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Macro Thoughts

In the runup to the Federal Reserve’s Open Market Committee meetings
on July 30 and July 31, policy makers are debating the value of what
would normally be considered unorthodox policy actions. The
consequences of the Fed’s actions in the next week—the U.S. central
bank is expected to cut interest rates by a quarter of a percentage
point—could be with us for much longer than we think, culminating in
the next recession and increasing the risk to financial stability. In
the meantime, the Fed could be delivering yet another sugar high to
the economy that doesn’t address underlying structural problems
created by powerful demographic forces that are constraining output
and depressing prices. By almost every measure, policy makers should
be considering another rate hike, not a rate cut, in anticipation of
potential economic overheating from looming limitations on output.
Instead, debate has been focused on the need to take preemptive action
to avoid a potential slowdown. An abrupt shift in thinking was set in
motion last December when, after raising overnight rates by a quarter
of a percentage point, Fed Chairman Jerome Powell signaled more hikes
would come and that balance-sheet reduction was on “autopilot.”
Alarmed by the market tantrum that ensued, Fed policy makers began a
mop-up campaign that included the Fed’s now-famous “pivot” to
patience. While the Fed has more than succeeded in stabilizing
markets, the ensuing liquidity-driven rally in various markets has
boosted asset prices, including stocks, bonds, precious metals,
energy, and even cryptocurrencies. As Europe faces prospects that
negative rates might become a long-term fixture in the euro region,
concerns are mounting in the U.S. that a global slide toward negative
yields could infect the market for Treasury securities, should the
U.S. slip into a recession. These concerns are well founded. In the
postwar era, the Fed has reduced short-term interest rates by an
average of 5.5 percentage points during easing cycles associated with
recession. The required stimulus in the next recession could
necessitate large-scale asset purchases of nearly $5 trillion to
overcome the monetary limitations of the zero bound. Such a policy
action could result in negative Treasury yields. To immunize against
the global contagion of negative rates, the Fed is intentionally
overheating the U.S. economy in the hope of pushing inflation above
its 2% target rate. Once inflation approaches some undefined rate,
perhaps 2.5%, the Fed likely will reverse course and lift rates above
today’s levels, creating another set of risks. Additional
accommodation this late in the business cycle is likely to push asset
prices higher, just as in 1998, when the Fed cut rates by 75 basis
points (a basis point is one-hundredth of a percentage point) during
the Asian crisis, only to reverse course nine months later by raising
short-term rates to the cycle high. Just as Fed accommodation inflated
the internet bubble then, asset inflation associated with stimulative
policy at this point in the cycle is likely to have a similar impact.
Chairman Powell has been clear that the Fed will go for broke, doing
whatever is necessary to keep the expansion going. Most likely, a
quarter point next week will be followed by another half percentage
point before year end. The real problem leading to the depressed yield
curve can’t be solved by the Fed, short of the remote possibility of
an overt policy to increase inflation well above 2%. This problem is
the product of structural changes within the economy that have reduced
growth potential relative to the past 50 years. Demographics play an
important role. Not only is an aging population creating an acute
labor shortage, but the opioid crisis and failures in education and
job training are limiting the supply of skilled labor. Without growth
in supply-side contributors including labor, capital, and other forms
of investment, and increased demand associated with a faster-growing,
younger demographic, the real neutral rate—or the Fed’s sweet spot to
maintain economic output—is likely to remain low and may even fall
into negative territory. The depressed neutral rate is limiting the
power of policy makers to stimulate demand without risking
significantly higher inflation and financial instability. The simplest
way to avoid recession and the associated negative rates would be a
rapid increase in the supply of labor, aided by education, job
training, and solutions to address the blight of opioids. A rational
immigration initiative could quickly offset the risks of a slowing
economy by providing more workers to fill open jobs. Two million new
workers could raise output potential by 2% or more. This would push
the neutral rate higher by stimulating economic growth while
increasing tax revenue due to the rapid growth in personal income. The
Fed’s current policy of anticipatory and preemptive rate cuts likely
will lead to unsustainably high asset prices and increased financial
instability. This can only make the next downturn worse. If the U.S.
continues down the current policy path, we will find out that the
Fed’s cure for avoiding a near-term recession and negative interest
rates may ultimately make the disease worse.
Scott Minerd is co-founder and global chief investment officer of
Guggenheim Partners, and a member of the Board of Overseers of the
Hoover Institution.

If you were to look at the US economy in isolation, you’d have to say
such a forecast is absurd. The economy has some soft spots but
unemployment is at multi-decade lows and consumer spending holding up.

