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Following is the speech by the Chief Executive, Mr Donald Tsang, at the luncheon hosted by the Hong Kong Economic and Trade Office in Berlin, the Hong Kong Trade Development Council and the Swiss-Hong Kong Business Association, in Zurich, Switzerland, today (January 27, Zurich time):

Dr Moser (Kurt Moser - President of the Swiss-Hong Kong Business Association), Distinguished Guests, Ladies and Gentlemen, I'm very grateful for the introduction of Dr Moser. He described me as a friend of Switzerland. I now take this opportunity to tell you honestly that Switzerland has always been the role model as I govern Hong Kong.

We have similar size in terms of population of about 7 million. Your per capita GDP is twice of ours. You concentrate on services in excellence and we try to do the same.

You have a rich culture of serenity, democracy, openness. This is something we want to imitate as well. And I continue to admire your achievement over the years despite ups and downs in global performance whether it's economic side or during war times.

This is something which many people tend to overlook. This is a great place on earth and you have lots of admirers particularly from the East involving myself. To me it is a great pleasure to be back in Switzerland although I travelled here quite frequently in my previous incarnations.

Now with my new job as the Chief Executive, I'm supposed to look after the house, so I'm very much bound in Hong Kong and I traveled less, but my heart is with you. I admire your achievements particularly how you handled various crises, particularly the free spirits of the people whom we try to imitate in Hong Kong. I wish particularly to take this opportunity to thank the Swiss-Hong Kong Business Association for its work in promoting strong links between our two economies, and of course the Hong Kong Trade Development Council for its sterling work in promoting our manufacturing and services sectors abroad.

Some of you may know that we have just a few days ago celebrated Chinese New Year.

This year heralds the return of the most noble and auspicious of the celestial creatures, that is, the dragon. The dragon, unlike the western dragon, is considered a symbol of strength, a symbol of imperialism and a symbol of great power. It will be the Year of the Water Dragon.

We have Fire Dragon, the Water Dragon but this one is the Water Dragon.

Water has a calming effect on the dragon's fearless temperament and fiery spirit. Those born in the Year of the Water Dragon are said to be better equipped to take a step back, re-evaluate a situation and understand the art of patience. Given the state of the global economy at the moment, it sounds like we need a few Water Dragons to help chart a smooth course through this extremely uncertain period in the fiscal and monetary worlds.

We are just four days away from the end of January and it is hard to know where the first month of the year has gone.

I am just on my way to take part in the annual pilgrimage to Davos for the World Economic Forum meetings, but one thing is already obvious we are going to need all of the Water Dragon's patience, courage and resilience if Europe is to survive in its current shape and form, and for the US to return to a more robust and sustainable growth trajectory. I am sure it is going to be an extremely busy year for governments on both sides of the Atlantic.

Those of you who have been to Hong Kong will know that life in our neck of the woods is also often busy, some might even say frantic at times. We are fully plugged into the world economy, so we are watching the developments in Europe and the States with great interest and anticipation.

At the same time, we are not the kind of people or economy to stand around and wait for the things to get better, we have survived and prospered over the past 50 to 60 years because we are restless for progress in good times and bad.

That drive to succeed has taken on a new dimension since Hong Kong's return to our Motherland in 1997.

New York, NY / Philadelphia, PA (PRWEB) January 11, 2012 - In November, global banks watched intently as international regulators identified and announced the largest, most globally connected financial institutions. With the global systemically important financial institution, or "G-SIFI," designation comes a marking that the bank is too big to fail, as well as a requirement to hold up to 2.5 percent of excess capital. In the recently released video series, "SIFI Rules are Recasting Global Banking," professionals from Knowledge@Wharton and Ernst & Young discuss how G-SIFI designations could impact international finance and where the opportunities may lie.

At the start of 2012, banks that compete both globally and domestically will be placed into stratified categories, forcing systemically important financial institutions to rethink their target customers, service offerings and approach to strategic growth. Customers will also have a say in the matter. They now have a choice whether or not to deal with G-SIFIs. Global banks must keep this in mind as the tension between too big to fail and moral hazard continues to intensify.

"The market's response to G-SIFI designations will be extremely interesting in that some counterparties may feel more comfortable transacting with the 29 banks that were identified," said Itay Goldstein, Professor of Finance at The Wharton School. "At the same time, G-SIFIs may see this as an opportunity to take on additional risk given their status as vital to the global economy."

In the feature clip, "What Does SIFI Status Mean for Banks?" Itay Goldstein, Bill Schlich, Ernst & Young Global Banking and Capital Markets Leader, and Don Vangel, Ernst & Young Senior Advisor Banking and Regulator Matters, discuss the complexities created by G-SIFI designations and how global banks will compete under the new capital requirements.

