The Philippine Financial Markets Shrugs off the Scarborough Shoal Standoff

The financial markets and politicians backed by mainstream media apparently lives in two distinct worlds.

If one goes through the daily barrage of sensationalist headlines, one would have the impression that the Philippines must be in a state of panic. That’s because media has been projecting what seems as intensifying risk of a full blown shooting war over the contested islands, the Scarborough Shoal with China. And all these should have been sending investors scrambling for the exit doors, if not the hills.

But has such alarmism represented reality?

Of course by reality we rely on expressed and demonstrated preferences and not just sentiment. Over the marketplace, people voting with their money have fundamentally treated the recent geopolitical impasse as pragmatically nonevents.

The Phisix has been little change for the week but importantly trades at FRESH record high levels.

Meanwhile the local currency the Philippine Peso posted its SIXTH CONSECUTIVE weekly gains and has been approaching February’s high, whereas local bonds ADVANCED for the week, amidst the geopolitical bedlam[1]

Contrived Risks and Real Risks

There’s a world of difference between real risk and that of a pseudo, or may I suggest concocted, geopolitical risk.

Media has slyly been luring the gullible public into oversimplified “emotionally framed” explanations based on flimsy correlations which blatantly overlooks the behind-the-scenes causal factors[2]. Emotionalism thus opens the door for politicians to prey on the public by manipulating them through the foisting of repressive policies that benefits them at the expense of the taxpayers and importantly of our liberties. The recent call for nationalism via “unanimity” by a national political figure is just an example[3].

Politicians use fear or what the great libertarian H. L. Mencken calls as endless series of imaginary hobgoblins as standard instruments of social controls meant to advance their agenda or self-interests through the political machinery.

Aside from possible factors for the standoff, such as the smoke and mirrors tactic probably employed by China to divert the world from witnessing the brewing internal political schism[4] and or the promotion of sales for the benefit of the military industrial complex, it could also be that the call for “unanimity” may be associated with the domestic impeachment trial of a key figure of the judiciary where “rallying around the president” would extrapolate to the immediate closure of the case in the favor of the administration.

In doing so, the incumbent administration will be able control three branches of government and impose at will any measures that suits their political goals with hardly any opposition, all done under the sloganeering or propaganda of anti-corruption.

Yet the brinkmanship geopolitics in Asia, has not been limited to the controversial territorial claims in Scarborough and Spratlys, as well as Japan claimed Senkaku Islands[5]. Recent events includes the recent widely condemned missile test by North Korea, as well as, missile tests of former archrivals India and Pakistan[6]

Yet market’s responses to these events have disparate.

Pakistan’s Karachi index (KSE:100 orange) trades at the highest levels since 2009 and seems on the way to knock on the doors of the 2007 highs, whereas India’s BSE (SENSEX green) has struggled since peaking late February.

In short, the recent missile tests by both countries hardly influenced financial markets for the two South Asian giants.

The reason for this has been due to substantially improving trade relations[7] that has dramatically eased political tensions between them.

This validates the great free trader Claude Frédéric Bastiat[8] prediction centuries ago.

if goods don t cross borders, armies will

North Korea as the Real Geopolitical Risk

The North Korea-South Korea tiff cannot be seen in the same light.

Since the North Korea’s announcement of a missile test last March 16^th, South Korea’s KOSPI has been struggling. (chart from stockcharts.com)

The South Korean currency, the won, has also wobbled in the face of Nokor’s actions. (chart from yahoo.com)

Nokor’s largely embarrassing failed missile launch[9] last April 13^th has not deterred the new regime under Kim Jong Un from threatening to do another nuclear blasting test[10]

The fundamental difference from the abovementioned instances, including the unfortunate Scarborough-Spratlys affair, has been the near absence or the lack of trade linkages of Nokor which has not fostered social cooperation or goodwill with other nations.

Instead, Nokor’s despotic communist government’s survival has long been dependent on the ‘blackmail diplomacy’ in securing foreign aid. Yet uncertainty shrouds on the direction of Nokor’s foreign policy under the new leadership which appears as being manifested on the markets.