We are in ‘’nose-bleed’’ territory. This is ‘’Voodoo Economics’’ and
just because we have not rea- ched the point when the curtain was
lifted in the Wizard of Oz and the Wizard revealed to be ‘’an ordinary
conman from Omaha who has been using elaborate magic tricks and props
to make himself seem “great and powerful”’’ should not lull us into a
false sense of security.

Home Thoughts

“And the fact that a lot of people break down and cry when confronted
with my pictures shows that I can communicate those basic human
emotions….If you…are moved only by their color relationships, then you
miss the point.”

By the early 1960s, Rothko was widely regarded as one of America’s
leading painters. Speaking of the style he had honed over the past two
decades, he remarked: “This kind of design may look simple, but it
usually takes me many hours to get the proportions and colors just
right. Everything has to lock together.” This untitled painting on
paper—with its incendiary orange ground supporting a lighter,
yellow-orange rectangle and a fiery red rectangle—attests to his
sophisticated understanding of color and composition. The bright, warm
palette stands as evidence that he continued to swing back-and-forth
from cool to warm tones. Many have misinterpreted Rothko’s dark
paintings as stemming from his worsening depression, and his
brilliantly colored paintings as joyous expressions. In fact, some of
the last compositions the artist painted featured bright, warm colors.

His name was Damayon and we were best friends. We climbed trees, threw
rocks and hurled spears, swam in river pools and trekked long
distances. In our tests of strength, our aim was never to give in to
pain or fear. My friend’s talk rarely strayed far from his love of
cattle, the wild creatures, his rugged mountains, the pastures and the
singing wells. I was an English teenager in glasses, with feet in
shoes. I so envied Damayon the cicatrix patterns on his cheeks and
upper body, his beaded adornments, his agility and ascetic toughness,
his weapons, the way he saw his universe and the life ahead of him. He
wanted nothing from my world, and he was unfazed by it all, though
gently respectful when he came to stay with my family and sat at the
table cracking jokes to amuse my mother, or answered my father’s
endless, earnest questions. I had no illusion I was anything other
than a boy from a separate world, but for me knowledge of Samburu
things gave me joy, as did my growing collection of knives in rawhide
scabbards, spears and beaded bracelets. Folded in my rucksack wherever
I went, I had a good map of Kenya on which I marked each safari,
camping spot, points of interest and valued experience, until it was
completely scribbled over.

With Damayon I first saw a Samburu dance, when youths swayed in
snaking lines, each warrior joining the rhythmic chorus, his jaw
crushing down into his throat to emit the grunt of a lion, stretching
his chin skywards to roar like a bull, every dancer in turn separating
from the line suddenly to leap high into the air on rigid legs,
landing on the dry earth with a stamp in a cloud of dust before the
line absorbed him and another dancer came forward. I was a spectator
watching this chorus of growls and roars, this leaping which reached a
pitch of energy when dancers began to shiver in a state of trance.
Sometimes a youth fell out of the line, convulsing like an epileptic,
his eyes white in their sockets, foaming at the lips, cradled by his
fellows.

The day arrived when Damayon and I said goodbye to each other

A domestic proverb calls Korea, long nestled uneasily between the
larger Northeast Asian powers of China, Japan and Russia, “a shrimp
between whales” and warns that “when whales fight, shrimps are
crushed.”
The ancient fear is coming home to roost once more, as South faces
soaring risk across multiple geographic and sectoral fault lines. On
the economic front, there is unprecedented pressure from Japan. On the
security front, China and Russia are acting in unprecedented concert
in Korean skies. Meanwhile, the centerpiece of President Moon Jae-in’s
efforts – engagement with North Korea – is imploding.

It is a stark turnaround. A mere year ago, Moon was being hailed for
his sure-footedness in walking a tightrope between competing interests
and powerful neighbors. He looks considerably less adroit now.

“No civilized society under the rule of law would ever allow acts of
violence to take place.”

Euro 1.1137
Dollar Index 98.17
Japan Yen 108.59
Swiss Franc 0.9909
Pound 1.2123
Aussie 0.6898
India Rupee 68.76
South Korea Won 1181.78
Brazil Real 3.7814
Egypt Pound 16.589
South Africa Rand 14.1468

Emerging Markets

Frontier Markets

The IMF released their iconic World Economic Outlook last week and
said the following about Sub Saharan Africa

In sub-Saharan Africa, growth is expected at 3.4 percent in 2019 and
3.6 percent in 2020, 0.1 percentage point lower for both years than in
the April WEO, as strong growth in many non-resource-intensive
countries partially offsets the lackluster performance of the region’s
largest economies. Higher, albeit volatile, oil prices have supported
the outlook for Angola, Nigeria, and other oil-exporting countries in
the region. But growth in South Africa is expected at a more subdued
pace in 2019 than projected in the April WEO following a very weak
first quarter, reflecting a larger-than-anticipated impact of strike
activity and energy supply issues in mining and weak agricultural
production. So after downshifting SSA growth 0.1% for 2019 and 2020
they have pegged Nigeria at 2.3% and 2.6% and South Africa at + 0.71%
and +1.1%. Nigeria and South Africa constitute 50% of SSA GDP. I think
Nigeria will post lower numbers than projected by the IMF and worthy
of note is that Both Economies are in fact in reverse because of
Population growth which is exceeding GDP.

