Friday, 5 November 2010

Construction industry headed for even better times

by Julito G. Rada
Manila Standard
http://www.manilastandardtoday.com/insideBusiness.htm?f=2010/november/5/business2.isx&d=2010/november/5

THE construction industry sees continued growth next year with the scheduled implementation of big-ticket infrastructure projects under the public-private partnership scheme, an industry official said in a press briefing Thursday.

Levy Espiritu, president of Philippine Constructors Association, said the industry will surpass its growth target of 8 percent this year as outlook remains bullish for the next three to four years.

“Next year, [growth] would be more than that [eight percent] because growth will be faster with the implementation of PPP projects,” Espiritu said.

He said that in the last three to four years, public infrastructure comprised 60 percent of the total projects while the remaining 40 percent belonged to private undertakings.

The trend has since changed to 60 percent private and 40 percent public.

But he expressed optimism that with the scheduled implementation of the 10 big-ticket infrastructure projects next year under the Aquino administration, the trend will revert back to 60 percent for public and 40 percent for private projects before 2012.

The top 10 projects in the list are: the P70-billion MRT3-LRT expansion; the P11.3-billion MRT Line 2 east extension; the P7.43-billion Panglao airport; the P4.36-billion Puerto Princesa airport; the development of the city terminal of the Diosdado Macapagal international airport; the privatization of the Laguindingan airport in Misamis Oriental; the P21-billion NLEX-SLEX link; P10-billion CALA expressway in Cavite; the supply of treated bulk water for Metro Manila; and the P3-billion Daraga international airport in Albay.

Seventy-three other PPP projects with an investment requirement of P612 billion will be implemented in 2012 and beyond.

Espiritu also said the PPP Coalition, composed of the Philippine Constructors Association, PCA Foundation Inc., Bankers Association of the Philippines, and the Research, Education and Institutional Development Foundation Inc., have already identified ready-to-go projects among the PPP projects of the government.

These were the CALA expressway project, the LRT-1 extension from Baclaran to Kawit, Cavite, and the LRT-2 east extension.

Espiritu also said the build-operate-transfer law should be amended to attune its thrusts with those of the PPP Center which was recently formed by the present administration.

Meanwhile, PCA was scheduled to hold its 20th Philippine Construction Show on Nov. 11 to 14 at the SMX Convention of the Mall of Asia.

Over 75,000 local and international consumer and trade buyers are expected to attend this event.

PSE best performing stock market in Asia

Stocks hit new record high
Manila Standard
http://www.manilastandardtoday.com/insideBusiness.htm?f=2010/november/5/business1.isx&d=2010/november/5

THE Philippine Stock Exchange index extended its rally this week and finished at a new historic high on Thursday.

The PSEi surged by 15.44 points or 0.35 percent with value turnover reaching P4.8 billion.

Trading volume reached 1.72 billion shares.

There were 71 gainers against 63 decliners in Thursday trading.

“Year-to-date or as of Nov. 3, 2010, our stock market is now the best performing market in Asia with the PSEi recording an aggregate gain of 1,329.19 points or 45.3 percent, surpassing the growth of the markets in Indonesia and Thailand,” PSE President and chief executive Val Antonio Suarez said.

“Aside from sound fundamentals, our market also continues to benefit from the general optimism by foreign investors towards Asian economies. Foreign investors accounted for about 50 percent of today’s trade values,” he added.

Top gainers were Philippine Bank of Communications, Megaworld Corp., Manchester International Holdings Unlimited, Apex Mining Co., First Metro Investment Corp., Security Bank Corp., Holcim Philippines Inc., and Robinsons Land Corp.

Decliners included Interport Resources Corp., APC Group, Inc., Cyber Bay Corp., Euro-Med Laboratories Phils., Inc., and Macroasia Corp.

Traders said the announcement by the US Federal Reserve that it would pump in $600 billion into the US economy perked up regional markets.