Schlich added:

"This is certainly progress towards minimizing the possibility of a large-scale bank failure, and in the worst case scenario, making it as soft a landing as possible. Global banks must view this as an opportunity to revise their growth strategies and make necessary changes to their operating models to thrive in the recast global banking environment."

This is the fifth installment in the video series. Upcoming installments will address topics such as the impact of mobile technologies and the future of the global banking industry.

About The Wharton School and Knowledge@Wharton
Knowledge@Wharton is the online business analysis journal of the Wharton School of the University of Pennsylvania. The site, which is free, captures relevant knowledge generated at Wharton and beyond by offering articles and videos based on research, conferences, speakers, books and interviews with faculty and other experts on current business topics. The Knowledge@Wharton network - including Chinese, Spanish, Portuguese, Indian, Arabic and High School editions - has more than 1.7 million subscribers worldwide.

The Wharton School of the University of Pennsylvania -- founded in 1881 as the first collegiate business school -- is recognized globally for intellectual leadership and ongoing innovation across every major discipline of business education. The most comprehensive source of business knowledge in the world, Wharton bridges research and practice through its broad engagement with the global business community. The School has 5,000 undergraduate, MBA, executive MBA, and doctoral students; more than 9,000 annual participants in executive education programs; and an alumni network of 88,000 graduates.

About Ernst & Young's Global Banking & Capital Markets Center
In today's globally competitive and highly regulated environment, managing risk effectively while satisfying an array of divergent stakeholders is a key goal of banks and securities firms. Ernst & Young's Global Banking & Capital Markets Center brings together a worldwide team of professionals to help clients achieve their potential - a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help clients meet their goals and compete more effectively. It's how Ernst & Young makes a difference.

About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com. This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients.

Bank collapses or bank runs are common through history. The U.S. lost about 80 banks this year but depositors have been safe, but that may change.

Are Bank Runs Possible in the U.S.?

Right now Greece is experiencing bank runs because the Greek population knows the Greek banks are in big trouble. Approximately 80 banks have already collapsed this year in the U.S. (Source: www.marketwatch.com) but there have been no real bank runs. Are runs on banks, when a rush of depositors demand their money back, a thing of the past?

Bank Collapses are Common in History

From Bank of Credit and Commerce (BCCI) to the failure of Washington Mutual in 2008, banks collapse fairly frequently according to an article by BusinessPundit.com (Source: www.businesspundit.com). WaMu's failure was preordained by bad real estate loans and then a full fledged bank run where over $16 Billion in depositors funds went flying out the door in September of 2008. We can safely say, Yes, bank runs in America do happen but fortunately not with depositors losing their money. Not yet, at least.

Bank Depositors are Protected to a Limited Amount

FDIC limits for bank accounts that are not interest bearing accounts - such as savings accounts - are now unlimited. The FDIC backs the full amount in the account according the new rules posted on November 9, 2010. On November 9, 2010, the FDIC issued a Final Rule implementing section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance coverage of noninterest-bearing transaction accounts. Oddly, the protection seems to disappear on December 31, 2012. (Source: www.fdic.gov).

Interest Bearing Accounts, and other accounts are limited to $250,000 per depositor. This could change at any time and the FDIC.gov site is the place to get the latest information. Importantly, a bank collapse would probably be due to one of two factors in the present climate. Either bad real estate loans, or exposure to contracts known as derivatives that are tied to conditions in Europe. Of the two situations likely, the bad real estate loans have taken the worst toll so far on American banks. That may change soon.

If a Big Bank Collapses, the FDIC is Out of Money

According to TheStreet.com (source: www.thestreet.com), Bank of America, along with JP Morgan, Citi, and Goldman Sachs control about 95% of the $235 Trillion derivatives market. Yes, that number is correct and trillion not billion. That means that if there is a problem in the derivatives side of one of these banks balance sheet, then the whole bank is at risk. And that means depositors are at risk.

Bank runs are not a thing of the past, but a possibility for the very near future.

Source: Mark Solomon from Financial Survival Center.

When you imagine private banking it may involve a Swiss bank account or an ultra-secret Cayman private bank account nestled in beachy isolation. But to really achieve that safe haven of wealth that neither law courts nor governments can touch you may need to think outside the box.

Today's reality is that we are witnessing the erosion of bank secrecy in measured steps. So how do you keep your financial affairs private?

What many investors have difficulty finding is one account that remains confidential irrespective of legal changes beyond their control.

