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Satchu's Rich Wrap-Up
Friday 13th 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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Ex NY Fed Pres Dudley said U.S. central bank should stop “sugarcoating” its message on how high interest rates need to go -- and how much pain that will cause -- to get inflation under control @markets
World Of Finance

Former Federal Reserve Bank of New York President Bill Dudley said the U.S. central bank should stop “sugarcoating” its message on how high interest rates need to go -- and how much pain that will cause -- to get inflation under control.
“I think it’s 4 to 5 (percent) or higher,” Dudley said in an interview with Bloomberg Surveillance on Wednesday on how high the Fed should raise interest rates to cool price pressures. 

“I was 3 to 4 (percent) maybe six months ago. Now I’m 4 to 5 and it wouldn’t shock me if I’m 5 to 6 a few months from now,” said Dudley, who is a Bloomberg Opinion columnist and senior adviser to Bloomberg Economics.

Data released earlier on Wednesday showed that consumer prices rose by more than expected in April with the core gauge, which excludes food and energy, increasing 0.6% from a month earlier and 6.2% from April 2021.

The Fed raised rates by a half percentage point last week, to a target range of 0.75% to 1%, and Chair Jerome Powell signaled it would hike by similar amounts at its next two meetings while leaving the door open to doing more if needed. 

Officials say they think they can soft-land the economy and avoid a recession or sharp rise in the jobless rate, but Dudley argued this message could do more harm than good.

“The Federal Reserve has got to tighten monetary policy sufficiently to slow the economy down and push the unemployment rate up. That’s what’s required and I think the Federal Reserve should be more forthright about explaining that to the American public,” Dudley said. 

“If you start to sugar coat it then financial conditions don’t tighten as much and you also run the risk that people will lose confidence in the Federal Reserve.”

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Its a Wizard of Oz moment This is Voodoo Economics
World Of Finance


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%

Deee-Lite - Good Beat


Depending on you see a thing
The ship is free, or is it sinking?


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One chart, I submit, matters more than all others. The long-term downward trend in the 10-year Treasury yield has carried on for decades. @johnauthers
World Of Finance

Every time yields have threatened to break above that trend line, a financial accident has happened. 

In order, marked by circles in the chart below, we have the S&L -driven bear market of 1990, Mexico’s Tequila Crisis in 1994, the dot.com bubble in 2000, the GFC in 2007, and the “Volmageddon” technical selloff of 2018, followed later that same year by the “Christmas Eve Massacre” as traders rebelled against the Federal Reserve’s plans for quantitative tightening. 
There are different ways to draw that trend line, but whichever way you choose to try to join the dots, it’s well and truly broken now. 

And the fall in equities, and in speculative assets such as crypto, got going in a big way when it was breached:
This leads some to say that it’s cause for optimism that bond yields have fallen this week, after briefly hitting a high of 3.2%. 

It’s certainly a big deal, and suggests that the market crisis may be moving in to a new phase. 

But look at the circles in the chart above, and you’ll see that the damage they caused usually lasted a while longer. 

Further, the mechanism tends to be that a rise in bond yields provokes a response in other markets that prompts investors to take refuge in bonds again. 

That’s what is happening at present (perhaps in combination with some psychology that the failure to stick at the 3.2% level might mean that the top is in).
Combine all this with the growing sentiment that the Fed won’t be able to tighten as much as it wants to because a stagnating economy will get in the way, and you can see why bond yields are staging a decline. 

It’s not, unfortunately, a reason to believe that the selloff in stocks is nearly over. 

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World Of Finance

The Music has been playing for Eternity and its about to stop

Love Fellini. So brave, with that whiff of insanity. @DiAmatoStyle Federico Fellini's 8 1/2 @tcm

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As a result of our unprecedented sanctions, the ruble was almost immediately reduced to rubble. The Russian economy is on track to be cut in half. @POTUS
World Of Finance

It was ranked the 11th biggest economy in the world before this invasion — and soon, it will not even rank among the top 20.

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Sunday, April 10 ‘You can print money, but not oil to heat or wheat to eat’ wrote @CreditSuisse’s Zoltan Pozsar.
World Of Finance

The Sanction warfare program is a reiteration of the @BarackObama 2014 version but then Oil was dropped to $20.00 and today its trading at $97.56 a barrel. This is the first flaw in the sanction warfare effort.
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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Ruble Surpasses Brazil’s Real as Year’s Best-Performing Currency @business via @YahooFinance
World Currencies

Capital controls imposed by Russia have turned the ruble into the world’s best performing currency this year, though not many people can pocket a profit on the rally.

