oil to fall, dollar to rise

Given the enormous over-supply of oil at present, look for the price of oil to fall significantly, perhaps even catastrophically, over the next few weeks. That will impact all commodities...

Gold? Rather more complex at present. Unlikely to fall significantly. Probably will continue rising at least till mid-January.

Look for the Remnimbi to hold steady or, more likely, decline further.

The Indian Rupee should continue to improve.

The Euro will come under pressure, perhaps huge pressure, as spreads widen on the EU's peripheral countries.

Contrariwise, expect the dollar to rise. Could rise dramatically. Sphere: Related Content

Financial and asset bubbles cannot be avoided, but....

We are constantly bombarded with the propaganda that financial and asset bubbles cannot be avoided.

This is meant by interested parties as a move to paralyse debate about the number and size of bubbles and whether anything can be done to limit those.

An exactly parallel statement might be that life is full of dangers. But that does not mean that nothing can or should be done about such dangers and, in reality, each of us goes about reducing such dangers as far as possible.

Even those among us who enjoy extremely dangerous activities such as going to the frozen wastes of the Antarctic or the Himalayas, or take to bungee jumping and such, do take all the training possible, all the equipment possible and all the safeguards possible to minimise risk.

So the intelligent question to ask is NOT "Can asset and financial bubbles be avoided" (which would be like asking "Can dangers be eliminated from life") but: "Can the frequency, number and size of bubbles be contained?"

And the answer to that question is a clear "YES".

Two DVDs have recently been produced which provide easy-to-follow light on related subjects:

1. Dr. Bernard Lietaer's "Money for the Future" (the German-language version, "Geld für Zukunft" is on the same DVD), and

2. Dr. Margrit Kennedy's "Re-inventing Money" (the German-language version is "Geld new gestalten", also on the same DVD).

The first lasts 50 minutes, the second 65 minutes. Both are produced by Zeitfilm Media GmbH, Rutschbahn 33, 20146 Rotherbaum, Hamburg, Germany (Telephone: +49 40 414699-40). The cost is Euros 17.80 each, or 30 euros for the two. Regretfully, Zeitfulm does not seem to have an email ID that is publicly available, nor is their website in English at least at present! However, an order in English to the following should secure your copies: zeitnah@zeitfilm.de Sphere: Related Content

Going fast versus going further

While in Birmingham, UK, recently, I was reminded of an old saying that is too easily forgotten (at least by me!): "If you want to go fast, go alone; but if you want to go further, go with others". Sphere: Related Content

How Airlines Can Improve Profits While Encouraging Healthy Habits Among Passengers

On a recent flight, I noticed that the following alcoholic drinks were on offer: two kinds of beer, three kinds of white wine, two kinds of red wine, and at least a dozen different kinds of spirits.

By contrast, there were only two kinds of non-alcoholic drinks: orange juice and apple juice.

I should point out that I have nothing against people consuming alcohol in reasonable quantities outside aircraft and airports. But I do get irritated by the consumption of alcohol in airports and flights because alcohol dries out the human body, which is why the medical advice is that one should not consume alcohol for a sufficient time before getting on a flight, nor should alcohol be consumed during a flight.

The body dries up during flights anyway - partly as a result of the radiation that comes through the body of an airplane at high altitudes, and partly because of the processed air that one has to breathe during flights. Adding the dehydration caused by alcohol is pretty stupid. On long flights, consuming alcohol can contribute to the formation of blood clots and what is called deep vein thrombosis.

So we have airlines encouraging unhealthy behaviour.

But the really interesting thing is that airlines are encouraging unhealthy behaviour at an increased cost to themselves!

Fruit juices are not only much healthier to consume during flights but also cost much less than alcoholic drinks. And there is such a wonderful array of fruit juices that could be offered! BTW I am always puzzled when I am offered orange juice in countries where no oranges grow - and I am even more puzzled when restaurants in many countries cannot offer me the juice of any of the fruits that do grow in their country.

Anyway, my point is that airlines can contribute to the health of their passengers at the same time as they can improve their profits if they stop serving alcoholic drinks during flights. Sphere: Related Content

British Woman now occupies most powerful post in the EU

It is ironic that the British, who are so very anti-EU, are going to supply, with effect from December 1 this year, the person who will occupy the most powerful post in the EU: Baroness Catherine Ashton is to be the "High Representative for Foreign Affairs and Security Policy" - a title that is impressively long as it is important.