The good news is that so far there has been no sign of panic. This means South Korea’s consolidating markets could be digesting or has been in the process of assessing the political and security risks from Nokor’s new regime.

Otherwise if the worst option does occur, where posturing turns into armed confrontation the ensuing violence will spillover the world markets. But again Nokor has been more of a paper tiger than a real military power considering their dire economic status. A war is likely to cause the Kim regime to disintegrate under its own weight as famished and ill equipped soldiers are likely to defect to the South or a coup will force down the leadership.

The Free Trade Factor and Geopolitical Linkages

The same premise tells us why domestic politicians and media live in a different world from the citizenry. And this is why I hardly touch on mainstream news, except when scouring for the facts. I avoid from reading “opinions”, especially from so-called experts. That’s because mainstream’s opinions blindly represents the interests of the establishment[11].

China ballooning trade with ASEAN, which includes the Philippines[12], represents a very important deterrent from aggression.

As the great Professor Ludwig von Mises wrote in his magnum opus[13],

Man curbs his innate instinct of aggression in order to cooperate with other human beings. The more he wants to improve his material well-being, the more he must expand the system of the division of labor. Concomitantly he must more and more restrict the sphere in which he resorts to military action. The emergence of the international division of labor requires the total abolition of war.

So aside from her thrust to use the yuan as region’s foreign currency reserve as evidenced by the push for wider Free trade zone (including the ASEAN China Free Trade Agreement which began operations in 2010[14]) hardly squares with the bellicosity that has been publicly portrayed.

Free Trade agreements in Asia has exploded since China’s Deng Xiaoping opened China to the world bannered by the famous catchphrase “To get rich is glorious” (which according to some has been misattributed to him)[15]

Claude Barfield of the American Enterprise Institute points out that[16]

In 1975 there was one free trade agreement in the region but in 2011, there are now currently 245 free trade agreements that have been proposed, under negotiation or concluded.

Besides it is naïve to see events in the lens of a single prism.

An outbreak of military conflagration will likely draw in various major players that could lead to a world war, an event which hardly any party would like to indulge in (despite the politicians arrogant rhetoric), considering the today’s age of NUCLEAR and DRONE warfare, standing armies have been rendered obsolete, and mutually assured destruction[17] will likely be the outcome.

So aside from some missile tests by Asian countries, recently Vietnam hosted a joint naval exercise with US[18] while on the other hand China and Russia also recently completed naval war games[19]. While these may look like a show of force for both parties, they could also just be pantomimes.

Yet for me all these seem like watching a movie that gives you the vicarious effect, especially from the 3D vantage point. However when the closing or end credit appears or when the curtains fall, we come to realize that this has been just a movie.

So far the financial markets seem to be exposing on the exaggerations of the so called gunboat diplomacy, or perhaps too much of yield chasing activities may have clouded people’s incentives that has led them to underestimate such a risk.

While I believe the yield chasing factor has functioned as a substantial contributor to the current state of markets domestically and internationally, I also think that the local market has rightly been discounting the territorial claims issue for reasons cited above.

So unless politicians here or abroad totally losses their sanity, the issue over territorial claims will eventually fade from the limelight.

So be leery of politicians calling for patriotism or nationalism, that’s because as English author Samuel Johnson famously warned on the evening of April 7, 1775[20]

Patriotism is the last refuge of a scoundrel.

---

[1] Bloomberg.com Philippine Peso Completes Sixth Weekly Gain on Growth Outlook, April 27, 2012

[2] See The Scarborough Shoal Standoff Has Not Been About Oil April 16, 2012

[3] See Scarborough Shoal Dispute: The Politics of Nationalism April 28, 2012

[4] See China’s Political System Reeks of Legal Plunder, April 20 2012

[5] See From Scarborough Shoal to Senkaku Islands April 19, 2012

[6] Globalspin.blogs.time.com Will Pakistan and India’s Back-to-Back Missile Tests Spoil the Mood?, April 25, 2012

[7] Thehindubusinessline.com Pak may be allowed to invest in India February 16, 2012

[8] The Freeman.org Claude Frédéric Bastiat

[9] See See North Korea’s Failed Missile Launch Reflects on Dire Economic Status, April 14, 2012

