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If volatility spikes, positions are going to be reduced en masse. Or to put it another way and to borrow the lyrics from the Eagles Hotel California
A lot of risk calculations are based on Value at Risk (VAR).
Essentially, you overlay a volatility measure over the portfolio, and
you calculate how much money is on the line.
Central banks have suppressed volatility therefore in real terms;
investors are now holding bigger positions at these current
artificially suppressed levels. If volatility spikes, positions are
going to be reduced en masse.
Or to put it another way and to borrow the lyrics from the Eagles
Mirrors on the ceiling,
The pink champagne on ice
And she said “We are all just prisoners here, of our own device” Last
thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before
“Relax,” said the night man,
“We are programmed to receive.
You can check-out any time you like,
But you can never leave! “
@realDonaldTrump , Xi and trade: a high-stakes game of chicken @AP via @YahooNews
Law & Politics
What happens when the planet's two biggest economies play a
high-stakes game of chicken?
The world may be about to find out, with President Donald Trump and
his Chinese counterpart Xi Jinping both holding favourable enough
economic hands to make it hard to predict who blinks first, analysts
Hope for an imminent resolution of the China-US trade dispute dimmed
after Trump vowed to further raise import tariffs this week to punish
China for what he framed as bad-faith negotiating, rocking world
Why has Trump turned the screws now?
That remains unclear but the president has been known to tout strong
US economic data or Wall Street gains as evidence that he is "winning"
the trade war and as leverage against China.
Recent developments will have given him ample reason to up the ante.
April data indicated vigorous American job growth, a fresh sign of US
economic strength that has helped propel the S&P 500 and Nasdaq stock
indices to record highs this month.
Last month figures showed the world's top economy grew at a faster
pace that expected in the first quarter.
How will China react?
Beijing's shrewd communist leaders have been negotiating favourable
economic arrangements with the world for decades, and few observers
would bet on them suddenly capitulating.
Whatever Xi does, he also has reason to hold firm.
The world's second-largest economy is decelerating from its era of
hyper-growth, but it expanded by a better-than-forecast 6.4 percent in
January-March, a sign of stability despite the trade turbulence.
And Chinese stock markets -- among the world's worst in 2018 -- are up
significantly this year after Beijing pulled an array of policy and
monetary levers to keep the economy chugging.
"Both sides have reason to be confident and ask for more," said Bao
Ting, strategist with Great Wall Securities.
"It's not surprising for negotiations to go back and forth in the
final stages" as the two sides drill down on nitty-gritty details, she
So whose hand is stronger?
Probably Trump's, analysts say, because Xi faces a challenge
maintaining the economic growth on which the government stakes its
ruling legitimacy, while also implementing tricky reform of
inefficient state industries.
Of particular concern is a fresh spike in debt this year as Chinese
authorities have relied heavily on eased credit restrictions to juice
the economy while they battle Trump's trade pressure.
The International Monetary Fund has previously called China's debt
"This massive credit stimulus has stabilised China’s economy for now
but the impact is unlikely to be long-lasting or without
complication," said Brock Silvers, managing director of Kaiyuan
Capital in Shanghai.
"China could soon regret a missed chance to end to what looks to be a
worsening and increasingly risky trade war."
But China has for years used a flood of credit and targeted
pump-priming to keep its economic miracle going, and today stands
taller than ever.
"That gives China a lot of strength. They have many different ways of
keep things churning," said Christopher Balding, an expert on China's
economy at Fulbright University in Ho Chi Minh City.
What if neither side blinks?
Stocks fell worldwide after Trump's tariff threat, and an extension of
the already lengthy trade standoff could spell more pain.
"If they fail to reach an agreement, China's economy would worsen and
global economic growth would slow down," said Bao.
China said Tuesday its top negotiator, Vice Premier Liu He, would
attend the talks in Washington this week, which Goldman Sachs said in
research note, "would indicate that they believe a deal is still
Will China ever meet overall US demands?
Key US demands include greater access to China's markets, broad reform
of a business playing field that heavily favours Chinese firms, and a
loosening of heavy state control by Beijing.
But those are the very policies that abetted China's stunning economic
rise, and Beijing is unlikely to surrender them, said Balding.