This single Paragraph does not tell the Story because this year in
2019 so much has gone on. Let start with the Geopolitical and
Political dimension. There has been a significant advance and
intrusion by Middle Powers [KSA, UAE, Egypt was always there] into the
Horn of Africa. The ''Oudh'' Spring in Khartoum met a ''red in tooth
and claw'' Counter-Revolution and Sudan feels like an African
Fault-line. Its somewhat counterintuitive but it is the Al-Sisi Model
which is delivering economic growth of 6% but I for one think its
impossible to replicate because the cry for Political Freedom is
relentless and at fever pitch. Sudan is surely a collision which is
set to repeated elsewhere in what could morph into a Gladwell level
move not unlike Ebola which is exponential at its heart.

America feels detached, China certainly more cautious around its BRI
Loan Book. Russia has reasserted itself with its unique bag of Tricks
[Elections,, Weapons and Cash particularly where there are resources
available for swapping]. The United Kingdom will surely seek a bigger
engagement post Brexit and France and the Future of the French
speaking World is also in Africa. Quite a sophistical Policy Tool-Kit
is required.India is a Player too.

At a more granular level, Zimbabwe is a Laboratory Experiment with
Inflation last clocking 176%. There is a straw and camels back moment
but predicting that moment is always a Fools Errand. Centrifugal
forces are working against the mercurial Prime Minister Abiy's agenda
in Ethiopia. The French speaking countries like Cote D'Ivoire and
Senegal are in a sweet spot in large part precisely because of the
stability of the Euro Anchor and at which very moment they are
considering dumping the connection and launching their own ECO.
President Tshishikedi in the DR Congo continues to build momentum from
a low base. East Africa's Infrastructure model [predominantly rail] is
finding that the Main Creditor is not being persuaded to pony up more
cash. The actual Signal was emitted at FOCAC 2018 but Policy Makers'
Antennae were scrambled then and the message did not get through. The
Message got through at the third time of asking, in fact. The Proof of
Magafulinomics will be in the eating and surely we will know whether
the cake it is baking is a growing one or a shrinking one.

The overarching and interestingly at a time when the Rest of the World
seems to be embarked on a process of Fragmentation and Globalisation
coming apart at the seams, Africa is proudly moving counter-trend with
the African Continental Free Trade Area (AfCTA). Of course, the Devil
is in the Details of the execution and such things can simply fall
apart in a deluge of Non-Tariff Barriers but it is a Silver Bullet
particularly if we allow the free circulation of our People who are
natural Entrepreneurs. Just look outside, there are markets just about
everywhere.

From an economic Perspective, balance sheets are fully loaded and the
exposure to Foreign markets quite high [The SSA Eurobond market is in
excess of $104b, for example]. Just on Friday Fitch Ratings revised
its Outlook on South Africa to Negative; Affirms at 'BB+'. This is
surely a Precursor for what has to be a deteriorating Ratings trend
line. For now, with the Developed World embarked on their own version
of ''Voodoo economics'' with interest rates deep in negative
territory, this has created a benign backdrop for SSA Sovereign Paper
because of the Optics of handsomely positive interest rates in a world
of negative interest rates. However, the Ratings Trendline versus
Yield compression means at some point the elastic band will snap.
Zambia of course snapped earlier in the year.

The best performing stock market has been South Africa where the Gold
Price move higher popped Gold and Miners shares.

Can Abiy Ahmed, the prime minister, stop the country from falling apart?