[10] Bloomberg.com North Korea Poised to Rattle Region With Nuclear Blast April 27, 2012

[11] See The Toxicity of Mainstream News March 13, 2012

[12] networkideas.org China, India and Asia: The Anatomy of an Economic Relationship (Draft Copy) 2009

[13] von Mises Ludwig 4. The Futility of War XXXIV. THE ECONOMICS OF WAR Human Action

[14] Wikipedia.org ASEAN–China Free Trade Area

[15] Wikipedia.org Deng Xiaoping

[16] Barfield Claude TAIWAN AND EAST ASIAN REGIONALISM American Enterprise Institute, November 10, 2011

[17] Wikipedia.org Mutual assured destruction

[18] Telegraph.co.uk Vietnam begins naval exercises with the US, April 23, 2012

[19] Abs-cbennews.com China, Russia end naval exercises, April 27, 2012

[20] Wikipedia.org The Patriot Samuel Johnson's political views

On India’s Lost Government Revenues From ‘Corruption’

Columnist Megha Bahree of Forbes reports that a huge amount ($213 billion) of tax revenues had been lost to bribes, tax evasion and mispricing in India during 1948-2008.

These estimates were supposedly conservative because it may have excluded different forms of smuggling and missing data, aside from foregone interest charges.

Ms. Bahree writes, (bold highlights mine)

The flight of capital from the legal system accelerated once the Indian government eased its tight control with economic reforms that started in 1991, the report says. Part of the problem was that Indian’s economic liberalization wasn’t accompanied by better governance or more accountability in the system. So while this period started liberalization of trade, lowering of trade barriers, less control and less oversight, it also led to an increase in bribes (to get your goods out of customs more quickly, for instance) and higher tax evasion.

India’s underground economy has been estimated at 50% of the GDP, making it about $650 billion at the end of 2008. Of this, 72% is held abroad, estimates Dev Kar, the author of the report and a former senior economist at the International Monetary Fund.

My comments:

1. Bribes occur only when there are legal proscriptions.

Bribes are symptoms or representative of societal response to the existing maze of arbitrary regulations.

Absent these restrictions or obstacles, then there won’t be any incentive to bribe, or much less, commit to an act that would circumvent any laws.

In short, the economic liberalization isn’t to blame for the institutional inefficiencies but on the partiality or the tepidness of liberalization reforms.

The strength of any social institutions emanate from the respect for the rule of law.

2. Tax evasions, like bribes, are symptoms of circumvention to onerous statutes.

They represent as cost saving measures resorted to by many enterprises in the face of the high costs of doing business largely due to obstructive taxes and the cumbersome compliance costs from the incumbent regulatory regime.

In other words, in most instances, a regime of high taxes is likely to incentivize tax evasion. Thus, it would be inaccurate to link economic liberalization with tax evasion because the cause and effect does not square. Economic liberalization should translate to lower taxes predicated on less dependence on the government.

3. The 50% share of India’s underground economy is emblematic, not of economic liberalization, but of the bureaucratic morass and the oppressive regulatory structures that discourages half of the economy to participate in the legal framework.

Again they are symptoms of people shunning government regulations, which is tantamount to government failure.

Like any process there always will be a transition. This means that the current reforms made by India hasn’t been enough (but should be on path), and that people and the existing institutions, coming from a long rule of statism, has yet to fully assimilate on the benefits of economic freedom premised on the respect for private property and the adherence to the rule of law.

4. Lost government revenues can be seen both ways.

If it is pocketed by government officials then it is likely to be devoted to consumption activities thereby would be considered unproductive and thus have negative implications.

Whereas if lost government revenues gives private enterprises room to expand production or services then it could be seen as having positive effects. Yes, this is the positive aspect of corruption.

Of course one could argue that lost revenues deprives the government to spend for social projects.

But most of social spending itself is questionable.

Aside from the issues of wastage and corruption, most of these so called public goods can be handled better and more efficiently by the private sector.

More importantly, high dependence on social spending is likely to foster a culture of entitlement or parasitism that is unlikely to prompt people to engage in productive activities but in acrimonious partisan politics between political insiders and the outsiders, promote patron-client relations (or crony capitalism) and even nurture criminal or underground activities.