Private bank accounts no longer protected by bank secrecy:

Offshore banks that were previously considered "top-secret" have been forced to give up confidential information on their clients. The Patriot Act ensures that Western governments can monitor every dollar transaction in the world. Swiss banks - no matter how secret, are hamstrung if they conduct any significant business under US jurisdiction.

Fortunately there are still legal means to protect your financial affairs to the fullest extent possible. Capital Conservator is at the forefront of designing fully compliant asset protection, trust formation and wealth management solutions.

Capital Conservator's unique corporate structure has been specifically designed to keep your affairs private. We can help you build a plan to suit you individually - keeping burdensome red-tape to its legal minimum.

For a confidential discussion of your objectives, contact us:

The Credit Suisse Research Institute publishes the Global Wealth Report, which finds that the global wealth currently held by 4.4 billion adults has increased 72% since 2000 to reach USD 195 trillion. Driven by robust economic expansion in the emerging markets, the institute estimates that global wealth will grow 61% to USD 315 trillion by 2015. The middle segment of the wealth pyramid is composed of one billion individuals who are located in the fastest-growing economies of the world and who hold one-sixth or USD 32 trillion of global wealth. In total, almost 60% or 587 million individuals in the middle segment of the wealth pyramid are located in Asia Pacific. China stands out as the third-largest wealth generator in the world, behind only the US and Japan, and is 35% ahead of the wealthiest European country, France. The Credit Suisse Research Institute believes that wealth provides people in the middle segment with the financial security they need to become the world's emerging consumers and that the middle segment will replace indebted US households as the global economic growth locomotive.

DECEMBER GOLD SETTLES AT $ 1756.10 FOR THE WEEK

This week the December Gold futures contract covered a $88.30 range trading as high as $1769.50 and as low as $1681.20. the focus for the week was primarily on the Greece / European Union fragility. The Greek Parliament is ready to vote on Friday to render their verdict on Prime Minister George Papandreou's call for government unity to decide the fate of Greece's bailout and membership in the European Union. The Gold market has rallied this week as traders and investors are choosing the precious metals as their "safe haven" alternative investment.

This week it seemed like the news from the Euro Region was changing minute to minute. Rumors flied adding to the global investor uncertainty. During times of economic chaos the precious metals historically have retained their value better than most other commodities ...it has been stated without an added financial bailout Greece will run out of funds in December.

THIS WEEKS NOTEWORTHY NEWS:

FRIDAY : The October reading of the Unemployment Rate was down one tenth from the month before to 9.0%, the lowest result since April and breaking a string of five months when the result was 9.1% or 9.2%.

THURSDAY :

Today's December Gold Futures traded a vast $44.30 range with a High of $1768.30 and a Low of $1724.00 as traders and investors world-wide watch as the Greek parliament readies to vote on their referendum. The news from Greece has been changing seemingly minute to minute. Early on their reports that Greece's Prime Minister George Papandreou had resigned. Then reports denied his resignation.

According to FOX NEWS: Europe-World Website:

Prime Minister George Papandreou ignored widespread calls for his resignation and instead invited the opposition to join negotiations on the bailout, telling an emergency Cabinet meeting that early elections would force Greece into leaving the 17-nation euro currency, with disastrous effects for both Greece and other European economies.

ALSO:

Papandreou sparked a global crisis Monday when he announced he would put the latest European deal to cut Greece's massive debts - an accord that took months of negotiations - to a referendum. The idea horrified other EU nations and Greece's creditors, triggering turmoil in financial markets as investors fretted over the prospect of Greece being forced into a disorderly default. All eyes will be on the vote !

Meanwhile investors and traders continued the flight to "safer haven" alternative investments primarily Gold and Silver. Just 6 short weeks ago the December Gold was traded as low as $1535.00.

Initial Jobless Claims was better than expected: The weekly report on Initial Jobless Claims is 397k this was projected to be 400k.

WEDNESDAY : Traders and investors alike tried to decipher the days data from both the European Union and from the FOMC. The FOMC continues to talk about solutions however, there does not seem to be a clear direction in their decision making. The indecision from both the FOMC and the inability of the Euro Region to come to an amicable solution has heightened consumer uncertainty.

SOME HIGHLIGHTS FROM THE FOMC :

*Fed repeats "exceptionally low" rates through at least 2013
*They reiterate "significant downside risks" to economic outlook
*Expect moderate pace of growth in the future quarters

The fragility of the European Union continues as Greece's Parliament begins debate on government confidence motion; That will be decided by roll call vote by midnight Nov. 4. It appears that the implication of a "NO "vote is well understood, if the Greek Parliament vote down the bailout deal, then any vote on remaining a member of the European Union may not be ratified. These next few days will be very interesting !