The Dow Jones Industrial Index rose 26.41 points to 11,215.13, its highest close in two years.

Japan’s benchmark Nikkei 225 stock index jumped 204.94 points, or 2.2 percent, to 9,364.92 despite pressure on exporters as the dollar fell below the 81 yen level.

Hong Kong’s Hang Seng index climbed 0.9 percent to 24,363.54 while China’s Shanghai Composite Index rose 0.6 percent to 3,047.78.

Thursday, 4 November 2010

P2.2-billion fund for Pampanga projects not 'pork' — Palace

By GENALYN KABILING
Manila Bulletin
http://www.mb.com.ph/articles/285734/p22billion-fund-pampanga-projects-not-pork-palace

MANILA, Philippines — The P2.2 billion in infrastructure funds for Central Luzon is not the pork barrel of Pampanga Rep. Gloria Macapagal-Arroyo but actually involves two foreign-assisted projects on lahar and flood containment and development highway in specific areas, Malacañang said on Wednesday.

Presidential Spokesman Edwin Lacierda said the infrastructure projects funded from loans secured by the former leader was a “necessity” to clean up the river systems of Pampanga and curb potential hazards to the communities surrounding the Mt. Pinatubo.

Of the P2.2 billion allocated in the 2011 budget, the P1.61 billion will be used for the flood control projects in Porac-Gumain River and Pasac Delta Area as part of the Mt. Pinatubo Hazard Urgent Mitigation Project Phase II. The project will be sourced from P1.32 billion worth of loans from Japan Bank for International Cooperation (JBIC) and some P289 million in the Philippine government counterpart.

The second infrastructure project worth P590.85 million involves the Sta.Cruz, Lubao-Dinalupihan section of Gapan-San Fernando-Olongapo Road project Phase II. It consists of P485.4 million from loan proceeds from the Korea Economic Development Cooperation Fund (EDCF) and a P105.42-million counterpart from the Philippine government.

“This is not pork. This is part of the JBIC program,” Lacierda said in press conference in the Palace. “It is not because of a preference of the pervious administration. It is for the benefit of those affected by Mt. Pinatubo,” he added.

Asked if the Palace welcomes the Arroyo-initiated public works project in Pampanga, Lacierda said: “it’s a very important loan.

If you are asking me if we are thankful, it’s already there to help the affected people there.”

Lacierda, however, admitted that the allocation for the foreign-assisted project in Pampanga may be reduced if some of its phases are not urgent and “not yet awarded and ongoing.”

He said Public Works Secretary Rogelio Singson will study the phases of the public works project in Pampanga and check if they should be prioritized. He noted that Singson has expressed concerns on the smaller components of the project like dredging in small rivers and raising of roads in Lubao that could be postponed.

On Sen. Alan Peter Cayetano’s claims that former President Arroyo is a sacred cow under the Aquino government as it gave her supposed large pork barrel funds, Lacierda said: “I think Senator Cayetano should be the first to know that we are not the best of friends with the former President.”

Budget and Management Secretary Florencio Abad also said the government would not allow anybody to personally benefit from the two critical infrastructure projects in Central Luzon “as their pork barrel.”

“We are committed to reviewing these projects, among others, to make sure that their development purposes are indeed achieved. Furthermore, we are committed to instituting transparency and accountability in the bidding and implementation of these projects,” he said in a statement.

The first project, funded by loan agreements with JBIC on December 2007, seeks "to mitigate flood damage from the elevation of riverbed and the clogging of river way caused by outflow and sedimentation of pyroclastic flows, to secure the physical distribution, to improve the hygienic environment, and to promote sustainable development including the development of Subic-Clark in the project areas."

US election: What does it mean?

John Mangun
Outside the Box
Business Mirror
http://www.businessmirror.com.ph/home/opinion/3287-us-election-what-does-it-mean

Vote counting in the US election is ongoing as of this writing. It is clear that the Republican Party is going to control the House of Representatives while it is likely that the administration Democrats will retain control of the Senate. What does it all mean? Everything and nothing.