India’s corruption problems isn’t one that hails from economic liberalization but from the vestiges of statism.

Integrating Asia: Japan-India Trade Pact

More signs that Asia continues to deepen her trade ties with each other.

This from the Japan Times

Prime Minister Naoto Kan and visiting Indian leader Manmohan Singh officially agreed Monday in Tokyo to activate an economic partnership agreement as soon as possible and to speed up talks on civilian nuclear cooperation.

The deal to strengthen economic ties between Japan and India, a fast-growing democratic nation with a population of 1.2 billion, comes at a time when Asian nations are becoming increasingly concerned about China's activities in the East China and South China seas….

The two countries will continue working-level preparations for signing the EPA. Tokyo aims to sign it around the end of the year so it can be submitted to the Diet early next year for ratification, Japanese officials said.

Under the EPA, the two countries will abolish a wide range of tariffs on products ranging from car components and electronic goods to bonsai plants. Broader than a free-trade agreement, the EPA is a more comprehensive pact on economic and trade cooperation that also includes promoting investments.

"This is a historic achievement that signals the economic alignment of two of the largest economies in Asia," Singh said. "It will open up new business opportunities and lead to a quantum increase in trade and investment flows between our two countries."

Japan and India began discussing the possibility of a civilian nuclear energy deal in June that would allow Tokyo to export its nuclear power technology to New Delhi. But India is not a signatory member of the Nuclear Non-Proliferation Treaty, and it is unclear how soon the two nations can conclude a deal, given the strong antinuclear sentiment here…

The EPA will eliminate tariffs on 94 percent of two-way trade in 10 years after the pact takes effect. The tariffs to be abolished include those on Indian exports of car components, DVD players, video cameras, peaches and strawberries to Japan, while Japan would improve access to most industrial products, as well as durian, curry, tea leaves and shrimp.

If there is anything to be bullish about, it is that the direction of geopolitics seems headed towards embracing broader ‘free’ trade.

US Protectionist Pressures: India Is Feeling The Heat Too

One of the misguided notions held by the liberal view in the US is that the proposed protectionist measures targeted to resolve so-called "global imbalances" will likely be confined to a US-China affair.

Unfortunately, this view, which panders to sensationalism, fails to take to account the repercussions of rabble rousing. In the other words, the likely side effect from demagoguery is to fuel a nationalist hysteria that would brook xenophobia and or racism. (These people seem to have forgotten the ultra-nationalism of Nazism which triggered World War II during the last century)

And it appears that India has also been taking the heat from such pressures.

India's commerce minister has been reported by Financial Chronicle as rebutting allegation that India has been taking away American jobs.

Here is the Financial Chronicle,

``Urging the US to reform its visa policies, commerce minister Anand Sharma said here today that the paranoia of the Americans about Indians taking away their jobs, especially in the IT and services sectors, is a myth.

``There is an incorrect perception in the US that Indians are taking away the jobs of Americans, which is driven more by the fast-paced growth India in the IT and services sectors, Sharma told newsmen.

``Citing three recent reports, including one by PricewaterhouseCoopers and International Business Forum, Sharma said, "contrary to popular perception, Indian BPO companies have created income worth USD 106 billion inside the US in the past three years ending 2009, and generated 3,00,000 jobs out of which 2,50,000 were filled by Americans."

"These are jobs for Americans created in America but by Indian companies. This is a myth that jobs are being taken away by Indians," Sharma said"

There seems to be a sense of desperation that has been creeping into the progressive camp as seen in the recent actions of politicians and their intellectual followers as election season nears.

This desperation appears to have been manifested yesterday when the liberals finally got into the act to successfully ram down the throats of the American public, the highly controversial and unpopular Obama Health reform legislation in the House of Congress, a year after President Obama's assumption to office.

And such impetuousness appears to be 'throwing the gauntlet' to any party that crosses path with their desired political agenda. And India appears to be a victim of such emergent antagonistic sentiment.

Nevertheless the apparent anxiety is likely to be reflected on the outcome of the next elections.

