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Macro Thoughts

Time for Circumspection.

Home Thoughts

I do thank The US Ambassador to South Africa Ambassador Gibbs,
Elizabeth Trudeau of the State Department and Scott Baldauf for the
very kind invitation to celebrate the 4th Of July in Pretoria
yesterday. It was an excellent Party and a pleasure to catch up with
so Many Good People. Welcome to My Missive and If it is an
unneccessary Burden, Please do not hesitate to unsubscribe.

I am en route back to Nairobi Monday and hence once more request your
forbearance as this Email has been composed before the Market opened
Monday.

Striking workers protest outside a Honda plant in Zhongshan, Guangdong
province, in June. Photograph: Tyrone Siu/Reuters
Zhang Liwen found out that she was about to go on strike over a
breakfast of steamed buns and congee rice porridge at her factory
dormitory. Fifteen minutes later, she was taking part in industrial
action for the first time in her life.

"I was worried, but everyone was excited and determined," recalls the
21-year-old migrant worker at the Denso car parts plant in China's
southern province of Guangdong. "We started our shift at the normal
time, but instead of working we just walked around and around the
workshop for eight hours. The managers asked us to return to our jobs,
but nobody did."

The ruling Communist party – which has long since cast aside its
revolutionary Marxist origins – faces a conundrum. Not wanting to stir
up a Solidarity-like opposition, the prime minister, Wen Jiabao, has
publicly called for improved working conditions. The People's Daily,
the mouthpiece of the Chinese Communist party, has hailed a "tipping
point" of relations between labour and capital.

Conclusions

Developments worth watching.

Johannesburg, South Africa
Yesterday I found myself in the Nelson Mandela Square reading the
inscription at the feet of a supersized statue of the pan-African
colossus, Nelson Mandela (see My Twitpic here), and the inscription
reads 'A Celebration of Hope.' I thought of another "man from Hope"
but that man was from another continent. And while loitering around
the great man's feet, I caught sight of a diminutive Sepp Blatter
[chief of world soccer's governing body, FIFA] exiting his redoubt at
the Michelangelo Hotel, with a posse of 8 Gullivers, and, as is my
wont, I sliced through the posse like a hot knife through butter and
greeted the Napoleon of soccer in my best Swiss German.

Now the South Africans have spent a pretty penny on FIFA's
instruction. They have built wonderful new stadia, upgraded the roads,
built a new fast train among countless other spending.

A lot of my economist friends are referencing Greece and its now
supreme closeness to bankruptcy and citing the Olympics as an example
of how such an enterprise as the World Cup or the Olympics can cripple
a country and force the country to countenance having to sell off its
most treasured islands. The Greeks are apparently considering selling
that prized lotus island of Mykanos. My South African geography is not
that accomplished, but Robben Island might not be as easy a sale as
Mykanos!

FIFA is and always will be a capitalist enterprise. Blatter and his
FIFA posse are infamous for a Diktat approach. They are not exponents
of “patient capital” or “social investing,” which is all the rage here
in Africa. It might salve consciences but actually is a lot of hot
air, in my book. FIFA is a capitalist enterprise and it is naive of
anyone to have thought otherwise. Blatter apparently disabused the
Zuma government rather brusquely of that notion.

The question therefore actually recalls the Gipper, President Ronald
Reagan and his famous "trickledown economics."

Is the World Cup going to be a giant white elephant? You do not have
to be a rocket scientist to work out that stadia are probably in fact
one of the worst investments any sovereign country can undertake. What
will they be used for once the World Cup is over?

However, that is a collateral price that South Africa had to pay. It
was the ante South Africa had to pony up to host the beautiful game.
The roads and the fast train are entirely different. They will be
there for years to come when all the fans have gone back home.

The sense I have is that the World Cup has tipped the country in ways
that are difficult to measure empirically. It has forged a greater
unity among this Rainbow Nation. I was here 5 Years ago and recall how
ghettoized the country was.

Today, the mood is tangible and the vibe so strong I occasionally feel
I can touch it. Most of all, I think this World Cup has put President
Obama's famous words "Yes, we can" on the lips of every South African
and even nearly 1 billion Africans' lips. I believe this is important.
Confidence measures have spiked.

The South African equity market pushed into positive territory briefly
last week but is now back in the negative column for the year. I sense
a concern among those folks whose opinion I count that there might be
a letdown once this is over. A letting out of the air from the
balloon. That is the nature of the markets. They do not go up in a
straight line. However, in a world where everyone has to capture each
other’s attention [after all that seems to have been the sole raison
d'etre of Dubai], I think the World Cup has been an economic
breakthrough tfor South Africa and the continent.