The ruble resumed its advance against the dollar on Wednesday as the Moscow Exchange reopened after two days of public holiday. It’s now up more than 11% against the US dollar since the start of the year, surpassing the real’s 9% advance to become the top gainer among 31 major currencies tracked by Bloomberg. 

The offshore rate is up even more, about 12%.
The ruble’s gains result from a series of measures taken by the government to defend the battered currency in the aftermath of Western sanctions. 

On top of imposing capital controls, Russia has forced exporters to sell foreign-exchange and is demanding its natural gas be paid for in rubles. 

Strategists say the rally isn’t credible as many currency-trading shops have stopped dealing in the ruble on the grounds that its value seen on monitors is not the price it can be traded at in the real world.
Still, the irony of the ruble performing so well while at war is remarkable, especially as other countries that imposed capital controls in the recent past have not achieved the same results. 

Turkey and Argentina tried similar measures when they faced a horde of sellers in the past few years with disastrous consequences for the lira and the peso, which reached fresh all-time lows and never recovered.
The ruble took over from the real as the world’s best performer as the end looms for Brazil’s monetary tightening, which is weighing on the currency. 

After raising the benchmark rate by 1,075 basis points since early 2021, policy makers in the Latin American nation have signaled a slowdown in the pace of hiking, as well as their intention to wrap up the cycle soon. 

While the real’s carry will remain high, the spread to US rates will likely shrink as the Federal Reserve keeps raising borrowing costs at an aggressive pace.

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Octavio Paz

The Street
A long and silent street.
I walk in blackness and I stumble and fall
and rise, and I walk blind,
my feet stepping on silent stones and dry leaves.
Someone behind me also stepping on stones, leaves:
If I slow down, he slows;
If I run, he runs.
I turn:

Everything dark and doorless.
Turning and turning among these corners
which lead forever to the street
where nobody waits for, nobody follows me,
where I pursue a man who stumbles
and rises and says when he sees me:
nobody.The Street

A long and silent street.
I walk in blackness and I stumble and fall
and rise, and I walk blind,
my feet stepping on silent stones and dry leaves.
Someone behind me also stepping on stones, leaves:
If I slow down, he slows;
If I run, he runs.
I turn:

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Currency Markets at a Glance WSJ
World Currencies

Euro 1.041690
Dollar Index 104.527
Japan Yen 128.7900
Swiss Franc 1.000545 
Pound 1.221835 
Aussie 0.689700 
India Rupee 77.31805 
South Korea Won 1280.825
Brazil Real 5.1346000 
Egypt Pound 18.317818
South Africa Rand 16.00158 

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It’s very hard to see anything cathartic in markets at present. For a start, the U.S. indexes are still above their levels from immediately before the pandemic. @johnauthers
World Currencies

The rest of developed markets, and emerging markets, are below their February 2020 levels, but they didn’t enjoy a big boom in the first place. 

Looking at action since the pandemic started, at a time when it seemed reasonable to expect that it would take several years for markets to make up the lost ground, nothing very cathartic has happened: 

Mirrors On The Ceiling The Pink champagne on ice

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The memes are crashing faster than any of those famous burst bubbles. FANGs, fall so far is outpacing the Nasdaq in 2000 and the Nikkei in 1990. @johnauthers
World Of Finance

The memes are crashing faster than any of those famous burst bubbles. As for the FANGs, even though the stocks in the index are unquestionably dominant and highly profitable companies, their fall so far is outpacing the Nasdaq in 2000 and the Nikkei in 1990. So this does look very much like a replay of one of the historic crashes. In all of them, there was further to fall:

February 7, 2021 @elonmusk I am become meme, Destroyer of shorts

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GameKyuubi posted I AM HODLING, a drunk, semi-coherent, typo-laden rant about his poor trading skills and determination to simply hold his bitcoin from that point on. #Bitcoin
World Of Finance

"I type d that tyitle twice because I knew it was wrong the first time. Still wrong. w/e," he wrote in reference to the now-famous misspelling of "holding."
"WHY AM I HOLDING? I'LL TELL YOU WHY," he continued.
"It's because I'm a bad trader and I KNOW I'M A BAD TRADER.  Yeah you good traders can spot the highs and the lows pit pat piffy wing wong wang just like that and make a millino bucks sure no problem bro."
He concluded that the best course was to hold, since "You only sell in a bear market if you are a good day trader or an illusioned noob.  The people inbetween hold. In a zero-sum game such as this, traders can only take your money if you sell."
He then confessed he'd had some whiskey and briefly mused about the spelling of whisk(e)y.  [HODL Definition | Investopedia]

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27 NOV 17 :: Bitcoin "Wow! What a Ride!". #Bitcoin
World Currencies

T.S Eliot said in The Hollow Men 

Between the idea
And the reality
Between the motion
And the act
Falls the Shadow
For Thine is the Kingdom.