The Baroness has been the EU's Commissioner for Trade, a position in which she has not made many waves, but in which she has no doubt built up considerable and appropriately high-level experience of the workings of the EU.

I was chatting a few days ago in Oxford with my friend Professor Miguel Mesquita da Cunha, who used to be an Adviser to an earlier EU President, and whose opinion it is that ever since the UK joined the EU, it has supplied people for key posts in the EU. Most British people do not realise what a sea-change has come about in the EU over the years that they have been part of the EU: when they joined, the EU was dominated by the French and the first language of the Commission was, for all practical purposes, French. With the accession of an increasing number of countries, the French influence has been marginalised. And, as most of the "new" countries prefer English, that has become clearly the dominant language. Not only that, English-language thought-forms and Anglo-American values are clearly winning out over traditional Continental European values. At least, that has been the trend up to now. So much for Miguel's view.

It remains to be seen whether the current crisis, and the operation of the new Lisbon Treaty from December the first, will change the trend and, if so, in what direction. Sphere: Related Content

The UK is trying really hard to address the challenge of unemployment in the country

There are now two separate agencies checking passports on arrival at Heathrow - at least there were this morning when I landed from the US.

One agency was checking at the end of the arrival pier, the other at the normal Passport Control kiosk. Sphere: Related Content

Inter-religious Dialogue

A friend , John, who is a Christian, copies me on a letter he writes to a Muslim friend of his:

"I was prompted by Karen Armstrong’s article in the Guardian today, where she suggested that truly Socratic dialogue should be conducted by expressing yourself clearly as a gift to your debating partners.

"The question arises as to what followers of Jesus can offer to members of other faiths that seems to be unique to Jesus.

"If we just list common points between the faiths the result can look can look rather like a list of middle class values!

"The combination of the following things seems to me to be unique to Jesus. They were revolutionary in Jesus’ time and continue to be so. The problem is that the conflict between virtue and power usually results in power getting the upper hand.

"Jesus’ responses to his own persecution and his entreaty to his followers are quite sublime.

"I quote from the New International Version of the Bible.

1. “Love your enemies and pray for those who persecute you.” Mathew 5 v 43

2. Jesus on the cross said -

“ Father forgive them for they do not know what they are doing” Luke 23 v 34

3. The “Sermon on the Mount” Mathew 5 vv 3-11

Blessed are the poor in spirit, for theirs is the kingdom of heaven.
Blessed are those who mourn for they shall be comforted.
Blessed are the meek, for they will inherit the earth.
Blessed are those who hunger and thirst for righteousness, for they will be filled.
Blessed are the merciful, for they will be shown mercy.
Blessed are the pure in heart, for they will see God.
Blessed are all the peacemakers, for they will be called the sons of God.
Blessed are you when people insult you persecute you and falsely say all kinds of things against you because of me.
Rejoice and be glad, because great is you reward in heaven, for in the same way they
persecuted the prophets who were before you.

5. The Lord’s prayer. Mathew 6 vv 5 – 14

“ Our Father in heaven, hallowed be your name.
Your kingdom come, your will be done on earth as it is in heaven.
Give us our daily bread.
Forgive us our debts, as we have forgiven our debtors.
And lead us not into temptation, but deliver is from the evil one.
For if you forgive men when they have sinned against you, your heavenly Father will forgive you. But if you do not forgive men their sins your Father will to forgive your sins.”

6. The parables of Jesus in the gospels ------in which he says “ The kingdom of heaven is like this…………….”

"Would it be possible and valuable for you to set out the unique gifts other faiths can offer to each other?

"I once attended a dinner in London hosted by Sigi Sternberg where Muslim Jews and followers of Jesus shared their faith in after dinner discussion. It was quite inspiring".

As someone who finds formal "inter-faith dialogue" totally boring, but always values more personal sharing, I thought the point that John made at the end rather more my cup of tea.

Though I should say that what John regards as "middle class values" are in fact, historically speaking, Biblical values that were the cultural creation of the Protestant Reformation, even though that has not yet quite succeeded in overcoming bourgeois values.

