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A hidden agenda in the sudden collapse of gold prices — Institute of Polical Economy

The recent sudden collapse of gold prices in spite of strong global private demand for gold in the age of money-printing begs the question if there is much more than meets the eye.

The collapse was triggered by the sale of an unprecedented quantity of between 124- 400 tons of gold all at once on Friday 12 April, off-loading some 40,000 future contracts in a few minutes. The sale continued after the weekend. The sheer scale and the choice of an intervening weekend suggests a well-planned and coordinated global strategy.

Paul Craig Roberts, a former Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal reveals the hidden agenda to save the dollar in his Institute of Political Economy blog here

The Future Report 2012

The Report, produced by Global Futures and Foresight, a strategic futures thinl-tank, looks into global stratefic drivers in the coming decades up to 2050.

Download The Future Report 2012, Global Futures and Foresight

The EAGLEs and NEST will dominate world growth 2012-22

"The EAGLEs and NEST (countries) together are expected to contribute 68% to world growth between 2012-2022, led by China and India, both with a higher share than the U.S. The G7 economies will add a mere 16%", according to the following research by BBVA -

EAGLEs Outlook 2013 Report

The Role of Emerging People

For background on The Soaring EAGLEs, please click here.

China and the World by 2030

Heralding his forthcoming book ("China 2030, Springler, June 2012") in a presentation on 9 May 2012 to the Oxford China and World Economy Forum, Hu Angang of the Institute for Contemporary Chinese Studies, Tsinghua University, oulines how China's economy would regain its one-third share of the global economy by 2030, similar to the position it held in 1820.

With a GDP per capita over half but a total size more than double of the United States (in PPP terms), coupled with advances in science and technology, human capital, innovation and a greener and more equitable economy, China would be experiencing a kind of Renaissance reminiscent of the country's glorious past.

Download Hu Angang - China and the World by 2030 

What is the M & A outlook in Asia?

Live interview on Worldwide Exchange with CNBC on 15 February, 2013

Click here

Global risks 2013

The World Economic Forum produces an Insight Report "Global Risks 2013" which offers a comprehensive overview of global risks in various categories.

Download WEF Global Risks Report 2013

The top five most likely global risks are -
 
1. Severe income disparity
2. Chronic fiscal imbalances
3. Rising greenhouse gas emissions
4. Water supply crises
5. Mismanagement of population aging

A detailed Risk Landscape of 50 Global Risks is presented as follows -
 
Economic Risks

1. Chronic fiscal imbalances
2. Chronic labour market imbalances
3. Extreme volatility in energy and agricultural prices
4. Hard landing of an emerging economy
5. Major systemic fincial failure
6. Prolonged infrastructure neglect
7. Recurring liquidity crises
8. Severe income disparity
9. Unforeseen negative consequences of regulation
10. Unmanageable inflation or deflation

Environmental Risks

1. Anti-biotic resistant bacteria
2. Failure of climate change adaptation
3. Irredeemable pollution
4. Land and waterway use mismanagement
5. Mismanaged urbanization
6. Persistent extreme weather
7. Rising greenhouse gas emissions
8. Species over-exploitation
9. Unprecedented geophysical destruction
10. Vulnerability to geomagnetic storms

Geopolitical Risks

1. Critical fragile states
2. Diffusion of weapons of mass destruction
3. Entrenched organized crime
4. Failure of diplomatic conflicdt resolution
5. Global governance failure
6. Militarization of space
7. Pervasive entrenched corruption
8. Terrorism
9. Unlilateral resource nationalization
10. Widespread illicit trade

Societal Risks

1. Backlash against globalization
2. Food shortage crises
3. Ineffective illicit drug policies
4. Mismanagement of population aging
5. Rising rates of chronic diseases
6. Rising religious fanaticism
7. Unmanaged migration
8. Unsustainable population growth
9. Vulnerability to pandemics
10. Water supply crises

Technological Risks

1. Critical systems failure
2. Cyber attacks
3. Failure of intellectual property regime
4. Massive digital misinformation
5. Massive incident of data fraud/theft
6. Mineral resource supply vulnerability
7. Poliferation of orbital debris
8. Unforeseen consequences of climate change mitigation
9. Unforeseen consequences of nanotechnology
10. Unforeseen consequences of new life science technologies

A similar, and perhaps more precise, global risks assessment is provided in the Chartered Institute of Insurance (CII)'s Centenary Future Risk Series Report 6 - Insuring for a stronger world (2012) - Future Risks mind map (p.7).

