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Macro Thoughts

Home Thoughts

“I think we dream so we don’t have to be apart for so long. If we’re
in each other’s dreams, we can be together all the time.” ― A.A.
Milne, Winnie-the-Pooh

“It is wrong to have an ideal view of the world. That's where the
mischief starts. That's where everything starts unravelling...” ― V.S.
Naipaul, Magic Seeds

Political Reflections

Washington metastasized into a new epicentre of global uncertainty and
as the special prosecutor Robert Mueller the third’s hot breath could
be felt on President Trump’s collar.

Any financial expert will tell you that President Trump’s financial
affairs are a ‘’smoking gun.’’ Deutsche Bank loans were surely
‘’mirror’’ transactions, where Deutsche Bank was a commission agent
interposed between Trump and the real lender. All those sales where
Trump proclaimed himself a ‘’genius’’ because they
were so off-market, we would all be incredulous, were essentially just
that ‘’incredible’’.  ere is a prima facie case here and its in plain
sight. President Trump knows it and that’s why he has been demanding
Al Pacino [a la Martin Scorsese’s godfather] style demands of loyalty
from the likes of the now dispensed with FBI director James Comey.

However, my starting point is the election of President Donald Trump
because hindsight will surely show that Russia ran a seriously
sophisticated programme of interference, mostly digital. Don DeLillo,
who is a prophetic 21st writer, writes as follows in one of his short
stories:
The specialist is monitoring data on his mission console when a voice
breaks in, “a voice that carried with it a strange and unspecifiable
poignancy”.
He checks in with his flight-dynamics and conceptual- paradigm
officers at Colorado Command:
“We have a deviate, Tomahawk.”
“We copy.  There’s a voice.”
“We have gross oscillation here.”
“ There’s some interference. I have gone redundant but I’m not sure
it’s helping.”
“We are clearing an outframe to locate source.”
“ Thank you, Colorado.”
“It is probably just selective noise. You are negative red on the
step-function quad.”
“It was a voice,” I told them.
“We have just received an affirm on selective noise... We will
correct, Tomahawk. In the meantime, advise you to stay redundant.”
 The voice, in contrast to Colorado’s metallic pidgin, is a melange of
repartee, laughter, and song, with a “quality of purest, sweetest
sadness”.
“Somehow we are picking up signals from radio programmes of 40, 50, 60
years ago.”
I have no doubt that Putin ran a seriously 21st predominantly digital
programme of interference which amplified the Trump candidacy. POTUS
Trump was an ideal candidate for this kind of support.

POTUS Trump was an ideal candidate for this kind of support. Trump is
a linguistic warfare specialist. Look at the names he gave his
opponents: Crooked Hillary, Lyin’ Ted, Little Marco, ‘Low-energy’ Jeb
— were devastating and terminal.  The first thing is plausible
deniability.

He is right, traditional media has been disrupted and the insurgents
can broadcast live and over the top. From feeding the hot-house
conspiracy frenzy on line (‘’a constant state of destabilised
perception’’), timely and judicious doses of Wikileaks leaks which
drained Hillary’s bona fides and her turn-out and motivated Trump’s,
what we have witnessed is something remarkable and noteworthy.

Putin has proven himself an information master, and his adversaries
are his information victims.

The United States shouldn't obstruct efforts by China and its
neighbors to agree on a code of conduct in the disputed South China
Sea, China's ambassador said Monday as President Donald Trump prepared
for his first official visit to Asia.

Ambassador Cui Tiankai said the U.S. has no territorial claim in those
waters and should let countries in the region manage their disputes in
a "friendly and effective way."

Beijing's island-building in the South China Sea has drawn criticism
from Washington which says it has a national interest in freedom of
navigation in sea lanes critical for world trade. Secretary of State
Rex Tillerson this month said China's "provocative actions" challenge
international law and norms.

Apart from a few half-hearted and timid FONOPs [freedom of navigation
operations], China has established control over the South China Sea.
It has created artificial Islands and then militarised those
artificial islands across the South China Sea. It is a mind-boggling
geopolitical advance any which way you care to cut it.

