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Satchu's Rich Wrap-Up
Thursday 16th of January 2020

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Macro Thoughts

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I would take the other side @VPatelFX AUD 0.6881 and NZD 0.6591 I reckon market is too pessimistic

I think the market is too negative. This is an Entente Cordiale and
suits both sides at this time.

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The text of the pact released specifies $77.7bn in additional Chinese purchases of manufactured goods including aircraft, $32bn in new purchases of agricultural products, $52.4bn in energy and $37.9bn in services

The text of the pact released specifies $77.7bn in additional Chinese
purchases of manufactured goods including aircraft, $32bn in new
purchases of agricultural products, $52.4bn in energy and $37.9bn in
services in the two years through December 2021.

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Looking out on the ocean front at Recife, contemplating Africa on the other side of the Atlantic @hofrench

Looking out on the ocean front at Recife, contemplating Africa on the
other side of the Atlantic, and the route of slaves that linked these
two parts of the world for so long.

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Russia to get new prime minister after government resigns @dwnews
Law & Politics

The little-known head of Russia's tax service, Mikhail Mishustin, was
named as the next prime minister of Russia hours after Dmitry Medvedev
resigned on Wednesday, capping a day of unexpected changes to Russian
"President Vladimir Putin had a working meeting with Mikhail Mishustin
and suggested that he take on the duties of the head of government,"
the Kremlin press service said.
"With his consent, [Putin] submitted the prime ministerial candidacy
of Mishustin to be considered in the Duma."
Mishustin has been leading Russia's federal tax authority since 2010
and is not considered a high-profile politician in Russia.
The news came on the heels of President Vladimir Putin's annual speech
to lawmakers where he proposed a series of constitutional reforms that
would grant more powers to parliament — including the ability to
select the prime minister.
The changes would make significant changes to the country's balance of
power and so "the government in its current form has resigned,"
Medvedev said on state television while seated next to Putin.
Putin has asked the outgoing government to continue to carry out their
duties until a new government is formed.
The Russian president added that he was "satisfied with the
government's performance" although the government failed to fulfill
certain tasks, reported news agency Interfax.
"Not everything worked out, but everything never works out," Putin said.
The maneuver could prove crucial for Putin's future. The former FSB
chief took power in 2000 and has since served as both president and
prime minister.
The 67-year-old is currently in his second consecutive term as
president and is prohibited by law to run for another term.
Opposition politician and former economy minister Andrey Nechayev told
DW that Putin was "sounding out the terrain, in order to stay in power
While Medvedev is set to leave the prime ministerial seat, Putin
signaled he would keep his longtime ally near the center of power as
the deputy head of Russia's Security Council.
The committee is chaired by Putin himself and deals with affairs of
national security. The prime minister, several government ministers
and heads of security agencies are among the council's members.
On Wednesday, Putin suggested creating the position of Council's
deputy chief and said Medvedev should take the post.
"It feels like Medvedev is being put in reserve," analyst Alexey
Makarkin told Russia's Interfax news agency. "The Security Council
post, which is offerted to Medvedev, is senior, but also not

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04-NOV-2019 :: At the Moment of Vision, the Eyes See Nothing
Law & Politics

Pollice verso or verso pollice is a Latin phrase, meaning “with a
turned thumb”, that is used in the context of gladiatorial combat.
The Republican Party will be making a hard nosed political calculation
this weekend
Vice President Pence who is an evangelical Christian [and is in the
habit of praying with another evangelical Christian and Nobel Prize
Winner far away in Addis Ababa, allegedly] is the coming Man and this
could happen real quick.

