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Wednesday 08th of May 2019 |
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Macro Thoughts |
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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 Africa |
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 Hotel California:
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! “
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@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 said. 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 markets. 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 added. 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 addiction "dangerous". "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 reasonably likely". 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 next year.
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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 dispute. 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 cliff. 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 fate.
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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 on Monday. 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 collapse entirely. 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 research group. “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 policies. 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 hanging separately.” 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 developments. 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.
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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.”
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Sudan army chief says Sharia law must be legislation source @BBCWorld Africa |
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.
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Angola Vows to End Fuel Shortage Sparked by Currency Crunch @markets Africa |
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 statement. 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.”
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Next Round of Ramaphoria May Be Shorter @economics #SAElections2019 Africa |
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.
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The Real Ballot Question in South Africa: How to Keep the Country from Falling Apart @Quillette H/T @TheHorseCure #SAElections2019 Africa |
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 status. 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 factions. 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 expectations. 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.
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Zimbabwean Central Bank Sees Exchange-Rate Convergence by July @economics Africa |
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 February. 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 in Harare. “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.
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Africa |
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.
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Amana Capital chief investment officer Reginald Kadzutu said the shilling is overvalued by 30 per cent. Kenyan Economy |
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.
Conclusions
I respectfully disagree
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06-NOV-2018 :: The Shilling. @TheStarKenya Kenyan Economy |
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.
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