The Indonesian military killed as many as 1 million suspected
communists in the mid-1960s, paving the path for a dictator, Suharto,
who ruled the country for more than three decades. Newly declassified
documents from the U.S. embassy in Jakarta reveal an extraordinary
degree of American complicity in what remains one of the cold war’s
biggest crimes. The U.S. not only ignored information that could have
prevented the atrocity; it facilitated the killings by providing the
Indonesian military with money, equipment and lists of communist
officials.

It's astonishing, for instance, that it took the death of four
American soldiers in an ambush in Niger early last month to alert
many, including Sen. Lindsey Graham, a leading foreign policy hawk, to
the presence of nearly 1,000 U.S. troops in the country. Another
interventionist, Sen. John McCain, is now pressing the Pentagon for
more details about a mission that costs American lives and about which
even he knew nothing.

The Niger mission is in turn only a small part of an ambitious
strategy of fighting terrorism in Africa since the early 2000s.
Africans, of course, pay the biggest price for such policies, in both
human lives and human rights. Just two weeks ago, the security forces
of Ugandan President Yoweri Museveni, one of America’s closest allies
in Africa, fired into an opposition rally, nearly killing opposition
leader Kizza Besigye.

In "Another Fine Mess: America, Uganda and the War on Terror," a
stunning new book of reportage and analysis, Helen Epstein reveals
Museveni, like Suharto before him, as one of the biggest beneficiaries
of an ill-conceived and sparsely monitored war on America's enemies
abroad. Epstein, a professor of human rights and global public health
at Bard College, lays out in appalling detail how Museveni, who seized
power in 1986, has helped worsen every major conflict in eastern and
central Africa since then.

This neighbor from hell shares blame for not only the wars in the
Congo that have destroyed millions of lives, or the rise of the
warlord Joseph Kony and the terrorist outfit al-Shabab, which killed
more than 300 people in the Somalian capital of Mogadishu last month.
He also bears considerable responsibility for the rebel invasion of
Rwanda in 1990 that triggered the genocide there in 1994. And this
extraordinary catalogue of crimes should include as well Museveni’s
role in the ongoing civil war in Southern Sudan.

As with cold war allies such as Suharto and South Vietnam's venal Ngo
Dinh Diem, Museveni has managed to keep successive U.S.
administrations on his side by presenting himself a stout defender of
American interests and an indispensable buffer against the ideological
foe of the day -- now Islamist extremism, rather than Communism.

But, as Epstein reveals in disturbing detail, this new war has spread
violence, chaos and repressive rule across Africa; it has spawned
terrorists as well as Diems and Suhartos. To take only one example:
Al-Shabab flourished in Somalia, eventually enlisting in al-Qaeda’s
network, after the country was ravaged, and its moderate government
undermined, by a U.S.-assisted Ethiopian invasion in 2006. Today, the
U.S. ignores Museveni’s dictatorial ways partly because it uses
Ugandan troops to fight al-Shabab.

Such moral expediency in pursuit of hazily defined and short-term
goals is a recipe for brutal anarchy. As Hannah Arendt pointed out,
"the danger of violence, even if it moves consciously within a
non-extremist framework of short-term goals, will always be that the
means overwhelm the end."

Means have indeed overwhelmed the end in Africa, empowering figures
like Museveni. Our continuing political and public indifference to
their misdeeds suggests that black lives matter even less in Africa
than they do in the U.S.

Increasingly, economists are talking about the "Amazon effect." The
idea is that as online retailers gain market share, they're putting
pressure on brick-and-mortar shops to keep prices down. This, in turn,
might be preventing inflation from getting back up to normal.

The latest U.S. inflation data offer some support for this idea. As of
September, the price index for commodities excluding food and energy
-- a category including apparel, electronic goods and lots of other
things that online retailers sell -- was down a full percent from a
year earlier. The decline shaved about a quarter percentage point off
the broader "core" inflation rate, which clocked in at just 1.7
percent.

Euro 1.1628
Dollar Index 94.58
Japan Yen 113.17
Swiss Franc 0.9958
Pound 1.3197
Aussie 0.7673
India Rupee 64.785
South Korea Won 1120.71
Brazil Real 3.2888
Egypt Pound 17.6505
South Africa Rand 14.0515

Brent for December settlement, which expires Tuesday, was at $60.72 a
barrel on the London-based ICE Futures Europe exchange at 3:55 p.m. in
Singapore, up 28 cents. Prices gained 4.7 percent last week. The
global benchmark crude traded at a premium of $6.60 to WTI.

