No doubt about it: gold is the flavor of the day.

Everybody is buying gold, from macro hedge funds to retail investors. Gold prices seem poised for an endless increase. What is the limit? $1500 an ounce? $2000 an ounce? The market sentiment is as bullish as can be.

It may seem highly unlikely to depict the dollar as strong buy, or even as a simple buy, with so many investors, hedge funds and proprietary traders alike now heavily engaged in dollar-funded carry trades.

As a matter of fact the dollar is currently at record lows against the other major currencies (Euro, Pound, Yen). And there is an entrenched consensus that this situation may last for some time and that the green buck may even endure further losses.

The US administration, with support from Europe, is seeking to reach agreement on a new framework for tackling global economic imbalances at next week’s G20 summit in Pittsburgh.

Decoupling is back with a vengeance. The resilience of most emerging markets in the wake of the worst economic and financial crisis since the Great Depression is truly impressive. In addition, nobody can contest that stock markets in Shanghai, Bombay and Sao Paulo led the formidable market rally that drove global stock markets back to their pre-Lehman levels.

But what is decoupling really about? Is it about the economy or about markets? Is it short term or long term? Is it based on solid foundations or on fugitive impressions?

The Central Bank of Brazil trimmed the SELIC benchmark rate by one percentage point, 25 basis points more than expected by market analysts, to a record low 9.25 percent on Wednesday, June 10. However, it also said that from now on further reductions would be carried out "more parsimoniously". Markets applauded this bold move with the Real continuing to appreciate against the Dollar.

So far this year, the Central Bank slashed 450 basis points off the SELIC benchmark rate, in an unusually aggressive move that is intended to support the ailing Brazilian economy, which is witnessing its first recession since 2003. As a matter of fact, the economy shrank 0.8 percent in January-March from the final three months of 2008, which saw a 3.6 percent decline from the previous quarter.

There was much talk recently on the potential for China to lead the global growth recovery that is expected by many economists by the end of this year.

Although China has certainly much more weight in the global economy now than it used to have in the past, it would be rather naive to think that China, per se, can really lift the global economy. The reason for that is simple. In nominal GDP terms, the developed economies still account for nearly three quarters of the global economy, and the current crisis is the worst synchronized recession that the developed economies have witnessed since the 1930s.

See part 1 here.

As part of my exploration of the pieces of the puzzle that must be put together to drive a US and global recovery, I turn out now from Main Street to Wall Street.

It has been widely acknowledged that the global economy is experiencing its hardest “stress test” since the Great Depression era.

Consumer and business confidence keeps falling everywhere in the world. Politicians are struggling everyday to jumpstart their economies with massive influxes of fiscal and monetary stimulus money. Regulators are getting headaches thinking at the most efficient solutions to stop the capital bleeding from zombie banks. Traders scrutinize every little market uptick or downtick as a sign of an imminent trend reversal.

Chinalco, the Chinese state-owned metals and mining conglomerate, has made a decisive leap forward by agreeing to invest $ 19.5 bn in troubled mining giant Rio Tinto (RTP). This move comes one year after Chinalco successfully acquired - jointly with the Alcoa (AA) group - a 12% stake in the UK listed arm of the Rio Tinto group, equivalent to a 9% stake in the group itself.

Here we are at the end of this "annus horribilis" that brought down the world to its knees, marking the end of a global expansion cycle which was falsely described as the dawn of a new era of perpetual growth and enduring prosperity.

In a world that has gone madoff, as this year's Nobel Prize winner Paul Krugman puts it, we are witnessing the return of the very notion of risk, whereby we start to recon that there is no such thing as "pure alpha" without some kind of "hidden beta". We have learned that everything - including liquidity - eventually comes at a price. And we are now realizing that many of the Wall Street mavericks with six figures salaries and stratospheric bonuses are not the fascinating geniuses and "beautiful minds" that we were idolizing, but a mere bunch of rogue mercenaries devoid of any sense of ethics or collective responsibility.

As a former central banker, I cannot hold the pleasure of a short comment on the so-called ZIRP.

Yes, indeed the Fed has gone as far as ZIRP (Zero Interest Rate Policy). It has also committed to QE (Quantitative Easing) by inflating its balance sheet to jump-start the bankrupt US economy.

For all its shortcomings, the G20 summit that was held in Washington on November 15 is already a historical event. Indeed, as the Financial Times writes in its November 16 editorial, this summit marks a shift of economic power and a recognition that the emerging economies will play a key role in reforming the global financial system that was shattered down by the worst financial crisis since the Great Depression.

"We are talking about the G20 because the G8 doesn't have any more reason to exist," said Luiz Inácio Lula da Silva, Brazil's president.

The US financial crisis that started in July 2007 with the collapse of two Bear Sterns subprime hedge funds has now turned into a full-blown global economic crisis. Arguably, the climax of the financial crisis has been reached with the collapse of Lehman Brothers on September 15, and the subsequent fall of stock markets all around the world.

Since then, governments have been hastily working out massive bailout plans for their banking systems, in the United States, the European Union, Russia, South Korea, and elsewhere. This was a long awaited recognition that radical measures were needed to avoid a global collapse given the huge amount of outstanding derivatives and other off-the-balance-sheet liabilities threatening the stability of the global financial system.

In these times of high volatility and risk aversion, some people may find it foolish to buy emerging equities which are traditionnally considered as "high beta" risky investments.

It may seem a bit contrarian indeed, but I am not the only one to hold this view. Seasoned investors like Mark Moebius who manages 34 billion USD of assets at Templeton Asset Management are more bullish than ever on emerging markets (see video above).

As Ramit Guha writes in the WSJ, the battle is raging between Indian firms INFOSYS (INFY) and HCL (BOM:532281) for the takeover of AXON Group (AXNGF.PK), a British IT software company with strong value-added SAP implementation capabilities and with a foothold in the UK and in continental Europe.

This battle epitomizes the new creed among indian IT outsourcing companies as they try to diversify their clients base away from the ailing US market (that still represents 60% of their overseas turnover with the bulk in financial services), and as they seek to move up the value scale, away from low margin outsourcing into high margin IT consulting services.