It has been two months since Malawi’s Peter Mutharika was sworn in
after winning an election that earned him the nickname “Tipp-Ex
president”.
The jibe is a reference to the correction fluid that the opposition
claims was used to alter of results with a vote that gave the
79-year-old former law professor a second term.
Malawi’s high court is now being asked by two disappointed challengers
to scrub out the outcome and order a rerun.
Five judges will, from Monday, begin deliberations in an effort to
resolve a crisis that has spilled on to the streets of the normally
peaceful southern African country.
If, as the opposition said it expects, the court orders a fresh
election, it will be only the second time in Africa that judges have
nullified a national poll.
Since Malawi ended one-party rule in 1994, the landlocked country of
18m people, though poor and dependent on exports of tobacco, tea and
sugar, has gained a reputation for regular multi-party elections and
smooth transitions of power.
There have been allegations of fraud before, but nothing on the scale
of this year.
Evidence of widespread irregularities in the May presidential vote has
triggered a wave of public protests.
Mainly young people have marched through the streets of the capital
Lilongwe and the commercial city of Blantyre, blocking roads with
rocks and burning tires. Government buildings and politicians’ homes
have been torched.
“Malawi is burning,” said Joyce Banda, a former president. “What is
happening is unprecedented.”
Demonstrators have come into conflict with armed police, who have
bombarded them with tear gas. Even the US ambassador emerged
spluttering when in June police lobbed canisters at an opposition
party headquarters.
Protesters have been protected against police by the popular armed
forces, prompting rumours of a possible coup in a country with no
history of military rule.
The crisis has reminded some of contested elections in Kenya two years
ago. Then the country’s supreme court made history by cancelling the
result of a poll it said had been marred by “irregularities and
illegalities”.
The Kenyan decision led many in Africa, where democratic contests are
frequently undermined by allegations of rigging, to conclude they may
have genuine legal recourse to challenge results.
Boniface Dulani, professor at the Institute of Public Opinion and
Research at the University of Malawi, said an election annulment would
build on the Kenyan precedent.
“It would send a strong signal to the continent’s rulers that
manipulating elections does not mean automatic passage to state
house,” he said.
Blessings Chimsinga, associate professor at the University of Malawi,
said the case was “make or break” for a public that had lost faith in
the electoral process.
Any rerun, he said, would need comprehensive electoral reforms to be
credible. Otherwise, he added, “it would be like putting new wine in
old bottles”.
The crisis has sparked volatility in the kwacha, the local currency,
and led to the stagnation of an already fragile economy. Malawi has a
nominal income per capita of $380, making it one of the world’s
poorest countries.
It has also bitterly divided the country. Mr Mutharika’s Democratic
Progressive party has accused opposition leaders of making “wild
claims” about a contest that it said was deemed fair by international
observers.
The EU said that, although election day was peaceful, Mr Mutharika’s
party had abused state resources and its access to state media.
Saulos Chilima, a former telecoms chief who came third in the
presidential vote but who claims to have won, predicted that national
divisions would only escalate.
“If people are worried about the demonstrations of last week, that is
just a warm up. There’s going to be serious fire,” he said.
Lazarus Chakwera, who came second in the vote, said he had sought to
rein in violence. “I said: ‘Let us not destroy our parliament. We will
need it tomorrow,’” he told the Financial Times, adding: “Coups are
not cool.”
Political analysts say a behind-the-scenes deal could yet be struck,
although both opposition candidates have insisted that negotiations
are impossible until Jane Ansah, head of the electoral commission, is
fired.
Defending herself in local media against accusations that election
tally sheets were doctored, she said: “Correctional fluid, if you
check in the dictionary, corrects errors. Tipp-Ex can be used for
positive and negative purposes and that is for the court to find out.”
The court has 24 days to deliberate and its decision is final.

Jumia Technologies AG’s plan to expand its online retail and trading
platform in less developed parts of Africa has long had one
significant challenge: A lack of formal addresses for deliveries.
That may be about to change due to an agreement with Vivo Energy Plc,
the London-listed owner of more than 2,100 Shell and Engen-branded
service stations across the continent.
Under the terms of the deal, the sites will be used as pick-up points
for Jumia-bought goods and customers will be able to pay for them at
the same time as buying gas.
“We are constantly looking at how we can further adapt our technology
to be a part of the local infrastructure and become more accessible to
more customers,” said Boris Gbahoue, a marketing vice-president at
Jumia.
“The partnership with Vivo will enable Jumia to conveniently deliver
products to current and new customers, including in remote areas.”