So, the current crop of leaders are doing whatever they can to generate a sense of emergency for them remain in power, regardless of the consequences of their actions. It's a case of when "push comes to shove".

Be careful what you wish for.

Rediscovering Gold’s Monetary Appeal

``Gold is a speculation. But it is a speculation on a certainty: the debasement of the currency.”-James Grant

For some rising gold prices has been gladly cheered upon. For the gold is “barbaric metal” camp, rising gold prices account for as an intense denial to the vulnerability of their interventionist doctrines.

For us, rising gold prices epitomizes a build up of monetary systemic stresses arising from an overdose of politicization of the US dollar- the world’s de facto substitute to the gold standard. This warrants more concern than either acclamation or denial.

The world has been operating on a monetary system that has been anchored on paper money since 1971 or 38 years ago, yet for the thousands of years of human civilization, paper money has unsuccessfully thrived as the sustained standard of global medium of exchange. This has been due to the cyclical or inherent self serving nature of the political leadership to profit from inflation or by taxing society in order to uphold, expand or preserve their political powers.

Even commodity money had not been spared from the inflation taxation. This has been evident even during the Roman Empire, as Joseph Peden wrote ``In Diocletian's time, in the year 301, he fixed the price at 50,000 denarii for one pound of gold. Ten years later it had risen to 120,000. In 324, 23 years after it was 50,000, it was now 300,000. In 337, the year of Constantine's death, a pound of gold brought 20,000,000 denarii.”

And the same dynamics holds true today.

Essentially, the politicized nature of money eventually leads to its demise.

Inflation Is Dead. Long Live Inflation!

Gold have been rising for many valid cited reasons such as an inflation hedge (see Figure 4), supply demand imbalances, the shifting nature of gold ownership (as investment instead of jewelry), or central bank buying or reduced sales [see Four Reasons Why ‘Fear’ In Gold Prices Is A Fallacy]

Figure 4: US Global Funds: India-IMF Deal: Tipping Point for Gold

Gold’s record price surge appears to have resurrected its innate monetary appeal.

Over the years, gold had earlier been reckoned as headed for oblivion, as the political authorities along with their banking agents, whom are their chief associates, as well as their academic disciples imbibed on the fantasy that “inflation as an elixir” have allowed them to finally “domesticate” and “tame” inflation with modern and sophisticated mathematical tools.

In essence, the supposed conquest of inflation became a mainstream credo which operated under the principle of the philosopher’s stone- or the alchemy of turning base metals into gold! Prosperity can, thus, simply be achieved by Free Lunch policies! And supporting such beliefs were literatures that sprouted to claim the death of inflation!

Unfortunately today, reality has begun to sink in. To add, such bubble psychology has also commenced to unravel over the imbalances built beneath the surface by overweening overconfidence. Hence, the ramifications from the previous sins have started to emerge and become manifest in the marketplace. All these are being reflected in terms of changes in price levels.

The Role Of Scarcity In The US Dollar’s Diminishing Luster

So why gold’s role as money being revived?

Because the very important fundamental attribute of money is in the process of being perverted.

The basic and most important attribute of money according to Mr. Ludwig von Mises is scarcity, ``Media of exchange are economic goods. They are scarce; there is a demand for them. There are on the market people who desire to acquire them and are ready to exchange goods and services against them. Media of exchange have value in exchange. People make sacrifices for their acquisition; they pay "prices" for them. The peculiarity of these prices lies merely in the fact that they cannot be expressed in terms of money. In reference to the vendible goods and services we speak of prices or of money prices. In reference to money we speak of its purchasing power with regard to various vendible goods.”

When money fails to dispense of its role, then the public begins to question its existence and look into alternatives. The ruckus to replace the US dollar by key emerging market central banks reflect on these symptoms.

So it is of no doubt to us that commodities (particularly precious metals) will likely benefit from the uncertainty interregnum as the world continues to deal with the burgeoning tensions from the US dollar system.

Figure 5: stockcharts.com: Commodities versus the US dollar Index

Said differently, for as long as society hasn’t resolved on the dilemma of, or found a substitute for, the prevailing money (US dollar) system, these commodities will exhibit their innate roles as potential candidates as money, for the basic reasons of scarcity and their historical role as money.