MONDAY :

Today's December Gold Futures contract traded a $41.00 range as news that MF Global filed chapter 11 Bankruptcy protection and leaving behind over 2 Billion Dollars in debt to some of Wall Street's largest institutions including JP Morgan Chase and Deutsche Bank. Bad investments linked to the European Union's financial crisis are being cited as the cause for MF Global's chapter 11 filing.

Equity markets and the precious metals sold off due to a weaker Euro and stronger U.S Dollar. December Gold traded as High as $1746.50 an as low as $1705.50 in the combined overnight/day sessions. The MF Global news reflects just how much the European Union's financial fragility is effecting the overall economy of the world.

Volume was light in the Gold market as investors appear to be reluctant to jump into this latest fire!

The CME Group has limited MF Global trading to liquidation only

http://www.cmegroup.com/tools-information/lookups/advisories/electronic-trading/20111031.html

MY SWING NUMBERS 11/7

DECEMBER GOLD

RESISTANCE # 2.................$1774.00
RESISTANCE # 1.................$1764.00
PIVOT .................................$1757.00
SUPPORT # 1......................$1748.00
SUPPORT # 2......................$1740.00

Mike Daly / Gold Specialist
Research Division

PFGBEST.com
mdaly@pfgbest.com

312.563.8029
877.294.4669

There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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NEW YORK--(BUSINESS WIRE)--On Tuesday, November 8, the Museum of American Finance will open "Checks & Balances: Presidents and American Finance," an exhibit on the financial challenges faced by American Presidents both in the Oval Office and in their personal lives.

From its inception as an experiment in a new kind of democratic government, the US has faced a panoply of economic and financial challenges. More often than not, it was the President to whom the nation turned to tackle these problems and secure financial prosperity.

Designed as an ongoing series of rotating exhibitions, the inaugural installment of "Checks & Balances" will focus on the national and personal fiscal policies of five of the most well-known Presidents: George Washington, Andrew Jackson, Abraham Lincoln, Franklin Delano Roosevelt and Woodrow Wilson. The exhibit will introduce important Treasury secretaries and track significant financial markers, such as GDP, presidential salary and the consumer price index. It will then delve into the personal finances of the Presidents, including their economic backgrounds and their own banking practices.

Financial historian Robert E. Wright, Nef Family Chair of Political Economy at Augustana College SD, guest curated the exhibit, which was developed and designed by Becky Laughner, Director of Exhibits and Archives, and Maura Ferguson, Director of Exhibits and Educational Programs.

"The exhibition will seek to create a dialogue between the nation's financial past and the present, presenting the legacy and long-term impact of the Presidents' financial policies on today," said Wright.

"Checks & Balances: Presidents and American Finance" is sponsored by Con Edison. It will be on display through November 2012.

About the Museum of American Finance

The Museum of American Finance, an affiliate of the Smithsonian Institution, is the nation's only public museum dedicated to finance, entrepreneurship and the open market system. With its extensive collection of financial documents and objects, its seminars and educational programming, its publication and oral history program, the Museum portrays the breadth and richness of American financial history, achievement and practices. The Museum is located at 48 Wall Street, on the corner of William Street, and is open Tues-Sat, 10 am - 4 pm. For more information, visit www.moaf.org or connect with the Museum on Facebook or Twitter.

Contacts

Museum of American Finance
Kristin Aguilera, 212-908-4695
Deputy Director
kaguilera@moaf.org
www.moaf.org

Madness in Markets: Coming soon to an Emerging Market near you

At no other time in history has a deeper investigation of our investment portfolios made better sense than today. The last four years have brought forth many surprises for almost all types of investors. It is common wisdom that no one can take the markets for granted anymore. There was a sudden surge in food prices in 2007-08 that came in and went away without giving many in the industry a decent opportunity for serious thought or reflection. Then suddenly sprang the Sub-prime induced economic crisis in 2008 that has been tracked very well right to its DNA. The Sovereign debt crisis in the Euro region started developing this year. And now the BP Oil spill that highlights the downside consequences of a risky company on our portfolios.

The spate of these crises and their implications are still not very clear to all types of investors. We can be sure that each of these events just represents a tip of the iceberg and in the minimum should invite us to be more careful with where our money is invested and where not.