However, I responded to John somewhat as follows:

Dear John
many thanks for copying me on this
I seem somehow to be under the impression that what is unique about Jesus the Living Lord is His promise to come and live in the hearts of those who choose to follow Him, so as to renew in them day by day a desire to grow more closely into God's moral/ spiritual/ emotional likeness...
his teachings are at best beautiful thoughts, though arguably more beautifully expressed than by others, if we do not have the experience of His living in us
warmly
Prabhu Sphere: Related Content

Dialogue on Religion and Business

I have just participated in a discussion on the subject, as part of the agenda at one of the more important business fora in the world. At the session, moderated by the Chairman of Lazard International, Ken Costa, there were representatives of Protestant, Roman, Muslim, Buddhist, and Jain traditions (not all apeaking only on their own behalf).

While the others said nice things, the most useful contributions for the business audience came from the Buddhist, Robert Thurman, who pointed out that leaders "are always in danger of being misled about the real situation in their firms by their own subordinates" and by the Protestant, Rick Warren, who argued persuasively that we need to think not only of the "two-legged stool" of Public-Private Partnerships but rather of the "three-legged stool" of Public, Private and Faith-based partnerships: the power of faith-based institutions to contribute to the elimination or amelioration of social evils is hugely underestimated or ignored.

He also spoke stirringly of the Five Global Goliaths in today's world: Conflict (spiritual, perpersonal, inter-generational...), Corruption or unethical leadership, Extreme Poverty, Pandemics and Illiteracy.

Altogether, the speakers offered a paean of praise for religion that seemed to me perhaps justified in view of the brief time dedicated to the subject. However, it did seem to me open to the charge of being unduly uncritical of religion.

Religion has, and continues to be, itself a source of corruption in most parts of the world, it continues to justify and participate in economic and social exploitation, and it is too closely allied to and often itself becomes a base for power. At least that is my viewpoint as a disciple of someone who was so anti-religious that the religious-political establishment decided that the best way to deal with his criticisms was to eliminate him. The establishment, having found this to be an ineffective strategy, then proceeded to try and co-opt his followers into the power structures - a challenge with which his followers still struggle.

Anyway, from my point of view, the discussion would have been much more useful if there had been, on the part of the religious leaders on the podium, a little less self-congratulation, and a little more engagement with the ethical mess in which business is today. The topics slated for discussion were: "Has global business lost its moral context? If so, has this loss contributed to the global downturn? Can belief systems help us generate the co-operation that is needed to renew growth?" - excellent topics that were wholly ignored by the speakers, who went on far beyond their allotted time (as is, I think cynically, surely an occupational hazard for them), leaving then little time even for the participants to pick up the slack. Sphere: Related Content

On the day the oil price touches $80, ironically, a renewed push to dilute attempts to limit speculation

Isn't it ironic that on the day that newspapers are abuzz with the news that oil is already back to $80, we have the FT reporting that "US plans for an aggressive crackdown on energy speculation are in danger of unravelling, with leaders at the US commodity regulator raising doubts about proposed reforms"

Why is this? Principally because of - you've guessed it! - concerns that if the US introduces tough rules, then trading will simply move to other countries.

Democart-nominated CFTC commissioner Michael Dunn, who earlier said the CFTC should consider new speculative limits, is reported to now say: “When a contract trades globally, it may be detrimental to US markets for the CFTC to act unilaterally on position limits while other countries with benchmark contracts chart different courses”.

So, as I have argued consistently for several years, global markets have only two choices: either the current more or less unregualted market, or global rules applied consistently across all countries. Continuing with unregulated markets will bring back oil prices at $120 (and perhaps even $250 as some authorities predicted only a short while before the crisis). Putting in place global rules will limit boom-bust speculation and ensure that prices reflect, as they should, genuine demand. Sphere: Related Content

The first political party to start moving in the right direction

The UK is dominated by two political parties: the Conservative ("Tory") Party and the Labour Party. However, from time to time, the third-largest party, the Liberal Democratic Party (LibDem), swings the balance between the Conservatives and Labour.

The LibDemsf appear now to be moving towards system solutions, or at least much more radical reforms than are currently being considered by the two major parties, as well as by the UK Treasury and the UK's financial services regulator, the Financial Services Authority.

Nick Clegg, the Liberal Democrat leader, has apparently now asked Vince Cable, the Liberal Democrat Treasury spokesman, to look at subjecting banks to a “premium rate” of corporation tax. This is because of public concerns at current bank profits and expected bonus payments in view of the limited competition in the financial services sector, following the dissolution of a few banks, and the limitation of activities by many others.

