual (?) conferences.

Both labor productivity and multi-factor productivity (excuse the technical terms) grew faster in the 1990s than in the 1970s and 1980s, exceeding or almost matching (depending on the measure) fast productivity growth in the 1960s.

While US productivity surged in just four years in the late 1990s, Australian productivity increased throughout that decade. And in the USA, it was productivity in manufacturing that grew especially rapidly, while in Australia it was across the whole econmomy, and especially in the non-traded goods sector. 'The 1990s Australian experience appears to be one of more rapidly approaching the technological frontier, rather than benefitting directly from the rapid productivity growth in the componant parts of the new economy'.

Given dismal recent productivity performance, one is forced to ask if the 'technical frontier' stopped growing in the 2000s, or if Australians lost the urge to play catch-up. Or perhaps under the benign policy advances claimed by Gruen and Stevens all progress has stopped, after a nice boost in the 1990s?

The Economist is concerned, along with leading US economists such as Robert Gordon, that the really big technological advances may have run their course in the late nineteenth century and in the the early tewntieth century.

But, as with the French revolution in politics, it is probably still too soon to say.

The venerable mag says: 'The productivity gains after electrification came not smoothly, but in spurts; and the drop-off since 2004 probably has more to do with the economic crisis than with underlying lack of invention. Moreover, it is too early to write off the innovative impact of the present age.

'This generation’s contribution to technological progress lies mostly in information technology (IT). Rather as electrification changed everything by allowing energy to be used far from where it was generated, computing and communications technologies transform lives and businesses by allowing people to make calculations and connections far beyond their unaided capacity. But as with electricity, companies will take time to learn how to use them, so it will probably be many decades before their full impact is felt'.

Readers who need more on this importent subject will find several related articles in this week's economist. Ian McLean's fine book will provide interesting material on the Australian experience in an historian's framework.  Henry's sometimes playful interventions are available here.

See also 'Australia's productivity close to last', August 2012.

 Courtesy The Economist

'The problem of uncompetitive industry cannot be solved by monetary policy in its current setting'. If you see merit in this approach, make your views known to the great and the good.  Read on here, or here, and please remember, you saw this dramatic policy initiative here first.

Cashed up Bogans.

Terry Barnes has commented on the matter of 'Cashed up Bogans', or CUBs.

This sterling group of proto-typical Aussies are highly responsible for Australia's love of 'things', and so are to be saluted, says Barnes.

Perhaps it would be better if the bogans went in for conspicuous saving and investing, rather than conspicuous consumption. Read on here and decide for yourself. 

 Politics

The terms of reference for the Royal Commission into sexual abuse of children have been published, and the commissioners have been selected.

This is a great and necessary task, and we commend the Gillard government for this initiative.

Christine Jackman writes about 'Dangers of an artificial gender war'.

'Given this government has just drastically reduced the incomes of almost 100,000 single parents (most of whom are women), while its female Families Minister assured them that she could live on $35 a day, they are fair questions. Women certainly have the right to ask whether this newfound angst about sexism in all its forms will continue after the next election. Indeed, will it spell any meaningful change or improvement at all in the lives of Australian women?'

The horrific stories of indigenous family and societal dysfunction continue to depress newspaper readers, and even more so anyone with direct experience of the matter, on an almost daily basis.

Today Natasha Robinson and several other writers in The Oz, take up the issue.

And there is a glimmer of hope. From Ms Robinson: 'In the national parliament, a Senate inquiry has begun taking submissions. Initiated by South Australian Greens senator Penny Wright, chairwoman of the Legal and Constitutional Affairs Committee, it will examine the policy of justice reinvestment. The policy has recorded stunning results in Texas in the US, which has recently closed a 1100-bed state prison and recorded the lowest violent crime rate in 30 years. The policy redirects resources away from prisons into preventative programs, diverts people from jail and extends rehabilitation efforts to parole programs and after-jail support'.

A friend sent a link to an interesting video (on a different matter altogether), linked here.

Image of the week

  Courtesy The Australian

Henry yesterday had the benefit of a useful discussion with his favourite fund manager (ffm).  After being cashed up for some time, Henry has authorised said fund manager to put around one third of the cash offshore and another one third into Australian equities.

The offshore funds will go into an international equity fund that has been providing superior returns, and the local equities will be biassed toward resource stocks.  Henry and his ffm still have not agreed on the question of why have a heavily overweight position in Australian shares, though the weighting of this asset class has been substantially reduced in recent years.

The resource bias will be reviewed in mid-year because by then China's situation will (or may) be clearer.

We have missed the trade long anticipated to short US bonds, as there is no way to do this cheaply and efficiently from Australia.  In any case, this is about the riskiest trade that can be imagined, but if one believes the US economy is in recovery mode this is a good bet. The trick is to stay awake during the night in case the trade starts to go pearshape, which is (a) hard to tell and (b) very tiring.