“Prices have doubled,” says Vittorio Giordano, vice president of
Urbani Truffles, a major importer.

Each fall, truffle aficionados around the globe pay dearly to have the
lumpen tubers shaved atop risotto, scattered on pasta, and draped onto
sushi. But white truffles are finicky. Resistant to farming and highly
perishable, they grow wild in forests, are hand-hunted by men with
trained dogs or pigs, and are available fresh only from September into
December. In 2016, there was an abundance of truffles, and prices
plunged, but a hot summer followed by a dry fall this year have made
for a dramatically smaller harvest this season.

Emerging Markets

Frontier Markets

Sub Saharan Africa

The broad-based slowdown in sub-Saharan Africa is easing, but the
underlying situation remains di cult. Growth is expected to reach 2.6
percent in 2017, but the pickup re ects mainly one-o  factors, notably
a recovery in oil production in Nigeria and the easing of drought
conditions in eastern and southern Africa, and a somewhat improved
external environment. Even with this uptick, growth will barely
surpass the rate of population growth. While a third of the countries
in the region continue to grow at 5 percent or more, in 12 countries,
comprising over 40 percent of the region’s population, income per
capita is expected to decline. Growth in the region is expected to
pick up further in 2018 and reach 3.4 percent, but ongoing policy
uncertainty in Nigeria and South Africa hinders a stronger rebound,
and growth is not expected to increase further in 2019. Many of the
faster growing economies continue to be driven by public spending,
with debt levels and debt service costs rising.

“Your George W. Bush came here two years ago and not a person recognized him.”

“No one?”

“No one knew who he was.”

“Would they have known Nelson Mandela?”

“No. No one here would have seen TV. No one here thinks beyond Omo.”

I was speaking with Lale Biwa, a member of the Karo people, in
Ethiopia’s Omo Valley. We were surrounded by low, circular huts made
from sticks, with pitched grass roofs, in his home village of Dus, on
the banks of the Omo River. A woman, heavily adorned in beads and
bracelets, ground sorghum on a large stone in the nearby shade. Men,
some carrying AK-47s, sat in clusters. Small naked children scampered
past. Goats and cattle roamed freely on the dusty flood plain. There
was no electricity, no running water, no cars. Mr. Biwam, who guesses
his age to be “about 40,” looked around. “It is a good place,” he
said. “The people are true.”

I had come to the Omo Valley with the innovative tourism entrepreneur
Will Jones to get a view into the lives of some of Africa’s most
traditional tribes. “I’m particularly interested in the Omo,” Mr.
Jones told me. “It’s an at-risk ecosystem, with at-risk communities.
But it is still a very wild place.” Mr. Jones was born in Nigeria of
English parents, raised in East Africa and educated in England. “When
it came time to put on a suit and go into town,” he said, “I came back
to Africa.”

Kenya

President Kenyatta has won more than 97 percent of votes counted so
far according to the media. Turnout has been estimated to be around 35
percent. Deputy president William Ruto sought to wield the Political
Guillotine and tweeted “Evidently it doesn’t matter how
powerful/popular one or their party imagines to be, the repeat
elections confirm the PEOPLE ARE SUPREME”  I, for one, believe that
the President won the first iteration of the election and that the
Supreme Court whilst striking a blow for transparency and
constitutionality failed entirely to weigh the consequences of their
decision and to provide a Road-Map. However, what is clear is that we
have now been overtaken by events and that the current political
situation is one of disequilibrium.

Finding the Path back to Political Equilibrium [a state in which
opposing forces or influences are balanced. "the maintenance of social
equilibrium" synonyms:balance, symmetry, equipoise, parity, equality;
stability "the equilibrium of the economy" antonyms: imbalance "I
stumbled over a rock and recovered my equilibrium"] is now the central
question and in fact a sine qua non for the Economy, which has slowed
dramatically and where we need to absolutely avoid ''cliff-edge''
effects.