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Independence is not an option, China tells Taiwan @thetimes
Law & Politics

Beijing set the stage for bitter confrontation with Taiwan this
morning by insisting that the island would always remain part of China
despite the newly re-elected president saying that it was already
Ma Xiaoguang, of China’s Taiwan Affairs Office, said: “It’s a dead end
for anyone who wants to do Taiwan independence. We have the firm will,
sufficient confidence and ample capabilities to thwart plots of Taiwan
independence in any form.”
Tsai Ing-wen, 63, was returned as president on Sunday in a landslide
victory. She said yesterday that Taiwan, which has been self-governed
since 1949, was already independent.
“We don’t have a need to declare ourselves an independent state,” she
told the BBC. “We are an independent country already and we call
ourselves the Republic of China, Taiwan.”
Beijing considers Taiwan a rebel province that broke away from the
mainland in 1949 after a bloody civil war. The defeated Nationalist
government fled to the island, which, over the past 70 years, has
established a democratically elected government and forged a strong
Taiwanese identity.
Beijing insists that it must unify with Taiwan, by force if necessary,
and President Xi has suggested that the mission be achieved by 2050 as
part of China’s great rejuvenation.
In a stark rebuke to Beijing’s authoritarian rule, Taiwanese voters
picked Ms Tsai over Han Kuo-yu, who favoured closer ties and
reconciliation with Beijing.
“The local election in Taiwan does not alter the fact that Taiwan is
part of China,” Mr Ma said. “No matter what the outcome is, our Taiwan
policy remains unchanged.”
When asked about the rising call among members of the Chinese public
that the communist government make good on its military threat, Mr Ma
said that it was high time for Ms Tsai’s administration to reflect.
“Why there’ve been more voices for military unification among the
Chinese public in recent years? They’ve been forced by those who are
going against the tide of history,” he said.
Hu Xijin, an influential Chinese editor, has sought to dampen the
enthusiasm by arguing that Beijing is not ready to have a military
showdown with Washington, which has a security pact with Taiwan.
Ms Tsai has not explicitly declared Taiwan’s independence but has
instead warned of a dear price should Beijing resort to force.
“Invading Taiwan is something that is going to be very costly for
China,” she told BBC.

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When it comes to the art of deal-making in Middle East statecraft, death is part of the bargain. At least since the days of the Crusades, assassinations have been used as negotiating tools @thedailybeast @csdickey
Law & Politics

Donald Trump apparently saw the decision to liquidate Iranian Maj.
Gen. Qassem Soleimani as a natural negotiating ploy. Perhaps his
hawkish advisers told him—without some important caveats—it’s the kind
of thing the Israelis have been doing for years.
That would explain, in part, Trump’s tweet on Monday that simply
dismissed the debate over whether Soleimani was plotting an “imminent”
attack on U.S. installations or personnel.
Trump continued to insist without presenting evidence that he believes
that to have been the case with Soleimani, then added, “It doesn’t
really matter because of his horrible past!”

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Currency Markets at a Glance WSJ
World Currencies

Euro 1.1146
Dollar Index 97.227
Japan Yen 109.97
Swiss Franc 0.9679
Pound 1.3041
Aussie 0.6905
India Rupee 70.855
South Korea Won 1155.87
Brazil Real 4.1293
Egypt Pound 15.8803
South Africa Rand 14.3886

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@TullowOilplc to book $1.5 billion writedown on oil price outlook, reserves @Reuters