A pioneering app in South Africa lets investors, eager to benefit from
rising global beef demand, buy shares in a cow from their mobile phone
for as little as 576 rand ($41).
Self-styled “crowd-farming” company Livestock Wealth connects
investors with small-scale farmers via its “MyFarmbook” app, where
they can buy their own cow and receive interest rates of between 5%
and 14% depending on where they put their money.
Launched in 2015 with 26 cows, the project now includes more than
2,000 cows and has taken in 50 million rand, with 10 percent of
investors coming from outside South Africa.
Groups of investors can buy a whole cow, while individuals can
purchase shares in a pregnant cow or young calf.
A pregnant cow costs 18,730 rand and takes 12 months before the
newborn calf can be sold for a return, while investing in a calf costs
11,529 rand and takes six months for it to grow enough to be sold.
“We can link small scale farmers to big markets by introducing private
capital into the growing phase,” said 38 year-old Livestock Wealth
founder and CEO Ntuthuko Shezi, who was inspired by his grandparents’
farming success.
“The household bank account was a crop,” added Shezi of his family
experience, standing among a herd of cattle at a partner farm in
Vryheid, a ranching town in northern KwaZulu-Natal province.
Livestock contributes around 51% to the agricultural economy in South
Africa, with global sheep and beef prices rising after droughts in
major producing areas.
“Many people live in urban areas and they have interests in
participating in farming but they cannot physically be there and this
offers them a platform to do that,” said Wandile Sihlobo, economist
with South African agribusiness association Agbiz.
Small business consultant Nontokozo Sabela, 34, was once interested in
farming - but found the app a better alternative.
She bought her first cow in 2016 and earned around 6,000 rand from it.
“This way it’s easier for me, it’s cheaper, it’s convenient,” said
Sabela.
As with any investment, however, risks exist. Both the impact of
weather on feed costs and fluctuations in global demand for beef can
affect the cow investments.
Shezi now hopes to expand his business into the produce market after
launching a vegetable growing system this month that aims to give a
220 rand return per month over five years.

South Africa’s 2044 issue was down 1.3 cents in the dollar after Fitch
put the country back on a downgrade warning, just a day after Moody’s
had voiced concerns about a 59 billion rand ($4 billion) bailout for
Eskom.
Eskom’s 2025 issue lost 1.6 cents in the dollar, its most in a day
since early February

Dollar versus Rand 6 Month Chart INO 14.1489
http://quotes.ino.com/charting/index.html?s=FOREX_USDZAR&v=d6&t=c&a=50&w=1

Egypt Pound versus The Dollar 3 Month Chart INO 16.5865
http://quotes.ino.com/charting/index.html?s=FOREX_USDEGP&v=d3&t=c&a=50&w=1

Egypt EGX30 Bloomberg +2.96% 2019
http://www.bloomberg.com/quote/CASE:IND

Nigeria All Share Bloomberg -11.07% 2019
http://www.bloomberg.com/quote/NGSEINDX:IND

Ghana Stock Exchange Composite Index Bloomberg -7.1% 2019
http://www.bloomberg.com/quote/GGSECI:IND

The currency of East Africa’s largest economy dropped 0.2% to 104.07
shillings per dollar by 12:40 p.m. in the capital, Nairobi, on track
for the lowest level since October 2015. It’s set for a fifth straight
monthly decline.
While remittances, Kenya’s biggest source of foreign exchange, rose in
the six months through June, agricultural and cut-flower exports
declined and tourism numbers dropped.
That’s putting pressure on the shilling at a time when a strengthening
dollar is undermining most emerging-market currencies.
“Exports have been muted while imports have been expanding and
resulted in widening the trade gap,” said Churchill Ogutu, a senior
research analyst at Nairobi-based Genghis Capital.
“If three of the top four forex earners are having a downturn it will
exacerbate the deficit.”
Kenya’s tea production in the first five months of this year fell to
170.18 million kilograms compared with 187.69 million kilograms during
the same period in 2018. The average auction price was $2.25 per
kilogram compared with $2.80 per kilogram a year ago. Kenya is the
world’s biggest exporter of black tea. The Kenya Flower Council sees
2019 cut-flower earnings growth slowing to 20% from 38% on global
oversupply. Kenya is the largest exporter of cut flowers to Europe.
The number of visitors to Kenya declined to 921,090 in the first six
months of this year compared with 927, 977 during the same period a
year ago.
Cumulative remittances in six months through June increased to $1.45
billion from $1.38 billion during the same period last year.

The new stocks will be allotted at a rate of three for every share
held to investors who were in shareholder list as of June 14

Par Value:                  2.50/-
Closing Price:           3.89
Total Shares Issued:          699949068.00
Market Capitalization:        2,722,801,875
EPS:             3.25
PE:                 1.197

Par Value:                  2.50/-
Closing Price:           46.05
Total Shares Issued:          188542286.00
Market Capitalization:        8,682,372,270
EPS:             5.9
PE:                 7.805

Nairobi All Share Bloomberg +6.12% 2019
http://www.BLOOMBERG.COM/quote/NSEASI:IND

Nairobi ^NSE20 Bloomberg -6.61% 2019
http://j.mp/ajuMHJ

Every Listed Share can be interrogated here
http://www.rich.co.ke/rcdata/nsestocks.php