Download CII Centenary Future Risk Series - Report 6 - Insuring for a stronger world

Economic Risks

1. US economic decline
2. Asian threat to Western competitiveness
3. Currency War
4. Eurozone collapse
5. Fall of Bretton Woods - return to protectionism
6. Chinese financial crisis
7. Rising economic uncertainty
8. Stagnation

Political Risks

1. Political unrests across emerging markets
2. Rising geopolitical uncertainty
3. Chinese social unrest
4. US political paralysis
5. National/international terrorism
6. Breakdown in public trust of state institutions

Investment in technology

1. Slowdown of investment in new tech
2. Reduced use of technology in business
3. Reduced understanding of technology

Technological "Black Swans"

1. Cyber crime
2. Failure of largescale IT systems
3. Widespread data loss or corruption
4. Global spread of disease through international travel

Technology and Risk management

1. Out-of-date computational models
2. Failure to understand model limitations
3. Failure to horizon scan

Adaptation to climate risks

1. Poor local infrastructures
2. Town planning in hazardous areas

Global warming

1. Extreme weather events
2. Crossing tipping points
3. Rising sea levela
4. Water shortages

Energy risks

1. Geopolitical tension over scarce resources
2. Exploation for new energy sources

Aging population

1. Cost of age-related spending to public purse
2. Intergenerational fairness
3. Falling economic productivity
4. Rising liabilities of pension funds
5. Adequacy of pension income
6. Increased chronic disease

Poverty trap: high fertility and low life expectancy

1. Violent internal conflict and social unrest
2. Increased antagonism towards developed countries

Global population growth

1. Fears of overcrowding
2. Concerns about immigration
3. Increased risk of pandemic

By means of a fictional "Special Report - The Remarkable Rebound 6 February 2030", in which the world looks back on how some of the major risks have been contained or overcome, the CII proposes the following preventive measures against a disastrous outcome -

1.  Reform to the international economy - global economic imbalances; EU fiscal and political union; sustainable international trading system
2. A vibrant private sector - effective financial services including insurers and banks
3  Private sector-led growth through partnership between research centres, entrepreneurs and business leaders
4. Climate Change mitigation and adaptation, involving insurers and risk managers
5. Improving healthcare and pensioner security - extended working lives and cost-effective use of telecare
6. Greater private savings
7. Dynamic technological change improves lives; avoidance of "black swans" through enhanced risk management

Apart from a whiff of self-interest in some of the recomendations, few would doubt their validity, but not too many are likely to be convinced that they will be sufficient or will all be delivered. However, the test of the pudding is in the eating. There is still some time for the Remarkable Rebound of 6 February 2030 to become a reality. 

Re-shoring is on the rise - does it herald the end of outsourcing?

According to a report in The Economist (19 January, 2013), there is now a movement of bringing outsourced productions in China and elsewhere back home to the United States. The report says, "GE’s line has now reversed. Jeff Immelt, Mr Welch’s successor, calls outsourcing “yesterday’s model”. He has returned production of fridges, washing machines and heaters from China back to Kentucky. Having shipped much of its IT work outside America, the conglomerate is now shifting it back and taking on hundreds of IT engineers at a new centre in Michigan".

And GE is not alone, according to the Special Report of The Economist.