On the other hand, to all those who prefer to escape the series of crises appearing on the Developed world horizon, investing in Emerging markets appears to be a very attractive opportunity. However, very few realize that if investors continue with the same approach (of going with the popular sentiment) and move their money into any and every opportunity that comes their way in the Emerging markets landscape, they are likely to meet the same fate. Sudden money chasing very few well understood assets could easily create a similar result in Emerging markets in the next 4-5 years or earlier! The same process would inevitably create the same outcome, only the canvas would change. What happened in US in 2008 is happening now in Europe. It is very likely it would happen in Asia in a couple of years and later, in Latin America and Africa. Why not? One definition of Madness is "Doing the same thing over and over and expecting a different result". We are creating these potential crises for ourselves because not much in our investment / research process has changed.

How can we avoid this? What should change? Clearly the investment and research process that guides these investments! It is common knowledge that Analysts usually spend an average of two days (if you are lucky) to cover a company during their rating process. That too, remotely! Thus an ESG / traditional analyst sitting in a developed market (enabled by Internet) sifts through all the publicly available information on a company and combines it with his / her own understanding of that sector to rate the likely future performance of that company. This is clearly suboptimal for various reasons.

In the past year, it's been a very tough task to ascertain the securest path for investment. No one market has proved dominant, and those in charge of managing investments have had to react at lighting speed to swift changes in market direction for all but the longest term options.

Though investment returns are down, the change in market fortunes has to a degree, proved beneficial for investors. Those investment managers who had previously moved with the crowd in pre-downturn, secure markets, now have their lack of skill made apparent by far more challenging conditions. Conversely, the past year has allowed investment managers with real skill and understand of the markets have demonstrated their superiority.

The World Finance Investment Management Awards 2011 credit those who have been seen to lead the field and, up to now, capitalise on uncertain markets.

An annual survey estimated that the combined wealth of the world's 10.9m rich people (27% of whom are women) stood at $42.7 trillion in 2010, more than in 2007, the year the financial crisis was brewing. More than half of the monied classes live in the United States, Japan and Germany, though Asia has more in total than Europe for the first time.

A report by Capgemini for Merrill Lynch stated that in 2007 there were approximately 3,028,000 households in the United States who held at least US$1 million in financial assets, excluding collectibles, consumables, consumer durables and primary residences.

According to TNS Financial Services, Los Angeles County has the highest number of millionaires, totaling over 262,800 households as of mid-2006. Los Angeles County is also the largest single jurisdiction of any kind in the United States.

In a region that stretches from Morocco to Kuwait and covers terrain from mountains to desert, the range of economic activity in the Middle East and North Africa (MENA) is as varied as the geography. The rich diversity of economies provides numerous sectors primed for private equity (PE) investment. "In terms of sectors, each country has its own sweet spot," says Fadi Arbid, chief executive officer of Amwal AlKhaleej, a leading Middle East-focused private equity and alternative investment firm and the first to be headquartered in Saudi Arabia.

Investors are now scrutinizing each sector in the wake of the global economic downturn that swept through the region in 2009, and the Arab political unrest that erupted in 2011. Funds are focused on markets where economic growth is driven by solid fundamentals and sectors that are resistant to the fluctuations in the global economic cycle. "The sectors are defensive and less speculative," notes N. Bulent Gultekin, professor of finance at Wharton and a former central bank governor of Turkey. "There are the same shifts in the U.S. as well."

Targeted MENA sectors include health care, education and consumer-related businesses that offer growth or turnaround potential. Funds polled by Deloitte's MENA Private Equity Confidence Survey 2010 cited the following as the most likely to see deals over the next 12 months:

· pharmaceuticals, biotech and health care (17% of respondents chose this)

· power, oil and gas and mining (13%)

The choices are wide throughout the region. The United Arab Emirates (UAE) offers offshore oil and gas opportunities, for example. Qatar and Kuwait have seen PE investment in real estate. Algeria's key sectors are oil, gas and housing, while tourism-related businesses such as hotels, spas and transportation are attractive in Morocco. Lebanon and Jordan host opportunities in banking, pharmaceuticals, medical laboratories and technology-related business. Iraq has the potential for infrastructure investment.

Still Sector Agnostic

With so much to choose from, at least theoretically, many funds view themselves as "sector agnostic" and scan the investment horizon for the most promising values. "We are opportunity driven," says Amwal senior vice president Hani Halawani. "We are sensitive to value expectations, which is why we don't pursue a lot of the opportunities that we see." However, he notes, most of the opportunities that Amwal identifies come from sectors such as education and health care that the firm is actively monitoring.

"We have not seen so much of a sector focus so far," says Bassam Yammine, managing director and co-chief executive officer of Credit Suisse in the Middle East. "Most funds are opportunistic. They look at a deal to see if it makes sense and then do it." Firms tend to be more country-focused, Yammine says.