The Kenya Private Sector Alliance (KEPSA) said that the four-month
electioneering period had cost the country $7 billion in losses.
Investors at the Nairobi Securities Exchange (NSE) have lost $2.27
billion over the past four weeks. We are growing at the slowest pace
in 6 years. Anecdotal evidence is speaking to an average of 25%-30%
year on year Turnover slump across Kenya Inc. Economic Indicators are
blinking amber.

I came across this comment from Eric Chitayi, a security guard in
Kisumu in a Maggie Fick Reuters report

“People from this region are feeling isolated from the rest of the
country, We are feeling disconnected.”

In his marvellous book The Tipping Point, Malcolm Gladwell talks about
three different archetypes of people: mavens, connectors, and
salespeople. The Connectors according to Malcolm Gladwell make change
happen through people. They galvanize people.They’re natural hubs.
That’s just the way they’re oriented to the world.

President Kenyatta is a mercurial and popular Politician. I recall a
quote from someone speaking about President Bill Clinton who described
meeting him thus;

''President Clinton locked onto you and made you feel like you were
the only person in the room.''

President Kenyatta has a similar political style and charisma. He will
be the President of Kenya a nation of more than 40m Citizens. The
Political reality and in fact his legacy is now going to be calibrated
on how he reconnects People like Eric Chitayi.

Everyone is a Shareholder in this Kenya Inc Enterprise or as Marshall
McLuhan once said

''There are no passengers on spaceship earth [read Kenya]  We are all crew''

This is a Political imperative, the reconnection of 40m Kenyans to
Spaceship Kenya, without which we are going to continue sputtering.

Shoprite Holdings Ltd. is in talks to open its first stores in Kenya
by filling retail space left empty by the struggling Nakumatt Holdings
Ltd. chain.

“We are currently in talks with some of the property owners but
nothing has been signed,” Shoprite director Gerhard Fritz said in an
emailed response to questions. Africa’s biggest food retailer is
awaiting the outcome of merger talks between Nakumatt and local rival
Tusker Mattresses Ltd. before deciding whether to proceed, he said.

Taking over vacated outlets would be the preferred way for the Cape
Town-based company to enter East Africa’s largest economy as the
retail market there is “too well established” to build new stores,
said Fritz, who runs Shoprite’s African operations outside its home
market.

Equity Bank is looking to transactions income and regional
subsidiaries to grow its earnings as the cap on cost of loans and a
charged political environment cut its interest income and shaved its
profit for the nine months to September.

The largest bank by customer base Monday reported a three per cent
drop to Sh14.6 billion in third quarter after tax profit as its
interest income fell 11 per cent to Sh35.4 billion.

Transactions income, which increased 28 per cent to Sh21.3 billion,
cushioned the lender’s bottom line.

The non-funded income included earnings from foreign exchange trading,
mobile banking and diaspora remittances.

“The engines of the private sector are closing off,” said Equity Group
CEO James Mwangi said about the slowing credit growth in Kenya. “The
wind has been taken out of the sail by these temporary headwinds.”

Equity’s investment in government securities jumped 37 per cent from
Sh93.1 billion to Sh127.7 billion.

“This is not lazy banking because the return on government securities
is higher,” he said.

“We are not able to lend to the micro borrowers whose default rate is
as high as 80 per cent.”

All the regional subsidiaries, apart from Democratic Republic of Congo
(DRC), posted double digit growth in profitability.

Mr Mwangi attributed the challenging political environment in DRC as
the reason behind the dip.

“Equity Bank managed to shield itself from the headwinds and that was
something impressive. They adopted very fast to the environment,” said
Ewart Salins, executive director at Kestrel Capital.

Parliament in September last year capped the interest rate payable on
loans to a maximum of four percentage points above the Central Bank
Rate.

Par Value:                  0.50/-
Closing Price:           36.50
Total Shares Issued:          3702777020.00
Market Capitalization:        135,151,361,230
EPS:             4.38
PE:                 8.333

Equity Bank released their 3Q17 results this afternoon before market close.
EPS declined by 2.8% y/y to KES 3.87 – marginally above our
expectation of KES 3.71.
PBT declined by 3.6% y/y to KES 20.7bn in 3Q17 – this was slightly
above our expectation of KES 19.9bn. (+4.0%).

