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Macro Thoughts

Whilst I accept that its a 20/80 [US Consumer absorbs 20%, China will
have to absorb 80%] of the Tariff Price increase, nevertheless even
20% of a 100 is inflationary.

@POTUS &  @stevenmnuchin1 have heard Xi Jinping loud & clear

“Tell me why Xi should not continue to wait out The World’s Greatest
Negotiator, who keeps ‘dealing’ with himself?” says Jim Chanos,
founder and managing Partner of Kynikos Associates.
“The White House is now delaying the tariffs and removing some items.
Did some acronym called the SPX cause someone to blink?,” David
Rosenberg, chief economist and strategist at Gluskin Sheff &
Associates, said in a tweet.

Last Monday I wrote
''The most important currency to watch right now is the USDCNH [and]
It could slice through 7.00 like a hot knife through Butter.
The Offshore USDCNH market popped through 7 on Monday [sending a
shiver through Global markets - The Markets emit signals and the
Signal the market was emitting was that there was a precise
correlation coefficient between a weaker Yuan and weaker S&P 500
Futures] and closed on Friday at 7.0985. On Thursday, China set its
yuan fixing [onshore] weaker than 7 for the first time since 2008.
President Trump finally pulled the Trigger on citing China as a
currency Manipulator.
''We're in that bizarro world where you can be a currency manipulator
if you fail to manipulate your currency'' tweeted @TonyFratto
It is clear that the Chinese have been keeping the Renminbi [Yuan]
artificially high.
George Magnus writing in Bloomberg's Quint
China allowing the yuan to slide below 7 to the dollar is a watershed
moment for currency markets that's symbolically equivalent to the U.S.
and other countries abandoning the gold standard in the interwar
period, or the collapse of the postwar Bretton Woods system of fixed
exchange rates four decades ago. The implications for the global
economy are equally significant. The world’s major currencies aren’t
tethered in the way they were in
those periods, but gold and Bretton Woods both served as anchors for
the world’s monetary system, and their demise reflected the economic
and political disarray of their times. Today, the yuan is semi-pegged
to the U.S. dollar. The arrangement serves as an anchor for China’s
financial system, now the world’s largest by assets; for many currency
systems in Asia and around the world; and for U.S.-China economic and
financial relations. If that mainstay ruptures, it’s liable to set off
chain reactions inside and outside China. That’s why the loosening in
currency policy by the People’s Bank of China this week, while it may
seem unremarkable for most people, is an important development.
Late last Year, the View was
“This is all on Xi’s shoulders,” said Trey McArver, co-founder of
Beijing-based research firm Trivium China. “Xi has personally said
that he would handle relations with the United States and at this
point, he has failed. Those relations are spiraling out of control.”
[Bloomberg]
What is clear is that Xi Jinping has repelled the US Advance and this
past week's Yuan Price Action was a message delivered with finesse and
subtlety and whose import cannot be ignored.
Given that neither President Trump nor Xi Jinping have it seems any
desire to back up, the risks are skewed as follows. We should expect
more volatility in the Feedback Loop that was characterised by
Bloomberg Businessweek thus
The chaos cycle -Powell speaks -Trump tweets -China reacts -Markets freak
The Point is this the Yuan is now the Catalyst and China has signalled
it will be a shock absorber. Xi Jinping was also signalling he had
control of the Console. The direction of Travel for the Chinese
currency is therefore lower. The Yen and the Swiss franc considered
safe havens in troubled times have been in demand and Sterling was
described as ''drinking at the last chance saloon'' and closed on
Friday with its its nose just in front of 1.2000.  Gold [safe haven]
crossed $1,500.00 for the first time since April 2013. G7 Sovereign
Bonds tilted further and deeper into negative Territory. So this Bid
for Safe-haven assets has intensified and a weaker Yuan will only
intensify this impulse as it courses through the veins of the Foreign
Exchange markets. China has exerted the Power of Pull over a vast
swathe of the World over the last two decades. We can call it the the
China, Asia, EM and Frontier markets Feedback loop. This Feedback Loop
has been largely a positive one for the last two decades. With the
Yuan now in retreat [and in a precise response to Trump], this will
surely exert serious downside pressure on those countries in the
Feedback Loop.
To wit, Emerging market stocks closed down for 11 days running , 12
being an all-time record which was narrowly missed. The Purest Proxy
for the  China, Asia, EM and Frontier markets Feedback loop Phenomenon
is the South African Rand aka the ZAR. The rand was down 0.4% to
15.1121 per dollar by 12:05 p.m. in Johannesburg, its weakest level on
a closing basis since Sept. 2018. The rand is also the most volatile
currency in the world, with the one-week implied volatility climbing a
fourth day. The Rand is at risk of a further asymmetric downside move.