The left/socialist legislative agenda of the Obama administration has come to an end. While there may be some significant changes in the previously passed law giving massive government control of the health-care sector, it is unlikely that this law will be repealed. The recently passed financial-reform bill was all political, anyway, and the Banksters will be allowed to continue to appear financially stable when, in fact, the banks are all bankrupt. The two political parties will play all lawmaking for the politics but the gridlock will stop any meaningful reform and changes.

I am sure that the Americans would like to believe that this election will make a difference. It will change the political landscape for the 2012 presidential election. However, nothing will change economically for the better in the short term.

During the last two years, the economic course of the US was charted by the Federal Reserve. The Fed, under the leadership of Great Depression “expert” Ben Bernanke, has utilized its policy power in every conventional way imaginable. The problem is that all the conventional methods that the government uses to manage an economy, particularly a problematic economy, have always failed.

The Fed immediately resorted to the oldest technique to stimulate an economy—lowering interest rates. The theory is that if interest rates went down, people and businesses borrow money which they then spend stimulating economic growth. However, hundreds of years of history have proved that raising or lowering interest rates does not have any affect in stimulating or reducing demand. The reason you borrow money is to make a profit.

If I were to offer to loan you money at 100- percent interest, would you take my offer? You most certainly would if you could take that borrowed money and make a 200-percent profit like in the stock market or a business. In fact, interest rates always go up during good economic times because there is an increasing demand for borrowed funds when it is easier to make profits. Likewise, why borrow money at even zero percent if you were going to lose that money by investing. If there is little expectation for profits, low interest rates do nothing to stimulate economic activity.

The other policy move by the Fed has been to flood the economy with fresh, newly printed money. This has been accomplished by the Fed buying US government debt with that money. The government “borrows” the money, in effect from itself, and then spends it trying get the economy growing. However, we all know how efficiently the government spends the people’s money.

The offshoot of this money printing is that the dollar will decrease in value. Currency debasement is a very old and harmful tactic used by governments, going back to the Romans, to try to camouflage bad management. The economic “theory” behind currency devaluation is that it will make a nation’s exports cheaper and more attractive. It does not work.

Historical studies have shown that a nation’s exports can compete, regardless of currency exchange rates, as long as the exporters can be profitable. An exporter can compete against other exporters who have “cheap” currencies if he can be price-competitive and still make a profit. Labor and raw-material costs affect profits. But the No. 1 factor that determines an exporter’s ability to make profits is taxes. In other words, high taxes negatively offset any benefits of dealing with a “cheap” currency in the same way that low home nation taxes positively offset any disadvantages of having a “strong” currency.

The US political changes will not materially affect corporate taxes and the Fed will continue to pursue a devaluating dollar policy. The negative domestic consequences to a weakening dollar are great. As the dollar weakens, foreign investors in the US begin to sell their holdings. This happened in the 1970s as the Japanese, formerly huge buyers of US real estate and corporations, suddenly found that their return on investment went negative due to the falling dollar. All this foreign selling of assets will further depress the US economy. And, of course, domestic inflation will rise significantly, further hurting the economy.

The same is true of the stock market. As the Fed has pumped a trillion new dollars into the US economy, since business confidence is so low, a portion of that money has gone into the stock market. This is creating another financial bubble. Leading up to periods of economic depressions, the amount of bond offerings is always greater than the amount of stock offerings. It is usually more financially healthy for a corporation to issue equity, stock, than debt. Debt is a burden. Stock offerings spread the potential profit around.

Bond offerings in the US are now enormously higher than stock offerings. While it is true that US corporations have some $2 trillion in cash, their net position (assets-debt) is nearly a negative $1 trillion. This is another somewhat hidden debt bubble that will eventually pop, causing another round of financial turmoil. But things cannot be all that bad; look how the US stock market is going up. One word; nonsense.

