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Satchu's Rich Wrap-Up
Friday 06th of May 2022

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Luck is luck. Luck isn’t structural... Luck is running out Zoltan Pozsar

Luck is luck. Luck isn’t structural... Luck is running out; central banks were lucky to have price stability as a tailwind when they had to fight crises of FX pegs, par, repo, and the cash-futures basis. Those were the easy crises. The ones you can print your way out of with QE.
But not this time around...

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Grantham is convinced that this is the fifth great bubble of the modern era, following the U.S. in 1929, Japan in 1989, the dot.coms in 2000, and the Global Financial Crisis in 2008. @bopinion @johnauthers
World Of Finance

With the exception of 2000, when the economy muddled through initially with only a relatively minor slowdown, all saw an immediate recession.

Proportionate increases in mortgage rates on the scale we are currently witnessing therefore look very dangerous. 

“2000 showed you can just about skate through a stock market event,” said Grantham, “but Japan and 2008 showed you can’t skate through a housing crisis.”

Its a Wizard of Oz moment  

we have reached 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”’’ 

The Curtain has been lifted and Mr. Powell has now arrived at his Volcker moment 

Deutsche Bank's Jim Reid notes that yesterday's surge in the 2-year US Treasury yield was, by one measure, "the biggest "shock" since October 1979 when Volcker announced his intentions on the world @ReutersJamie
The last time inflation was here, February 1982 - the Fed Funds Rate was 15%. @Convertbond
Dartmouth economist and former Fed adviser Andrew Levin says the Fed needs to get rates to a neutral setting within a year or so, and that the means getting the Fed Funds rates up to 4% or 5%

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The moment we find ourselves is in is one of extreme stress and complexity.
Law & Politics

The Geopolitical fault line is most visible in Ukraine and therefore at the European periphery, however, fault lines are emerging all over the global landscape and exhibiting multiple feedback loops, which feedback loops all have viral and exponential characteristics.

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U.S. Intelligence Helped Ukraine Strike Russian Flagship, Officials Say @nytimes the admission is what is noteworthy
Law & Politics

The United States provided intelligence that helped Ukrainian forces locate and strike the flagship of Russia’s Black Sea fleet last month, another sign that the administration is easing its self-imposed limitations on how far it will go in helping Ukraine fight Russia, U.S. officials said.
The targeting help, which contributed to the eventual sinking of the flagship, the Moskva, is part of a continuing classified effort by the Biden administration to provide real-time battlefield intelligence to Ukraine.

That intelligence also includes sharing anticipated Russian troop movements, gleaned from a recent American assessment of Moscow’s battle plan for the fighting in the Donbas region of eastern Ukraine, the officials said.
The administration has sought to keep much of the battlefield and maritime intelligence it is sharing with the Ukrainians secret out of fear it will be seen as an escalation and provoke President Vladimir V. Putin of Russia into a wider war. 

But in recent weeks, the United States has sped heavier weapons to Ukraine and requested an extraordinary $33 billion in additional military, economic and humanitarian aid from Congress, demonstrating how quickly American restraints on support for Ukraine are shifting.

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Sunday, April 10, 2022 Apocalypse Now
World Of Finance

There is a strong argument that the US actually set a Trap for Russia in Ukraine just as Jimmy Carter’s former national security adviser Zbigniew Brzezinski admitted that the C.I.A. set a trap four decades ago for Moscow by arming mujahiddin to fight the Soviet-backed government in Afghanistan and bring down the Soviet government.

Secretary Blinken has refused to meet Lavrov, Biden calls for ‘’Regime Change’’ on a daily basis and ‘’defensive’’ weapons are being shoveled into Ukraine at an unprecedented speed. 

There is clearly zero intention to resolve this matter anywhere other than on the battlefield and through an insurgency which will bleed Russia to death and the Ukrainians as well.
Xi Jinping rather pithily pronounced
He who tied the bell to the tiger must take it off

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The International Economic Emergency Powers Act of 1977 permits only freezing, and not selling, foreign property in the course of an international crisis.@asiatimesonline
Law & Politics

You might ask what the difference is between seizing or freezing property – forbidding anyone to dispose of or use an asset or take income from it – and confiscating it.
Freezing destroys the economic benefits of ownership. But the owner at least retains the hope that, when the conflict is over and the freeze order ends, the property – or its equivalent in money – will return.
Confiscation means selling off the property and giving the proceeds, along with any cash seized, to a designated beneficiary – in this case, people acting on behalf of Ukraine.
The International Economic Emergency Powers Act of 1977 permits only freezing, and not selling, foreign property in the course of an international crisis. 

