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Macro Thoughts

Home Thoughts

i carry your heart with me(i carry it in
my heart)i am never without it(anywhere
i go you go,my dear;and whatever is done
by only me is your doing,my darling)
                                                      i fear
no fate(for you are my fate,my sweet)i want
no world(for beautiful you are my world,my true)
and it’s you are whatever a moon has always meant
and whatever a sun will always sing is you

here is the deepest secret nobody knows
(here is the root of the root and the bud of the bud
and the sky of the sky of a tree called life;which grows
higher than soul can hope or mind can hide)
and this is the wonder that's keeping the stars apart

i carry your heart(i carry it in my heart)

Political Reflections

COPENHAGEN, Denmark (AP) — Greenland is not for sale and U.S.
President Donald Trump’s idea of buying the semi-autonomous Danish
territory in the Arctic from Denmark is “an absurd discussion,”
Denmark’s prime minister said.
Mette Frederiksen, who was visiting the world’s largest island to meet
Premier Kim Kielsen, told reporters: “Greenland is not Danish.
Greenland is Greenlandic. I persistently hope that this is not
something that is seriously meant.”
Retreating ice could uncover potential oil and mineral resources in
Greenland which, if successfully tapped, could dramatically change the
island’s fortunes. However, no oil has yet been found in Greenlandic
waters and 80% of the island is covered by an ice sheet that is up to
3 kilometers (1.9 miles) thick, which means exploration is only
possible in coastal regions.
Even there, conditions are far from ideal, due to the long winter with
frozen ports, 24-hour darkness and temperatures regularly dropping
below minus 20 Fahrenheit (minus 30 Celsius) in the northern parts.
“Thankfully, the time where you buy and sell other countries and
populations is over. Let’s leave it there. Jokes aside, we will of
course love to have an even closer strategic relationship with the
United States,” Frederiksen said.

What we know is this: Iran is at the Hunter S. Thompson[Ian] edge.
“There is no honest way to explain it because the only people who
really know where it is are the ones who have gone over''
if the US thinks that Tehran will just roll over, which appears to be
the case, then they are exhibiting the same deluded ideas that they
exhibited a day before the peacock Throne got plucked. Iran is a
geopolitical bleeding edge.

