Reimagining the future

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THAT city will, in the course of time, become the granary of the world, the emporium of commerce, the seat of manufactures, the focus of great monied operations,” predicted DeWitt Clinton, governor of New York in 1824. He was speaking about the effects of the Erie Canal, which connected the Great Lakes to the Hudson River. Originally derided as “Clinton’s folly”, the canal helped to open up the west, allowing New York to benefit enormously from an explosion of trade. Within 15 years of the opening, New York was the busiest port in America, moving more than Boston, Baltimore and New Orleans combined. The plan to open an applied sciences university campus in New York City, reckons Seth Pinsky, who heads New York’s Economic Development Corporation, is an “Erie Canal moment”.
The city’s embrace of high-tech has already begun. Tech clusters have emerged in Manhattan’s Flatiron District and Brooklyn’s Dumbo, home to firms like STELLAService and Etsy. Venture-capital firms and angel investors have been looking at New York more seriously than they once did. Henry Blodget, of Business Insider, notes “the financing ecosystem has also gotten very well developed, from late-stage private equity right down to angel investing.” Some $1.2 billion was invested by venture-capital firms in New York in 2010. The Big Apple even overtook Massachusetts in venture-capital funding for internet and tech start-ups, making it second only to Silicon Valley. And in the third quarter of last year, it surpassed it in venture capital in all categories. Between 2005 and 2010 employment in New York’s high-tech sector grew by nearly 30%. Google alone has about 1,200 engineers in the city.

Much of this growth has been organic, but there has been some help from City Hall. Since 2002 the city has set up more than 40 projects to help the biotech sector and helped create a network of incubators supporting start-ups in that area. It also established a $22m municipal entrepreneurial fund, the first of its kind outside Silicon Valley. A year ago Michael Bloomberg, a tech entrepreneur before he became New York’s mayor, called on universities to pitch plans to develop and operate a new tech campus in New York in exchange for access to city-owned land and up to $100m in public money.
New York received seven proposals from 17 top institutions, including Stanford University which did so much to create Silicon Valley. Almost 6,000 companies, including Google, Hewlett-Packard and LinkedIn, trace their beginnings to Stanford. But Stanford withdrew from the competition last month, days before the mayor announced the winning proposal, which came from Cornell, an Ivy League university, and its partner Technion, an Israeli technology institute. The latter is considered to be one of the driving forces in Israel’s tech industry. It helped turn Israel from a country of orchards to one of semiconductors. Some 4,000 start-up companies are located around its campus.
The two bodies have plans to build a $2 billion 2m square feet (610,000 square metres) campus on Roosevelt Island, one subway stop from mid-town. Cornell and Technion hope to have a temporary facility up and running as soon as this autumn and complete their permanent home by 2017. The bid had huge support from Cornell alumni, including a $350m gift from Charles Feeney, who made his fortune through the Duty Free Shopping Group. That is one of the largest donations in the history of American higher education.
According to the city’s analysis, over the next 30 years the campus will generate more than $7.5 billion in economic activity, with 600 companies spinning out of the new school directly; these are projected to create 30,000 jobs. Some 20,000 construction jobs will also be created, not to mention about $1.4 billion in extra tax revenue. And it should help quench the never-ending demand for qualified engineers. The mayor has not ruled out naming additional winners. And some of the losing plans will go forward regardless. So New York could soon have several applied sciences campuses. Look out, Silicon Valley.

Behind every cloud, another cloud

A decade ago, Britain came through the dotcom bust with barely a scratch, thanks to a consumer-credit boom and deficit-financed public spending. Those days of easy credit are long gone: consumers are paying down their debts and government finances are deep in the red. The economy’s best hope lies with export demand, but this is growing scarce. The economic outlook for America, Britain’s biggest single-country export market, looks dark. The euro zone, where half of Britain’s exports go, is at risk of imploding.

In September the IMF cut its forecast for Britain’s GDP growth in 2012 to a sluggish 1.6%. Even that may soon look too optimistic; the Economist Intelligence Unit, a sister company of The Economist, expects 0.7% (see “The world in figures”). It seems far likelier that the economy will disappoint than offer a pleasant surprise. The British policy brass feels vindicated for its wariness about the single European currency but scepticism will be no protection against the fallout from the euro’s troubles. Britain is the one big country outside the currency zone that is heavily exposed to euro trouble through its trade and financial links.

