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Satchu's Rich Wrap-Up
Tuesday 01st of March 2022

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The Quantifiable Economic Pain From Ukraine So Far @bopinion @johnauthers
World Of Finance

Look up Sberbank on a Bloomberg terminal, and a red message across the top of the screen tells you that sanctions apply to it. At this point, the sanctions are working like a scarlet letter.

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On Monday, real yields came back down again @bopinion @johnauthers
World Of Finance

At this point, the risk-off Ukraine trade has canceled out roughly half of the increase in real yields that had happened this year as markets adjusted to drastic new expectations of the Federal Reserve. 

This in turn helps to explain why the damage to equities has been relatively limited so far; steeply negative real yields make it that much easier to buy stocks.
This is one way, then, in which the geopolitical situation has made the Fed’s job of curtailing inflation harder. 

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Bloomberg indexes for industrial metals and agriculture @bopinion @johnauthers
World Of Finance

Another is through commodity prices. Energy prices are central to the conflict, but if we look at the Bloomberg indexes for industrial metals and agriculture, we find that both have made new highs for this cycle in the wake of the invasion:

Hopes that commodity prices had put in a high near the end of last year now appear to have been dashed decisively. 

At the same time, the point at which raw material prices begin to take headline inflation rates lower is moved further into the future. 

Economists’ forecasts still call for a peak in inflation some time in the next few months — the Ukrainian conflict looks as though it will delay that peak. 

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14-FEB-2022 a seismic shift in the markets before Fridays whipsaw
World Of Finance

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%

Its a Wizard of Oz moment

This is ‘’Voodoo Economics’’ and 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

Friday's action and next immediate sessions might afford us the greatest macro trading opportunity to reset shorts in the US 10 and Ultra Bond. 

We can look across all G7 Bonds because this is a Super Bubble that is going to burst big. There is no way out now.

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World Of Finance

There is no training – classroom or otherwise.. that can prepare for trading the last third of a move, whether it's the end of a bull market or the end of a bear market. 
There's typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. Paul Tudor-Jones

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Not all sunrises are created equal @olabea_perry

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.

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Law & Politics

Change came to Saddam’s Iraq and for a while regime change was de rigeur.
Muammar Gaddafi was decapitated and the domino effect only stopped when Vladimir Putin decided he was going to put a stop to it and intervened on behalf of Bashar Al-Assad in Syria.
Today, the US has exited Afghanistan and the days of a Unipolar World are self evidently behind us. 

We exist in a Tripolar World [US China and Russia] with rapidly emerging Middle Powers. 

I am not discounting Fortress Europe but one senses the Fortress is keener on a more defensive posture unlike the US [notwithstanding its withdrawal from Afghanistan], China and Russia. 

Taiwan and Ukraine are the immediate geopolitical flashpoints.

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The world is disconnecting Russia from globalization’s benefits: trade, travel, finance, technology, & drawing a curtain around the country. @RHFontaine
Law & Politics

The result will be a poorer, more isolated & weaker Russia. A bet on diminishing Russian capability rather than changing its behavior. 

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Russia Erects Financial Defenses to Shield Economy From Curbs @economics
Law & Politics

The Bank of Russia acted quickly to shield the nation’s $1.5 trillion economy from sweeping sanctions that have imperiled backstops for the financial sector and left President Vladimir Putin unable to access much of his war chest of more than $640 billion.
The bank more than doubled its key interest rate to 20%, the highest in almost two decades, and imposed some controls on the flow of capital. 

Facing the risk of a bank run, a rapid sell-off in assets and the steepest depreciation in the ruble since 1998, policy makers banned brokers from selling securities held by foreigners starting Monday on the Moscow Exchange. 

Exporters were ordered to start mandatory hard-currency revenue sales and stock trading was temporarily suspended in Moscow. 

In another decision that partially reversed a free-floating exchange rate regime in place since 2014, the Russian currency won’t be allowed to breach a certain range unless the central bank shifts the trading corridor

Governor Elvira Nabiullina is due to speak at 4 p.m. in Moscow, the central bank said. 

“This is an act of desperation to stop the ruble from falling,” said Karsten Junius, chief economist at Bank J. Safra Sarasin Ltd. 