As Professor Gary North wrote, ``Individuals in the past voluntarily adopted gold and silver coins as the preferred commodities to facilitate economic exchange. They did not accept these two metals as the preferred monetary units because of their commitment to economic theory. They chose those metals because there are advantages offered by these metals that competing commodities do not possess to the same degree. The main advantage is continuity of value (price) over time. Gold and silver became currencies throughout the world because they possess certain physical characteristics that facilitate their adoption as money. The most important aspect of both gold and silver is that they must be mined. It is expensive to dig these metals out of the ground. Silver is primarily a byproduct of the mining of other metals: lead, copper, and zinc. Mining firms must bear the costs of extracting these metals from the earth. This limits the production of these metals. They are comparatively scarce minerals, and it is expensive to dig them out of the ground.” (bold highlights mine)

Ergo, the pricing levels will exhibit on the relationship of precious metals’ role as money.

Does India’s Recent Gold Buy Herald A Watershed Moment?

In addition, India’s recent surprise acquisition of 50% of IMF’s inventory of gold for sale establishes two important points:

One, emerging markets appear to be intrepidly exhibiting a snowballing desire to accumulate less US dollars reserves and also less US denominated securities and channel most of their spare reserves into hard assets. It’s basically a vote against the US dollar.

This reinforces our “commodity-as-insurance” view and the potential role of commodity as part of the future money. According to Professor Michael S. Rozeff, ``There are only two kinds of solutions: inflationary and non-inflationary. A British pound as good as gold is long gone. A U.S. dollar as good as gold is long gone, but the dollar has hung on for 37 years now. A yuan as good as gold does not exist. A basket of currencies as good as gold does not exist. The inflatable dollar and inflatable currencies are ruling the roost at present. India’s action and some of China’s actions signal that they are inching – really groping – their way back to hard assets and a non-inflationary solution.”

Second, India’s gold purchases could be indicative of a monumental redistribution process or of a convergence of wealth between developed economies and emerging economies.

This quote from the Financial Times echoes such sentiment, ``Pranab Mukherjee, India’s finance minister, said the acquisition reflected the power of an economy that laid claim to the fifth-largest global foreign reserves: “We have money to buy gold. We have enough foreign exchange reserves.”

``He contrasted India’s strength with weakness elsewhere: “Europe collapsed and North America collapsed.” (bold emphasis mine)

Hence, India’s purchase of IMF’s gold could be interpreted as a watershed moment or a tipping point as this could mark the decline or the twilight zone of the US dollar as the international currency reserve.

Also, we’ve been asked if Gold at present levels is a buy today. While we have been serendipitous enough to have accurately called for a gold breakout last August [see Gold As Our Seasonal Barometer], market timing isn’t our forte.

Seen from seasonality patterns, gold usually peaks on February and will be on a downhill until August.

But it isn’t clear if such pattern will hold.

This would likely depend on how global central banks and global investors will react to recent fresh unprecedented developments.

As we have said, markets have been acting significantly less to exhibit the conventional mode. Instead, markets have demonstrated its unorthodoxy due to its Frankenstein state-being highly dependent on government steroids.

Figure 6: US Global Funds: India-IMF Deal: Tipping Point for Gold

And as figure 6 suggests, any bandwagon effect from India’s purchases could inflame a stampede for Gold!

With emerging markets holding the bulk of global currency reserves, ``IMF data shows emerging and developing economies hold USD 4.2 trillion of the USD 6.8 trillion in total reserves. China has over USD 2 trillion, followed by Russia with more than USD 400 billion and Brazil and India with above USD 200 billion each” (moneycontrol.com), and aside from central banks of emerging markets being vastly underrepresented in gold reserves relative to the US or Europe, a mad dash for gold can’t be discounted.

And we are not speaking of central bank alone, Adrian Ash of BullionVault.com recently estimated the gold market, ``Estimated at 165,000 tonnes, the total stock of gold-above-ground is now worth some $5.8 trillion. Research by BullionVault puts that sum at no more than 6% of global investable wealth, down from well over 10% throughout the 1980s and peaking nearing 30% at the points of extreme investor stress in the late 1970s and early '30s.”