There are many cryptocurrency schemes which are sold on the same grounds as the greatest South Sea Bubble prospectus: 

“For carrying on an undertaking of great advantage, but nobody to know what it is.”
Let me leave you with Hunter S. Thompson, “Life should not be a journey to the grave with the intention of arriving safely in a pretty and well preserved body, but rather to skid in broadside in a cloud of smoke, thoroughly used up, totally worn out, and loudly proclaiming “Wow! What a Ride!”

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In terms of overall Portfolio management @nayibbukele that would in fact probably be the right thing to do. #Bitcoin
World Currencies

Anybody can be decisive during a panic It takes a strong Man to act during a Boom. VS NAIPAUL

“The businessman bought at ten and was happy to get out at twelve; the mathematician saw his ten rise to eighteen, but didn’t sell because he wanted to double his ten to twenty.”

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How to make a >800 million dollars in crypto attacking the once 3rd largest stablecoin, Soros style: @OnChainWizard
World Currencies

Everyone is talking about the $UST attack right now, including Janet Yellen. But no one is talking about how much money the attacker made (or how brilliant it was). Lets dig in

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Oil, driven currently by the news from Ukraine, is as important as ever. A break higher in the oil price would serve to cement a stagflation narrative, while a retreat below current prices would seem to reduce levels of risk. @johnauthers
Minerals, Oil & Energy

Intriguingly, the oil market has described another classic technical pattern since the Ukraine invasion: a “pennant.” 

In other words, after the initial shock sent the price higher, it has veered from rising lows to declining highs. It still hasn’t broken out of that pattern; when it does, it’s likely to have a big psychological effect. 

Once a market has escaped from a pennant pattern, traders generally expect it to carry on in that direction, so a break above would be troublesome for other markets. 

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Sri Lanka Bonds Slump as Unrest Threatens To Delay IMF Bailout @business
Emerging Markets

Promises to restore stability in Sri Lanka are falling flat for investors who sent the value of the nation’s dollar bonds plummeting to fresh lows.
The island nation’s debt due in 2029 slumped 4 cents on Wednesday to be quoted at 37 cents on the US dollar, the lowest on record, according to indicative pricing data compiled by Bloomberg. 

Most other Sri Lankan dollar bonds also dipped further into distress after Mahinda Rajapaksa’s resignation as prime minister did little to quell uncertainty.
That’s left bondholders to question whether President Gotabaya Rajapaksa will name a new prime minister and cabinet this week in a bid to end political instability in the country, secure a bailout from the International Monetary Fund and address its debt troubles. 

Sri Lanka missed coupon payments in April, which have a 30-day grace period. S&P Global Ratings already downgraded the nation to selective default.
“We want to see a government that can stay in power,” said Jeff Grills, head of emerging markets debt at Aegon USA Investment Management in Chicago. “Otherwise you can’t restructure.” 
Lengthy power cuts and shortages of fuel and food have fueled turmoil in the South Asian island economy, including violence that led to the death of at least eight people.
Technical level discussions between the nation and the IMF continue, Masahiro Nozaki, the fund’s mission chief for Sri Lanka, said in a statement on May 10. 

It’s not clear if there are still negotiations starting this week as planned.
“Without more clarity on who will hold the finance portfolio in the coming months, and without a stable government to negotiate with creditors and implement the necessary reforms, IMF talks will likely struggle to gain traction,” said Patrick Curran, an economist at research firm Tellimer wrote in a note.
The extra yield investors demand to hold Sri Lankan dollar bonds widened by 94 basis points to 35.09 percentage points on Wednesday, according to JPMorgan Chase & Co. data, well above the threshold for distress.

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We need to ask ourselves; how many people can an incumbent shoot stone cold dead in such a situation – 100, 1,000, 10,000?
Emerging Markets

This is another point: there is a threshold beyond which the incumbent can’t go. Where that threshold lies will be discovered in the throes of the event.

The Event is no longer over the Horizon.