But investors throughout the region may increase their focus on individual sectors as industries consolidate, he adds. Such a sector-oriented approach could also help firms identify opportunities that lie beyond industries that are already congested with investors.

However, Amwal's executives tend to disagree with an outlook that favors specialization for PE funds today. Given the current business environment of deal scarcity and capital abundance, many of the general partners that launched specialized or sector-focused funds six years ago have reversed direction and broaden their mandate to become more opportunistic. Very few, if any, industries in the region warrant a specialized fund. "Funds have struggled to be asset-class specific -- private equity or otherwise -- let alone to be sector- or geography-dedicated," says Halawani.

Why Holding Gold in Your Portfolio Isn't Advisable... It's a Must
15 Fundamental Reasons to Own Gold

1. Global Currency Debasement
The U.S. dollar is fundamentally and technically very weak and should fall dramatically over the next few years. However, other countries are very reluctant to see their currencies appreciate and are resisting the fall of the U.S. dollar. Thus, we are in the early stages of a massive global currency debasement which will see tangibles, and most particularly gold, rise significantly in price.

2. Rising Investment Demand
When the crowd recognizes what is unfolding, they will seek an alternative to paper currencies and financial assets and this will create an enormous investment demand for gold. Own both the physical metal and select mining shares.

3. Alarming Financial Deterioration in the U.S.
In the space of two years, the federal government budget surplus has been transformed into a yawning deficit, which will persist as far as the eye can see. At the same time, the current account deficit has reached levels, which has portended currency collapse in virtually every other instance in history.

4. Negative Real Interest Rates in Reserve Currency (U.S. Dollar)
To combat the deteriorating financial conditions in the U.S., interest rates have been dropped to rock bottom levels, real interest rates are now negative and, according to statements from the Fed spokesmen, are expected to remain so for some time. There has been a very strong historical relationship between negative real interest rates and stronger gold prices.

5. Dramatic Increases in Money Supply in the US and Other Nations
Authorities are terrified about the prospects for deflation given the unprecedented debt burden at all levels of society in the U.S. Fed Governor Ben Bernanke is on record as saying the Fed has a printing press and will use it to combat deflation if necessary. Other nations are following in the U.S.'s footsteps and global money supply is accelerating. This is very gold friendly.

6. Existence of a Huge and Growing Gap between Mine Supply and Traditional Demand
Mined gold is roughly 2,500 tons per year and traditional demand (jewelry, industrial users, etc.) has exceeded this by a considerable margin for a number of years. Some of this gap has been filled by recycled scrap but central bank gold has been the primary source of above-ground supply.

7. Mine Supply is Anticipated to Decline in the next Three to Four Years.
Even if traditional demand continues to erode due to ongoing worldwide economic weakness, the supply/demand imbalance is expected to persist due to a decline in mine supply. Mine supply will contract in the next several years, irrespective of gold prices, due to a dearth of exploration in the post Bre-X era, a shift away from high grading which was necessary for survival in the sub-economic gold price environment of the past five years and the natural exhaustion of existing mines.

8. Large Short Positions
To fill the gap between mine supply and demand, Central Bank gold has been mobilized primarily through the leasing mechanism, which facilitated producer hedging and financial speculation. Strong evidence suggests that between 10,000 and 16,000 tons (30-50% of all Central Bank gold) is currently in the market. This is owed to the Central Banks by the bullion banks, which are the counter party in the transactions.

9. Low Interest Rates Discourage Hedging
Rates are low and falling. With low rates, there isn't sufficient contango to create higher prices in the out years. Thus there is little incentive to hedge and gold producers are not only not hedging, they are reducing their existing hedge positions, thus removing gold from the market.

10. Rising Gold Prices and Low Interest Rates Discourage Financial Speculation on the Short Side.
When gold prices were continuously falling and financial speculators could access Central Bank gold at a minimal leasing rate (0.5 - 1% per year), sell it and reinvest the proceeds in a high yielding bond or Treasury bill, the trade was viewed as a lay-up. Everyone did it and now there are numerous stale short positions. However, these trades now make no sense with a rising gold price and declining interest rates.

11. The Central Banks are Nearing an Inflection Point when they will be Reluctant to Provide more Gold to the Market.
The Central Banks have supplied too much already via the leasing mechanism. In addition, Far Eastern Central Banks who are accumulating enormous quantities of U.S. Dollars are rumored to be buyers of gold to diversify away from the U.S. Dollar.