"This is a fundamental clash of worldviews between a capitalist, open
economy and a closed communist one," Balding said.
"There aren't a lot of ways to square that circle."
Asking for the moon may just be Trump's "Art of the Deal" approach to
securing at least something that he can tout heading into elections
09-JUL-2018 :: a "Chickie Run." Both race stolen cars towards the edge of a cliff. The first to eject out of his car is branded a "chickie."
Law & Politics
James Dean was an iconic American actor, who tapped into the universal
yearning and angst of nearly every adolescent human being with a raw
connection that has surely not been surpassed since.
In one of his most consequential films, Rebel without a Cause, two
players (read, teenage boys) decide to settle a dispute (read, teenage
girl) by way of near-death experiences.
Each speeds an automobile towards a cliff. A simple rule governs the
challenge: the first to jump out of his automobile is the chicken and,
by universally accepted social convention, concedes the object in
The second to jump is victorious, and, depending on context, becomes
gang leader, prom king, etc.
Buzz, the leader of a local gang, agrees to a “Chickie Run.” Both race
stolen cars towards the edge of a cliff. The first to eject out of his
car is branded a “chickie.”
Seconds into the race, Buzz discovers that his jacket is stuck on the
door handle, making jumping out of the car so- mewhat difficult.
Jimmie jumps out an instant before the cars reach the edge of the
Buzz, still unable to free his jacket from the door handle, fails to
escape. While he won’t be branded a “chickie,” he suffers a worse
China Hawks Gain Upper Hand as Trump Squeezes Beijing Over Trade @business
Law & Politics
The China hawks in Donald Trump’s orbit find themselves with the upper
hand after the president turned the screws on Beijing for allegedly
reneging on a key promise in high-stakes trade talks.
Trump’s threat on Sunday to raise tariffs on billions in Chinese
imports as the two sides neared what appeared to be a deal marked a
victory for political allies who’ve long warned that the U.S. must
take a tougher line with the world’s second-largest economy.
“With our country at a crossroads, it is more important than ever that
Trump follow his instincts and not soften his stance against the
greatest existential threat ever faced by the United States,” former
White House chief strategist Steve Bannon wrote in the Washington Post
Even if the U.S. reaches a deal, Bannon said, the agreement would be
only a “temporary truce in a years-long economic and strategic war
with China.” Bannon recently helped reconstitute a Cold War-era entity
called the Committee on the Present Danger to focus on China.
Trump’s aides have tried for some time to portray a unified front on
China even as they have waged heated battles behind the scenes. But
current and former administration officials say everyone’s position
has become more hawkish over time.
Treasury Secretary Steven Mnuchin and Trade Representative Robert
Lighthizer told reporters on Monday that Trump’s entire economic team
agreed with the latest move to increase tariffs.
Lighthizer said Chinese negotiators reneged on provisions in a draft
deal the U.S. considered settled, and Mnuchin said there had been a
“big change of direction” in the talks.
The developments raise the prospect that talks between the U.S. and
China to resolve their trade war, now more than a year long, could
The administration’s hawks, led by White House trade adviser Peter
Navarro, have long regarded China as a hostile power waging economic
war against the U.S.
To them, no deal is better than a much-feared cave by the president
and more dovish advisers such as Mnuchin, who closely watch effects of
the negotiations on financial markets.
“The president’s in a bind between two warring camps,” said Clark
Packard, trade-policy counsel at the R Street Institute, a Washington
“If the market takes a dive, he’s going to face pressure from your
more market-oriented folks, like Mnuchin. On the other hand, you have
the hawks like Lighthizer and Navarro, telling him not to compromise.”
The S&P 500 index has declined as much as 2.2 percent since Trump’s
tweets, while Chinese stocks have plunged 4.9 percent.
Chinese equities finished higher on Tuesday following news that
Beijing’s top trade negotiator, Liu He, would still visit Washington,
but the two-day slump wiped out $487 billion in value from the
Shanghai Composite Index.
China is preparing retaliatory tariffs on U.S. imports should Trump
carry out his threat, according to people familiar on the matter.