The measure of a true bull stock market is a market that is going up regardless of the home currency of the investor, like we see on the Philippines Stock Exchange (PSE). Are the Japanese making money in the US market? Not with the yen rising against the dollar every day. When a stock market goes up in all currencies, then everyone is a buyer just like at the PSE.

The US election will change things but not for the better. The Obama administration is now a lame-duck government and the failed economic policies will continue.



E-mail comments to mangun@gmail.com. PSE stock-market information and technical analysis tools provided by CitisecOnline.com Inc.

‘Peso rose 11% in real terms’

CAI ORDINARIO
Business Mirror
http://www.businessmirror.com.ph/home/top-news/3296-peso-rose-11-in-real-terms

AS the currency wars ensue, the Philippines has already been feeling the heat and may have already seen its currency appreciate by 11 percent in real terms, according to an expert from the government think tank Philippine Institute for Development Studies (PIDS), who advocated some sort of regional capital controls.

In a presentation at the Asia Policy Forum on Wednesday, PIDS president Dr. Josef Yap said that while the Philippine peso has appreciated by around 8 percent in October, in real terms this may have already reached a double-digit increase of 11 percent.

This, Yap said, makes it even harder for sectors dependent on dollar inflows like the export sector and the families of overseas Filipino workers (OFWs). The appreciation of the peso usually slows down consumption since it cuts exporters’ profits and slows consumption of OFW families.

“The Philippines is starting to experience that problem [peso appreciation] in October alone, [when] our nominal terms appreciated by 8 percent. Now the problem is, from my point of view, real terms appreciated at a higher rate, at about 11 percent. So that’s not a good sign if your currency appreciates at a higher rate in real terms than in nominal terms,” Yap said.

“It [appreciation] really hurts our economy, it hurts our exporters, our OFW and people don’t really look at this, domestic firms that compete with imports. I think they’re the hardest hit,” he added.

The solution to this, Yap said, is for the implementation of regional capital controls, which should receive some support from the International Monetary Fund (IMF). This is actually one of the recommendations of the Asia Policy Forum to include in the agenda of the Group of 20 (G-20).

The Asia Policy Forum is urging the IMF and the World Bank to implement reforms in its operations and governance. Included in these reforms should be reviewing the international financial architecture on issues like managing short-term capital flows and balancing the adjustment process between capital-exporting and capital-importing countries.

This was included in the report titled “Policy Recommendations to Secure Balanced and Sustainable Growth in Asia.” The report made by the forum will also be presented to Asian leaders before the meeting of the G-20.

“We really have to look at that issue, and one solution is capital control. But it should be at a regional level. And we have to have some support, explicit or implicit, from the IMF about implementing capital controls,” Yap said.

“So one, it should be at a regional level. That is what we should agree on; and second, we have to have some explicit or implicit support from the IMF about this capital control,” he added.

The other recommendations of the Asia Policy Forum include strengthening the role of Asian regional bodies in global macroeconomic and financial management; reducing the global imbalance; promoting inclusive and green growth; advancing trade and investment integration in Asia; pursuing financial regulatory reform in G20 countries; and reinforcing regional economic and financial cooperation in Asia.

The ADB Institute, which serves as the Secretariat of the forum, said that while Asian economies have already begun to recover from the global economic crisis, many risks remain. These risks include a double-dip recession in the advanced economies, the inappropriate timing and pace of withdrawals of macroeconomic stimulus programs around the world, surges in short-term capital inflows to emerging economies, and “currency wars.”

“Asian leaders need to meet and enunciate an Asian program to achieve balanced and sustainable growth. The articulation of such a program will boost confidence and position the region as a leading center of the global recovery,” ADBI Dean Masahiro Kawai said in a statement.

The Asian Policy Forum, established in 1999, brings together leading researchers to analyze key development issues affecting the region, and to make policy recommendations on them.