“Because Russia can’t access its reserves, it’s dependent on income from gas deliveries. They’ll think twice about turning off the gas tap. They need foreign exchange to keep their economy running.”
Less than a week after Putin ordered his military to invade Ukraine, Russia is at risk of succumbing to the biggest financial crisis of his more than two decades in power. 
The steps taken so far on Monday represent the most forceful measures by Russia after the latest round of sanctions, with the U.S. and the European Union agreeing to block access to much of the $640 billion the country’s central bank has built up as a buffer to protect the economy. 

“Sanctions against the central bank have deprived the Russians of an important instrument to combat ruble weakness -- that’s why the focus is now on interest rates,” said Joerg Kraemer, chief economist at Commerzbank AG

It wasn’t clear if the central bank was intervening to defend the ruble and the exchange rate broadly converged with the offshore market within hours. 

Since setting the trading limit at 76.145 to 90 per dollar, the corridor has been allowed to move higher several times already. 

The ruble’s 26% drop so far this year is the worst slump globally, followed by the Kazakh tenge and Ukraine’s hryvnia, prices compiled by Bloomberg show. 

At current levels the ruble’s slump is the biggest since 1998, the year the nation’s economy went into a tailspin and the government defaulted on its local debt.

Additional measures taken by Western governments to exclude some Russian banks from the SWIFT messaging system could further choke up the country’s banking system. 

Sanctioned institutions dominate Russia’s financial sector with $1 trillion in assets.

S&P Global Ratings lowered Russia’s credit score below investment grade on Friday, while Moody’s Investors Service -- which rates Russia one notch above junk -- put the nation on review for a downgrade. 
“What comes next? We expect the government to announce some form of direct support for depositors. Together with higher rates, that could reward households for holding tight. But policy makers won’t ask nicely -- we also expect capital controls.”
Policy makers are counting that the steep rate hike, alongside the mandatory conversion of export revenues and a halt to outflows from the financial market, will help restore confidence and minimize losses at home even as war continues to rage across the border. 
“This is merely a reaction by the central bank to the fact that sanctions have weakened, completely neutralized their defense arsenal that they’ve built up in the past five to 10 years,” said Simon Harvey, head of FX analysis at Monex Europe Ltd. “It’s unprecedented escalation and markets are very poorly positioned for it.”
Russians were already lining up at cash machines around the country as demand for foreign currency soared. 

The central bank has said it was increasing supplies to ATMs to meet need and issued another statement Sunday vowing to provide banks “uninterrupted” supplies of rubles. 

Most of Europe has closed its airspace to Russian carriers, which could make it difficult to physically transport cash into the country. 

“I think rubles will be plenty, the question is FX,” said Viktor Szabo, an investor at Aberdeen Asset Management Plc. in London. 

“With reserves partially blocked, the central bank will have to prioritize, and I guess population will not be on top of the list.”
Oil and gas revenue remains a lifeline as the sale and transport of energy have largely escaped disruptions. At current prices, Russia was running a monthly current-account surplus of about $20 billion. 
Still, damage to the economy will be severe from the combination of wild swings in the exchange rate and the soaring cost of money. 

Bloomberg Economics was already predicting a contraction in the first and second quarter even before the weekend’s sanctions and now sees the risk of an even “deeper downturn.”

The continued flow of oil will likely provide some relief, given the World Bank calculates commodities account for almost 70% of goods exports. 

About 43% of the country’s crude and condensate output is sold abroad.

If crude prices stay around $90 this year, the country’s budget could get more than $65 billion in extra revenue, adding to the Kremlin’s financial strength, economists said recently. 

Oil at $100 would boost the windfall closer to $73 billion.
In Russia, memories linger of hyperinflation that peaked at more than 2,500 percent in 1992 and wiped out savings in the wake of the Soviet collapse. 

Price growth is already running at more than double the central bank’s target, despite a series of rate hikes since last March.
“These measures may help calm down the increased market nervousness, but at the same time they undermine the foundation of monetary policy, which is focused on inflation targeting and a flexible exchange rate,” said Natalia Lavrova, chief economist at BCS Financial Group in Moscow. “We do not rule out a possible rate hike going forward or further unexpected and non-market decisions.”