Euro 1.2559 Friday Close
Pound 1.5174 - Tale some Money off the Table and Protect the Long
Position though I do believe Osborne is optimal.

Aussie 0.8413
Rand 7.7320
Korean Won 1198.4

The dollar index (DXY 84.37, -0.29, -0.34%) , a measure of the
greenback against a basket of six major currencies, ended Friday at
84.41, down from 84.68 in late North American trading on Thursday and
85.342 from the prior week's close.The index hit its lowest level in
nearly two months after Friday's payroll report came out weaker than
expected. Despite rebounding of a low of 84.239, the unit faced
continued uncertainty around the country's economic outlook, sparked
by events throughout the week.

Conclusions

Concerns swell that the Stimulus driven rebound is set to come apart
at the Seams in the US, Build.

The FX Markets look a little more tricky to read right now and
probably will turn much more on the News and Data Flow.

The dollar slipped modestly against the euro, as disappointing U.S.
jobs data failed to allay questions about the pace of the U.S.
economic recovery.The jobs numbers were "not disastrous."

Conclusions

Looked like a Massive Short Squeeze but US Data is front and centre
now and hence what was a Sure Thing looks much less so now.

Last week, the Dow Industrials dropped 457.33 points, or 4.51% to
9686.48, the Nasdaq Composite declined 131.69 points, or 5.92% to
2091.79 and the S&P 500 fell 54.18 points, or 5.03% to 1022.58.

Conclusions

A Sense that the Stimulus GIG has a limited Shelf Life.

Wealthier countries are likely to reduce their emergency stimulus
sharply in 2011 compared to this year, producing a 1.25 percentage
point hit to global growth,  according to forecasts by the Institute
of International Finance.

The IIF, a Washington D.C. trade group of international banks said
that globally the second quarter of 2010 will “probably be the
high-water mark for growth over the next 18-24 months.”The group said
that 2011 will be a year of “significant, synchronized fiscal
tightening. This tightening will not be one-off. 2011 will be year one
in an extended phase of fiscal tightening in mature economies.”

In 2009 and 2010, stimulus spending in the Group of 20 industrialized
countries amounted to about 2% of GDP, the group estimated. It didn’t
give a specific forecast for stimulus spending in those countries in
2011.

Index Value:    9,686.48
Day's Range:    9,614.32 - 9,770.87
52wk Range:    8,057.57 - 11,309.00

Architect: Frank Gehry
Structure: Guggenheim Museum, Bilbao, Spain
Year Completed: 1997

Start the tomatoes first, soaking them in olive oil, vinegar, garlic,
jalapeño and oregano. As they release their juices, turn your
attention to the fish.

Crude Slides 8% for the Week. Crude-oil futures fell for a fifth
consecutive day, capping their steepest weekly decline since early
May, as disappointing economic data continued to point toward a
stalling economic recovery. Silver lost nearly 7%, on the week, the
metal's worst since the week ended Feb. 5, when it lost 8.4%.Copper
retreated the most among metals, with the September contract, the most
active, declining 4 cents, or 1.4%, to $2.92 a pound. Copper retreated
7.5% on the week, the worst for copper in a month.

Conclusions

Last Week was a Rout.

Buyers stepped in to snap gold at bargain prices after prices settled
3.2% lower on Thursday. That was gold's biggest one-day loss since
February.

"We're not ready to write the epitaph for gold just yet," said James
Cordier, a portfolio manager at Optionsellers.com in Tampa, Fla. "Gold
was getting into a very crowded space" and the week's correction was a
relatively welcomed, he added.
Emerging Markets.

Conclusions

I second that.

Cocoa -1.62%.
Coffee -2.37%
Sugar +2.45%

Conclusions

This Asset Class looks quite constructive to me.

Last Price    18.03
Contract High    25.03
Contract Low    11.89

Conclusions

I believe it has inflected higher and based out.

President Joseph Kabila at a parade marking the 50th anniversary of
the Democratic Republic of Congo's independence. Photograph: Mark
Renders/Getty Images

"Fabulous minerals. Magnificent music. Great cuisine. A landscape that
stretches from lush rain forest to Swiss-looking mountains. And a
people still mired in violence and misery a half century after
independence from Belgium." This was the take of the Associated Press
on the 50th anniversary celebrations in the Democratic Republic of
Congo last week. A total of 18 African presidents, including
Zimbabwe's Robert Mugabe, watched a parade of 15,000 soldiers and 400
tanks and heard Congo's leader, Joseph Kabila, call for a "moral
revolution". Other guests included Ban Ki-moon, the UN secretary
general, but the biggest talking point was the presence of Belgium's
King Albert II.