Tokyo-based ADBI, a subsidiary of the Asian Development Bank, was established in 1997 to help build capacity, skills, and knowledge related to poverty reduction and other areas that support long-term growth and competitiveness in developing economies in the Asia-Pacific region.

Tuesday, 2 November 2010

PHL Cited for the third time as World's Top Outsourcing Center

By ROY C. MABASA
Manila Bulletin
http://www.mb.com.ph/articles/285355/phl-cited-worlds-top-outsourcing-center

MANILA, Philippines – For the third time, the Philippines was cited as the “world's leading global outsourcing center” when it was awarded the Offshoring Destination of the Year Award for 2010.

The country first bagged the coveted title in 2007. The Philippines also beat other countries in the same category last year, making this year a back-to-back win.

The honor was given during the National Outsourcing Association (NOA) Awards Night, held at the Park Plaza Riverbank Hotel in London last week.

NOA said that with its abundant graduate workforce, the Philippines is becoming a veritable offshore giant for the UK Business Pocess Outsourcing (BPO) market.

The NOA, in particular, gave full importance and recognition to the country's 92 percent literary rate, 36- million labor force with 450,000 university level graduates per year – about 100,00 of them finance and accounting graduates – and the ability to understand and speak English with a neutral and understandable accent.

The country's world-class telecommunications infrastructure and unparalleled government support in the form of income tax holidays of up to six years,and other fiscal and non-fiscal incentives, also boosted the country's chances in bagging the title.

Furthermore, the board of judges gave due importance to the flat 5 percent income tax rate on gross income for locators of office buildings and installations accredited as Philippine information technology (IT) economic zones, after the initial 4-6 years of income tax holiday has passed.

The NOA has been operating for over 20 years and is the only well-established and recognized outsourcing trade association in the United Kingdom.

It is also one of the founding bodies of and prime movers of the European Outsourcing Association.

The NOA Awards are held every year to give recognition to best practices in the UK outsourcing industry. This year, there were 17 categories in contention.

Other nominees in the category won by the Philippines included Egypt, Sri Lanka, and Ukraine.

Receiving the award on behalf of the Philippine outsourcing industry and the Department of Trade and Industry (DTI) were Commercial Attaché Michael Alfred V. Ignacio and Trade of Investment Representative Vicente A. Casim of the Philippine Trade and Investment Center in London.

Once again, be glad you are Filipino

John Mangun
Outside the Box
Business Mirror
http://www.businessmirror.com.ph/home/opinion/3177-once-again-be-glad-you-are-filipino

While most of the rest of the world looks to the future with fear and hesitation, here in the Philippines, the economic situation grows better and better.

The economic fire has been lit and as each month passes, it becomes more and more self-sustaining. As corporations and individuals make more money, they use that profit to create more and more wealth and that is what is happening in this country. From BusinessMirror: “Firms operating inside the Philippine Economic Zone Authority [Peza] generated 721,588 new jobs during the first nine months of the year, up 22 percent from the 592,257 recorded during the same period a year ago.”

Look at that number: 721,588 new jobs in nine months. And each of those new jobs creates more jobs and more wealth. Moreover, the Philippines is at the beginning of the wave, not the end. From the Philippine Star: “A survey conducted by the Bangko Sentral ng Pilipinas [BSP] showed an increasing demand for loans by corporate and individual borrowers due to a stronger than expected growth in the economy for the first half of this year.” That is part of the self-sustaining idea. Making money encourages business to find ways and fund ideas to make more money and the process goes on and on and grows and grows.

But you know what? It is not about the money and not about the numbers. It is all about attitude. One of the important reasons the numbers and money are growing is that people are, even secretly and quietly, glad to be Filipino.

Through 2008 and 2009, Filipinos were very cautious waiting for the worst of the global financial crisis to hit, like waiting for the next Typhoon Milenyo. By contrast, US corporations are holding back spending and investing some $2 trillion. But they are scared and worried, unlike in the Philippines.