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The bifurcation is here, I think. @man_integrated
Law & Politics

What happens when Russia calls the West's bluff and begins transacting business outside of SWIFT using yuan and CIPS as clearinghouses for trade?

The bifurcation is here, I think.

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The risks of nuclear escalation from Russia’s invasion are real and should be taken seriously. @harries_matthew
Law & Politics

This has been known from the outset and is a primary reason why the West is not intervening directly with military force.

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The madman theory is a political theory commonly associated with U.S. President Richard Nixon's foreign policy.
Law & Politics

In 1517, Niccolò Machiavelli had argued that sometimes it is "a very wise thing to simulate madness" (Discourses on Livy, book 3, chapter 2). However, in Nixon's Vietnam War, Kimball argues that Nixon arrived at the strategy independently, as a result of practical experience and observation of Dwight D. Eisenhower's handling of the Korean War.

In his 1962 book, Thinking About the Unthinkable, futurist Herman Kahn argued that to "look a little crazy" might be an effective way to induce an adversary to stand down.

Nixon's chief of staff, H. R. Haldeman, wrote that Nixon had confided to him:

I call it the Madman Theory, Bob. I want the North Vietnamese to believe I've reached the point where I might do anything to stop the war. We'll just slip the word to them that, "for God's sake, you know Nixon is obsessed about communism. We can't restrain him when he's angry—and he has his hand on the nuclear button" and Ho Chi Minh himself will be in Paris in two days begging for peace.

In October 1969, the Nixon administration indicated to the Soviet Union that "the madman was loose" when the United States military was ordered to full global war readiness alert (unbeknownst to the majority of the American population), and bombers armed with thermonuclear weapons flew patterns near the Soviet border for three consecutive days.

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As things progress, Putin could also escalate (or threaten to escalate) as an attempt to coerce the West or escape a disastrous situation. @harries_matthew
Law & Politics

This could become more relevant if the war goes very badly for Putin, or if sanctions and other measures cause domestic chaos in Russia.

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All civilians in the city can freely leave [Kiev] along the Kiev-Vasilkov highway. This direction is open and safe. Russian Ministry of Defense @RealPepeEscobar
Law & Politics

"The armed forces of the Russian Federation strike only at military targets. Nothing threatens the civilian population."

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Currency Markets at a Glance WSJ
World Currencies

Euro 1.12194 
Dollar Index 96.668
Japan Yen 115.0280 
Swiss Franc 0.917200 
Pound 1.342930 
Aussie 0.728855 
India Rupee 75.2432 
South Korea Won 1197.900 
Brazil Real 5.1603000 
Egypt Pound 15.709900
South Africa Rand 15.29010 

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Ukraine Crisis Risks Pushing Sri Lanka Closer to Default @markets
Emerging Markets

With Covid shutting off tourism from much of the West, Russia and Ukraine had become an increasingly important source of foreign currency for Sri Lanka. 

The conflict threatens to turn off that tap as key bond repayments come due.
Almost a quarter of all tourist arrivals into Sri Lanka this year were from Russia and Ukraine -- rising to 30% if you include Poland and Belarus, official data show

Russia, which was the third-biggest buyer of Sri Lankan tea over the past two years, rose to second place in January. 

While detailed breakups on spending aren’t yet available, tourism and tea earned Sri Lanka more than $260 million in foreign currency this year. 

Every dollar is important because the nation’s overall FX reserves fell 25% to $2.36 billion in January. 

Sri Lanka looks set to face a funding requirement of $5.7 billion in 2022, including the money needed to plug the current account deficit, according to estimates from Bloomberg Economics.

Much of the reserves stockpile comprises bilateral aid such as swap lines from China and India, and Sri Lanka was looking to boost non-debt flows. 