The rape and plunder of Congo under his ancestor, Leopold II, remains
one of history's greatest crimes. Last week's milestone reignited
debate over the legacy of colonialism in Africa and whether, even half
a century later, all the continent's ills can still be hung around its
neck. Under Leopold's brutal regime, as many as 10 million were
killed, according to some estimates. An outcry over the mass slaughter
forced him to surrender the country in 1908 to the Belgian
government.When independence finally came in 1960, the country entered
a new nightmare. Not unlike other former colonial masters, Belgium
continued to meddle and was blamed, along with the CIA, for the 1961
assassination of Patrice Lumumba, Congo's first democratically elected
prime minister. Both Belgium and the US then supported the 32-year
dictatorship of Mobutu Sese Seko, a pro-Western leader seen as a
bulwark against communism. He robbed his people of an estimated $5bn
and made corruption a political way of life.

Mobutu was finally overthrown in 1997, but then came a war that sucked
in six neighbouring countries and left at least 4 million dead, mainly
from strife-driven hunger and disease.The world's biggest UN
peacekeeping force has been in Congo for more than a decade but some
45,000 people are still dying each month, according to the
International Rescue Committee, mainly from hunger and disease.

Mwahila Tshiyembe, director of the Pan-African Institute for
Geopolitics in Nancy, France, said the Belgians were not solely to
blame for Congo's woes. Congo's leaders since independence have been
marked by corruption and bad governance and have needlessly sought to
blame their former coloniser, he told AP.

Alexis Thambwe Mwamba, Congo's foreign minister, now seems ready to
end the blame game. "Fifty years later, we cannot say that if things
are not going well in Congo, it's the fault of Belgium or of Leopold
II."

Not everyone is ready to draw a line under the past, however. Patrice
Lumumba's three sons announced this month they would bring a private
prosecution against 12 living Belgians allegedly involved in the
abduction, torture and murder of their father in 1961.

Conclusions

The DRC is the Brazil of Africa and at some Point in time will start converging.

South Africa’s rand is headed for “a large negative correction” next
week as it loses a boost from higher gold prices and hosting the World
Cup, Danske Bank A/S said.

The currency is “fundamentally overvalued,” chief analyst Lars
Christensen wrote in a research note dated today. “The only two
factors playing in favor of the rand are the World Cup, but that will
soon end, and high gold prices, which also have been losing some steam
in recent days,” Danske Bank wrote. The bank recommends buying the
Czech koruna over the rand.

South African Finance Minister Pravin Gordhan today said the soccer
World Cup will add 0.4 percentage points to gross domestic product,
with the number of visitors being “far higher” than previously
estimated, reaching “closer to 500,000.

The bank said other factors likely to lead to a depreciation of the
rand include the erosion of the differential between interest rates in
South Africa and other countries, risk aversion and a “negative
technical picture.”

Conclusions

I beg to differ with the Gold Prognosis. However, I did say some days
ago, that this Risk existed, of a sharp Knee Jerk Sell off post the
World Cup.

Conclusions

8.00-8.10 is a Key Area and a Breakthrough there would signal a
further Sharp Slide Risk.

Value 26,314.56
Change 305.030
% Change 1.173

Conclusions

Looks relatively inexpensive but in High Beta international Moves
tends to exert a very High Correlation with international Markets.

Kenyan Finance Minister Uhuru Kenyatta criticised parliamentarians for
awarding themselves pay rises of up to 25 percent, newspapers reported
on Saturday, but analysts said he had little power to resist them.MPs
voted this week to raise their pay to 1.09 million shillings a month,
dwarfing what ordinary Kenyans earn and provoking anger from the
general public and the media.
The Daily Nation newspaper quoted Kenyatta as saying that the 2010/11
spending plans, which he tabled in the house last month, had not
factored in a pay rise for the legislators.

"The actions taken by the honourable members are not supportive of
these noble objectives because they will trigger demands for salary
increments by other sectors," the paper quoted Kenyatta as saying.

"These will lead to a wage spiral, hence creating inflation and
weakening our competitiveness."

Although the MPs voted to start paying taxes on their allowances for
the first time, their new pay far outstrips the country's GDP per
capita of 57,887 shillings per year.

Conclusions

The Executive needs to find a way of stopping what is now becoming an
Untenable Situation. Given that the President will not seek re
election in 2012, it falls upon the President to neuter this.