The LibDems are looking at a new bank tax which they believe be in force for several years - in fact till all state support has been withdrawn from the financial system. The Lib Dems have also become the first political party in the world to want to break up large banking groups. Sphere: Related Content

The Governor of the Bank of England Governor breaks with the deadly consensus

I am delighted to see that Mervyn King, the Governor of the Bank of England, has broken with the orthodoxy that encourages a boom-bust economy and passes on the cost of bank failures to the ordinary taxpayer while providing the bulk of profits from bank successes to bank shareholders, directors and employees. Mr King put it this way: “Never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.”

In calling for banks to be split into separate utility companies and risky ventures, he called in effect for the return of the provisions, in the USA, of the Glass-Steagall Act - but at a global level.

By saying it is a delusion to think tougher regulation will prevent future financial crises, Mr King is arguing that what is needed is not more regulation but a structural solution which prevents them becoming “too large to fail” in the first place.

Most of the orthodoxy continues to focus on what are merely useful measures such as ensuring that banks have more capital, forcing banks to hold debt that automatically turns into equity in a crisis, ensuring that banks arrange in advance for their orderly death with so-called “living wills”, and limiting the incentives given to bankers for taking system-threatening risks. Such measures will be useful, but are not adequate for preventing future crises, as I have repeatedlz argued in this blog. Sphere: Related Content

It is not all relative. It is all relatives.

Did you realise that the UN Declaration of Human rights, includes the following: "The family is the natural and fundamental group unit of society and
is entitled to protection by society and the State"?

However, in the decades since that declaration was signed by every civilised country, those very countries have turned around and, so far from protecting the family, actually undermined the family by means of taxation, welfare, changes in the financial and debt systems, housing and land issues, employment and work (usually under the guise of "equal opportunities"), education (which means maass brainwashing in many things), and of course the criminal justice system.

You may not believe me in all the details of the above statement. But you only have to look around you, or look at the statistics in almost any country, to realise that, whatever the causes, the result is a decline in the occurence of the family, and the richness of family life.

You may not like my views, you may still be open to a sober analysis of the situation, such as you find in "The Penumbra Effect: Family-centred Public policy", which has just been published by The Relationships Foundation, based in Cambridge, UK (www.relationshipsfoundation.org)

That publication includes the following passage, which I thought might interest you too:
"The family has been, is, and will continue to be the most important single source of wellbeing for the majority of people. ‘It’s all relative’ has been a central tenet of post modernity – in a world without absolutes, everything is relative. This report seeks to subvert that basic proposition. In a world of change, family remains. In times of transition, we turn to our extended families and relatives. Relative means dependent on or interconnected with something else. It also refers to a person connected with another by blood or affinity. The extended family brings these meanings together to conclude this report. The centrality of family to all aspects of society enables us to proclaim, ‘It’s all relatives’." Sphere: Related Content

A Tepid Compromise: The EU proposed three bodies to regulate and supervise finance

According to the latest proposals from the EU, three new pan-European supervisory agencies (one each for banks, insurers and securities markets) are to be created for the purpose for drawing up and helping enforce a common rulebook for each activity throughout the EU.

The bodies will have more powers and resources than the three existing EU committees, which play only a co-ordinating role.

What will weaken the ability of the proposed three bodies will be recognition of the principle of “fiscal responsibility”, meaning that the new supervisory structure must not intrude on states’ finances.

Why will it weaken these bodies? Because fiscal IRresponsibility by states is one key reason for irresponsibilty by individual companies as well as by the system as a whole.

In the event of a dispute with or between member states, there an appeal would be possible, ultimately to the European Council, where the final decision would be by qualified majority voting. This makes the whole elaborate creation of these bodies subject to political rather than rational criteria.

Possibly, these proposals from the European Commission may be the best that can be managed at present, but it falls far short of what is needed.

What is needed? Two things: a single regulator and a (separate) single supervisor for the EU.

Why a single regulator for 3 different kinds of activities (banking, insurance and securities markets)? Because these three are converging - or one should say have increasingly converged, and will continue converging ever more, into a single seamless set of financial transactions. This is already largely the case, with the three activities being kept artificially separate for regulatory purposes in areas where these are kept separate (the UK and Switzerland, for example, already have one regulator supervising all three activities).

So why two separate bodies (one for rule-setting and one for rule-enforcement)?