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The continuing crisis in Europe will have implications for Britain’s deficit-cutting plans. The logic behind the government’s fiscal austerity is that the bond market’s ire can turn quickly from errant euro-zone countries to others (such as Britain) that have large budget deficits. But as Europe’s woes deepen, the harm done by sticking rigidly to the fiscal plan is likely to prove greater than any damage done by deviating from it.
That is in part because money pulled from the euro zone’s trouble-spots has to go somewhere. Some of it will end up in British government bonds, which will look among the soundest of the rich-country credits (admittedly not a healthy peer group). Meanwhile, a dearth of export orders for British companies will push the government to adopt measures in support of the economy. Deep cuts in the state’s day-to-day running costs, including reductions in welfare benefits, will go ahead as planned. But the Treasury will find itself having to finance new capital projects to make up for a shortfall in aggregate demand.
The economy will be lucky to avoid at least one quarter of contraction during 2012. The unemployment rate will be stuck above 8%, the highest rate since the mid-1990s. But two factors militate against a deep downturn.
First, businesses anxious about the economic outlook and fearful of a renewed tightening of credit conditions tend to trim their stocks, postpone planned investment and stop hiring new employees. But this tendency to conserve cash will be limited in the coming months because many British companies have already been piling up rainy-day money. The excess of corporate income over spending has risen above 4% of GDP. That offers a degree of protection against savage cuts in stocks, investment and jobs.
Easy does it
A second helpful factor is the prospect of lower inflation. It is set to fall steadily from a peak of 5% to around 2% by the end of 2012, as vat and energy-price increases drop out of the annual rate (see chart). That will bring some relief to hard-pressed consumers, who suffered a large fall in real income during 2011. Lower inflation will also make it easier for the Bank of England to justify a more aggressive dose of “quantitative easing” (QE)—boosting the money supply by buying government bonds. Because investors will be increasingly reluctant to finance commercial banks, amid worries about their exposure to the euro zone’s sovereign-debt problems, the Bank of England will find itself compelled (with Treasury backing) to buy long-term bonds issued by banks as part of its QE programme.

The pound is set to fall further against the dollar

London will look a cheap holiday destination for Americans next summer but a lot of Europeans are likely to stay at home. The pound is set to fall further against the dollar in the early months of 2012, in part because of Britain’s exposure to the euro zone but also because the dollar rises against other currencies when the world is in trouble. At the low point for the global economy in March 2009, the pound fell to $1.38. It could easily fall as far again in 2012 given how fearful investors are likely to become.
Only the euro looks more vulnerable to a fall. But it will not be much comfort for Britons that some other European economies will be in even worse shape than their own.

How to run the euro?

How to run the euro?

• er during the euro crisis: the markets and the politicians. In 2012 the battle will become a lot more complicated, as the politicians splinter into factions. It sounds dangerous—and it is—but thrashing out political arguments is an essential part of bringing the crisis to an end.

Amid the banks’ plunging shares and the soaring yields of government bonds, it is easy to lose sight of the political questions being asked of Europe. Markets have forced Europe’s troubled economies to confront austerity and reform, but politics will determine how they do so. Markets have demanded that Germany and other creditor nations finance a rescue, but politics will decide what they demand in return. Markets want a revamp of the euro’s governance, but politics will ordain how energetically the European Union embraces federalism.

Austerity and a rescue are now under way, though a descent of Greece into anarchy could yet throw them off course. But the third element—renovating the governance of the euro—is still highly uncertain. In 2012 Germany’s Angela Merkel and her fellow euro-zone leaders will set out the sketches for that design.

Try this for a blueprint

If you were sitting down with a blank sheet of paper, you would advise the euro zone to complement its one-size-fits-all monetary policy by pooling sovereignty and creating new institutions. You would set up a European mini-IMF (call it an EMF) with enough funds to tide over troubled countries as they adjusted their economies. A pan-European banking regulator and a bail-out fund could ensure that large European banks were not at the mercy of their vulnerable sovereign borrowers. To stop the markets from picking off weaklings, you might organise centralised borrowing—in which all countries jointly stood behind the debt of each government. And, to stop spendthrift governments from exploiting these mechanisms, euro-zone countries would agree to submit their fiscal policies to the say-so of everyone else.