Congress adopted this law to replace the Trading With the Enemy Act of 1917, which gave the president much broader power to take action against US adversaries in and out of war.
Since then, the US has frequently used the power to seize assets belonging to foreign individuals or nations as an economic sanction to punish what it considers bad behavior. 

For example, after Iran stormed and seized the American embassy in Tehran, the US government seized billions of dollars in Iranian assets in the US, including cash and property.
The US has also frozen assets of Venezuela and the Taliban over ties to terrorism and Russian individuals considered responsible for human rights violations, thanks to the Magnitsky Act.
In all these cases, the United States held on to the foreign property rather than sell it off. In some cases, it used the seized property as a bargaining chip toward a future settlement. 

In 2016, the Obama administration famously returned US$400 million to Iran that the US had seized after the embassy siege in 1979 – delivering stacks of Swiss francs stuffed inside a Boeing 737. 

In other cases, the assets remain under government control, administered by an office of the US Treasury, in hope that eventually some compromise can be reached.
The Patriot Act, adopted in the wake of 9/11, created a limited exception to the confiscation ban in instances in which the United States is at war. 

The US never has used this authority. And despite the increasingly heated rhetoric, stepped-up sanctions and growing aid for Ukraine, the US is not at war with Russia.

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Currency Markets at a Glance WSJ
World Currencies

Euro 1.051850 
Dollar Index 103.757
Japan Yen 130.5895
Swiss Franc 0.98760
Pound 1.234495
Aussie 0.708485
India Rupee 76.82950
South Korea Won 1273.125
Brazil Real 5.0293000
Egypt Pound 18.480700
South Africa Rand 16.050000 

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@bankofengland warning: @EdConwaySky
World Of Finance

- UK now heading for a recession, with GDP forecast to contract at the end of this year.
- Double digit inflation of just over 10% forecast later this year - highest since 1982
- Bank raises interest rates to 1%, highest level since 2009

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Can the World Feed Itself? Historic Fertilizer Crunch Threatens Food Security @business @YahooFinance
Food, Climate & Agriculture

(Bloomberg) -- For the first time ever, farmers the world over — all at the same time — are testing the limits of how little chemical fertilizer they can apply without devastating their yields come harvest time. Early predictions are bleak.
In Brazil, the world’s biggest soybean producer, a 20% cut in potash use could bring a 14% drop in yields, according to industry consultancy MB Agro. 

In Costa Rica, a coffee cooperative representing 1,200 small producers sees output falling as much as 15% next year if the farmers miss even one-third of normal application

In West Africa, falling fertilizer use will shrink this year’s rice and corn harvest by a third, according to the International Fertilizer Development Center, a food security non-profit group.
“Probably farmers will grow enough to feed themselves. But the question is what they will have to feed the cities,” said Patrice Annequin, a senior fertilizer market specialist for IFDC based in Ivory Coast. 

When you add increased hunger across West Africa on top of existing risks like terrorism, “this is absolutely dangerous for many governments in our region.”
For the billions of people around the world who don’t work in agriculture, the global shortage of affordable fertilizer likely reads like a distant problem. 

In truth, it will leave no household unscathed. In even the least-disruptive scenario, soaring prices for synthetic nutrients will result in lower crop yields and higher grocery-store prices for everything from milk to beef to packaged foods for months or even years to come across the developed world. 

And in developing economies already facing high levels of food insecurity? 

Lower fertilizer use risks engendering malnutrition, political unrest and, ultimately, the otherwise avoidable loss of human life.
“I’m reducing the use of fertilizer in this crop cycle. I can’t afford such stratospheric prices,” Marcelo Cudia, 61, a farmer in the Philippines’ rice-producing region of Central Luzon, said outside the patch of land he’s been cultivating for the last 13 years. 

