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The Shift Toward De-globalization is Bullish for Gold

You can see signs of de-globalization everywhere. Just look at the intense shareholder opposition to Prudential PLC's proposed takeover of the Asian operations of American International Group Inc. (NYSE: AIG).

And that's just one example.

The market scare on news that North Korea had, indeed, sunk a South Korean Naval vessel was another. The "flight to safety" in U.S. Treasuries – sparked by the increasing concern about the future of the euro and the viability of Greek government finances – is a third.

All over the world, little by little, the apparently inexorable tide of "globalization" – making the world "flat" in the words of Thomas L. Friedman – is retreating.  If a full-scale financial crisis breaks out in the next few months, that retreat will become a rout. And the world will become de-globalized.

For the warning signs of de-globalization, please read on...

Global Recovery Gaining Momentum, but Obstacles Remain

The Organization for Economic Cooperation and Development (OECD) announced yesterday (Wednesday) that it has lifted its economic growth outlook, but warned that governments must enforce strict fiscal policies to sustain the global recovery and balance global expansion.  

The OECD reported that the combined economy of its 31 members would grow 2.7% this year and 2.8% in 2011. Troubles of debt-plagued developed economies will be offset by the rapid economic growth of emerging markets. The numbers have been revised upward from November predictions of 1.9% growth in 2010 and 2.5% growth in 2011.

The OECD estimated global gross domestic product (GDP) would rise 4.6% this year and 4.5% in 2011, up from the previous expectation of 3.4% and 3.7%, respectively.

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Is Europe on the Verge of a Liquidity Crisis?

The euro's recent struggles have done more than bring the currency's viability into question. They've put the European Central Bank (ECB) on a collision course with a liquidity crisis.

The ECB is running low on dollars, and that problem could escalate when the U.S. Federal Reserve closes swap lines that were temporarily reinstated as the Greek debt crisis escalated. Additionally, more deposits are being yanked from the central bank as holders question whether or not the ECB has enough juice to stop a classic bank panic.

The euro yesterday (Wednesday) remained at a near four-year low against the dollar, tumbling 0.5% to $1.2306. The beleaguered currency dropped against the yen and British pound, as well.

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Borrowing Costs on the Rise as Banks Cope with Contagion Fears

LIBOR (London Interbank Offered Rate) – the rate banks pay each other for three-month loans in dollars – yesterday (Tuesday) rose to its highest level since last July.

The rise in borrowing costs is directly attributable to Europe's debt crisis, which is forcing financial institutions to re-think their peers' creditworthiness.

The Libor increased to 0.536%, the highest level since July 7, from 0.510% on Monday, the 11th consecutive day it has increased, according to data from the British Bankers' Association (BBA). German and French bonds surged, pushing 10-year yields to record lows, as investors moved into the safest assets.

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Why the Yuan Won't Be an Issue at the U.S. China Summit

The United States rolled out the big guns for the second Strategic and Economic Dialogue (S&ED) with China since the Obama administration took office. The two-day talks began yesterday (Monday) with such luminaries as U.S. Treasury Secretary Timothy F. Geithner, Secretary of State Hillary Clinton, and Federal Reserve Chairman Ben S. Bernanke taking part in the Beijing summit.

The last Strategic and Economic Dialogue between the world's largest and third-largest economies was riddled with bickering over currencies and the placing of blame for the global recession. However, officials on both sides of the Pacific this time around have taken a more tempered approach in the hopes that more productive talks will emerge.

U.S. officials will undoubtedly make addressing the value of the yuan a priority, but if the meeting's cordial opening is any indication, they will do so humbly. That tactic would be well advised, considering the issue of currency valuation has been a major point of consternation between East and West.

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Investors See Caution Flags as Spain Bails Out Struggling Savings Banks

Spain's central bank has decided to bail out regional savings bank CajaSur with $621.75 million (500 million euros), causing investors to worry that Spain's savings banks are in more trouble than the country can handle.

Spain's savings banks drastically increased lending when the economy was booming, leaving them highly exposed to a precipitous decline in housing prices. The unlisted banks have granted about $341 billion (243 billion euros) in real estate/construction loans.

Now savings banks – often criticized for their lack of accountability – are refusing to price the mortgage-related assets on their books to accurately calculate their losses. Estimates put the banks' exposure as high as $408.4 billion (300 billion euros). The savings banks' ownership models make it difficult to raise money as they are controlled by local politicians and cannot easily sell shares.

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Money Morning Investment Report Update: German Economy Shows Surprising Strength

The German economy – Europe's largest, and one of three markets highlighted in Money Morning's most recent investment-research report – is demonstrating some real muscle. Just as we expected it to. The country's statistics office, Destatis, said Germany's gross domestic product (GDP) expanded at a better-than-expected rate of 0.2% in the first three months of […]

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Germany's Short-Selling Ban Lacks the Political Muscle to Go Global

Hoping to win more public and political support for its involvement in the bailout of Greece, Germany has banned the naked short-selling of European sovereign debt instruments. However, other European governments are refusing to follow suit, highlighting the lack of political will that's needed to regulate the credit default swap (CDS) market.

German Chancellor Angela Merkel said that the ban would remain in place until the EU comes up with a comprehensive plan for financial reform.

"This will all remain in place until other rules are established on the European level," she said.

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What Does Germany's Credit-Default-Swap Ban Mean for You?

Germany did something on Tuesday that I've been hoping would happen for three years: It outlawed naked short-selling and speculation on European government bonds with naked credit default swaps.

The financial institutions that have been profiting from this type of speculation immediately went on the offensive.

German officials justified the surprise, unilateral move by financial regulator BaFin by stating that the "exceptional volatility" in government debt – if accompanied by massive short-selling and naked CDS trading – could result in excessive price movements that would actually "endanger the stability of the entire financial system."

To learn about the strategies you should employ because of Germany's move, please read on...

South Africa Takes Aim at Both Short and Long-Term Goals with World Cup Bid

Not everyone cheered when South Africa was awarded the 2010 World Cup. Skeptics cited security concerns and poor infrastructure as potential pitfalls for the young democracy.

But now a month before kickoff, South Africa is set to silence its critics. The country has put the requisite work into launching the event and is poised to deliver on one of the world's grandest stages.

Just as the 2008 Olympics in Beijing shone a spotlight on China, this event will serve as a vibrant demonstration that South Africa, more than any other African nation, has arrived.

"Some people were saying it was a stupid decision to organize the World Cup in South Africa," Jerome Valcke, secretary-general of FIFA, told the Financial Times. "We will show the world that it was the right decision to organize the World Cup in South Africa and South Africa was able to provide, not only to FIFA but the world, with the best organization possible."

Better, even, than Germany provided as host in 2006, he claims. That's setting the bar awfully high, considering the 2006 World Cup was a resounding success.

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