Because rule-setting is and should be a different activity from rule-enforcement.

Naturally, learning from rule-enforcement should feed into the rule-setting process.

But that is better and more transparently done by two separate bodies than by a single one.

So much for the matter of the three bodies that are proposed.

Separtely, there is a proposal for a new “European Systemic Risk Board”, made up of representatives of central banks and financial supervisory groups from the 27 countries which constitute the EU.

I am glad that such a Risk Board is proposed. However, having the same people in the Risk Board as ultimately control the 3 bodies will do nothing to provide confidence in the risk assessments of the Board.

Morevoer, systemic risk in Europe cannot be separated from systemic risk in the USA or in Asia - the current challenges arise from systemic problems in the USA, and the next crisis will arise from challenges in Asia.

While a European Systemic Risk Board is better than no Board at all globally, it would be better for there to be a global board - and one along the lines that I proposed in my article in the New York Times Online ("DayBook" section) at the end of June this year. Sphere: Related Content

When does non-discrimination against a minority go so far as to become discrimination against the majority?

When there is a concerted effot to enshrine it in provisions such as are foreseen in the USA's Employment Non-Discrimination Act (ENDA) which is apparently set to be debated on September 23.

As far as I can see:
if passed, ENDA will make it difficult for sports organisations to decline applications for employment from those who believe (like myself) that sports are bad for health.

ENDA will make it difficult for anti-nuclear (peace) organisations to keep out those who are committed to encouraging nuclear weapons.

We can expect to see the depressingly entertaining spectacle of environmentalist organisations being infiltrated by a dedicated minority of anti-environmental activists with the sole purpose of closing down the enviromentalist organisations.

And ENDA will make it impossible to prevent card-carrying members of the Communist Party from being recruited for the managerial cadre of US Government Agencies including the Defense Forces!

Welcome to the new and fascinating world of the United States of Lunatica. Sphere: Related Content

What causes share prices to move?

If you want a nice academic discussion about the two principal views regarding why share prices fluctuate, go to:
http://insight.kellogg.northwestern.edu/index.php/Kellogg/article/agreeing_to_disagree/

One view is the "rational expectations" one, which opines that the market rationally analyses all news in relation to a company, and decides....

The other is the "differences of opinion" model, which believes that different market players come to different conclusions about a company and that it is the "clash of views" which eventually results in a particular level of demand for a company's shares (thus determining the price of the shares).

Unfortunately those models won't give you much real insight into the question of what causes fluctuations in share prices, because academic researchers usually take a fragmented and atomised view, divorced from real life.

In real life, the share price of a particular company shifts mainly because of reasons that are never discussed in the literature.

It is elementary economics that price is a function of demand versus supply. Naturally, if the number of shares of a company increases for any reason that could affect the share price too, but the share price usually moves because of fluctuations in demand - or, to be more precise, because of fluctuations in the numbers of people wanting to sell those shares versus the numbers of people wanting to buy those shares. Naturally, price plays a role here too, so the picture is a little complicated. But let's simplify it by saying that when an individual or mass of people with a large amount of money wants to buy shares in a particular company, the price of that company's shares is going to rise. Contrariwise, when a large number of people who hold a company's shares want to sell, the price is going to drop.

So what determines whether a lot of money chases or wants to exit a particular stock? Regretfully for our academicians above, both "rational expectations" and "differences of opinion" are second-order drivers of behaviour.

What are the first-order drivers of behaviour? This becomes easier to see if you look at it not from the point of view of the company in question but from the viewpoint of investors.

OK, so what drives investor strategy? It is essentially portfolio theory. As anyone who has ever professionally managed a portfolio will tell you, portfolio managers are seeking to balance two things: making as much money as possible on the one hand and, on the other hand, seeking to reduce risks - because investing in shares can produce profits, but you can also lose some or all your money if you have to sell at a lower price than you bought or if "your" company becomes bankrupt.

How does looking at a portfolio of investments enable one to achieve a balance between risk and profit? By deciding, in view of one's life circumstances and personal risk-appetite, what proportion of the portfolio should be put in relatively safe assets (let us say US Treasury Bonds) and what proportion should be put in riskier assets. Naturally, there is a gradation here, and some bonds are riskier than others (with junk bonds being among the riskiest) - on the other hand, some companies may be relatively stable while others are of course relatively volatile.