About 12,000 miles away, Brazilian soybean farmer Napoleão Rutilli is facing the same tough choices. “If fertilizers are expensive, we’ll use less fertilizers. If we’ll use less, we’ll produce less,” said the second-generation farmer, 33. “Food prices will increase and everyone will suffer.”
Why Are Fertilizer Prices Going Up?
Commercial farmers rely on a combination of three key nutrients — nitrogen, phosphorus and potassium — to fuel their harvests. 

Those inputs have always been key, but it was only about a century ago that humanity learned to manufacture mass-produced ammonia-based nutrients. 

The discovery of the Haber-Bosch method in the early 1900s, which is still used to make fertilizer today, has allowed farmers to vastly increase their yields. 

The agriculture industry has since come to depend on — even hinge on — man-made fertilizer. 

Although soil’s needs are different region to region, the general trend is pretty undisputed: More fertilizer use brings more food production.
But as costs for synthetic nutrients have skyrocketed — in North America, one gauge of prices is nearly triple where it was at the start of the pandemic — farmers have had to start paring back use, sometimes dramatically. 

That’s put the world in uncharted territory.
“Fertilizer prices are up an average of 70% from last year,” said Timothy Njagi, a researcher at the Tegemeo Institute of Agricultural Policy and Development in Kenya, referring to prices in the country. 

“The fertilizer is available locally, but it’s out of reach for the majority of farmers. Worse, many farmers know that they cannot recover these costs.”
Prices have been climbing for more than a year for a host of reasons: runaway pricing for natural gas, the main feedstock for much of the world’s nitrogen fertilizer; sanctions on a major Belarusian potash producer; back-to-back late-summer storms on the U.S. Gulf Coast that temporarily shut-in production in the region; plus Covid-19 restrictions that have disrupted every global supply chain, including chemicals.
That tightening in the physical fertilizer market has galvanized China, the largest phosphate producer, to restrict outgoing shipments in order to build up a stockpile at home, further exacerbating the global shortage. 

Add Russia’s invasion of Ukraine, which effectively cut off nearly a fifth of the world’s nutrient exports, and the fertilizer industry and its pricing mechanisms are arguably more broken than ever before.
“Fertilizer sales are very, very low, to the point of desperately low, and this should be traditionally the busiest time of the year,” said Jo Gilbertson, head of fertilizer at Agricultural Industries Confederation, a U.K.-based trade association. 

“The seeds of the problem are being sown now.”
How Will Lower Fertilizer Use Hit Output?
“My biggest concern is that we end up with a very severe shortage of food in certain areas of the world,” Tony Will, the chief executive of the world’s largest nitrogen fertilizer company CF Industries Holdings Inc., said in a March interview.
In the Philippines, urea — a key nitrogenous fertilizer — is now about 3,000 pesos (about $57) per bag, and even more when transported to the fields. That’s more than three times the price at this time last year, said Roger Navarro, president of Philippine Maize Federation Inc. 

“Farmers will tend to decrease the usual fertilizer dose of their crop and that will lessen the production,” he said, forecasting a 10% drop in yields. “It is rather sad, but this is reality.”
The yield outlook is even worse elsewhere. Peru’s agricultural industry is facing a deficit of 180,000 metric tons of urea, and output of staples such as rice, potatoes and corn could tumble as much as 40% unless more fertilizer becomes available. 

The International Rice Research Institute predicted crop yields could drop 10% in the next season, meaning there’ll be 36 million fewer tons of rice — enough to feed 500 million people. 

In Sub-Saharan Africa, food production could drop by about 30 million tons in 2022, equivalent to the food requirement of 100 million people, the IFDC said in December — and that forecast was made before the war in Ukraine pushed prices to new records this spring.
There’s also a growing concern less fertilizer use will result in lower-quality crops. 

Just ask Gary Millershaski, who farms nearly 4,000 acres of wheat and roughly 3,000 acres of corn and sorghum in southwest Kansas. 

Also chairman of the Kansas Wheat Commission, Millershaski said the commission’s “biggest fear” this spring is that farmers may have skipped applying nitrogen as the wheat emerged from winter dormancy several weeks ago. 

If they did, it could hurt protein content of the grain and result in a “lower class of wheat.”
With nearly half of U.S. wheat exported to other countries, that’s a problem that will impact consumers the world over. 

The harvesting of hard red winter wheat, the most widely grown class in the U.S. and the grain that’s used to make all-purpose flour, will begin in June.
How Will Lower Fertilizer Use Hit Inflation?
Without a doubt, the food that is produced will be more expensive. 