Let me illustrate my point from a column in the New York Times: “India and America are both democracies, a top Indian official explained to me, but emotionally they are now ships passing in the night. Because today, the poorest Indian maid believes that if she can just save a few dollars to get her kid English lessons, that kid will have a better life than she does. So she is an optimist. “But the guy in Kansas,” he added, “who today is enjoying a better life than that maid, is worried that he can’t pass it on to his kids. So he’s a pessimist.”

Do you see the difference that attitude can make? We laughed and cried at the same time to the silly statement that the Philippines was down so low that there was no place to go but up. Yet in a sense, it was true. The moment people lose the belief that there is an “up” and that it is possible, even remotely possible, to reach “up,” then things start falling apart. That is where the US is right now.

Contrary to many negative comments you read about the Philippines and Filipinos, in fact, Filipinos do quite a bit of self-examination, at least on a national perspective. This is a very important quality. Filipinos have a realistic view of personal and public corruption, neither exaggerating nor underestimating. More important, the Filipino has a belief that corruption can be reduced. Witness the Aquino election.

While the “experts” throw large quantities of mud on the wisdom of the Filipino voter, that criticism is not really fair.

Based on résumés, Aquino was the least experienced candidate. The same was true in the 2008 US election that brought Obama to the White House. Obama ran on “hope and change” as did Aquino, to a less distinct extent. But the difference in public attitude and perception to “hope and change” was completely different.

America’s hope and change is best embodied in the Obama supporter, Peggy Joseph, who cried out at a political rally, “I won’t have to worry about putting gas in my car. I won’t have to worry about paying my mortgage. If I help him [Obama], he’s going to help me.”

The Filipino, like the Indian maid, has not lost the belief that things can be better in the future and that is a critical component to economic success. It is not an easy road to travel but it is the path to victory.

In the US, “hope” was being hopeful the problems would go away and “change” meant “We’ll try anything different.”

Compare to the Philippines. “Hope” for local voters was the belief that conditions could improve in the future. “Change” was the idea that a person with political experience, but not too much as to be considered a traditional politician, could achieve what the people needed.

No one expected miracles like free gas and housing. All the voters wanted, even demanded, was that the next president be serious, for example, about addressing corruption. Hoping for miracles is a sign of desperation and lack of realism. Expecting positive change shows maturity and common sense.

It is not so much about looking at where you are but about looking at where you came from. But more important, it is a matter of believing that you can go to where you want to be. That is one reason those who complain about poverty are not helpful. It is always about “enough progress has not been made reducing poverty.” Yes, thank you. We know that. But do we believe that we can move in a positive direction?

The Aquino administration’s plan to expand the Conditional Cash Transfer Fund has generated both controversy and discussion. But the important thing is, beyond all the political ranting, is the belief that something positive can be done. The issue is how to work it out to make is successful.

Be glad you are Filipino. The tools and conditions are coming into place for progress, substantial and sustained progress. What must not be lost is a firm belief that the Philippines can and will make it all happen successfully.



E-mail comments to mangun@gmail.com. PSE stock-market information and technical analysis tools provided by CitisecOnline.com Inc.

Monday, 1 November 2010

Gold will outlive the dollar once slaughter comes

Market mayhem
John Hathaway
Monday, November 01, 2010
http://www.thestandard.com.hk/news_detail.asp?we_cat=16&art_id=104381&sid=30123924&con_type=1&d_str=&fc=1

The world's monetary system is in the process of melting down. We have entered the endgame for the dollar as the dominant reserve currency, but most investors and policymakers are unaware of the implications.

The only questions are how long the denouement of the dollar reserve system will last, and how much more damage will be inflicted by new rounds of quantitative easing or more radical monetary measures to prop up the system.

Whether prolonged or sudden, the transition to a stable monetary system will become possible only when the shortcomings of the status quo become unbearable.

Such a transition is, by definition, nonlinear. So central-bank soothsaying based on the extrapolation of historical data and the repetition of conventional wisdom offers no guidance on what lies ahead.