“If the Trump administration follows through with the tariffs threats
on Friday, I think it means the talks fall apart,” said Lu Xiang of
the state-run Chinese Academy of Social Sciences in Beijing. “We then
need to be prepared for worse than worst.”
The White House’s plan to raise tariffs has scrambled party loyalties
in Congress, where many Republicans -- especially from farm-states
hurt by Chinese counter-tariffs -- are skeptical of his trade
Trump has been cheered on, meanwhile, by Senate Democratic Leader
Chuck Schumer of New York.
“If we hang tough, we can really make progress with China,” Schumer said Monday.
Senate Agriculture Committee Chairman Pat Roberts, a Kansas
Republican, said Tuesday after a meeting with Vice President Mike
Pence that “there’s a lot of feeling in farm country that we’re being
used as pawns in this whole business.”
“We will benefit tremendously if he can get a good deal,” Roberts said
of Trump. “So we’re hanging in there with the president, as opposed to
But Lighthizer has assumed a higher profile in the negotiations as
they have dragged on, and he currently has Trump’s ear. The trade
representative’s views -- while not precisely in line with Bannon or
Navarro, the author of a book titled “Death by China” -- are more
hard-line than those of Mnuchin or Kudlow.
It was Lighthizer who prompted Trump’s tweets on Sunday, after
briefing the president on Chinese negotiators’ alleged attempt to
unwind provisions of the deal the U.S. considered settled during talks
in Beijing last week, according to people familiar with the matter.
The Chinese, the people said, declared they would not agree to change
any of their country’s laws, a position that would hamstring the Trump
administration’s effort to end Chinese practices it regards as theft
of U.S. intellectual property.
Lighthizer told reporters on Monday that the U.S. seeks meaningful
changes in Chinese behavior on issues ranging from industrial
subsidies to intellectual property theft, which he said had hurt the
U.S. economy for years.
“These are not benign actions that we are objecting to,” Lighthizer
said. “These were pernicious actions that we were trying to correct."
For his part, Trump has tended to publicly side with his
administration’s hawks, famously declaring in a December tweet: “I am
a Tariff Man.”
But he also regards the performance of the U.S. stock market as a sort
of barometer for his presidency, and has encouraged his negotiators to
reach a deal that would boost equities ahead of his re-election
campaign in 2020.
“Ultimately, the president has to make 2020 about the economy, and one
of the ways you can make the economy not so good is getting in a
protracted, bloody battle with China,” said Packard, who is a former
aide to Trump’s first UN ambassador, Nikki Haley.
The two sides in Trump’s administration have sometimes openly sparred,
especially Mnuchin and Navarro. Mnuchin cut Navarro out of meetings
with Chinese negotiators during a Beijing trip last year.
Navarro has publicly and pointedly said that Lighthizer should lead
the talks, not the Treasury secretary. The various trade advisers’
influence can also rise and fall due to unrelated political
Mnuchin’s standing has suffered, for example, because of Trump’s anger
at Federal Reserve Chairman Jerome Powell, whose appointment the
Treasury secretary recommended.
Kudlow’s credibility took a hit after he recommended Trump name Herman
Cain and Stephen Moore to the Fed board; both picks flamed out before
their nominations were submitted to the Senate.
Hackers Steal $40 Million Worth of Bitcoin From @binance Exchange
Law & Politics
Binance, one of the world’s largest cryptocurrency exchanges, said
hackers withdrew 7,000 Bitcoin worth about $40 million via a single
transaction in a “large scale security breach,” the latest in a long
line of thefts in the digital currency space.
The hackers used a “variety of techniques” including phishing and
viruses to obtain a large amount of user data, Binance said in a post
on its website. There may be additional accounts that have been
affected but not yet identified, Binance said.
The company will use its Secure Asset Fund for Users, an emergency
insurance fund, to cover the incident in full and no user funds will
be affected, it said.
The transaction was limited to Binance’s BTC hot wallet, which
contains about 2 percent of the company’s Bitcoin holdings, according
to the post. Other wallets are secure and unharmed, the exchange said.
“The hackers had the patience to wait, and execute well-orchestrated
actions through multiple seemingly independent accounts at the most
opportune time,” according to the post, written by Zhao Changpeng,
Binance’s chief executive officer.