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Mozambique’s $900 million of 2031 eurobonds have returned 2.5% this year, with only Lebanon’s debt performing better in that time. The rise compares with the 16% average drop for emerging- and frontier-market peers.

Moody’s Investors Service changed the government of Mozambique’s credit outlook to positive from stable and at the same time affirmed ratings at Caa2 in March.
Earlier this week, the country struck a $456 million International Monetary Fund deal, nearly six years after the institution froze a previous arrangement because the government concealed more than $1 billion of debt.
The program will likely enhance authorities’ economic recovery efforts and also provide broader support to address some of Mozambique’s long-term structural challenges, particularly the management of public resources and governance. 

This should in turn boost investor confidence, said Samantha Singh, a fixed-income and credit strategist at Absa Bank Ltd., in a note to clients.
“The 2031s have rallied over the past month or so and now do appear expensive to peers,” said Singh. “The IMF support should anchor the bonds.”

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We’re Open For Business, President Said. Then Zimbabwe Shut @bpolitics

Emmerson Mnangagwa has stymied Zimbabwe’s economy, five years after he declared the country “Open for business.”
Flanked by his finance minister and central bank governor, the president announced in a May 7 televised speech that banks had been banned from lending in a bid to stem the precipitous decline of the local currency. 

The order threatens to dissipate what little confidence there is in an economy that’s been in turmoil for more than two decades. 

It’s the latest in a series of economic missteps that’s seen Zimbabwe ride a roller coaster of hyperinflation and periodic shortages of food and fuel. 

At the heart of the economic malaise is a currency policy that’s retarded growth, gouged businesses and cost citizens their savings.
“They are desperate to have their own national currency even though they have nothing of value to underpin it,” said Stephen Chan, a professor of world politics at the School of Oriental and African Studies in London. 

“It’s an act of desperation. It makes legitimate business almost impossible.” 
Zimbabwe’s economic woes began in 2000 when then-President Robert Mugabe encouraged invasions of White-owned commercial farms by subsistence farmers. 

Export earnings collapsed and the US and European Union imposed sanctions, tipping the economy into a downward spiral that led to hyperinflation estimated by the International Monetary Fund at more than 500 billion percent in 2008. 

The Zimbabwe dollar was abandoned in favor of the US currency and was only restored in mid-2019 by Finance Minister Mthuli Ncube, an economics professor who has taught at Oxford University.

It hasn’t been a success.
While a precursor to the Zimbabwe dollar was pegged at parity with the greenback in February 2019, it now trades at an official rate of 173, an interbank rate of 280 and a black market rate of as much as 420.
The ban on lending is an attempt to reduce the amount of the local currency in circulation, stifling a flourishing black market and, ultimately, inflation. It’s also hobbled the economy.
An executive at an agro-processing firm, who asked not to be named for fear of reprisal, said his company can’t borrow what it needs to pay 500 farmers for the soy and sugar beans it contracted them to grow, or fund the purchase of inputs such as fertilizer for next season’s crop. 
“Lending is required to import raw materials, pay salaries, fund working capital requirement and machinery,” Morgan & Co., an investment advisory firm based in the capital, Harare, said in a May 9 note to clients. 
Tongaat Hulett Ltd., a South African company with sugar-growing subsidiaries in Zimbabwe, suspended advance payments to cane growers because it said it normally pays them from bank loans. 

Dairiboard Holdings Ltd., the country’s main dairy company, scrapped a dividend. 
Late on Thursday the government exempted producers of commodities including sugar, tobacco and corn from the lending ban, adding to the uncertainty.
Still, the government is adamant the step is necessary.
“Tough policy measures anywhere in the world always attract criticism,” Ncube said in an interview on Thursday. The lending ban “is temporary in order to prick the bubble of speculative activities,” he said. 
Nick Mangwana, a spokesman for Mnangagwa, said the lending ban was “initially a bit misunderstood” but there is now a better understanding on why it was necessary.
The government has been one of the key architects of the currency’s demise. 
Zimbabwean dollars have been printed to pay for roads, dams, a national census and by-elections, according to the Zimbabwe National Chamber of Commerce. 

Contractors then quickly converted them into greenbacks fearing the local unit would depreciate -- adding to the decline.
“There is a complete loss of faith in the local currency,” the chamber said in a May 9 submission to the finance ministry. 

“Economic agents are desperately getting rid of their Zimbabwean dollar the moment they earn it.”

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21-JAN-2019 : @harari_yuval & money

''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 example
The Mind Game that ZANU-PF played on its citizens has evaporated in a puff of smoke.