It amounts to a blueprint for the United States of Europe. And it is utterly beyond reach.

For starters nobody can agree on which central authority should hold all these new powers. France and Germany would refuse to boost the European Commission, which they mistrust. Smaller countries and Germany’s constitutional court would refuse to endow an ad hoc intergovernmental council. Many national leaders heartily detest the European Parliament.

Moreover, many governments are nervous about other euro-zone countries having a say about their own public spending. And the entire EU was scarred by the eight-year-long attempt to restructure the union, first by writing a new constitution—rejected and abandoned—and later by repackaging the constitution into the Lisbon treaty, which limped into force in 2009. You do not find much appetite in Brussels for a repeat performance.

Shape up, for the euro’s sake

Where does that leave the redesign of the euro? Euro-zone governments have agreed that leaders will meet at twice-yearly summits. They have set up a proto-EMF and a European Banking Authority. And they have agreed to monitor the economies of euro-zone members in a souped-up Stability and Growth Pact.

New sanctions might require a new treaty

But more is needed, especially with sanctions. Some could be enforced at the level of the nation. Euro-zone members might have to write caps on deficits and debt into their constitutions, or create independent offices of statistics and budget sustainability, rather as they must have an independent central bank today.

Ultimately, though, new sanctions might require a new treaty. But new treaties take a long time. Countries can weigh them down with their own agendas (Britain, for instance, wants to repatriate powers even though it is not a member of the euro zone). And referendums can reject treaties (just ask the Irish).

These difficulties have answers and the EU has had more than enough practice in fashioning compromises out of unpromising ingredients. But if the euro zone gets it wrong in 2012, it will be laying the foundations of the next currency crisis. 

Going for gold

The arts were always meant to be part of the Olympics, as envisioned by the so-called father of the modern games, Pierre de Coubertin. For decades the events included competitions in categories such as sculpture, painting and music, all tethered to a sporty theme. These days, medals for setting records in the arts tend to be doled out by auction houses—and, awkwardly, it pays to be dead. But in London in 2012 artists and performers will be jockeying for position alongside the world’s finest athletes. Unlike Beijing, which used its games in 2008 to prove its graduation to long trousers, London wants to reaffirm its eminence as an international cultural destination.

Brits could be forgiven for not noticing, but London’s Cultural Olympiad began in 2008, with nationwide events and commissions designed to culminate in a big festival in June-September 2012. In practice this meant little before Tony Hall, head of the Royal Opera House, became involved in 2009 and then anointed Ruth Mackenzie as the Olympiad’s director in early 2010. With some £94m ($147m) to play with, largely from lottery funds, Ms Mackenzie and the festival’s organisers have curated more than 1,000 events, many of them free and aesthetically daring, for an estimated audience of 10m people. Though London will enjoy the lion’s share, the festivities will be spread throughout Britain—a crucial bit of diplomacy given the use of national taxes.

What to see? The most inescapable bit of cultural cool will be Bus-Tops, a public-art installation on the roofs of London bus shelters, designed by Alfie Dennen and Paula Le Dieu. Part of a programme called Artists Taking the Lead, funded by the UK Arts Councils, this is one of 12 commissioned projects throughout the country, one for each region.

Much of the Olympiad is designed to be enjoyed outdoors—rain or shine—to maximise participation. This includes a big, free music event on Hackney Marshes on June 23rd and 24th, courtesy of the BBC and Radio 1. There is also something called Big Dance, a festival of moving and shaking in unexpected places (parks, lidos, shopping centres). Bigger still is a summer-long celebration of performances by disabled and deaf artists called the Unlimited festival. 

All 37 plays in 37 different languages

In these grim times for arts funding, many institutions are seeing the benefits of collaboration. Sadler’s Wells and the Barbican are working together for the first time to produce a grand tribute to the career of Pina Bausch, a German choreographer who died in 2009. Then there’s Metamorphosis: Titian 2012, from the Royal Ballet and the National Gallery, based around three Titians, including one important recent acquisition. This project features three new ballets, each inspired by a Titian painting, and several new Titian-influenced works by contemporary artists, including Chris Ofili and Mark Wallinger, which will hang alongside the originals in the museum. Mr Ofili is also one of 12 visual artists commissioned to design posters for the games, along with Tracey Emin, Martin Creed, Bridget Riley and Rachel Whiteread.