12. Gold is Increasing in Popularity
Gold is seen in a much more positive light in countries beginning to come to the forefront on the world scene. Prominent developing countries such as China, India and Russia have been accumulating gold. In fact, China with its 1.3 billion people recently established a National Gold Exchange and relaxed control over the asset. Demand in China is expected to rise sharply and could reach 500 tons in the next few years.

13. Gold as Money is Gaining Credence
Islamic nations are investigating a currency backed by gold (the Gold Dinar), the new President of Argentina proposed, during his campaign, a gold backed peso as an antidote for the financial catastrophe which his country Islamic nations are investigating a currency backed by gold (the Gold Dinar), the new President of Argentina proposed, during his campaign, a gold backed peso as an antidote for the financial catastrophe which his country has experienced and Russia is talking about a fully convertible currency with gold backing.

14. Rising Geopolitical Tensions
The deteriorating conditions in the Middle East, the U.S. occupation of Iraq, the nuclear ambitions of North Korea and the growing conflict between the U.S. and China due to China's refusal to allow its currency to appreciate against the U.S. dollar headline the geopolitical issues, which could explode at anytime. A fearful public has a tendency to gravitate towards gold.

15. Limited Size of the Total Gold Market Provides Tremendous Leverage
All the physical gold in existence is worth somewhat more than $1 trillion U.S. Dollars while the value of all the publicly traded gold companies in the world is less than $100 billion US dollars. When the fundamentals ultimately encourage a strong flow of capital towards gold and gold equities, the trillions upon trillions worth of paper money could propel both to unfathomably high levels.

Conclusion
Gold is under-valued, under-owned and under-appreciated. It is most assuredly not well understood by most investors. At the beginning of the 1970's when gold was about to undertake its historic move from $35 to $800 per ounce in the succeeding ten years, the same observations would have been valid. The only difference this time is that the fundamentals for gold are actually better.

The fate of the Obama presidency hangs not on a birth certificate or the red ink on the federal budget but by the hose nozzle of your local gas station.

Electoral discontent is measured by the price of a gallon of gasoline. Heading past $4 toward $5, that is a lethal trajectory for President Barack Obama.

Enter the demagogues, especially the clown-in-a-business-suit, Donald Trump. Unfettered by the gravity that goes with facts, Trump says that he would fix the oil price - now around $110 a barrel - by facing down the producers, particularly the Organization of the Petroleum Exporting Countries (OPEC). He told an interviewer on television that he would call OPEC and tell them to pump more or face the consequences. The latter, he did not specify. War? Against whom?

In a compelling book by Leah McGrath Goodman, "The Asylum: The Renegades Who Highjacked the World's Oil Market," the author lays out the ugly fact that often - in fact, as often as not - the price of oil is set not in Vienna at the headquarters of OPEC, but in downtown Manhattan at the New York Mercantile Exchange (NYMEX).

Tens of thousands of future contracts are traded in nanoseconds at the NYMEX, and the price of oil is set. This price affects not only the price which will be paid when these contracts expire and delivery takes place, but also, according to Goodman, the all-important over-the-counter market, where sellers trade more directly with buyers without government oversight.

Goodman contends that there is little oversight of the NYMEX because the agency charged with the role is the weak and ineffectual Commodities Futures Trading Commission (CFTC), where many staff and commissioners are busy burnishing their resumes so they can cash in later as market executives.

We are in the throes of a third wave. Instead of buying and selling assets one way (as tangibles) or the other (as symbols) - we increasingly trade in expectations (in other words, we transfer risks). The markets in derivatives (options, futures, indices, swaps, collateralized instruments, and so on) are flourishing.

Economies revolve around and are determined by "anchors": stores of value that assume pivotal roles and lend character to transactions and economic players alike. Well into the 19 century, tangible assets such as real estate and commodities constituted the bulk of the exchanges that occurred in marketplaces, both national and global. People bought and sold land, buildings, minerals, edibles, and capital goods. These were regarded not merely as means of production but also as forms of wealth.

Inevitably, human society organized itself to facilitate such exchanges. The legal and political systems sought to support, encourage, and catalyze transactions by enhancing and enforcing property rights, by providing public goods, and by rectifying market failures.

Later on and well into the 1980s, symbolic representations of ownership of real goods and property (e.g, shares, commercial paper, collateralized bonds, forward contracts) were all the rage. By the end of this period, these surpassed the size of markets in underlying assets. Thus, the daily turnover in stocks, bonds, and currencies dwarfed the annual value added in all industries combined.

Again, Mankind adapted to this new environment. Technology catered to the needs of traders and speculators, businessmen and middlemen. Advances in telecommunications and transportation followed inexorably. The concept of intellectual property rights was introduced. A financial infrastructure emerged, replete with highly specialized institutions (e.g., central banks) and businesses (for instance, investment banks, jobbers, and private equity funds).