Tullow Oil (TLW.L) is to take a $1.5 billion (1.15 billion pounds)
writedown after cutting its long-term oil price assumptions by $10 to
$65 a barrel, a downgrade to reserves in Ghana and disappointing
exploration wells, the company said on Wednesday.
The writedown at Africa-focused Tullow comes after the exit of CEO
Paul McDade in December and the scrapping of the group’s dividend
after the group failed to meet production targets due to a weak
performance at its assets in Ghana.
Tullow’s shares fell 70% in the fourth quarter of 2019. After an
initial slump on Wednesday, the shares were up around 4% at 61.60
pence by 0900 GMT.
The reduction in oil price LCOc1 assumptions brings Tullow more in
line with peers’ expectations, Chief Financial Officer Les Wood told a
conference call.
Tullow said the write-offs included Jethro, Joe and Carapa well costs
in Guyana as a result of drilling results and Kenya Block 12A,
Mauritania C3, PEL7 Namibia and Jamaica licence costs due to the
levels of planned future activity or licence exits.
“Tullow expects to report pretax impairments and exploration writeoffs
of (around) $1.5 billion (c. $1.3 billion post tax),” the company
Tullow, a partner of French oil group Total (TOTF.PA) in several
projects, has forecast that its 2020 output will shrink to a maximum
of 80,000 bpd and fall again to around 70,000 bpd in 2021-2023.
Full-year results have been pushed back to March 12 and will include
updates on the review of its assets and management structure.
Executive Chair Dorothy Thompson told Reuters the announcement of a
new CEO might come after that date.
Tullow said after repeated delays to its East African projects, its
scheme to truck oil from its Kenyan inland fields to the coast had
been suspended due to damaged roads and that there was no breakthrough
in Uganda, where it is looking to reduce its stake in its oilfields.
A final investment decision for Kenya is still pencilled in for the
end of this year, but that target is “challenging”, Chief Operating
Officer Mark MacFarlane said.
JPMorgan analysts said in a note: “Looking forward, alongside the CEO
and other organisational changes we anticipate through 2020, we look
for greater clarity on realistic timeframes to progress in both Uganda
and Kenya, which hold the key to medium term growth potential.”
To shield against oil price fluctuations, Tullow has hedged 45,000
barrels per day (bpd) of its 2020 output with an average floor price
of $57.28 a barrel. For next year, it hedged 22,000 bpd at an average
floor price of $52.80 a barrel.
In the fourth quarter Tullow’s shares were hit by production
downgrades in Ghana, the oil quality found in a well in the Orinduik
block offshore Guyana and the disappointing size of a well in its
Guyanese Kanuku block.

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The bulk of EM has failed to outgrow advanced economies since 2013 (lhs), Examples are Mexico & South Africa, where 2019 growth is zero (rhs). @RobinBrooksIIF
Emerging Markets

The bulk of EM has failed to outgrow advanced economies since 2013
(lhs), an issue given that the basic value proposition of EM is
high(er) growth. Examples are Mexico & South Africa, where 2019 growth
is zero (rhs). Weak growth raises risk of short-termism and policy

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21-OCT-2019 :: The New Economy of Anger
Emerging Markets

This is a Revolution and it is a Global Phenomenon.
Ryszard Kapucinski also said: “If the crowd disperses, goes home, does
not reassemble, we say the revolution is over.”
It is not over. More and more people are gathering in the Streets.

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We've developed a scorecard of risk of social stress in EM stepping away from classic macro indicators. LatAm & South Africa look the most vulnerable @SergiLanauIIF
Emerging Markets

We've developed a scorecard of risk of social stress in EM stepping
away from classic macro indicators. LatAm & South Africa look the most
vulnerable, as do Turkey & Saudi. In relative terms, CEE generally
looks better.

Frontier Markets

Sub Saharan Africa

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The Royal Museum for Central Africa, one of the largest museums in the world devoted exclusively to Africa (Tim Dirven / Panos Pictures / Redux) @TheAtlantic

Welcome to the Royal Museum for Central Africa. Although one of the
largest museums anywhere devoted exclusively to Africa, it is
thousands of miles from the continent itself. The tall windows,
pillared facade, rooftop balustrade, and 90-foot-high rotunda of the
main building give it the look of a chateau. That impression is only
enhanced by an inner courtyard and a surrounding park: formal French
gardens, a reflecting pool and fountain, ponds with ducks and geese,
wide lawns laced with hedges, and carefully groomed paths that sweep
away to majestic trees in the distance.