Traffic accidents normally take just a second or two.  But the coming
collision in the Persian Gulf, the equivalent of a hundred-vehicle
pile-up on a fog-bound interstate, has been in the works for years.
Much of it is President Donald Trump’s fault, but not all.  His
contribution has been to take an insane policy and make it even
crazier.
The situation is explosive for two reasons. First, the Iranian economy
is in a free fall with oil exports down as much as 90 percent from
mid-2018 levels.  As far as Iran is concerned, this means that it’s
already at war with the United States and has less and less to lose
the longer the U.S. embargo goes on.
Second, after Trump denounced the 2015 Iranian nuclear accord from the
moment he began his presidential run, it’s all but impossible at this
point for him to back down.  The result is a classic collision between
the immovable and the unstoppable with no apparent way out.
How did the world bring itself to the brink of war?  The answer,
ironically, is by bidding for peace.
But other regional players felt differently, Saudi Arabia first and
foremost.  The kingdom’s survival strategy depends on its special
relationship with America, its patron since the 1940s.  Hence, it was
panic-stricken by anything smacking of a U.S. rapprochement with its
long-standing arch-enemy Iran.  The upshot was a proxy war in which
the Saudis set out to roll back Iranian power by striking out at
pro-Iranian forces.
The offensive began after a new Saudi monarch ascended the throne in
January 2015.  King Salman, a doddering 79-year-old reportedly
suffering from Alzheimer’s, immediately handed over the reins to his
favorite son, 29-year-old Muhammad bin Salman, whom he named deputy
crown prince and minister of defense.  MBS, as he’s known, celebrated
by launching an air war in neighboring Yemen two months later – and
then disappearing on a week-long vacation in the Maldives – and by
funneling hundreds of U.S.-made TOWs (anti-tank guided missiles) to
Syrian rebels under the command of Al-Nusra, the local Al-Qaeda
affiliate, for use in an offensive in that country’s northwest
province of Idlib.
For the Saudis, it was a neo-medieval crusade whose goal was to topple
two religio-political allies of Iran, the Alawite-dominated government
in Damascus and Yemen’s Houthis, who adhere to a non-Iranian form of
Shi’ism that is no less anathema to the Sunni Wahhabist theocracy in
Riyadh.
President Barack Obama went along.
The upshot has been Saudi wars claiming hundreds of thousands of lives
in Syria and another 100,000 or so in Yemen while triggering a surge
of international terrorism and the greatest refugee crisis since World
War II. While reducing tensions in some respects, Obama’s efforts to
reach a nuclear deal with Iran, paradoxically, caused them to explode
in others.
Announcing his presidential bid in June 2015, he launched into a
typical Trumpian rant against China, Japan, Mexico – and Obama’s
nuclear talks.  “Take a look at the deal he’s making with Iran,” he
said.  “He makes that deal, Israel maybe won’t exist very long.”  A
month later, he tweeted that the agreement, just inked in Vienna,
“poses a direct national security threat.”  Two months after that, he
told a Tea Party rally in Washington:
“Never, ever, ever in my life have I seen any transaction so
incompetently negotiated as our deal with Iran….  They rip us off,
they take our money, they make us look like fools, and now they’re
back to being who they really are.  They don’t want Israel to survive,
they will not let Israel survive, [and] with incompetent leadership
like we have right now, Israel will not survive.”
It was all nonsense.  Rather than threatening the Jewish state, the
treaty represented a landmark concession on Iran’s part, since Israel,
with an estimated 80 to 90 nuclear warheads in its arsenal and enough
fissile material for a hundred more, would maintain its nuclear
monopoly in the Middle East indefinitely.
Trumpian isolationism was fleeting, if it ever existed at all.  Under
intense pressure from neoconservatives, the Zionist lobby, and
pro-Israel Democrats such as Russiagate attack dog Rep. Adam Schiff
demanding stepped-up opposition with Iran, Trump did an about-face.
In May 2017, he flew to Riyadh, announced an unprecedented
$110-billion arms deal, and proclaimed himself the kingdom’s newest
BFF – best friend forever.
Thus, the confrontation is set to continue.  Iran may respond by
seizing more oil tankers or downing more drones, but the problem is
that the U.S. will undoubtedly engage in tit-for-tat escalation in
response until, eventually, some kind of line is crossed.
If so, the consequences are unpredictable.  U.S. firepower is
overwhelming, but Iran is not without resources of its own, among them
anti-ship ballistic missiles, mobile short-range rockets that can hit
naval targets, plus heavily-armed high-speed boats, mini-subs, and
even “ekranoplans,” floating planes designed to skim the waves at 115
miles per hour.  Such weaponry could prove highly effective in the
35-mile-wide Strait of Hormuz.  Iran also has allies such as Lebanon’s
Hezbollah, which has an estimated 130,000 missiles and rockets in its
own arsenal, Assad’s battle-hardened military in Syria, Yemen’s
Houthis, and pro-Iranian forces in Shi’ite-majority Iraq.
The upshot could be a war drawing in half a dozen countries or more.
A confrontation on that scale may seem inconceivable.  But, then, war
seemed inconceivable in the wake of Archduke Franz Ferdinand’s
assassination in June 1914.

International Markets

The pound has managed to hold above psychological support at $1.20
this month even with heightened Brexit uncertainty, yet charts suggest
the market may be getting ready for another stab at the level.
At a time when the risk of a no-deal split with the European Union and
global trade tensions weigh on sterling by fueling a sell-on-rallies
bias, technical analysis is boosting the case for traders to sell
downside breaks.
The U.K. currency formed a bearish candle pattern on Friday, the
so-called Downside Tasuki Gap, which signals the continuation of the
current downtrend.
The pattern is completed when the first bar extends a downtrend, the
second gaps lower while the third closes higher yet within the gap of
the two bars.
Weekly bearish candle patterns are historically associated with fresh
cycle lows and can therefore be seen as a good proxy for the
currency’s short-to-medium term direction.
Sterling dropped a second day Tuesday, slips as much as 0.4% to $1.2083.

Are we there yet?