The island nation is already running Asia’s fastest inflation, and foreign investors are concerned that if Sri Lanka doesn’t restructure its overseas debt or devalue the rupee that is currently pegged to the dollar, it could miss repayments such as on a bond maturing in July. 
“Balance of payments is the main issue, reserves are dwindling, the currency isn’t being allowed to adjust and if they avoid raising fuel prices then losses at the state-owned enterprises will mount,” said Kenneth Akintewe, head of Asian sovereign debt at abrdn. “Securing some source of foreign funding is even more urgently required now, but given the risk of fairly imminent default, that is easier said than done.” 

The 5.875% bond maturing in July fell one cent to 74 cents on the dollar Monday, the lowest in more than a month. 

The 7.55% 2030 note dropped three cents over the past week to a record low of 46 cents on the dollar.

Sri Lanka’s policy makers have reiterated that they are seeking to refinance rather than restructure the notes. 

“We hope the conflict won’t escalate,” Central Bank of Sri Lanka Governor Ajith Nivard Cabraal said by phone Monday, adding that the authority was assessing the situation. He didn’t elaborate.
“Russia’s invasion of Ukraine has increased the probability that Sri Lanka could default on its dollar-denominated debt. This raises the urgency for Sri Lanka to seek assistance from the International Monetary Fund”

The Ukraine tensions have already “badly affected the Sri Lankan economy” and local oil prices may need to go up in time, Cabinet spokesman Ramesh Pathirana said last week.

Buyers from Russia have warned of “affordability issues” because of the steep depreciation of the ruble, said Dinesh Fernando, chief operating officer of Ceylon Tea Brokers Plc in Colombo. 

A few Ukrainian buyers have also told exporters to hold shipments until further notice, he said.

The impact on prices would be seen at the auctions later this week, Fernando added.
The ruble was indicated 29% lower versus the dollar in offshore trading on Monday after President Vladimir Putin put the nation’s nuclear forces on higher alert as the U.S. and European allies announced plans to sanction Moscow’s central bank and cut off some Russian banks from the SWIFT financial messaging system.
“After the pandemic, Central Europe has been a major source of arrivals, especially from Ukraine and Russia,” said M. Shanthikumar, president of the Hotel Association of Sri Lanka. 

“Obviously that will now not happen because of the conflict,” he said, adding that there had been cancellations from these destinations.

Inflation accelerated to 15.1% in February, the government reported Monday, faster than the 14.6% estimated in a Bloomberg survey. 

Price pressures are being stoked by crop failures on top of import restrictions to conserve dollars and high global prices of key commodities. 

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Ukraine Tumult Deters Top Wheat Importer Egypt From Buying Grain @markets

Russia and Ukraine together account for more than a quarter of global wheat exports. 

While Russian commodities are so far exempted from sanctions, traders are being spooked by the fast-moving penalties, surging freight and insurance costs and shipping halts in the region. 

Restricting grain supplies from the area threatens to further boost global food prices that are near a record. 
Only three companies participated in Egypt’s tender on Monday, with two offers of French wheat and one for U.S. supplies, according to traders who asked not to be identified. 

That compares with 17 in a tender from mid-February, before the war broke out. 

Offer prices jumped by at least $80 a ton since then. Egypt’s state buyer cited high prices for the tender cancelation.

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Kenya Power & Lighting Company Ltd.reports HY EPS +2700% Earnings here
N.S.E Equities - Industrial & Allied

Par Value:                  20/-
Closing Price:           1.56
Total Shares Issued:          1951467045.00
Market Capitalization:        3,044,288,590
EPS:             0.76
PE:                 2.053

HY Results ended 31st December 2021 versus HY Results ended 31st December 2020

HY Revenue 83.566b versus 69.014b

HY Cost of Sales [55.306b] versus [45.578b]

Gross Margin 28.260b versus 23.436b

HY Other Income 2.991b versus 3.569b

HY Operating Costs [19.036b] versus [20.132b]

HY Operating Profit 12.215b versus 6.873b

HY Finance costs [6.777b] versus [6.601b]

HY Profit before Tax 5.659b versus 0.332b

HY Profit for the period 3.815b versus 0.138b

HY EPS 1.96 versus 0.07


a 2.33% improvement in system efficiency

a 12.9% increase in electricity revenue 

a 314 GWh increase in units purchased from thermal plants to 709 GWh

Cash Position 8.347b


HY EPS +2700% 

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

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