The ffm has worked out which Australian stocks are correlated with US bond rates, which is a safer, if less reliable, way to go 'short' US bonds.

The ffm agrees with Henry that the Australian economy is in considerable trouble, which is why the asset allocation decision in favour of Australian equities is biassed toward resource stocks.

Whether the major bank share prices hold up is one of the uncertainties, and anyone who has information or sensible views on this are welcome to contact Henry here.

Cautious optimism about well-run Australian companies is justified by the following graph.

So Henry is cautiously returning to his traditional long equity position, which is usually a signal that there will be a big negative market correction.

Heigh ho, on with the show!

IR reform

The Oz has continued with its fine campaign to make Tony Abbott tell a waiting nation what he plans to do about IR reform.

'Union-friendly deals "hurting productivity" ' says the front page story today.

The words in double quotes are from Steve Ciobo, the chair of Tony Abbott's 'Productivity group'.

'In his first interview on the group's consultations, Steve Ciobo told The Australian he had been overwhelmed by concerns that union-friendly deals were hurting productivity and resulting in a waste of public money.

'Mr Ciobo indicated his group might recommend that an Abbott government follow the Baillieu government in implementing tough rules when allocating funding to ensure wages did not blow out'.

Economy

Much joy at the improvement in Australia's trade account, with China's imports of iron ore (at a far higher average price) leading the way.

Home building approvals are now rising, to a point 13 % above the levels this time last year.

The factors have significently reduced the odds on a rate hike at the February meeting of the RBA board.

Read on here, courtesy David Uren (also responsible for the nice graph).

The $A/$US exchange rate broke through the 105 mark (going up), a subject that Henry's editor, PD Jonson will be addressing tomorrow.

 Courtesy The Australian

Iron ore prices continue to climb, with some experts suggesting $170 per tonne is likely to be achieved.  Other experts say the commodity boom is over, so we can make our decisions in the usual fog of conflicting opinion.

The Eurozone again lost a large number of jobs and its rate of unemployment is now at a record - a bit shy of the Great Depression, but sizable enough to see experts questioning the sense in current austerity plans.

The Oz has taken up Josh Frydenberg's call for reform of Industrial relations law with enthusiasm.  Today's editorial says: 'Mr Frydenberg has made important points worth adopting as policy. Making it easier for employers and their staff to use individual contracts instead of awards; providing more small businesses with exemptions from unfair dismissal laws that currently apply to employers with 15 or more staff; reinstating the Australian Building and Construction Commission that cut union standover tactics and working days lost in the building industry; and improving union governance are essential for kick-starting productivity. Such reforms would not amount to a return to Work Choices but would redress the worst imbalances of the system. At this stage, Mr Abbott need not roll out election policies chapter and verse. But he must show he would be an economic reformer'.

Rowan Callick's 'hiss and tell' column, including the predictions of various gurus, is also of interest.

Green thuggery

Earlier this week, Henry's Holidaying Geologist let fly at the idiot who caused people to lose money, and other people to make money, with a hoax company announcement.

Tiresias of Canberra has provided one of our better rants overnight, on 'Green thuggery and what to do about it.'

'Senator Milne’s email of congratulations to anti-Whitehaven hoaxer Jonathan Moylan (following a congratulatory tweet from Senator Rhiannon) does way more than drag Australian politics to an unwelcome low. It does more than just add further proof to the poverty of Milne’s judgement, her irresponsibility and her contempt for those who generate the prosperity that she and her party take for granted'. ...

'Everything will depend on how the authorities react. A straightforward condemnation of Senators Milne and Rhiannon from the PM is both essential and urgent. Better legislation that allows those whose property is damaged or destroyed (or whose business is disrupted) by activists to seek compensation directly from those responsible would be a good idea too. The courts should be given the authority to garnish Moylan’s income till he is old enough to need adult diapers. That will shut down the nonsense pretty fast.

Some leadership from our spineless, ever so discrete, captains of industry is also called for. Are they noting how very few (if any) of their corporate-funded NGO friends are prepared to support liberty under law and the interests of property in this matter and how many prefer instead to support Milne, Rhiannon and Moylan? Or am I being impertinent to even ask such a question of the ‘triple bottom line’ crowd. Presumably the Establishment will avoid doing anything until global mining companies become visibly reluctant to invest where they are neither welcome nor appreciated. This in turn will make Australia a vastly cheaper place for the Chinese to buy up – the cadres in Beijing must be laughing.

Read on here.

Quartet

If , like Henry, you watch with sympathy horror the travails of retirement home denizens, fearful of soonish joining them, you may enjoy Quartet.

It is playing now to packed cinemas, and has been roundly bagged by Mary Pols of Time.com fame.