The reasons are that China's labour costs have risen rapidly. The country has a target of 13% annual increase in its minimum wage to 2015, by which time aggregate outsourcing costs of production in China would almost equate production costs back home. The second reason is technological, as advanced manufacturing technologies such as robotics and 3-D printing are making labour intensive operations less competitive overall. The third reason is proximity to home research facilities and markets, translating into greater efficiency in market response. The fourth reason is socio-political as bringing jobs back home wins popular cudos.

All, however, is not yet lost for out-sourcing as most "outsourced" production in China still chooses to stay for the massive, expanding China market which such production is well-placed to exploit.

In any case, there has been much less re-shoring back to Europe as there was less outsourced European production in the first place, because of labour inflexibility.

Moreover, with seven million graduates added every year, China is forecast to have some 200 million university graduates by 2015, bigger than the entire workforce of the United States. With China becoming the world's top patent filer, Click here  some foreign companies are expanding their R & D facilities in China, especially to serve the Chinese market.

So, it is not surprisng that a blog in the Financial Times features "Re-shoring: Five reasons why China will remain the world's factory"

Howewver, robotics is a definite game-changer as a video of 60 Minutes shows. Indeed, we are likely to be only at the doorstep of a major paradigm shift in the global business of how and where manufacturing is to be organised. With 3-D printing and de-modularized applications that can exist in the electronic cloud, a fixed factory floor seems to be losing relevance. Could a flottila of floating ships calling on various ports for resource inputs and off-loading "just-in-time" products for different markets be the answer, as one of my professional Linked-In groups opines? 

However, while all this exciting technological vision may well become reality, one big elephant in the room is how to generate sufficient gainful employment for the masses, especially the vast proportion of humanity in the developing world grappling with poverty or aspiring to a better life and higher standards of liviing.

The past two industrial revolutions have turned the factory into a cradle for the globe's rising middle-class. Although the emerging middle class is now in a ""fast- track" mode, according to a BBVA research report, it begs the question how most of their jobs, or their economic and social trajectory, can lie on the oceans or in the cloud.

The developing world is becoming more affluent

According to a BBVA Research Report (January 2013), "Lower-income and poor people stood at about 80% of of the population in emerging countries in the 80s and 90s. Things started to change dramatically in 2000; in fact, by 2010, 660 million had been added to the first stages of the middle-class. In the same vein, middle and high middle classes more than doubled in a decade."

This explosive trend produces many risks as well as opportunities. Think energy, resource and food scarcity and resultant regional rivalries. Think global inter-connectivity. But also think brands and life-style products at the mass-market end and luxury goods at the top end in a world sans frontiers.

Download Emerging Middle-Class in fast-track mode - BBVA Research, January, 2013

The World by 2030

The world is heading towards 2030 with much greater uncertainty as epochal trends and paradigm shifts are playing out. That's according to the latest report by the Washington D.C -based National Intelligence Council - "Global Trends 2030: Alternative Worlds" dated December 2012.

The report admits that global economic power is definitively shifting to the East and the South, reversing the historic rise of the West since 1750.

By 2030, the developing world will account for over 50% of the world's economy with China displacing the United States as the largest economy.

Power will become more diffused in a multipolar world, including individuals and other non-state actors, characterised by unprecedented urbanization, rise of the middle-class, new, disruptive, or lethal technologies, resource constraints, more aging populations, and risks of more crises and conflicts.

America will lose its global dominant position but is likely to remain primus inter pares amongst all nations. By all accounts, a great re-balancing of the world will be taking shape, perhaps not dissimilar to the European "long peace" set in motion by the Congress of Vienna in 1815, which was also a mutli-polar period of rapid social, economic, technological and political change. However, many a black swan could change the game along the way.

According to the report, how America will navigate this changed world is likely to shape its fate, including that of the United States itsef, for better or for worse. 

The full NIC report follows.

Download National Intelligence Council - Global Trends - Alternative World - November 2012

Extracts of the most salient tabular summaries are here.