The rule of thumb is "no gain without pain" or "no risk, no fun". In other words, the safer options produce fewer returns on investment but you are less likely to lose your money - while the riskiest investments may produce the largest returns.

Having established the rough proportions to be allocated to safe versus exciting possibilities, how does a portfolio manager go about deciding where to invest the money that has been allocated to the exciting possibilities? The first thing that is looked at is country risk. So if China is viewed favourably (as it is at present, totally irrationally), then the portfolio manager is likely to want to put a relatiely large proportion of the money, with which s/he wants to play, in that country. On the other hand, if a particular country is looked at unfavourably, for example Zimbabwe(for rational or irrational reasons), then the portfolio manager is likely to want to exit that country (if indeed s/he has investments in that country to start with). The second thing at which any portfolio manager looks is the relative profitability of the different "sectors" in which investments can be made. Everyone knows that in boom times some industries flourish whereas those industries may do badly in times of recession - and that the case for other industries is vice versa.

It is only after the country and sector allocation has been decided that a professional manager decides which companies to look at within that sector and country.

In other words, the largest movements of capital take place primarily because of country and sector reasons, and only very secondarily because of reasons to do with particular companies.

Let us take an example. My son is the CEO of an Indian food company in Switzerland. His company is NOT publicly traded, so nothing will be gained or lost by using that as an example.

If I as a portfolio manager, had let us say 1 billion British pounds to put into exciting investments, the first question I would decide would be: in which countries to put how much money. This would be influenced, among other factors, by perceptions of political risk as well as currency risk. So let us say in current circumstances, that I decide to invest 25% in the USA, 25% in the EU, 10% in Switzerland, 10% in Japan, 10% in China, 10% in India and 10% in the Middle East.

Of my one billion, I now have only 100 million to invest in Switzerland.

Now, to what sectors am I going to allocate these 100 million? Let us imagine it is 40% to green industries, 10% to the manufacturing and machine tools sector, 10% to the financial services industries, 10% pharma, 10% to "fast moving consumer goods", 10% to tourism and 10% to "other" companies.

Now, of my 100 million, you can see that there is only 10 million that is available for all the "other companies"! Let us say that, for some reason, the portfolio manager decides to put 1 million into the leisure and entertainment sector, and for some reason decides to put 100,000 francs into my son's company.

Now let us see what happens if there are rumours of a political crisis or a natural disaster or some financial scandal with wide implications in China. Clearly the portfolio manager will decide to eliminate or reduce her/his China investments. Let us say s/he decides to reduce the China investments by 50%. Now s/he suddenly has 50 million to put somewhere else. Clearly, this money could be re-allocated according to the rest of the existing proportions between the areas concerned, or it could be disproportionately distributed. Naturally, as the world is so interlinked, the portfolio manager is going to think about which companies are going to be hit by the problems in China. S/he might conclude that most US companies are going to be hit as China is going to be forced to disinvest from the US - with a resulting hit to the US dollar. In addition, s/he might conclude that the EU is going to be hit because the European economy being highly manufacturing based and export-oriented, is so exposed to the Chinese market. So that leaves Switzerland, Japan, India and the Middle East. Let's say the portfolio manager decides to put 10 million each into the others, but 20 million into Switzerland (as it is considered a safe haven). You can see that even if this money was allocated in the exact proportions that the earlier money was put into Switzerland, suddenly 200,000 become available to be invested in my son's company - which should lead to an immediate rise in the price of his shares, even if nothing material has changed in his company.

That, in rather simplified terms, is the entire magic of the movement of the price of shares. "Rational expectations" affect the choice of a company within a sector. "Differences of opinion" do affect this to a certain extent but have a much larger impact on country allocation.

However, the above explanation depends on the traditional view of the world which has come into question in the last 20 odd years - and with the crisis, everything is up for grabs. With too much money being printed, country-performance was converging in an overall global bubble as was sector-performance over the 20 years preceding the crisis.

Now no one knows anything about how sectors will perform, let alone countries. The "best-peforming countries" (e.g. China) are notoriously opaque.

That is why everyone rushes around like sheep or like lemmings trying to follow where the share price appears to be moving, one finger in the air, the other hand's fingernails being bitten to the quick trying to get into markets which appear to be rising to get out of markets before they deflate.

It is not so much "difference of opinion" as "non-existence of opinion" (because no one understands what is happening). And it is certainly not "rational expectations".