More than 90 percent of sub-Saharan African items housed in museums,
for example, are held outside that continent. This is the Elgin
Marbles controversy writ large. Should art or cultural objects taken
from somewhere else be returned to the territories they came from?
Even if that makes moral sense, it doesn’t always work out. The Royal
Museum for Central Africa, in fact, gave a small portion of its
magnificent African art collection to a museum in the Democratic
Republic of Congo some 40 years ago. But the country’s long-term
dictator at that time, Mobutu Sese Seko, was famously kleptocratic,
and within a few years many of those same objects began appearing for
sale in Europe, some in the shops of Brussels antique dealers.

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Ethiopia Telcom first half revenue rose 32% to 22 billion Birr (approx. Shs69billion) and subscriber base of 50.4 million. -- Bloomberg @moneyacademyKE

Company expects full year sales of 45.4 billion birr (approx. Shs143
billion) and subscriber base of 50.4 million. -- Bloomberg

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2 JUL 18 :: Ethiopia Rising

The Prime Minister needs to execute real quick on the economic front
but if he levels the playing Field, a whole Troop of folks will be
looking to pile in.

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09-SEP-2019 :: Emmerson Mnangagwa who was eulogising Mugabe as a Revolutionary Icon

Emmerson Mnangagwa who was eulogising Mugabe as a Revolutionary Icon
has failed and is frankly as untenable as his erstwhile Mentor.This is
an enor- mously rich Country.

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Zimbabwe Signs Currency Swap Deal With China @VOANews

Zimbabwe has joined Japan, South Africa and Nigeria in signing a
currency swap deal with China, which it hopes will improve trade
between the two countries.
Said Ncube, “We have entered into a currency swap arrangement, what
this means is that there are those who would be investing in Zimbabwe
from China and those who require their proceeds to be remitted back to
China which is normal.”
He added, “So, the idea is those individuals will then swap (currency)
so that those who are investing in Zimbabwe are able to give them a
domestic currency and they use the foreign currency which they are
bringing in for investment to pay those who are exiting.”
Hawkins says Harare must address its economic crisis and stop
“fiddling around the edges of the problem rather than tackling the
The chief executive officer of the Zimbabwe National Chamber of
Commerce, Chris Mugaga, concurs. “Knowing fully well that Zimbabwe is
in a quagmire where the currency conundrum, is hitting not only
business, but even the ordinary household, so, given that background,
I think this current swap is an attempt to find solutions, especially
to the current account deficit where China is the biggest beneficiary.
As you know we continue importing more from China than what we are
selling to Beijing.”
“I think it’s a welcome development because Zimbabwe has been
experiencing an acute shortage of foreign currency and this
arrangement is going to reduce the demand of the US dollar, because
what it entirely means is that those people who are comfortable with
receiving Chinese Yuan, can match their requirements with those who
have the Yuan as well.”
He continued, “the net effect is that you are going to avoid using the
US dollar, which is in short supply and selling at a premium, so this
is a good move by the two authorities.
As you know, Zimbabwe previously used to get a lot of money in terms
of balance of payment in terms of payment support, and grants and
things like that and access to the IMF, which supported the currency.

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21-JAN-2019 :: "money is the most universal and most efficient system of mutual trust ever devised." @harari_yuval

“Money is accordingly a system of mutual trust, and not just any
system of mutual trust: money is the most universal and most efficient
system of mutual trust ever devised.”
“Cowry shells and dollars have value only in our common imagination.
Their worth is not inherent in the chemical structure of the shells
and paper, or their colour, or their shape. In other words, money
isn’t a material reality – it is a psychological construct. It works
by converting matter into mind.”
The Point I am seeking to make is that There is a correlation between
high Inflation and revolutionary conditions, Zimbabwe is a classic

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Mozambique's Nyusi Starts Anew as Terror Threatens LNG Boom @economics