Download Extracts - National Intelligence Council - Global Trends - Alternative World - November 2012

The NIC report may be put into better perpective with reference to the so-called soaring EAGLEs (Emerging and Growth-Leading Economies) here

Or when read in conjunction with the latest World Bank Report "China 2030: Building a Modern, Harmonious, and Creative High-Income Society", which was undertaken jointly with the Development Research Centre of the State Council. Click here

The following China-centred dynamics are also relevant  -

(a)  According to Goldman Sachs, by 2050 the top ten economies in the world will be, in descending order, China ($70 trillion), US (about $38 trillion), India (about the same as the US), Brazil (barely over $10 trillion), Mexico (just under $10 trillion), Russia, Indonesia, Japan, United Kingdom, and, lastly, Germany (about $5 trillion). Only four of the G7 would thus remain on this list. Except the US, the other three G7 countries, Japan, UK, and Germany, would fall to the bottom. The combined economic weight of the six so-called Emerging and Growth-leading Economies (EAGLEs), what may be called the E6, would be over two and half times more than the remaining G4. Amongst the EAGLEs are the so-called BRICS (Brazil, Russia, India, China and South Africa), of which China's economy is bigger than the rest of the BRICS combined.

(b) According to Huang Renwei, Vice President of Shanghai Academy of Social Sciences, compared with a rising China, the relative strategic power of the United States is declining due to-

(i) its mounting debt exceeding sustainable limits, threatening the status of the US Dollar as the world's dominant currency;

(ii) its increasingly constrained financial capacity is likely to reduce its military capacity, its R & D expenditure and hence its ultimate technological lead;

(iii) the American-dominated global alliance may come apart in a decade or two if the United States becomes less and less able to provide most of the public goods holding such alliance together; and

(iv) geopolitics are giving way to geo-economics where China is building a China-centric regional economic infrastructure (read regional production and supply chain) reinforced by such economic alliance as ASEAN-China Free Trade Area, the largest in the world by population.This is happening while the West, including Japan, struggles to re-start their weakened economies by one form of quantitative easing or another (read money-printing).

See Huang's remarks (in Chinese) on Xinhuanet on 20 December 2012 here

(c) Rapidly being ""internationalized", the RMB, though remaining non-convertible on the capital account, is already ipso facto "eclipsing" the U.S. Dollar as the world's "reference currency". Click here

(d) according to “World Intellectual Property Indicators 2012” released by the Switzerland-based WIPO (World Intellectual Property Organization) on 11 December 2012, China tops the world in 2011 patent applications. China also leads head and shoulders in trademark applications as well as industrial design. As a developing country, China is therefore well on track to overcome the Middle Income Trap. Click here

(e) As the world is increasingly becoming eco-conscious, China is starting to lead in a number of renewable energies, including solar, wind and hydro. In particular, China is pushing for the rapid development of electric cars, through heavy state subsidy towards private ownership and intensive research and development, including green battery technologies. This promises to revolutionize the world's entire auto industry.

(f) Shale gas is set to change the shape of the world of energy. Click here for "The Golden Age of Gas" In addition, the widespread use of abundant shale gas in America and China will weaken the strategic clout of the Middle East and other oil-producing countries, with all that implies. As the world's leading energy consumer for a long time to come, China is well poised to benefit from America's expected shale gas bonaza and her own vast shale gas reserve, the world's largest, provided problems of water scarcity, groundwater pollution and lack of advanced fracking technologies can be overcome.

In sum, provided China continues to maintain an even keel in the run-up to 2030 (though that is by no means a foregone conclusion), the country, together with or in addition to America, is set to influence, if not shape, global dynamics much more than the National Intelligence Council report seems to imply.