If only all this had no effect on your life's savings, investing might be quite fun right now. Sphere: Related Content

What has driven gold to over $1000?

Clearly, enough of the big boys do not believe that the economy is improving, or they would not be putting their money into gold.

An alternative explanation is that momentum trading has gone mad once again, expanding further the bubble in the gold price.

A third explanation is that investors are becoming aware of the constraints on growth (and therefore returns), and are therefore searching for more reliable returns - or at least security.

Probably all three factors have contributed to the rise in the gold-bubble.

Will be interesting to watch how big the bubble grows and who gets hurt when it collapses. Sphere: Related Content

two steps forward (and, so far, no steps backward)

Regulators have now agreed at least a few rules that will help prevent another bubble similar to the one whose burst-effects we all suffer at present

Last weekend the G20 agreed on proposals that have now been given shape by regulators at Basel. The new rules will force banks to improve the quality and extent of the capital buffers they hold to absorb shocks such as the ones that led to the bursting of the bubble.

Moreover there are now going to be limits on how much banks can borrow. Wheter these are adequate remains a moot point: the ceiling on borrowings is likely to be 25 times assets.

In my view, this is too huge a multiple. The parallel would be if a company with assets of 1 billion, could borrow 25 billion. Or if you as a private individual with assets (perhaps a house) worth 1 million could borrow 25 million. If such a proportion is preposterous for individuals and for companies, it is equally preposterous for banks.

However, it is certainly better than the previous situation where banks could borrow an unlimited amount, at least in theory. And 25x may be the most that regulators can achieve at present without upsetting the global economy too much.

In any case, the unfortunate result is going to be even less lending by banks! At least for the time being. And therefore an even longer recession.

But that relatively short-term cost is worth paying: if the soundness of banks improves, they will run into trouble less often and will therefore need to be rescued by taxpayers less often - and the fortunes of the global economy will be smoother as a result.

One other piece of progress is that bank supervisors can now limit, in good times, how much banks pay out to shareholders. That will enable and indeed force banks to build “counter-cyclical” buffers for bad times.

Isn't it a sign of our degenerate age that such commonsensical activity as saving for a rainy day (which every individual surely should try to practice without being forced to do so!) needs legislation?

Naturally, these (and other rules which will come into play soon) will make banks less attractive to investors interested in quick and high returns.

Equally, however, this will make banks MORE attractive as more reliable and secure long-term investments.

The precise rules are still being formulated and the Basel committee is expected to publicise concrete proposals by the end of the year and adjust them by the end of 2010 after carrying out an impact assessment. Expect people who have their eye fixed on short-term profits (whatever the cost to the rest of the world) to lobby fiercely against the letter as well as the spirit of such rules. Sphere: Related Content

A Question for Transparency International: Is Finland really one of the least corrupt countries in the world?

For evidence that Finland is more corrupt than commonly realised, perhaps even inside that country, see Jacob Matthan's forthcoming book, INHERITANCE NIGHTMARE.

Summary, chapter of contents and ordering information are all at: http://ouluchaff.blogspot.com Sphere: Related Content

Are the financial structures beginning to change? Yes...

Before the crisis, I was one, of only a handful of people that I knew about, who focused on the role of speculation in driving up commodity prices.

While that is still unconventional, I am pleased to see this morning that one major global financial institution, Deutsche Bank, stopped issuing "oil notes", which let speculators bet on oil prices. This is the first product in exchange-traded commodities to be abolished in anticipation of the regulatory crackdown on energy speculation


This could be seen as only a tiny step in the reform of the financial system - and, in a sense, it is. But it is a giant step for Deutsche Bank, and I salute it this morning for having eventually done the right thing.

Many more financial institutions need to follow. And regulation does indeed need to kick in to eliminate other still-legal but unhelpful practices.

I should say that I am not a great believer in regulation, except in sofar as it creates a level and reliable field for playing the right sorts of financial games.

What are the right sorts of financial games? Those that help create genuine human welfare - and therefore genuine wealth. Sphere: Related Content

Reginald Massey's book ‘INDIA: Definitions and Clarifications’

Reginald Massey's book ‘INDIA: Definitions and Clarifications’, published in the UK and reviewed earlier on my Blog, finally has an Indian publisher.

Abhinav Publications is bringing out an updated edition under the title: ‘SOUTH ASIA: Definitions and Clarifications’. Sphere: Related Content