'I’m happy to see actors like Collins, Smith et al. still getting work, and their demographic being represented on screen. I just wish Quartet offered them more; this gentle comedy is about as enticing as a bowl of gruel'.  Ouch!  Read more here.

Here is a trailer.

This is minefield territory, but we must praise Josh for getting stuck in to such a key economic issue, one that needs and this writer sincerely wishes will get a solid working over by an Abbott government .

The front page summary by The Australian's National Affairs Editor, David Crowe, says: 'Howard government adviser and rising Liberal MP Josh Frydenberg has reignited the industrial relations debate by calling for a crackdown on union power as well as changes to make it easier for employers and their staff to use individual contracts instead of union awards'.

Mr Frydenberg himself says that Australia has an overregulated workplace with rising costs and declining productivity, and spells out a plausible set of reforms that fall short of the much demonised WorkChoices.

And in conclusion, 'Standing still is not an option. In today's challenging economic climate, industrial relations reform is more important than ever and the clock is ticking'.

Henry's take on this issue is the Liberal Party principles refer to 'Freedon' as a core value.

If the right to negotiate a contract is not every worker's right, Australia is not a free country.

More from the Oz January 10.

The Oz has taken up Josh Frydenberg's call for reform of Industrial relations law with enthusiasm.  Today's editorial says: 'Mr Frydenberg has made important points worth adopting as policy. Making it easier for employers and their staff to use individual contracts instead of awards; providing more small businesses with exemptions from unfair dismissal laws that currently apply to employers with 15 or more staff; reinstating the Australian Building and Construction Commission that cut union standover tactics and working days lost in the building industry; and improving union governance are essential for kick-starting productivity. Such reforms would not amount to a return to Work Choices but would redress the worst imbalances of the system. At this stage, Mr Abbott need not roll out election policies chapter and verse. But he must show he would be an economic reformer'.

Fiscal cliff

'GROWING fear of another nail-biting round of negotiations as the US's mounting debt approaches the $US16.4 trillion ($15.6 trillion) ceiling is prompting desperate - and bizarre - "solutions", writes Adam Creighton.
 
'More than 5000 Americans have signed a petition, lodged at the White House, for the Treasury Secretary to mint a $US1 trillion coin, dusting off his little-known powers to mint platinum commemorative coins of any denomination'.

Henry's man in Washington, Harsh Vorugati, provides a more measured contribution.  He points out that the 'fiscal cliff' has morphed into a 'debt ceiling' crisis.  There will be lots of argy bargy until this matter is resolved, and if the Republicans play too hard, President Obama may be the winner.

Seat belts need to be kept tight across the tummy, gentle readers.

Australia is riding the Chinese tiger, with its commodity boom making the nation rich and rising costs and the high currency strangling vast sections of industry.

Spengler of AsiaTimesOnline fame alerts us to the vast boom in Chinese outward investment, which is predicted to keep increasing.  It seems the sale of Cubbie Station is just the start of a process that if not checked will result in massive sales of Australian assets to overseas buyers as well as a decimated industrial base.

'Chinese outward direct investment is a relatively new phenomenon. In 2002, the first year after China's accession to the World Trade Organization, China's total ODI [outward direct investment] was less than US$3 billion. By 2010, however, it had already increased to more than 20 times this amount. According to forecasts by economists at the Hong Kong Monetary Authority, if China does liberalize its capital account, Chinese ODI stock could rise from US$310 billion in 2010 to US$5.3 trillion by 2020. If this prediction turns out to be correct, then China may well become the world's largest outward direct investor by this time'.

According to Spengler, the slowing of China's growth in 2011-12 was due to a kind of 'houskeeping', in effect an anti-corruption campaign. Resources have been focussed on State-owned enterprises, whose recent stock market performances have greatly improved.

But it is also necessary to focus on China's ongoing educational out-performance, a phenonema well-understood by parents and students in Australia's most expensive private schools.

In 2008, Spengler observed that 35 million young Chinese were studying classical piano, not counting the string players, and almost entirely with private tuition. "The world's largest country," he wrote, "is well along the way to forming an intellectual elite on a scale that the world has never seen, and against which nothing in today's world - surely not the overbred products of the Ivy League puppy mills - can compete. Few of its piano students will earn a living at the keyboard, to be sure, but many of the 36 million will become much better scientists, engineers, physicians, businessmen and military officers."

Spengler says: 'we are beginning to see data about the quality of China's students. The National Center for Education Statistics reports that in the Shanghai region of China, more than 50% of all secondary students scored at level 5 or above on the PISA mathematics proficiency tests. That compares to just 12.7% for the OECD average - see table below.

And on the issue of doctorates earned, mostly in the scientific and technical arena: 'The quality of Chinese engineering PhDs also remains to be tested. But there is no question that the Chinese labor force of 2012 bears little resemblance to the largely unskilled labor force of a dozen years ago. The world has never seen anything like the present wave of young, educated Chinese entering the job market.