To be or not to be, in Lithuanian

Other highlights include “Dr Dee”, a new opera from Damon Albarn of the band Blur, directed by Rufus Norris at the ENO; a rare show of David Hockney’s landscape work at the Royal Academy (January 21st to April 9th); and an exhibition of Lucian Freud’s portraits at the National Portrait Gallery (February 9th to May 27th). Britain’s largest-ever poetry festival, Poetry Parnassus, will take place on the South Bank and feature 205 poets, one from each of the Olympic nations. Then there will be Britain’s biggest piece of public art, Anish Kapoor’s towering, looping, £19.1m ArcelorMittal Orbit near the Olympic park, which people will climb for unparalleled views of the city. Funded mostly by Lakshmi Mittal, a steel magnate who gave £16m and donated the steel (around 1,400 tonnes of it), the tower “would have boggled Gustave Eiffel,” Boris Johnson, London’s mayor, has boasted.

But the jewel in the London 2012 crown promises to be the World Shakespeare Festival, a collaboration of more than 50 arts groups and thousands of performers in a celebration of the bard as “the world’s playwright”. The Royal Shakespeare Company has been working with international troupes to create a roster of new productions, either of or inspired by Shakespeare’s plays. And the open-air Globe theatre on the South Bank will stage a six-week, Babel-flouting programme of all 37 plays in 37 different languages, beginning on April 23rd (Shakespeare’s birthday). This means an “All’s Well That Ends Well” in Gujarati, “The Comedy of Errors” in Dari, “The Merchant of Venice” in Hebrew and a Lithuanian “Hamlet” the critics love. Who better than the bard to highlight London as a global city where more than 250 languages are spoken?

Will 2012 be another stellar year for gold investors?

NEW YORK - 

In contrast to the closing months of 2011, gold has begun the new year on a more positive note.  Whatever the metal's short-term prospects - indeed even if gold takes another dive - we believe 2012 will be another stellar year for gold investors.

Gold topped out at an all-time high just over $1,924 an ounce in early September - a whopping gain of some $600 or about 50 percent from last January's low point.  But as investors know all too well, gold prices can be quite volatile - with big upswings often followed by big downturns, albeit around a rising long-term trend.  Such has been the experience of the past four months with gold shedding roughly 30 percent from its all-time high to its recent late-year low point of $1,522.  But, let's not forget, even allowing for this deep price correction, gold still closed the past year with just about the best annual gain of any asset class!

Looking ahead, 2012 could well turn out looking much like the past year for gold - with sizable gains, possibly as much as 50 percent (or more) from the recent lows, but also with occasional big declines that may lead many observers of the gold scene to mistakenly declare an end to the yellow metal's bull market.  Just as gold bears have been wrong over and over again in the past decade, so will they continue to be wrong in 2012.

The story of gold in recent years has been a tale of institutional traders and speculators - including hedge funds, commodity funds, and the trading desks at the big banks and financial firms - producing great two-way volatility as they rushed into gold (as we saw last summer) and then, not just unwinding long positions, but shorting the metal in a big way (as we saw this past fall).

Driving these institutional players, in addition to momentum and technical trading indicators, has been the flight from the euro into U.S. dollar assets - and the appearance of dollar strength pushing gold lower, particularly at times of massive euro capital flight.

Importantly, much of this negative activity has taken place in gold derivative markets - but, all the while, long-term physical demand has remained fairly robust.

Buying from the Asian gold-market giants - China and India - for both jewelry and investment has continued to remain firm in spite of higher prices that years ago might have discouraged continued accumulation.

Having just returned from two weeks in China and meetings with many players in the country's gold market, I can tell you that gold demand remains strong despite the recent slowdown in economic activity, thanks to personal income growth albeit at a slower pass, rising wealth among those most likely to buy gold, and also inflation fears.  Moreover, higher gold prices, rather than discouraging demand, have attracted new investors to the market.