We are in the throes of a third wave. Instead of buying and selling assets one way (as tangibles) or the other (as symbols) - we increasingly trade in expectations (in other words, we transfer risks). The markets in derivatives (options, futures, indices, swaps, collateralized instruments, and so on) are flourishing.

Society is never far behind. Even the most conservative economic structures and institutions now strive to manage expectations. Thus, for instance, rather than tackle inflation directly, central banks currently seek to subdue it by issuing inflation targets (in other words, they aim to influence public expectations regarding future inflation).

The more abstract the item traded, the less cumbersome it is and the more frictionless the exchanges in which it is swapped. The smooth transmission of information gives rise to both positive and negative outcomes: more efficient markets, on the one hand - and contagion on the other hand; less volatility on the one hand - and swifter reactions to bad news on the other hand (hence the need for market breakers); the immediate incorporation of new data in prices on the one hand - and asset bubbles on the other hand.

Hitherto, even the most arcane and abstract contract traded was somehow attached to and derived from an underlying tangible asset, no matter how remotely. But this linkage may soon be dispensed with. The future may witness the bartering of agreements that have nothing to do with real world objects or values.

In days to come, traders and speculators will be able to generate on the fly their own, custom-made, one-time, investment vehicles for each and every specific transaction. They will do so by combining "off-the-shelf", publicly traded components. Gains and losses will be determined by arbitrary rules or by reference to extraneous events. Real estate, commodities, and capital goods will revert to their original forms and functions: bare necessities to be utilized and consumed, not speculated on.

Economies in Transition

Articles and essays about economies in conflict and transition.

By Sam Vaknin

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None can foretell the future, and yet the shape of what we face can be shrewdly estimated with enough attention to historical trends; with broad contextual understanding; and with sufficient insight into the character of leaders, their societies, and the structures which define their basis.

These estimates will be tempered by the sudden acts of nature, the sudden emergence of true leadership from unexpected quarters, or key breakthroughs in science. Still, we can hazard reliable views on the shape of the world in, say, a decade - in 2020 - if present trends and characters remain, and on a knowledge of certain baseline levels of wealth and capability which presently exist.

In 2011, the world will probably remain beset by the lingering of the present crisis of currency levels and economic performance. This is essentially a mass psychological crisis, based around the perceptions which create trust, particularly trust in asset values and institutions.

In some respect, historical trends have given populations in modern societies excessive trust in the ability of their institutions to remain operational, untended by their populations. As a result, governments have grown larger and less efficient, and have arrogated to themselves more and more of the resources of societies, thereby inhibiting productivity. At some point, those societies, when beleaguered and impoverished, lose faith in the institutions of governance and leadership succession.

It is possible that the end of the second decade of the 21st Century will see exactly that tipping point, at which faith - a psychological attribute - disappears, and either rigid reaction or anomie and chaos intervene. This forecast is based on the existing performance of most governments of modern economies, but reactions of their societies will vary based on their individual natures, their reserves of wealth, and the degree to which government and leaders can adapt radically to reignite and impart purpose and prosperity to their societies.

At present, in 2010, we see no major societies prepared to take such radical steps to reverse trends of social distrust in systems, and, indeed, the accumulation of laws and customs actually makes such radical action infeasible or unlikely, except in the event of major external threat, such as war.

This trend to inflexibility and resistance to radical change (which would entail discomfort and the removal of personal wealth) has reinforced a "business as usual" attitude. People rarely see the extent of change occurring around them; it is disguised by a continuity of visual references; and the presence of institutions which have not previously failed them.

In fact, it has been said of the modern era that institutions have evolved specifically to disguise change, because change appears threatening. Thus, when systems finally break down under the weight of debt, social change, and reaction, the event appears sudden and unexpected.

Some societies will merely erode into lower expectations of their own domestic and international capabilities, and well-being: many modern societies will allow themselves to decline in "a step of sighs", occasionally rebuilding to some degree, only to resume their downward steps, unless confronted with an existential challenge which forces them to cut away the inhibiting dross of years, and infuses them with the energy to respond.

So, then, the coming decade promises a continuation of the declining fortunes in major modern economies, absent the catalyst to reverse the trend.

And if Western societies falter, will new societies step forward to claim wealth and power? Not necessarily. There is no guarantee of continued growth in the People's Republic of China (PRC), the Republic of Korea (RoK), the Russian Federation, or India. Each has their frailties, and each is dependent on the global wealth to varying degrees.