“We must conduct a thorough security review. The security review will
include all parts of our systems and data.”
Sudan army chief says Sharia law must be legislation source @BBCWorld
Lt-Gen Shamseddine Kabbashi, spokesman for the Transitional Military
Council (TMC), which took control after Mr Bashir's removal, told
reporters that they had broadly agreed with the suggestions.
However, he added, "the declaration failed to mention the sources of
legislation, and the Islamic Sharia law and tradition should be the
source of legislation".
"Our view is that Islamic Sharia and the local norms and traditions in
the Republic of Sudan should be the sources of legislation," he said.
Angola Vows to End Fuel Shortage Sparked by Currency Crunch @markets
Angola is taking measures to end a fuel shortage at gas stations
across the country that left hundreds of motorists stranded and risked
paralyzing some sectors of the economy.
President Joao Lourenco met with officials from the oil industry on
Tuesday to discuss the matter, his office said in an emailed
State-owned oil company Sonangol, which is responsible for importing
refined products, acknowledged in a statement on May 4 that a lack of
dollars to import fuel was the main reason for the crunch.
Angola, Africa’s second-biggest oil producer, imports almost all of
its gasoline. The nation’s sole refinery in the capital, Luanda, only
produces enough fuel to meet 20 percent of demand.
“There was a lack of dialog and communication between Sonangol and the
different state institutions, which contributed negatively in the
process of importing fuel,” the presidency said in the statement.
“All the measures have been taken and resources that are needed were
mobilized to ensure a complete stabilization of fuel supplies in the
market in coming days.”
On Monday, some gas stations in the capital, Luanda, ran out of fuel.
Motorists resorting to illegal street vendors were being charged as
much as double the official price of 160 kwanzas (50 U.S. cents) a
liter, according to Paulino Londa, a professional driver in the city.
“The Angolan economy is paralyzed due to a lack of fuel, since all
sectors depend on fuels for power generation through alternative
sources,” Antonio Estote, an independent economist and professor at
the Universidade Lusiada de Angola, said in a text message before the
presidential statement on Tuesday.
“Unquestionably, there is a reduction in productivity due to the
increase in labor abstinence and equipment shutdown.”
Next Round of Ramaphoria May Be Shorter @economics #SAElections2019
South Africa President Cyril Ramaphosa -- whose ruling African
National Congress is forecast to retain its majority on Wednesday --
has pledged reforms to boost a sluggish economy as well as to
restructure state-owned companies and root out corruption.
But he has presided over unemployment at a 15-year high of 27 percent
with a significant proportion of the adult population living below the
poverty line and many South Africans still lacking adequate
electricity, sanitation and housing.
In terms of real GDP per capita growth over the past two decades,
South Africa has the poorest record of the major emerging-market
economies, according to Bloomberg Economics.
The Real Ballot Question in South Africa: How to Keep the Country from Falling Apart @Quillette H/T @TheHorseCure #SAElections2019
South Africa’s sixth election since the introduction of universal
suffrage in 1994 takes place on May 8. It has been 25 years since the
country cast off the moral abomination of apartheid. But the noble and
worthy dreams that took flight in the era of Nelson Mandela have been
crushed by reality.
The country is in a parlous state: A recent Bloomberg report found
that on a wide range of indicators, South Africa has done worse over
the last five years than any other country in the world save those in
a state of war
The power cuts that began in 2007 have gotten steadily worse. And
although the government has managed to keep the lights on for the
election campaign, the most optimistic forecast is another five years
of intermittent supply. This in a country that, in 1994, had an
oversupply of electricity at some of the cheapest rates in the world.
Unemployment, which stood at 3.7-million when the African National
Congress (ANC) came to power in 1994, now stands at nearly 10-million,
Social unrest is rampant. More than 80 major public-works projects are
stalled because they are besieged by local syndicates demanding a
share of operating profits.
A major cyclone hit the province of KwaZulu-Natal recently, killing 70.
The election itself is a foregone conclusion. The ANC, which still
leans heavily on its credentials as the anti-apartheid party of
liberation, likely will win nearly 60% of the vote.