The latest developments, for those who are getting behind or may have
been on vacation, are that both Germany and the U.S. are talking about
issuing more debt in the face of historically low yields. In response,
stock prices rose and bond prices fell on Monday. That suggests a more
delicately poised market situation than many might assume. This is how
stocks have performed compared to long term U.S. Treasury bonds
(represented by the most popular exchange traded funds) since the day
before Lehman Brothers’ bankruptcy transformed the global financial
system: Stocks remain very weak relative to bonds, holding at levels
from which they have at previous points in the post-crisis equity bull
market enjoyed a strong recovery. If they don’t snap back quickly,
then it might start to look like the beginning of a major secular
move, with stocks falling. Repeating this exercise for gold, widely
regarded as a haven and a hedge against potential government
profligacy, such as issuing excessive debt or printing money via
quantitative easing, we see a similar picture: Viewed in terms of
gold, stocks did not hit bottom until the U.S. debt ceiling crisis of
2011. Once it became clear that low yields were not sparking faster
inflation and that the U.S. was not going to default, stocks enjoyed a
great rally. But but at present they are no higher on this measure
than they were in 2015. There has been no net growth on this score
since the eve of the Chinese devaluation four years ago. As with the
bonds chart, stocks appear to be poised for a turning point. But if
they are not, then we could be at a tipping point, such as in 2011,
when we see a big secular move out of stocks as investors accept that
the bond market has been right in its concerns about the economy.
What will determine which way we go? In the short term, I suspect the
dollar could be the balancing mechanism. As this extraordinary chart
from the credit strategists at Bank of America Merrill Lynch show,
some 95% of all investment-grade corporate debt in the world that has
a positive yield is in the U.S.   Thus, the pressure on European fixed
income managers trying to generate a return or guarantee that they can
match liabilities will be to buy U.S. bonds – which will put upwards
pressure on the dollar: To put that another way, the average
investment-grade corporate bond outside the U.S. now carries a
negative yield. That makes the sanctuary of the U.S., where yields of
more than 2% are still the norm, look much more appealing:
Meanwhile, the Trump administration wants a weaker dollar to aid U.S.
competitiveness. Despite the Fed’s volte-face, that is not what it is
getting. It is possible to overstate this, but the dollar is nearing a
possible breakthrough to levels that make it less competitive than
anytime in the past 15 years. This is Citigroup’s real effective
exchange rate (taking into account different rates of inflation) for
the dollar against a broad range of currencies over 30 years. On this
measure of competitiveness, which is as good as any, the dollar is now
at levels that were unremarkable in the 1990s, but render U.S.
exporters less competitive than they have been for most of the time
for more than a decade:
But it may not be quite as binary as this. A splurge of debt issuance
and government stimulus might yet set off a chain of selling in the
bond market. As bonds are unprecedentedly expensive and satisfy all
the normal conditions for an investment bubble, the fall-out could be
severe. Less than a year ago, equity investors were alarmed by rising
bond yields, not falling yields.
Another way to look at it comes from Peter Atwater of Financial
Insyghts. He points out that the plethora of headlines about recession
risks, the desperate attempts by Trump and his advisers to shoot the
messengers by blaming markets, journalists and Democrats for talking
down the economy, and even cartoons in the New Yorker all suggest that
a peak in sentiment is at hand. I will quote him at length because he
captures the binary fork in the road ahead of us very well:
Taken all together, the set up for a major “risk-on” rally looks
really good here.  Everyone – investors, policymakers and the media –
believes that a major global recession is coming and is acting like
it.  Heck, even the Wall Street Journal editoral page is peeved with
the White House!
Could bad go to worse? Absolutely!  In fact, folks like Robert Shiller
would argue that all the talk of a recession will inevitably cause the
recession to occur, whether we want it to or not.
While that may be the case, I don’t think the markets will agree with
that until substantial pain is inflicted first on those who bought
bonds and sold stocks this August.  Some kind of sentiment reversal is
due.  Should that now play out, new all-time nominal highs in the
major U.S. indices would not be at all surprising.
One place to watch for a potential bullish sentiment catalyst is the
White House.  With the 2020 Presidential Election looming large and
the President’s polling figures languishing, it would not be at all
surprising to see some kind of major stimulus package attempted
(likely accompanied by a dialing back in anti-China/tariff rhetoric.)
Again, policymakers follow mood – especially in an election year.
Finally, should we see a renewed sell-off in stocks, it would suggest
that rather than hitting a turning point here, we have hit an
important tipping point with the equity market playing catch up to the
bond market in a hurry.
I don’t see that as a likely scenario, but it could happen.  For all
the recessionary rhetoric, the major U.S. indices still haven’t budged
from their all-time highs.

Euro 1.0994
Dollar Index 98.225
Japan Yen 106.52
Swiss Franc 0.9796
Pound 1.2144
Aussie 0.6784
India Rupee 71.5432
South Korea Won 1201.90
Brazil Real 4.0532
Egypt Pound 16.592
South Africa Rand 15.3139

Commodities

Emerging Markets

Emerging and Frontier Markets have been encountering a bout of serious
turbulence. The rand [which can be viewed as a Proxy for the Global
appetite for risk]  is back as the world’s most volatile major
currency, and options pricing suggests it’s not going to lose that
status any time soon. The premium of options to sell the rand over
those to buy it, known as the 25 Delta risk reversal, widened 23 basis
points to 338. South Africa’s currency has depreciated 6.5% versus the
dollar in August, the worst performance among emerging-market
currencies after Argentina’s peso. Argentina'a MerVal Index fell 37%
in a single day the largest 1-day decline in its history. This was a
17-sigma event which means that it should not have happened even once
in the history of the universe (assuming a normal distribution which
markets do not follow). Stock Markets from Lagos to Nairobi to
Johannesburg are in reverse. There is a big negative spillover
happening in front of our eyes.