Global food prices are already surging at the fastest pace ever as the war in Ukraine hits crop supplies, with a United Nations index of world food costs soaring another 13% in March.
“Food security is in peril,” Philippines Agriculture Secretary William Dar said in a text message to Bloomberg News.
Rising food prices, without a corresponding increase in incomes, have a long history of triggering social unrest. 

In 2008 and 2011, soaring inflation triggered food riots in more than 30 nations across Asia, the Middle East and Africa, helping to fuel uprisings in the Arab Spring.
“That’s the big concern: Will the high prices of food have a boomerang reaction?” said Gideon Negedu, executive secretary of the Fertilizer Producers and Suppliers Association of Nigeria and a member of the Presidential Fertilizer Initiative. 

“The food markets may begin to react to these prices because there is no commensurate increase in average household incomes.”
What Can Farmers Do?
Farmers aren’t sitting idly by. Those who managed to secure fertilizer ahead of the latest run-up are being more strategic about how much they use, including leaning into “precision agriculture.” 

That means collecting more data on their fields, monitoring crops for increased efficiency and rolling out other data analysis tools. 

Farmers are increasingly testing soil for lingering nutrients and applying exactly as much fertilizer is needed, rather than an overly generous ballpark — a practice that’s been in use across some places like the U.S. and parts of Brazil for decades but isn’t yet commonplace in some other parts of the word.
If a soil tests high for phosphorous or potassium, “often little to no fertilizer is needed at all,” said Carrie Laboski, professor and extension soil scientist at University of Wisconsin-Madison. 

For some crops like corn, growers might apply a little bit of “starter fertilizer” when they’re planting, which is like insurance if soils are testing high for crop nutrients. 

When it comes to nitrogen, “they shouldn't eliminate it, but cut back,” she said.
Some farms are also exploring controlled-release formulations, like tiny capsules of nutrients that dissolve slowly over time. 

Although not a solution for many commercial farms given their large scales, others are exploring alternatives to chemical fertilizers, including animal waste.
“Compost and sewage sludge and biosolids or organic nutrients become more valuable,” said Mark Topliff, lead analyst for farm economics at the Agriculture and Horticulture Development Board in the U.K. 

“The supply of those has been stretched” as more growers turn to alternatives.
Some farmers are even moving away from high-fertilizer crops altogether, like corn, in favor of lower-demand plantings like beans.
Tregg Cronin, a U.S. farmer in central South Dakota who chooses between growing wheat, corn, sunflowers, oats and soybeans, has found himself in an enviable situation: 

Drought last year left Cronin’s soil with excess nitrogen. So he’s opting to plant 10% more acres of sunflowers — which need the nitrogen more than soybeans do. 

But if fertilizer prices stay high in the months ahead, next year he’ll pivot to more soybeans. Others are making similar calculations — and hoping they’re betting in the right direction.
“If you really want to play 3D chess,” he said, “you need to be thinking about your rotation next year more so than this year.”

15. Food prices are soaring at a record pace, rising another 13% in March. @lisaabramowicz1


“But it is a curve each of them feels, unmistakably. It is the parabola They must have guessed, once or twice -guessed and refused to believe -that everything, always, collectively, had been moving toward that purified shape latent in the sky, that shape of no surprise, no second chance, no return.’’

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World Bank @WorldBank for each one percentage point increase in food prices, 10 million people are thrown into extreme poverty worldwide. @WFPChief @KGeorgieva @NOIweala @DavidMalpassWBG
Food, Climate & Agriculture

Sub-Saharan African countries find themselves facing another severe and exogenous shock. 

Russia’s invasion of Ukraine has prompted a surge in food and fuel prices that threatens the region’s economic outlook. 

This latest setback could not have come at a worse time—as growth was starting to recover and policymakers were beginning to address the social and economic legacy of COVID-19 pandemic and other development challenges. 

The effects of the war will be deeply consequential, eroding standards of living and aggravating macroeconomic imbalances.

We now expect growth to slow to 3.8 percent this year from last year’s better-than-expected 4.5 percent, according to our latest Regional Economic Outlook. 

Though we project annual growth to average 4 percent over the medium term, it will be too slow to make up for ground lost to the pandemic. 