Polls suggest that the liberal Democratic Alliance will lose ground
and that the extreme-left populist Economic Freedom Fighters will
double their vote.
The ANC government already has committed itself to legislate the
expropriation of property without compensation, the growth of a
completely unaffordable national health service, and a variety of
other populist policies.
But even as it is , government debt is climbing toward 60% of GDP, and
two credit-ratings agencies have consigned the country’s debt to junk
Such a situation might seem to augur well for the country’s centrist
official opposition, the Democratic Alliance, which has gained
steadily over the last 25 years.
But this time around, it chose a young and inexperienced leader, Mmusi
Maimane, who has failed to energize black voters or even maintain the
party’s existing mainly Asian, “Coloured” and white constituency.
If the DA goes backwards on May 8, he could lose his job and the party
would be thrown into turmoil.
Meanwhile, ANC leader Cyril Ramaphosa retains a 60% approval rating,
and faces no viable rival within his party. He is an amiable and
well-meaning man, but weak and quite unable to control the various ANC
Not only rank-and-file South African voters, but a good number of
white businessmen (and even editorial writers at The Economist),
placed high hopes on Ramaphosa following the 2018 resignation of Jacob
Zuma. But there seems little prospect that he can fulfil such
The ANC election list is studded with convicted criminals found guilty
of grossly corrupt behaviour. These include Deputy President David
Mabuza, the subject of a major New York Times exposé, and ANC
Secretary-General Ace Magashule, the subject of a 2019 book entitled
Gangster State: Unravelling Ace Magashule’s Web of Capture.
(Magashule’s supporters stormed into bookshops to burn copies of the
book, and Magashule has threatened to sue, though as yet there is no
sign of a writ.)
In theory, Ramaphosa could be forced out of the ANC leadership by
forces loyal to his corrupt predecessor, Jacob Zuma.
But even Ramaphosa’s foes realize that his popularity is about all the
ANC has left.
Perhaps the best case scenario is that, having reaffirmed his mandate,
Ramaphosa could have South Africa apply for an IMF bailout once the
elections are over.
But the ANC is ideologically opposed to this, knowing that such a move
would mean structural reform and a war on corruption. So the more
likely scenario involves the government seizing pension funds and
whatever other lumps of capital it can find, or forcing financial
institutions to buy government bonds, as a means to strong-arm its way
out of the mess—even though this would simply accelerate capital
flight and push away the foreign investment that Ramaphosa is
desperate to attract.
Another possible scenario is more apocalyptic. The downward spiral may
be so pronounced that an increasingly desperate political elite will
throw all blame on whites and Asians (who represent 9% and 2.5% of the
country respectively), setting off the sort of full blown meltdown
witnessed under Robert Mugabe in Zimbabwe.
Another cataclysmic scenario: The government will continue to lose
control of the country, leading to a breakup of South Africa into its
component regional parts. Frans Cronje, head of the liberal Institute
of Race Relations, foresees a future in which a small white and black
middle class will continue to live in a prosperous bubble in a few of
the bigger cities; while the countryside is ruled by rapacious chiefs,
and the rest of urban South Africa is run by murderous gangs. Some
would argue that we aren’t far from that now.
Needless to say, this is not the South Africa that Nelson Mandela and
a happy world greeted with enthusiasm in 1994. It always was asking a
lot of the ANC elite to step into the ruling role following
generations of institutionalized white supremacy.
But they have done far worse than anyone expected. If Ramaphosa has
the nerve to seize the situation after the election, force through
major reforms and start throwing his corrupt colleagues into jail, the
situation could still conceivably be saved in the long run.
But that is asking an awful lot of a 66-year-old man who still seems
trapped within old-style African nationalist platitudes. The sad truth
is that he seems more likely to preside over my country’s continued
decline into poverty and chaos than avert it.
Zimbabwean Central Bank Sees Exchange-Rate Convergence by July @economics
Zimbabwe’s central bank governor said he expects the official and
black-market exchange rates to converge within two months, as the
currency extended its decline against the dollar to almost 25 percent.
Zimbabwe began formal trading in February of a de facto currency,
known as RTGS dollars, through a newly created interbank market.