The Kenya Shilling was last trading at 103.71 and when you factor in
the Interest rate is better than scratch for the year.
The best performing FIAT currency worldwide is the Mozambique Metical
which is +16.73% in 2017. Africa takes up 7 out of then 10 positions
in the worse currency returns for 2017, led by the Congolese Franc
-26.00%, Sierra Leone Leone -25.35%, Ethiopian Birr -17.98%, Nigeria
Naira -12.54%, Gambian Dalasi -9.55%, Tunisia Dinar -7.88% and Ghana
Cedi -6.54% Year to date.
The overall year on year inflation stood at 5.72 per cent in October
2017 which represented a sharp drop.
The Stock Market was a sea of Blue and buoyant as the Equity market
discounted the Political Noise and interference.
The Nairobi All Share rallied +1.174% to close at 161.99.
The Nairobi NSE 20 Index rallied +54.78 points to close at 3729.62
Equity Turnover affirmed the up move and traded 760.402m.

Safaricom Ltd., said Chief Executive Officer Bob Collymore will take
medical leave from the wireless carrier “for a number of months” to be
treated for an unspecified illness. Collymore, 59, will be replaced on
an interim basis by Joseph Ogutu, director of strategy and innovation,
the Nairobi-based wireless carrier said in a statement on Monday.
Chief Financial Officer Sateesh Kamath, Collymore’s alternate on the
board of directors, will also take “a primary role,” it said. The CEO
had been due to step down in 2019, after his contract was extended for
two years in May. Mr. Collymore has overseen a 420 percent rise in
Safaricom’s share price [without accounting for dividend payments over
tis period] since he took the helm seven years ago and puts him in the
Rock Star Category of global shareholder value creators. Safaricom
firmed +0.99% and was trading at session highs of 26.25 +3.96% at the
closing Bell. Safaricom traded 3.344m shares and Investors are
anticipating the H1 Earnings Release this Friday.

Uchumi Kenya notified the CMA on the late publication of financial
results for the year ended 30th June 2017. The Board expects to
publish by November 15th. Uchumi ticked +1.41% higher to close at
3.60.

Kenya Airways rallied +6.54% to close at 5.70 making that a +12.871%
gain over 2 trading sessions. Kenya Airways traded 614,500 shares.

Equity Bank reported Q3 2017 Earnings yesterday where Q3 EPS declined
by 2.8% y/y to KES 3.87 and Q3 PBT declined by 3.6% y/y to KES 20.7bn.
“The engines of the private sector are closing off,” said Equity Group
CEO James Mwangi said about the slowing credit growth in Kenya.
“The wind has been taken out of the sail by these temporary headwinds.”
Equity’s investment in government securities jumped 37 per cent from
Sh93.1 billion to Sh127.7 billion.
“This is not lazy banking because the return on government securities
is higher,” he said.
“We are not able to lend to the micro borrowers whose default rate is
as high as 80 per cent.”
Subsidiaries in Uganda, Rwanda, South Sudan, Tanzania and DR Congo
collectively increased their profit by 53% YoY.
Dr. Mwangi got ahead of the curve and these results were quite vibrant
in the circumstances of the Rate Cap and a synchronised slow-down in
the Economy.  and explains why Equity Bank ramped +4.109% higher to
close at 38.00 and was trading session highs of 38.50 +5.41% at the
finish. Sellers were in short Supply and only 227,600 shares were
traded.

KCB traded 2nd at the Bourse and ticked -0.65% easier to close at
38.00 and traded 5.747m shares worth 219.7m.

Barclays Bank predictably rallied +5.82% to close at 10.00. Buyers
outpaced Sellers by a Factor of 10 to 1 which is constructive for the
share price.

EABL was the most actively traded share at the Exchange today and
shaved off -0.48% to close at 244.00 on good volume action of 1.234m
shares worth 302.354m which represented 39.715% of the total volume
traded at the Exchange today.

Mumias Sugar postponed the announcement and submission of its
financial results for the year ended 30th June 2017 until 30th
November. Mumias Sugar firmed +4.55% to close at 1.15.

BAT [which is a preeminent dividend paying stock and with inflation
lurching lower - the dividend stream becomes more valuable and keenly
sought] rallied +5.96% to close at 800.00 where 56,400 shares were
traded.

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