A new era of manufacturing sans frontiers

A November 2012 McKinsey Global Institute report “Manufacturing the future: The next era of global growth and innovation” identifies the following global dynamics of manufacturing  -

• 16% share of global GDP
• 70% share of global trade
• advanced economy manufacturing jobs have dwindled from 62 million in 2000 to 42 million in 2010
• 30-55% share of service jobs in manufacturing
• 19 cents service input for every dollar of manufacturing output
• 3 of 5 global manufacturing groups where China leads while 2 where United States leads
• $342 billion in advanced economies’ trade deficits in labour-intensive goods
• $726 billion advanced economies’ trade surplus in innovative goods

In particular, the report points out that manufacturing contributes disproportionally to global exports, innovation and productivity growth (Exhibit E2) – 

• 70% of exports (2010)
• 77% of private sector R & D (2008)
• 37% to productivity growth (1995-2005)
• 16% to value-added (2010) and 20% to value-added growth (2000-10)

But manufacturing employment in advanced economies registered minus 24% from 1996-2006, when it represented only 14% of employment.

Download MGI- Manufacturing the future - Full report, Nov 2012

Five global manufacturing groups are identified – 

1. Global innovation for local markets (34% of global value-added)

     Motor vehicles, trailers and parts
     Other transport equipment
     Electrical machinery
     Machinery, equipment, appliances    

2. Regional processing (28% of global value-added)

    Rubber and plastic products
    Fabricated metal products
    Food, beverage and tobacco
    Printing and publishing

3. Energy-Resource-intensive commodities (22% of global value -added)

   Wood products
   Refined petroleum, coke, nuclear
   Paper and pulp
   Mineral-based products
   Basic metals

4. Global technologies/ innovators (9% of global value-added)

   Computers and office machinery
   Semiconductors and electronics
   Medical, precision and optical

5. Labour-intensive tradables (7% of global value-added)

   Textiles, apparel. Leather
    Furniture, jewelry, toys, other

The McKinsey study concludes that the distinction between manufacturing and services is becoming blurred. The whole manufacturing process is becoming granular, each input to be considered in a global matrix of total factor performance “across the full range of factor inputs and other forces that determine what it costs to build and sell products.” “An exciting era of global manufacturing is ahead –driven by shifts in demand and by innovations in materials, processes, information technology and operations.” “These innovations include new materials such as carbon fibre components and nanotechnology, advanced robotics and 3-D printing, and new information technologies that can generate new forms of intelligence, such as big data and the use of data-gathering sensors in production machinery and in logistics (the so-called “Internet of Things”.

On the indentified five manufacturing groupings, what the report has not stressed, however, is that –

(a)  Products and items in one group may be imbedded in another.  For example, wood, rubber and metals are an integral part of motor vehicles and machinery and equipment are essential in the energy-resource-intensive commodities group.

(b) Technology, creativity, and brands run through and between the groupings so that advantages in one group can be embedded in another group or groups.

(c) The global value chain without borders ensures that value migrates to where it can best be created, almost anywhere in the world. This translates into a breaking up of the finance, design, production and back-up services of a single product.

(d)  Therefore, the reference to China leading in three groups and the United States in two groups is at best relative.  For example, Lenovo, which has acquired IBM computers, and Huawei Technologies are becoming China’s global leaders in their own right in various computer sectors, while the largest profits in the textiles, apparel and leather sectors, a grouping where China is supposed to lead, are reaped by the world’s top luxury brands in advanced economies.

(e) The highest profit margins of manufacturing are captured by proprietary technologies, patents and brands. As China has found to her own cost, “labour-intensive tradables” may be reaching their sell-by dates. As a nation develops to a certain level, reaching the so-called "Lewis Curve Turning Point", rising wage and other rising input costs will become no longer commensurate with the relative low prices of products fetched. As a result, the country has to upgrade, innovate, and acquire patents and brands to survive. This is exactly what China is trying to do. As the latest “World Intellectual Property Indicators 2012” (11 December 2012) shows, China has now become, for the first time in a century, the first developing country taking the baton from Germany, Japan and the United States as the world’s top patent filer. Click here

The Mckinsey report, nevertheless, is instructive that in a rapidly changing and increasingly inter-connected and inter-dependent world, businesses and policy makers need to be agile and adaptive in honing new ideas, technologies, and talent to stay globally competitive, as a new era of manufacturing emerges that promises to know no rigid groupings and geographical or national borders.