Mozambican President Filipe Nyusi was sworn in for a second term
Wednesday, three months after his landslide election victory.
Nyusi, 60, took the oath of office at a ceremony in the capital,
Maputo, attended by heads of state including Portugal, the country’s
former colonial ruler, South Africa and Angola.
In his acceptance speech Nyusi emphasized the importance of peace for
development in the southeast African nation where a 16-year civil war
that ended in 1992 has flared sporadically. More recently, an
insurgency has emerged in the far north.
“Peace is our absolute priority,” he said. “We will defend peace even
if it costs us our lives.”
The following are some of the pressing issues that Nyusi will have to
deal with over the next five years:
LNG Developments
Mozambique is on the cusp of a massive natural gas-led boom. A
consortium led by Total SA has signed off on a liquefied natural gas
project in the far north of the country that will cost as much as $23
It will be Africa’s biggest investment, but won’t hold the title for
long. Exxon Mobil Corp. plans to approve an even bigger LNG-export
development this year.
The projects could transform the economy, though Nyusi will need to
guarantee security to the companies investing in an area where an
Islamic State-linked insurgents have intensified attacks against
civilians and security forces.
“We ask our compatriots for some patience in managing expectations
because the state coffers will take some time to reap gas dividends,”
Nyusi said. “We want to prove that energy resources can be a blessing
and not a curse.”
At least 850 people have died since the first attacks in October 2017,
while tens of thousands have been displaced. Islamic State started
claiming responsibility for the attacks in June last year and the
government has failed to contain the violence, much of it occurring
along a critical supply route to the LNG projects.
Nyusi will need to adopt a two-pronged approach: halting the attacks
while also addressing the factors that drive young men in the region
to joining the insurgency. Poverty, unemployment and a lack of
development are key issues.
Corruption, Hidden Debts
A year into Nyusi’s first term, a sovereign debt scandal threw the
economy into a tailspin. Donors and the International Monetary Fund
halted support after discovering that the government failed to declare
$1.2 billion in loans as required under a funding accord with the IMF.
The fallout peaked when the U.S. charged the former finance minister
with money laundering, and three ex-Credit Suisse Group AG bankers
pleaded guilty in the case. There are still at least six ongoing cases
related to the alleged fraud.
“We will continue to fight corruption in all its aspects,” said Nyusi.
“There will be no respite in the fight against this evil.”
Nyusi signed a much-touted peace accord last year with Renamo, the
main opposition party, formally ending a conflict that most recently
flared in the middle of the last decade. Peace was a major selling
point of Nyusi’s campaign. Still, killings that the police blame on a
group of opposition hard-liners have continued. Military convoys are
again escorting travelers and transporters through the center of the
country. Nyusi will have to find a way to secure the area, which is a
key trade corridor for land-locked neighbors, including Zimbabwe.
“We started the demilitarization and demobilization of Renamo
elements,” said Nyusi. “This process still needs attention.”
Poverty, Climate Change
In March and April last year Mozambique was hit by consecutive
tropical cyclones. The first, Idai, killed more than 1,000 people and
destroyed infrastructure and houses valued at $1.4 billion. The
world’s sixth-poorest country is among the most vulnerable to climate

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Deviations of our valuation model from the US Treasury's FX report: (iv) big ZAR overvaluation @RobinBrooksIIF

Deviations of our valuation model from the US Treasury's FX report:
(i) persistent & big undervaluation of Swedish Krona; (ii) we don't
have Euro zone misalignment; (iii) persistent and large undervaluation
across much of EM Asia, including for the RMB; (iv) big ZAR

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Kenyans can expect a more austere government after years of unbridled borrowing that financed "conspicuous consumption" Treasury Secretary @BaloziYatani @business