Inflation in the region is expected to remain elevated in 2022 and 2023 at 12.2 percent and 9.6 percent respectively—the first time since 2008 that regional average inflation will reach such high levels.

There are three main channels through which the war is impacting countries—with notable differentiation both across and within countries:

Prices for food, which accounts for about 40 percent of consumer spending in the region, are rising rapidly. 

Around 85 percent of the region’s wheat supplies are imported. Higher fuel and fertilizer prices also affect domestic food production. 

Together, these factors will disproportionately hurt the poor, especially in urban areas, and will increase food insecurity.

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Wheat Jumps as India Weighs Export Curbs on Shriveled Crops @markets

Wheat extended its biggest daily gain in more than three weeks as India, one of the few countries with the potential to ease a global shortage, considers restricting exports after extreme heat shriveled the local harvest.
Top officials are discussing the move and will recommend it to Prime Minister Narendra Modi, who will then make the decision, according to a person with knowledge of the matter. 

Still, there’s no need to curb exports for now as the country has enough supply to meet domestic demand, Food Secretary Sudhanshu Pandey said at a briefing on Wednesday.
A reduction in the crop lowers the potential for exports. As recently as the middle of April, Piyush Goyal, the food and commerce minister, said shipments could reach an all-time high of 15 million tons in the year that began in April, more than double the previous year. 

Traders have already contracted to ship 4 million tons in 2022-23, according to the food ministry. 

“India had one of the few remaining significant stocks of wheat available to replace Ukrainian, and possibly Russian, supplies,” said Scott Irwin, an agricultural economist at the University of Illinois. The jump in prices is all you need to know about the importance of this possible move, he said.

The food ministry on Wednesday slashed its estimate for wheat output this season to 105 million tons after the country experienced its hottest March on record. 

That’s down from a record 111 million tons forecast previously and 109.6 million tons a year earlier. 

The nation is the third-biggest grower behind China and the European Union, according to U.S. government estimates. 

Global grain trading has been upended after Russia’s invasion choked off most exports from Ukraine, a critical supplier of staples like wheat, corn and sunflower oil. 

India, which traditionally hasn’t been a major exporter as high government crop prices kept its grain at home, has shipped out more on demand from big importers. 

Major buyers including Egypt have recently approved access for Indian wheat.

The grain flow disruptions, combined with a fertilizer shortage and bad weather in key crop regions, are raising the threat of severe food shortages. 

Rising crop prices have already sent global food costs soaring to a record, adding to inflationary pressures and raising hunger levels around the world. 

Chicago wheat futures for July delivery climbed as much as 1.6% to $10.9325 a bushel, after surging 3% a day earlier, the most since April 8. 

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Sunday, April 10, 2022 The Russian Ruble rally is real and has much further to go.
Emerging Markets

‘’You can print money, but not oil to heat or wheat to eat’’ wrote @CreditSuisse’s Zoltan Pozsar.
Russia essentially gave the $ and the Euro the very same exorbitant privilege that King Abdul Aziz Ibn Saud of Saudi Arabia gave President Franklin D Roosevelt aboard the USS Quincy in Great Bitter Lake in February 14, 1945 when the petro dollar economy was symbolically born.
By insisting payments are made in Russian Rubles for Russian commodities Vladimir Putin has withdrawn that exorbitant privilege.
The Russian Ruble rally is real and has much further to go.

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August 13, 2018 Cold Turkey
Emerging Markets

In 1998, Prime Minister Margaret Thatcher told the House of Commons: “There is no way in which one can buck the market.”

He said, “Don’t get high on your ambitions. You won’t be able make money on the back of this nation. You won’t be able to make this nation kneel.” 
And then ‘’Even if they got dollars, we got ‘our people, our God’’’ 

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Agriculture Sector recorded a negative growth of -0.2% in 2021. @KNBStats
Kenyan Economy

Tea, coffee, maize, wheat, recorded negative growth. Sugarcane  rice and cut flowers recorded positive growth.

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International visitors increased by 50.3% to 871,000 @moneyacademyKE
Tourism, Travel & Transport

Hotel occupancy rose 45.1% to 5.5 million 
Domestic tourism expanded 49.2% to 3.78 million of the hotel occupancy (69.4% of total)

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by Aly Khan Satchu (www.rich.co.ke)
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May 2022

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