It's amazing that there is no intelligent discourse among policy leaders on the subject of monetary rot and its implications for the future economic and political landscape.

Until there is fundamental monetary reform on an international scale, most economic forecasts aren't worth the paper on which they are written.

Telltale signs of future trouble aren't hard to spot. Only a few months ago, Federal Reserve chairman Ben Bernanke and a chorus of other high- ranking Fed officials were talking about exit strategies from the US central bank's bloated balance sheet and the financial system's unprecedented excess liquidity.

Now, those same officials are talking about pumping more money into the system to stimulate growth.

And they're not alone: six months ago, the chief economist of the International Monetary Fund, Olivier Blanchard, suggested that raising inflation targets to 4 percent from 2 percent wouldn't be too risky.

This sort of talk must grate on the nerves of the United States' trading partners, China, India, Russia and others, who have accumulated pyramids of non-yielding Treasury debt. No haven there.

Return-free risk may be a better way to put it. And bickering among central bankers over currency manipulation and rising trade tensions doesn't exactly reinforce one's confidence in a scenario of sustained economic growth and a return to prosperity.

The prospects for an orderly unwinding of the extreme posture of global monetary policy are zero.

Bernanke, together with Jean- Claude Trichet and Mervyn King - his counterparts in Europe and the UK, respectively - are huddling en masse upon the most precarious perch in the history of monetary affairs.

These alleged guardians of monetary stability, in their attempts to shore up the system, have simply created the incinerator for paper money. We are past the point of no return. Quantitative easing may well become a way of life.

The consensus investment view seems to be that the credit crisis of 2008 was a freak occurrence, unlikely to repeat. That is wishful thinking. Monetary policy has painted itself into a corner. Based on our present course, there will be more bubbles and more meltdowns.

Financial markets and institutions sense trouble, as reflected in the flight to supposedly safe assets such as Treasuries and corporate-debt instruments with paltry yields, as well as the reluctance to lend by commercial banks.

We are stuck in an epic liquidity trap. The irony is, if global central banks succeed in creating inflation, the value of these safe assets will be destroyed. It is a slaughter waiting to happen.

In the pedantic mentality of central bankers, their playbook creates just the right amount of inflation. As inflation accelerates, consumers will spend to get rid of their dollars of diminishing value and spur the economy.

Once consumers start spending, it will be time to raise interest rates because a solid foundation for prosperity will have been established, they say.

But whatever the playbook promises, the capacity of financial markets to overshoot can't be overestimated.

The belief among policy makers and financial markets in the possibility of this sort of fine-tuning is preposterous, but it is the slender thread on which remaining investment and business confidence rests.

The breakdown of the monetary system will be chaotic. When inflation commences, it will be highly disruptive. The damage to fixed-income assets will seem instantaneous. Foreign-exchange markets will become dysfunctional. The economy will become even more fragile and unpredictable. Gold is an imperfect, but comparatively reliable, market gauge for the extent of current and future monetary destruction.

The recent acceleration in the dollar price of the metal to US$1,381 (HK$10,771.80), a record high in nominal terms, coincided with talk of a new round of quantitative easing and highly visible discord among major nations on trade and currency-valuation issues.

Naysayers point to gold's price and see a bubble, without understanding that the only acceleration that is taking place is in the rate of decline of paper currency.

The Fed is organizing an attack on the dollar's value, believing that this is the most expedient way to defuse deflationary market forces. The man in the street is unaware - a perfect setup.

Inflation can only be successful when the public doesn't see it coming.

The sudden torrent of commentary on gold isn't the sign of a bubble. Anti- gold pundits provide a great service to those who grasp this historical moment: they facilitate the advantageous positioning of the one asset most likely to be left standing when the dust settles.

John Hathaway is a managing director of Tocqueville Asset Management in New York. The opinions expressed are his own.

E-mail: JHathaway@Tocqueville.com