The government is targeting to contain expenditure below 23% of gross
domestic product in the next three years from 27.8% and intends to
collect revenue equivalent to 20% of its output, Yatani said.
Several attempts by his predecessor, Henry Rotich, to lower the budget
financing gap to 3.5% of GDP failed and the fiscal deficit is now
projected at 6.3% and 5.7% in the coming fiscal year.
“Days of conspicuous consumption are long gone,” Yatani said during
the start of budget-making process for the 2020-21 fiscal year. “We
are going to cut our cloth according to our size.”
Yatani was confirmed as head of Treasury in cabinet changes announced
on Tuesday that saw President Uhuru Kenyatta appoint allies to key
government positions.
Yatani had been leading the department on an interim basis since
Rotich was indicted on graft charges, of which he’s pleaded not
Yatani said future budgets will not automatically increase from the
previous year’s and Treasury will “critically” review every financing
“In the past our budget has been incremental,” he said. “That will be
no more. It has to be needs-based.”
The state will soon publish its debt strategy, Yatani said. Kenyatta’s
government has ratcheted up borrowing and has procured more loans than
all previous administrations combined.
In budget estimates presented on Wednesday, the Treasury expects
public debt to climb 11% to 6.45 trillion shillings ($63.6 billion) by
the end of June from a year earlier.
The government is “not only paying attention to this development of
debt levels, but keenly examining the size and nature of public debt
with a view to considering debt re-profiling and improving overall
debt management,” Yatani said.
Treasury projects growth this year will climb to 6.1% from an
estimated 5.6% in 2019.

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Treasury faces hurdles in getting bank funding @BD_Africa

Kenya risks liquidity problems due to the falling capacity of
commercial banks to continue financing the large budget deficit with
the removal of the rate cap also likely raising borrowing costs for
the Treasury.
Moody’s said in its 2020 outlook on Africa Treasuries that the
borrowing cost will go up should the government fail to reduce its
fiscal deficit, with banks already demanding higher yields in new
lending to government given that customer lending is once again
competitive due to the rate-cap repeal.
Commercial banks hold Sh1.57 trillion worth of government debt,
equivalent to 54.06 percent of the State’s total domestic debt that
stands at Sh2.9 trillion.
“Domestic banks’ capacity and willingness to purchase government
securities influence the liquidity conditions sovereigns face,
particularly those with constrained or unreliable access to external
financing,” said Moody’s.
“Liquidity risks are material in Kenya (and Ghana) due to a
combination of the governments’ large gross borrowing requirements,
the already large share of government securities held by domestic
banks, and slow deposit growth, which constrain banks’ capacity to
absorb future government financing needs.”
In the current fiscal year, Kenya’s fiscal deficit stands at Sh640.2
billion, to be financed on net basis through Sh305.7 billion in
domestic borrowing, Sh331.3 billion in external loans and Sh3.2
billion in other domestic borrowing.
The World Bank warned last October that maturities of domestic debt it
estimated at Sh1.2 trillion by September 2020 (41 percent of current
outstanding domestic debt) would exert pressure on tax collections.
“The government could face challenges in rolling over such bonds in an
environment of no interest rate caps, low subscription rates and
overexposure of commercial banks to these assets,” the Bank said.
Fund manager ICEA Lion Asset Management said in outlook for 2020 this
week they anticipate yields on government securities will go up by
between 100 and 150 basis points this year.
“Since the repeal of the rate cap, interest rates on treasury bills
and treasury bonds have risen by almost one percentage point in some
instances,” said the firm’s head of research Judd Murigi.
“Upward pressure on interest rates is expected to persist in 2020 as
the government faces renewed competition from the private sector for
bank funding…we expect interest rates on treasury bills and bonds to
increase by at least 100 basis points in 2020.”

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23-DEC-2019 :: Kenyan lenders are the second most exposed to the government with almost 300 per cent of their equity lent out to the State.

What this tells me is that an important Source of Buy Side Demand for
GOK Shilling Paper is now ''limit Long'' If You are sitting on the
Credit Committee of a Kenyan Bank and exercising some degree of
oversight, I would argue that then you would be demanding a Hard Cap.
Therefore, given the fact that GOK issuance is not going to slow down
but will probably accelerate, I would be keeping a close eye on the
Curve. Staying ahead of the Curve was a remarkable book by the
renowned Investor George Soros. It’s worth reading.

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by Aly Khan Satchu (www.rich.co.ke)
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January 2020

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