[the additional risk of an asset moving more than 3 standard
deviations from its current price, above the risk of a normal
distribution].

Home Thoughts

“Look, boys, it ever strike you that the world not real at all? It
ever strike you that we have the only mind in the world and you just
thinking up everything else? Like me here, having the only mind in the
world, and thinking up you people here, thinking up the war and all
the houses and the ships and them in the harbour. That ever cross your
mind?”
― V.S. Naipaul, Miguel Street

Political Reflections

Those who know her say that it’s possible she is as much of a Houdini
as Epstein. Both of them liked having secrets, and the way those
secrets kept people off balance. “Jeffrey always wanted to give the
impression that he was an international man of mystery—‘I control
everyone and everything, I collect people, I own people, I can damage
people,’” says an ex-girlfriend.
The nature of the relationship between Epstein and Maxwell, the
favorite daughter of embezzling press baron Robert Maxwell, who died
when he fell or was pushed from his yacht, the Lady Ghislaine, is not
well known. Multiple victims claim she was both part of the sex
trafficking ring, often bringing girls to Epstein, and a sexual
participant. But Epstein told of-age women he courted that Maxwell was
a former girlfriend fallen on hard times, and that he had taken it
upon himself to maintain her position in society. “Ghislaine floated
in and out of the house with the keys, and even though Jeffrey told me
they didn’t have a sexual relationship, she’d drop under her breath
that she was sleeping in his bed from time to time,” says an
ex-girlfriend. Another woman in Maxwell’s orbit says she used to joke
about keeping herself rail thin because Epstein liked thin girls.
Maxwell, whose father was Jewish, liked to shock. “She said, ‘I do it
the way Nazis did it with the Jews, the Auschwitz diet. I just don’t
eat.’”
On the weekends in the 1990s, Maxwell would have her Rollerblades
FedExed to Epstein’s island in the Caribbean, and said she got her
helicopter’s license so she could transport anyone she liked without
pilots knowing who they were. Maxwell also said the island had been
completely wired for video; the friend thought that she and Epstein
were videotaping everyone on the island as an insurance policy, as
blackmail. A source close to Maxwell says she spoke glibly and
confidently about getting girls to sexually service Epstein, saying
this was simply what he wanted, and describing the way she’d drive
around to spas and trailer parks in Florida to recruit them. She would
claim she had a phone job for them, “and you’ll make lots of money,
meet everyone, and I’ll change your life.” The source continues,
“Ghislaine was in love with Jeffrey the way she was in love with her
father. She always thought if she just did one more thing for him, to
please him, he would marry her.”

Maxwell had one other thing to tell this woman: “When I asked what she
thought of the underage girls, she looked at me and said, ‘they’re
nothing, these girls. They are trash.’”

In November of 1991, Robert Maxwell’s body was found floating in the
sea near the Canary Islands and his luxury yacht the Lady
Ghislaine.[16] Immediately following his death, Ghislaine flew to
Tenerife, where the yacht was stationed, to attend to his business
paperwork.[9] Though a verdict of death by accidental drowning was
recorded, Maxwell has since stated that she believes her father was
murdered,[17] commenting in 1997 that "He did not commit suicide. That
was just not consistent with his character. I think he was murdered."

The Commons Speaker said he would fight any attempt to prorogue
Parliament “with every bone in my body”.
He also said that MPs can stop Britain leaving without a deal at the
end of October, putting him on a collision course with the Prime
Minister’s chief strategist, Dominic Cummings.

‘Boris isn’t bluffing. Every action, every appointment, every word
sin- ce he entered Number 10 signals the same thing: Britain is
leaving the EU on October 31’ said the Telegraph’s Daniel J Hannan.