The dollar, which strengthened on Monday as U.S. stocks enjoyed a good
day, will be where the stresses meet, I suspect. This is JPMorgan’s
index of emerging market currencies, which hit a low last September
amid bad news from Argentina and Turkey, and speculation that the
Federal Reserve was locked into a long-term rate-hiking cycle: Even
the drastic reversal the Fed has not been enough to stop emerging
currencies from plumbing the depths once again. Emerging economies are
not as exposed to the dollar as they used to be, because many have
made steps to increase the amount of borrowing they do in local
currency, but a further run on emerging currencies will still increase
the risk of an emerging-market crises. With uncertainty over trade
having been amped up to such a high level, this is the last thing
anyone needs.

The smoke of the burning Amazon Rainforest has covered it entirely.

Frontier Markets

Sub Saharan Africa

Zimbabwe’s rulers are finding that two decades of economic
mismanagement and brutal repression have led them into a trap from
which there’s little chance of escape.
If they implement the political and democratic reforms needed to win
the financial support the economy needs from international donors,
they’re likely to lose the next election.
If they don’t, their people, propelled by the extreme hardship brought
about by austerity measures imposed by the International Monetary Fund
and World Bank, may remove them through an uprising.
Already a currency devaluation has slashed the value of wages by 90%
in six months.
That dilemma was manifest on Aug. 16 in full view of journalists and
tourists watching from the terrace of the best-known hotel in the
capital, Harare. Below, a crowd of about 200 demonstrators peacefully
singing in protest was violently broken up by riot police, who left a
woman lying unconscious in the middle of a major intersection.
Less than an hour earlier, a court had ruled the gathering illegal.
“The desperation of most Zimbabweans means that future sustained
protest movements are likely,” says Mathias Hindar, an analyst in
London at Falanx Assynt, a risk consulting firm.
“Continued brutal crackdowns will thus increase the risk of Zimbabwe
reaching a tipping point, similar to movements in Sudan and Algeria,
where sustained protest brought down entrenched regimes.”
A day before the protest, Finance Minister Mthuli Ncube sat in his
office and spoke of the country’s bright future and the weekly fuel
price hikes he says are needed to balance the budget.
“We can declare victory on the fiscal front,” he said. “Everything
that I say I implement.”
A basic refrigerator retails for the equivalent of about seven months’
gross salary for a civil servant
That progress is hard to see at street level. In downtown Harare,
vendors line cracked sidewalks in hopes of selling their meager
goods—single heads of garlic, loose batteries, and bits of ginger.
“It’s not easy, but I have to look after other members of the family,
including my grandmother,” says Solomon Mufandaedza as he crouches
behind a sheet of plastic from which he displays pieces of ginger,
small parcels of roasted peanuts, and a few avocados. The 22-year-old
starts selling his wares at 6 a.m. six days a week in Harare.
A basic refrigerator retails for the equivalent of about seven months’
gross salary for a civil servant, a member of the country’s middle
class. Few can afford to shop for such items.
Ncube, a Cambridge-trained economics professor, says the situation is
similar in neighboring South Africa, where he once lived. That’s
untrue. In South Africa an average monthly salary for a government
worker is enough to buy six refrigerators.
There’s a lot to fix. In 2000, former President Robert Mugabe
sanctioned the violent takeovers of white-owned commercial farms to
bolster his support in rural areas. The result was a collapse in
exports, the rapid contraction of the economy, a series of famines,
and a bout of hyperinflation that led the country to abandon its own
currency in favor of the U.S. dollar in 2009.
From 2010 to 2016, pay for the 400,000 government workers was raised
to a level where it accounted for more than 90% of tax revenue. The
country is saddled with $9 billion in external debt and unable to
borrow more until its arrears to international creditors such as the
World Bank are met.
About a quarter of the population of about 14 million, once considered
to be Africa’s most educated, has emigrated.
Ncube was appointed in September last year by Emmerson Mnangagwa, who
succeeded Mugabe as president after a coup in 2017.
The finance minister introduced an unpopular tax on mobile money,
reintroduced the Zimbabwe dollar in June, and boasts that the country
has been running budget surpluses since January.
As he sat in his sixth-floor office, he laid out an ambitious plan
where the country would successfully navigate an IMF staff-monitored
program, then pay off its arrears to the World Bank and African
Development Bank with the assistance of the Group of Seven
industrialized nations. It would then win debt relief early next year.
A person familiar with the IMF’s thinking confirmed the plan, but said
there’s little donor appetite for it because of the lack of progress
on political reform.
To add to Ncube’s woes, a drought has devastated agriculture, and the
country will need to import 800,000 tons of corn, almost half its
annual consumption. It’s unclear how it will pay. Slumping hydropower
output has led to daily power outages of as long as 18 hours.
For most Zimbabweans, Ncube’s optimism, and the recent pronouncement
on national television by Mnangagwa that the country had made “truly
remarkable progress” and jobs and growth will follow, are little
comfort.
“People are very, very angry,” says Japhet Moyo, secretary general of
the Zimbabwe Congress of Trade Unions, who forecast spontaneous riots
similar to looting that occurred 20 years ago. “It puzzles ordinary
people. How do you have a surplus when government-run hospitals don’t
have medication. What is this man talking about?”