Conclusion and Recommendation

To close, gold’s recent record run appears to have dramatically signaled a seismic change in the perspective of the marketplace and of governments in terms of gold’s role as money.

As strains or pressures on the US dollar standard remains unsettled, such uncertainty is likely to underpin the dynamics behind gold’s rise.

Rising gold prices represents global monetary stress than simple localized “inflation”. Moreover, because monetary stress is a structural issue, then it won’t just be central banks underpinning gold’s ascent but likewise the investing public, which accounts for a bigger share of ammunition, in the context of wealth preservation.

Moreover, the accumulation of gold by emerging markets signal wealth convergence aside from the watershed decline of the US dollar as the world’s reserve currency.

Since gold’s dynamics has been evolving from jewelry to investment and or central bank reserve demand, it would be futile to short term timing markets. The best is to buy on dips and await gold’s full transition of its bullmarket trend into the mainstream.

On the interim, the politicization of the monetary and fiscal policies will likely exacerbate the US dollar predicament. And as political faux pas compounds, gold’s functional role of money will likely expand.

Nevertheless, the end of the gold bullmarket will entail the resolution of the US dollar’s foreign currency reserve predicament, which is unlikely to happen soon. That’s because domestic politics and geopolitical issues serve as principal hurdles.

India's Surging Markets Lures Companies From The Government and The Private Sector To Raise Financing

Surging financial markets in India have lined up companies from the private sector and government to raise financing.

From the trough, India's BSE 30 is up about 84% and is 26% shy from its 2008 peak.

The Indian rupee has also rallied furiously since the simultaneous trough in the stock and currency markets.

According to the Wall Street Journal, ``So far this year, issues of new shares have been scarce. But with the Bombay Stock Exchange's benchmark index at a 10-month high, many companies have plans to raise capital to bolster balance sheets and fund growth, bankers say.

``The new government's budget, scheduled for release in early July, also could usher in new sales of stakes in public companies. The frenzy may be welcome news to investors looking to ride a rapid rise in India's stock market over the past few months...

``Data provider Thomson Reuters expects $50 billion of new shares to be issued in India this year. So far, there has been just $1 billion.

The newly elected government is also in a rush to join the financing bandwagon.

Again from the same article, ``On the IPO front, state-owned hydro-power outfit NHPC Ltd. and oil-exploration company Oil India Ltd. are expected to issue shares. On Monday, Rahul Khullar, the outgoing top bureaucrat in the department in charge of state company disinvestment, said the government is likely to sell stakes in NHPC and Oil India by September, followed by six to seven other companies before March 31, 2010.

``The government's budget could offer further divestment plans amid the need to stimulate the economy without severely worsening the fiscal deficit.

``Air India, India's national airline, and state-run telecommunications company Bharat Sanchar Nigam Ltd., or BSNL, are likely to sell some shares, market watchers say."

The phenomenal activities in India are likely to be replicated in major Emerging Markets and in Asia.

India Boots Out Communists, Sensex Scores Largest One Day Gain Ever!

After a landslide victory for the Party of Prime Minister Manmohan Singh, India's stock markets went into a bacchanalia with a fantastic record breaking one day run!

According to Forbes, ``Talk about a post-election party. Indian stocks rose so fast on Monday that trading had to be halted.

``The market was euphoric over the Congress party's unexpectedly strong showing in India's national elections. Congress' unexpectedly strong majority means the party will not have to compromise by forming another coalition with leftist parties, which the business community blames for slowing down India's much-needed economic reforms." (highlight mine)

Bespoke Invest observes, ``the next biggest one-day gain came in March 1992 when the index rallied 13.14%. From its peak in January 2008 to its recent low, the Sensex dropped 60.91%. From its low, however, the index has now rallied 75.04% in just over two months. Even after this 75% gain, India needs to rally another 46.13% to reach its old highs."

Both Charts from Bespoke.

So while emerging markets seem to be embracing globalization, even in the face of the present crisis, developed markets appear run on the opposite route.

Needless to say, decoupling dynamics seem to be surfacing even in terms of political trends!