While it abolished a 1:1 peg between the U.S. dollar and the RTGS$’s
predecessor, so-called bond notes and their electronic equivalent,
trading has been thin and the difference between the interbank rate
and the black market remains wide.
The currency traded at 3.2973 per dollar on Zimbabwe’s interbank
market on Tuesday, compared with 2.50 when it was introduced in
It’s weakened every trading day since March 6, according to data
compiled by Bloomberg. On the parallel market on the streets of the
capital, Harare, the U.S. dollar changes hands at 4.85 RTGS dollars.
“In one or two months, we will reach an equilibrium,” Reserve Bank of
Zimbabwe Governor John Mangudya said in an interview at a presentation
“At the moment the parallel markets are at 4 or 5 and the bank rate is
3.3, so we are not very far from each other.”
The central bank is allowing the market to determine the RTGS dollar’s
value, Mangudya said, rejecting the notion that the authorities are
trying to manage the currency.
“Many people say the central bank is managing the exchange rate,” he
said at the presentation to business leaders. “I don’t control the
forex markets. It’s about willing buyer and willing seller.”
Mangudya also said the central bank is making progress on establishing
a monetary policy committee and reintroducing debt auctions, both of
which have been promised by Finance Minister Mthuli Ncube.
“Definitely before the end of this year there’ll be a monetary policy
committee,” he said. “In the third quarter, we will see the auctioning
of Treasury bills.”
Zimbabwe stopped offering debt through the conventional auction system
in 2012, after a series of failed sales.
Monrovia from the rooftop of the Old Ducor Hotel. It was the first
5-star hotel in W/ Africa but was destroyed during the Liberian civil
war. Today, it’s only a shell but still a tourist attraction as the
views from the rooftop are the best in all of Monrovia.
Amana Capital chief investment officer Reginald Kadzutu said the shilling is overvalued by 30 per cent.
He explained that the consumer price index which was at Sh97 in 2009
has since risen to Sh192, meaning that Kenyans are spending Sh192 to
buy what could be bought at Sh100 ten years ago, translating to 50 per
cent devaluation of purchasing power.
''The shilling's exchange rate which was at 72 against the dollar in
2009 is now at Sh100. This represents 20 per cent devaluation, meaning
the shilling is overvalued by 30 per cent, '' Kadzutu said.
Dubbed 'Kenya's Economic Puzzle', the report supports IMF's views on
the shilling which were disputed by the Central Bank of Kenya.
I respectfully disagree
06-NOV-2018 :: The Shilling. @TheStarKenya
Today, if you scan Sub-Saharan Africa you will note many dual currency
regimes all of which are interfering with the free markets. Here in
Kenya, you can exchange your money at a 50 cents bid offer spread.
Sure, the Central Bank [and I rank their foreign exchange operations
as an ‘’Outlier’’ when you compare it to any other Central Bank on the
continent] probably smooths lumpiness but that is prudent and
sensible. If you are aware of a lumpy trade, it certainly makes sense
to spread it out because after all Participants have access to
enormous amounts of Leverage in the FX markets and Kenya does not fold
infinite FX reserves. I have always enjoyed parsing the linguistics
and in this respect the characterisation of “other managed
arrangement” is wrong on the facts as I see them.
The finding that the Shilling is 17.5% overvalued is also alarmist and
not borne out by facts. Such a devaluation would ‘’cry havoc’’ with
our debt-to-GDP ratios. The International Monetary Fund raised its
assessment of the chance of Kenya’s external debt distress to moderate
from low due to increasing refinancing risks and narrower safety
margins in East Africa’s biggest economy. The Washing- ton-based
lender estimates Kenya’s total public debt will peak at 63.2 per cent
of gross domestic product this year and gradually decline over the
medium term. This compa- res with 58 percent in 2017 and 53.2 per cent
in 2016, when the nation ramped up infrastructure projects. There is
an argument that we need to be tapping Euro denominated Eurobond
borrowing and not just dollar denominated debt.
The Central Bank is sitting on the highest hard currency reserves in
its history. Remittances have surged by 71.9% year on year to $266.2M
in June 2018 from $54.9M in June 2017. Remittances are the most
important source of forex bar none.