'China does not nurture disruptive innovators. The brightest and most engaging Chinese students one meets at American universities complain about the stultifying intellectual climate at home. That is beside the point. America hasn't nurtured much innovation lately'.

Spengler asks what America has invented since 1991. Again, according to About.com, the big items are: the digital answering machine, Web TV, the gas-powered fuel cell, the hybrid car, and, of course, Viagra. 'According to Professor Robert Gordon of Northwestern University, the world is simply out of ideas; the digital revolution has come and gone, and a technological trough is inevitable'.

'That ain't necessarily so. There's no technological trough in Israel, where innovations like the Iron Dome anti-rocket system get the full attention of the country's best minds. That's a matter for a longer discussion on a different occasion'.

And in conclusion: 'The decline of the US is by no means inevitable. But its first stage is already underway. Unless the United States manages to create the sense of national purpose it had when Sputnik went up, it may become irreversible. The notion that America can somehow punish China through trade sanctions is silly. The only way to keep ahead of China is to innovate. By any other means, resistance is futile'.

And in distant Australia.

Mighty America is struggling to match China in the heavyweight economic prize fight. Australia's basic educational standards are stagnant, and in some catagories dropping.  This is despite, or is it because of, the much hyped 'education revolution'. Report here.

But it seems there is chaos and lack of focus with welfare policy and even within Australia's Treasury, once the home of dedicated econocrats working to improve Australia's economy.

A reliable source in Canberra has advised Henry that tensions between FaHCSIA (Families, Housing, Community Services and Indigenous Affairs) and Centrelink are growing by the day.

FaHCSIA has ordered Centrelink not to suspend welfare payments from recipients who fail to show up for scheduled interviews. These interviews are at the core of the Mutual Obligation model established by the Howard government. If a recipient fails to show up, Cetrelink must follow up with a letter, seeking reasons. Only after the receipt and careful consideration of a formal reply can Centrelink start processing any kind of  suspension and they are under prodigious pressure to give all such no-shows multiple chances. Needless to say, attendance at Centrelink interviews has plummeted.

Centrelink staff are furious, since it seems they have utterly lost the respect of their clients, a fair few of whom are happy to taunt their case workers. A meeting in Canberra between representatives of the two departments just before Xmas ended in a shouting match, with senior bureaucrats screaming at each other. A portent for the wider emotional climate for Canberra in an election year, perhaps?

We have also heard that Treasury is far from a happy place either. At least one member of the Executive team is rumoured to have taken all his accumulated leave in order to stay out of the office in  the lead up to the Budget. Who could blame such a sensible person?

This is the opening sentance of David Uren's 'welcome to 2013' epistle.

As Mr. Uren documents, the news over the holiday period, which we take it ends today, is more good than bad.

In particular, global industrial production may have ticked up after a fall that was far less that that in the crisis year of 2008-09.

Weekend reading on 'The Great Contraction' in Friedman and Schwart's monumental A Monetary History of the United States reminds one that there were several false dawns in the US economy during the depression of the 1930s.

These were associated with waves of bank failures, and for this reason and others there is no direct comparison with the USA then and the world now.

US jobs increased by 155 K in December, which continues the story of modest recovery there, with the caveat that there is still a long way to go to fully resolve the problem of the 'fiscal cliff'.

The Australian dollar increased in value on this news, that also sparked a strong day on global equity markets.

Europe remains the standout economic zone, with industrial production still falling and unemployment at depression levels (above 20 %, above 50 % for youths) in the weaker countries.

This is simply unacceptable, and remains a risk factor for the global recovery.  People will not accept austerity piled on austerity in the weaker Eurozone nations, but the breakup of Europe's single currency area (part of the remedy for weak Eurozone nations) might trigger bank failures, which takes us back to the 1930s.

The other big risk is global inflation.  David Uren says: '... extra cash being injected into the system is winding up in private banks and being harmlessly deposited back with the central bank. However, it forms part of the pool of cash that will come out of hibernation when it looks profitable to do so'.

With goods and services markets everywhere gloomy, excess money is likely to effect first asset markets, which is the basis of the optimism expressed in the opening sentance quoted above.

The net effects may be positive for Australia, by reviving commodity markets.  We will only get net benefits if we solve the problem of an exchange rate that dampens all industries, and expecially the non-mining industries that employ most australians.

Failure to do this is Henry's reason for being pessimistic about Australia's performance in 2013. More here.

But it is entirely possible that equity markets rise, perhaps even sharply, even as the real economy is mired in recession or worse.  That is the conundrum of modern economies.

(Henry needs to emphasise that this reporting of fact and opinion is no substitute for the advice of a professional financial planner who knows all relevant detail of an individual's financial situation.)