International Markets

Euro 1.1178
Dollar Index 97.746
Japan Yen 106.36
Swiss Franc 0.9758
Pound 1.2055
Aussie 0.6775
India Rupee 71.1245
South Korea Won 1212.88
Brazil Real 3.9637
Egypt Pound 16.5487
South Africa Rand 15.1485

Commodities

Emerging Markets

Frontier Markets

Sub Saharan Africa

A new way of financing the fight against global diseases lured
investors with annual returns of more than 11%. The deadly Ebola
outbreak in Africa is highlighting shortcomings of so-called pandemic
bonds in halting contagions.
After the worst Ebola outbreak on record, the World Bank two years ago
began selling the high-yielding securities, modeling them on
catastrophe bonds that pay out in response to insurance claims for
events like hurricanes.
The pandemic bonds, the first ever, are triggered by patterns in
deaths from infectious diseases.
While the $320 million sale was hailed as a way to fight disease with
finance, the funds are locked up by an arcane formula -- one that may
rarely be satisfied by actual events.
Bondholders are collecting rich interest payments even as the
Democratic Republic of Congo is struggling to arrest an Ebola virus
outbreak that’s killed more than 1,800 people the past year, and
threatens to spill into neighboring nations.
“It was a lot of hype,” said Olga Jonas, a senior fellow at the
Harvard Global Health Institute in Cambridge, Massachusetts, who was
previously the World Bank’s economist coordinating avian and pandemic
influenza. “They wanted to announce a new initiative that would
impress the world.”
Mukesh Chawla, the World Bank’s senior adviser for pandemic financing
and the facility’s coordinator, defended the bonds and explained they
are part of an innovative financing mechanism designed to provide
early, rapid funding to combat major disease outbreaks. It helps fill
a gap after the initial outbreak and before large-scale humanitarian
relief assistance can be mobilized, he said.
The World Bank sold the bonds, due July 2020, as part of an overall
effort, called the Pandemic Emergency Financing Facility, to aid
countries in the early stages of a global contagion diseases like
SARS, bird flu and Ebola
The issue was a bondholder’s dream; with U.S. Treasury yields near
record lows, it offers a return found only in shaky junk-rated bonds,
sold from the best credit in the world and with a payout formula that
was hard to trigger. The transaction was 200% oversubscribed,
according to the World Bank.
While other funds from the facility flow to relief organizations
relatively easily -- after as few as 30 Ebola deaths in one country --
triggering its $425 million insurance fund is more complicated. A
final arbiter, Boston-based AIR Worldwide Corp., scours WHO’s reports
to determine whether the outbreak fulfills requirements for the
payout.
The premiums for the bonds -- one of 11.5%, the other 6.9% -- cost
about $36 million a year, paid by donor countries including Germany
and Japan, Chawla said. It’s a relatively low price in the market for
catastrophe bonds, he said.
Catastrophe bonds pay some of the highest coupons in the fixed-income
world, and mostly attract specialist fund managers. Investors demand
substantial yields to compensate for the risky and unpredictable
nature of disasters. Losses are typically triggered by insurance
claims, but the World Bank’s bond requires meeting a range of
conditions.
Those conditions, such as the requirement for deaths in two countries,
protect the pandemic insurance fund from inappropriate use, said Andre
Rzym, a portfolio manager at Man AHL, which oversees $29.9 billion.
The Congo’s Ebola epidemic is driven by non-medical issues that may
not lead to global spread, he said.
For example, a $95 million tranche insuring against an Ebola virus
outbreak pays investors more than $1 million each month. For the funds
to flow to Congo, the disease must cause at least 20 deaths in at
least one other country within a specified time window. Deaths must
also increase at a minimum rate during this period, shown by a formula
that looks like this
While Ebola continues to spread, just three infections have been
confirmed in a neighboring country, all traced back to Congo. The
example suggests that the bond’s conditions make it unlikely that the
insurance funds would become available early, when they would do the
most good, said Andrew Farlow, an economist at the University of
Oxford who studies pandemics.