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It would seem that Kenya is going into an election this August that’s largely about nothing. No big idea, no galvanising issue. @theelephantinfo @johngithongo
Law & Politics

Ironically, in the 2007 election Raila Odinga was the bogeyman of Kenyan politics – the man to fear, the master of chaos, etc. Today the very people who spewed that narrative are in wild reverse and the deputy president is the new bad guy in town.
“hustler” narrative, there is as yet no other game in town in the contest of political ideas. There is no other big narrative. More importantly, there is no other compelling hopeful narrative.
An entire generation below 35 years of age has grown up that finds watching our political leaders on the seven o’clock news boring and, some even argue, detrimental to mental health. 

They catch the outrageous highlights on Twitter, WhatsApp and Instagram. The thundering statements of ministers, the head of state and his deputy have been reduced to fleeting minutes of entertainment to be taken as seriously as a Nollywood thriller.
Still, I was struck that, with 150 or so days to the next election, our major political formations have split into two behemoths – Azimio, led by Raila Odinga and President Kenyatta, and UDA, led by Deputy President Ruto. 

Despite this, polls show the number of undecideds and those refusing to respond regarding whom they’ll vote for in August hovering around 30 per cent.
Before the landmark election of 2002, about four months to the polls, the number of undecideds was under 10 per cent. 

In 2013, five months before the polls, the undecideds were around 3 per cent. Days before the 2017 polls, the undecideds and those who said they were not sure who they would vote for were at 8 per cent. 

The question is: Why does the number of undecideds remain high even though we effectively have a two-horse race going into the August 2022 poll?
The con has been exposed as a con, an empty debe making noises that are incoherent and sometimes amusing, as they say.

Still, it does not help that we have entered the most expensive campaign in the history of East and Central Africa with no grand issues to define it. 

The 2017 election cost US$1 billion and was a washout, shredding the legitimacy of the political elite. 

Now we find ourselves in the curious twilight zone of Putin’s Gray Cardinal – a lot money being spent, a lot of campaigning underway. For what? 

What’s the big change being promised beyond a reorganisation of the elite on the deckchairs of the Titanic? 

Kenyans are no longer being inspired with ideas but with things – we’ll build a stadium, a hospital, a road, a school, an airport, etc. 

And of course, the elite has these contracts “under control”, as they say. 

But it seems we haven’t the faintest idea what will be taught in those schools and what kind of Kenyans they will produce. 

Where the roads lead to and why. The era of big ideas would seem to have been put on pause for now.

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Tanzania topples SA as Kenya’s top source of imports in Africa @BD_Africa
Kenyan Economy

Tanzania has become the largest source market for Kenya on the continent after overtaking South Africa, partly on the back of increased orders of maize and rice by millers.
Official trade statistics show expenditure on goods trucked from Tanzania nearly doubled last year to Sh54.47 billion from Sh27.88 billion the year before.
The 95.38 percent, or Sh26.59 billion, bump in imports catapulted Tanzania to the top position in Africa after orders from South Africa fell 3.72 percent to Sh44.08 billion, according to data collated by the Kenya National Bureau of Statistics (KNBS).
“Imports from Tanzania nearly doubled from Sh27.9 billion in 2020 to Sh54.5 billion in 2021 partly attributable to increase in imports of maize and rice from this country,” KNBS analysts wrote in the Economic Survey 2022.

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@SafaricomPLC reports FY EPS +1.75% earnings
N.S.E Equities - Commercial & Services

To support the payment of license fees for the telecommunications license awarded to the Safaricom-led consortium by the Government of Ethiopia in 2021, we undertook a one-year bridge facility of USD 400Mn to finance this venture. 

During the year, the bridge facility was converted into a 5-year long term facility of USD 120Mn, and a KShs 31.1Bn (USD 280Mn KShs equivalent) 7- year facility with 2 years moratorium on principal repayment. 

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The value of bets placed via M-Pesa rose 24% to Sh169 billion @moneyacademyKE
N.S.E Equities - Commercial & Services

Safaricom made Sh6 billion from Kenyan betting activity alone.  Betting is now the M-Pesa's second-largest business line by revenue.

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Bamburi CEO: Why the cement costs keep rising @BD_Africa
N.S.E Equities - Industrial & Allied

The freight markets have increased more than 30 percent and we all know what is happening in the fuel market.
We are a big consumer of coal and the prices have gone up to about $300 per tonne compared to $100 last year. 

Our cement has gone up by an average of 10 percent.

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

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