Meanwhile, global net central bank gold buying has not just continued but has accelerated as reserve managers look for opportunities to shed U.S. dollars - and euros too - in favor of something that has a longer track record as a reliable store of value.

Central bank reserve managers, ever sensitive to buying without disrupting the market, have used episodes of price weakness to step up their buying.  This behavior now reduces downside risk while it is also helping set the stage for a surprising sizable snap-back in the metal's price.

What few gold pundits realize is that the amount of physical gold available in the world gold market - the "free float" - is shrinking, thanks not only to Chinese and other Asian buyers, many of whom are unlikely to sell, but also due to renewed interest and accumulation of gold by a growing number of central banks.  For central banks, the holding period may be measured in decades if not longer.  As a consequence, future demand will have a much more high-powered affect on the price of gold - and this is one of the reasons we expect much higher prices in the years ahead.

Short-term trading in derivative markets may, at times, produce a great deal of gold-price volatility - and can trigger significant price corrections - but, in my book, it does not affect the long-term price trend.  What governs the price of gold over the long term are the market's real-world supply and demand fundamentals - and these have been decidedly bullish and are becoming even more so.  Hence, my long-standing long-term forecast of higher gold prices over the next several years.

Jeffrey Nichols, Managing Director of American Precious Metals Advisors, has been a leading gold and precious metals economist for over 25 years. He is also Senior economic Advisor to Rosland Capital.  See www.nicholsongold.com

LBMA Forecasters See Gold Reaching $2,055 This Year

The London Bullion Market Association published the results of its Forecast on Monday, the firm’s annual survey on the direction of precious metals prices for the coming year.  The large majority of respondents – comprised of analysts and strategists from investment banks and other financial firms across the globe – predicted that gold will rise for a 12th consecutive year on its way to further new all-time highs.

The average maximum gold price estimate among the 26 respondents came in at $2,055 per ounce, a 6.9% increase over the yellow metal’s $1,923 record high in 2011.  In addition, the highest individual estimate came from UBS’s Edel Tully – last year’s most accurate gold price forecaster – who predicted that gold will reach a high of $2,500 per ounce in 2012.

The average of the mean gold estimates was $1,766 per ounce, 12.3% above the $1,572 average price in 2011.

While the analysts were quite bullish on gold in the year ahead, they were considerably less constructive on other precious metals.  The average estimate for silver in 2012 came in at $33.98 per ounce, 3.2% below 2011′s average of $35.11 per ounce.  Platinum’s 2012 average estimate was $1,624, 5.6% below 2011′s average of $1,720 per ounce. Lastly, palladium’s 2012 average estimate of $735.52 per ounce was just 0.3% above 2011′s average of $733.63 per ounce.

The numerical results of the LBMA Forecast are available at the web address below:

http://www.lbma.org.uk/assets/LBMA%20Press%20Release%202012%20Forecast%2020120106.pdf

The LBMA also noted that “The full survey, including specially written commentaries together with analysis of the historical performance of the Forecast, will be published later this month and posted on the LBMA website in mid-January.”

Hildebrand says he 'acted correctly' on deals

Swiss central bank chief Philipp Hildebrand on Thursday defended himself against criticism of foreign currency transactions made by his family last year and suggested "political motives" were at work.
Speaking publicly for the first time about the scandal, Hildebrand told media in Zurich that he had complied with all the regulations of the central bank.
"I acted correctly on every count," he said, following days of media speculation over allegations of insider trading.
It emerged last month that his wife Kashya Hildebrand profited after buying $504,000 in August, just weeks before an intervention by the SNB to halt the rise of the franc -- a move that saw the dollar rise significantly against the Swiss currency.
The purchase, which investigators said appeared to have been carried out without her husband's knowledge, was deemed "sensitive" by auditors who nevertheless cleared the couple of any wrongdoing.
"I immediately allowed an investigation and allowed the investigators to look at all my records," Hildebrand said.
Bank Sarasin in Basel this week dismissed an employee who allegedly transmitted transaction details to a lawyer close to the far-right Swiss People's Party whose chief Christoph Blocher is a Hildebrand critic.
Zurich prosecutors have launched a criminal case against a 39-year-old former bank worker.