It doesn’t look like the hub of an online bank. But that’s what the
yellow and blue metal kiosk becomes when Albert Agane locks himself
behind the metal bars every day at 6 a.m.
From his perch along a dusty suburban thoroughfare in Accra, the
28-year-old helps fellow Ghanaians withdraw or deposit cash for
accounts they operate from their mobile phones. All they need do is
text.
Mobile money is the fastest-growing source of income for
wireless-network operators like MTN Group Ltd. and Vodafone Group
Plc’s Safaricom unit, outpacing data since many Africans don’t have
the latest smartphones.
They need agents like Agane because ATMs and bank branches are out of
reach, or too costly.
“In a village, where there are no banks, you can go to an agent and
transact,” said Agane, who earns a commission of about 1 percent for
moving as much as 20,000 cedis ($3,700) a day. “Once people have
phones there’s no need for a bank account.”
The service has become an indispensable part of how Africa’s 1.2
billion people live, from buying funeral cover to borrowing money. The
number of registered users in Ghana soared 11-fold between 2013 and
2017, International Monetary Fund data shows. Across the continent in
Kenya, where it was pioneered, the value of such transactions amounts
to almost half of gross domestic product, according to the World Bank.
Sub-Saharan Africa has more mobile-money accounts than anywhere else
in the world with about 396 million registered users at the end of
2018, a 14% increase from a year earlier, according to the GSM
Association. As it catches on around the world, South Asia saw 29%
growth in 2018, and it was 38% for East Asia and the Pacific.
“There are a lot of partnership opportunities with immense revenue
potential for both mobile-network operators and banks,” said Patrick
Quantson, head of digital transformation at the Accra-based unit of
Standard Bank Group Ltd., Africa’s largest lender. “The mass appeal of
mobile-money services and the mode of delivery also presents an
opportunity to scale financial products to all market segments, at
incredibly lower costs.”
It’s easy to see why Agane—one of 182,000 mobile-money agents—is
busier than the ATMs around Ghana’s capital city. There are more than
1,740 such outlets per 100,000 people in the country, compared with
only 11.7 ATMs and 8.7 bank branches, the IMF data show.
“We’ve seen that people in the informal sector, who would have kept
their money under pillows, move into mobile money,” said Eli Hini,
general manager for mobile financial services at MTN Ghana, which
controls about 78% of the active-customer market. “Now, when there are
floods people don’t lose their money. They’d rather get interest paid
on it.”
Banks don’t lose out because the mobile-phone companies park deposits
with them, giving them cheaper access to funding.
MTN and Sanlam Ltd., Africa’s largest insurer, last month  announced
that the continent’s biggest wireless network operator will offer
funeral and other life-cover products through its digital channels
spanning 237 million subscribers in 21 markets.
Vodafone’s Johannesburg-based Vodacom Group last year bought a stake
in Safaricom, based in Nairobi, from its parent to gain access to its
M-Pesa money-transfer service, helping to double earnings from
financial services.
Vodacom last year made 11 billion transactions worth 2 trillion rand
($134 billion) to 36 million customers.
The potential stretches to Nigeria, Ethiopia and Egypt, where reforms
could add 110 million mobile-money accounts in the next five years,
the GSM Association said in February.
There’s more to come, said Martison Obeng-Agyei, who heads Vodafone
Cash in Accra. There were about 31 million mobile-voice subscriptions
in the country of 29 million people, and 12.1 million active
mobile-money accounts at the end of 2017, from just 345,400 five years
ago, Bank of Ghana data show.
“There’s huge prospects,” he said. “One of the things that was lacking
in our financial system was the ability to move funds around.
Businesses have been established because of mobile money.”
While Agane hasn’t been robbed in his four years as an agent, he stays
alert. A company comes around to exchange hard cash for electronic
money to lower the chances of being targeted, like a vendor Agane
heard of across town, who was attacked with a cutlass.

China has exerted the Power of Pull over a vast swathe of the World
over the last two decades. We can call it the the China, Asia, EM and
Frontier markets Feedback loop. This Feedback Loop has been largely a
positive one for the last two decades. With the Yuan now in retreat
[and in a precise response to Trump], this will surely exert serious
downside pressure on those countries in the Feedback Loop.

Kenya

Global ratings agency Moody’s has offered a stable rating for a Sh5
billion medium-term note set for issue by property developer Acorn
Group and London-based private equity fund Helios to fund construction
of university hostel units in Nairobi.
Moody’s local currency rating of B1 Stable for the note is a rung
higher than Kenya’s sovereign rating of B2 Stable, due to a partial
guarantee being made to investors through GuarantCo.
Acorn and Helios target is to build up to 3,800 university hostel
units in Nairobi at a cost of about Sh7.4 billion. They have already
put up more than 1,000 units in Ruaraka, Jogoo Road and Parklands
under the Qwetu brand.
"The Acorn student housing transaction is an important milestone in
the development of the local capital markets for private financing of
infrastructure in Kenya," said Moody's vice president and senior
credit officer Christopher Bredholt in a statement.
"The partial guarantee provided by GuarantCo enhances noteholder
recovery and supports a rating above Kenya's B2 sovereign bond
rating".
The partial guarantee that has aided the rating will see bondholders
recover up to 50 percent of their principal and interest in case of a
default.