There is a straw and camels back moment but predicting that moment is
always a Fools Errand.

Zimbabwe will issue new notes and coins soon to replace the country’s
quasi currency that was introduced three years ago in a failed attempt
to counter a crippling shortage of cash and that’s pushed inflation to
the highest rate since 2008.
The return to a fully fledged local currency exchangeable outside the
country’s borders will be backed by an undisclosed amount of
foreign-exchange reserves, gold and loans, Finance Minister Mthuli
Ncube said in an interview on Aug. 15 in the capital, Harare.
A Treasury spokesman on Monday said it first needed to compile data on
the country’s reserves before commenting on how much foreign exchange
would be used to back the new currency.
“We already have our own local currency, but this will be the first
Zimbabwe dollar notes which will trade at parity to the bond notes,”
Ncube said.
The southern African nation abandoned the Zimbabwe dollar in 2009,
after a bout of hyperinflation, in favor of a basket of currencies
including the U.S. dollar and the rand. In a bid to deal with the
subsequent cash shortages it introduced so-called bond notes, and
RTGS$ in their electronic form, which aren’t accepted outside the
country.
Ncube reintroduced the Zimbabwe dollar in June, accompanied by a ban
on the use of foreign currencies. This led to a rapid erosion of
spending power with the local dollar trading at almost 10 to the
greenback. Bond notes were officially said to be at parity as recently
as February.

PM on month-long reconciliation in Galmudug. Qatar financing
integration of ASWJ.
It is all part of 2020 game plan. PM Kheire will stand for President.
Doha has marked him out for favour.

Today from Massawa, Eritrea [admittedly on the Red Sea] to Djibouti,
from Berbera to Mogadishu, from Lamu to Mombasa to Tanga to Bagamoyo
to Dar Es Salaam, through Beira and Maputo all the way to Durban and
all points in between we are witnessing a Port race of sorts as
everyone seeks to get a piece of the Indian Ocean Port action. China
[The BRI initiative], the Gulf Countries [who now appear to see the
Horn of Africa as their hinter- land], Japan and India [to a lesser
degree] are all jostling for optimal ‘’geo-economic’’ positioning.

Heightened tension has emerged ahead of the Thursday regional
elections as Kenya and Ethiopia seemingly involved in a push and pull
over perceived vested interest in the polls.
A civil aviation source told Radio Dalsan that an Ethiopian plane was
denied access to the Kismayo Airport by Kenyan forces creating tension
between the two Amisom troops contributing countries.
The  Ethiopian airplane was forced to turn back but a contingent of
Ethiopian troops which was already on the ground pitched camp at the
entrance of the airport disrupting operations at the facility. KDF and
Jubbaland forces held control of the airport, the source added.
The attempts by the Ethiopian forces which further escalate the
political temperatures in Kismayu and brings to the fore the regional
fight for Jubbaland comes a week after Jubbaland president Ahmed
Madobe turned down a plea for talks by a delegation of senior
Ethiopian military and intelligence officials reportedly at the behest
of the Federal Government.

“It’s an unprecedented situation in the country,” Mtambo told the Guardian.

Kenya

The Treasury has raised the domestic borrowing target for the current
financial year that started in July by Sh16.8 billion, hinting at a
possible shortfall in projected tax revenue.
Acting Treasury Secretary Ukur Yatani has in a gazette notice
increased to Sh300.31 billion the fresh debt to be borrowed from
domestic investors, which is 5.9 percent more than the Sh283.5 billion
read in the June 13 Budget Statement by then Treasury CS Henry Rotich.
The Treasury is facing a lower debt repayment burden this fiscal year
with domestic maturities projected at about Sh122.58 billion, 44.37
percent less than the Sh220.4 billion that matured in the year ended
June 2019.