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Macro Thoughts

Home Thoughts

I have been reading Mackinder's book about is visit to Kenya in 1899
and his ascent of Mount Kenya

The book begins with the election of Barack Obama and ends eight years
later on the eve of an election in which the lead contender refers to
himself as “the Joker”. Nero’s character contains echoes of Trump,
too; he is a man of fabulous wealth, with a beautiful Russian wife,
and a fortune thought to be in part built on real estate. The novel’s
transnational supporting cast includes an Australian hypnotist; a
Burmese diplomat; Ivy Manuel, a night-club singer; a Somalian artist;
and Nero’s assistants, Fuss and Blather. As the election nears,
America is deeply divided. “It was a year of two bubbles,” René muses.
“In one of those bubbles, the Joker shrieked and the laugh-track crowd
laughed right on cue.” In that bubble, “knowledge was ignorance, up
was down and the right person to hold the nuclear codes was the
green-skinned red-slashed-mouthed giggler”. Thus, by the book’s end,
the bubble of New York is where reality perseveres.

“I dream that I have found us both again,
With spring so many strangers' lives away,
And we, so free,
Out walking by the sea,
With someone else's paper words to say....

They took us at the gates of green return,
Too lost by then to stop, and ask them why-
Do children meet again?
Does any trace remain,
Along the superhighways of July?”

― Thomas Pynchon, Gravity's Rainbow

At the best of times, White House aides fret about Donald Trump’s
capacity to make gaffes. The penalty for miscuing on Mr Trump’s 12-day
Asian tour, which started on Friday, is higher than normal. It will be
his first visit to China — and his first meeting with Xi Jinping since
he joined the “immortals”, Mao Zedong and Deng Xiaoping, by having his
ideas enshrined in China’s constitution.

The contrast between the two presidents could hardly be sharper. Mr Xi
was confirmed last month for another five-year term with no successor
lined up. His grip on power is tightening. Mr Trump’s White House is
under siege from Robert Mueller’s Russia collusion probe. The
president is likely to be more distracted in the coming days than
usual, even without the geopolitical landmines in his path. “Will
Trump congratulate Xi on his election victory?” asks a former Bush
administration official. “It is no joke. That is exactly the type of
error he makes.”

Mr Trump’s trip is vulnerable on two counts — domestic and global. The
first is that he is engulfed by the crisis back home. The damage to
his standing is already bad. On Monday, Mr Mueller indicted Paul
Manafort, Mr Trump’s former campaign manager, on 12 counts, including
tax evasion, money laundering and “conspiracy against the United
States”.

Several times earlier this year Mr Flynn dropped thick hints that he
wanted to co-operate with the inquiry. He has gone silent in recent
months. “The chances that Flynn is already co-operating with Mueller
are reasonably high,” says a White House counsel to a previous
administration.

“Trump and his crowd are like a crew in Goodfellas,” said a veteran of
the Reagan and Bush campaigns. “They are tight-knit yet distrusting of
each other, impulsive, profane and remorseless.”

Mr Mueller’s probe is as tentacular as Mr Trump’s business history.
Whether he can prove Mr Trump directly colluded with Russia — let
alone submit a charge sheet for impeachment — is secondary at this
point. The world is being offered an X-ray vision of Mr Trump’s circle
that tarnishes America’s values. “From China or Russia’s point of
view, the Mueller probe is the gift that keeps on giving,” said the
former Bush official.

Saudi Arabia’s King Salman removed one of the royal family’s most
prominent princes from his ministerial role and arrested other royals
and top officials in an anti-corruption drive that clears any
remaining obstacles to his son’s potential ascension to the throne.

Acting on orders from a newly established anti-corruption committee
headed by Crown Prince Mohammed bin Salman, security forces arrested
11 princes, four ministers and dozens of former ministers, according
to Saudi media and a senior official who spoke on condition of
anonymity. Prince Miteb, son of the late King Abdullah, was removed
from his post as head of the powerful National Guards. Prince Alwaleed
bin Talal, one of the world’s richest men, was picked up at his desert
camp, the senior official said. Authorities did not disclose the
evidence that prompted the arrests.

“Laws will be applied firmly on everyone who touched public money and
didn’t protect it or embezzled it, or abused their power and
influence,” King Salman said in comments shown on state TV. “This will
be applied on those big and small, and we will fear no one.”

King Salman’s decree invests the new anti-corruption committee with
draconian powers. The decree says that the anti-corruption committee
shall be exempted from “laws, regulations, instructions, orders and
decisions”, while performing its task of identifying “offenses,
crimes, persons and entities involved in cases of public corruption.”

It empowers MBS to issue “arrest warrants, travel ban, disclosure and
freezing of accounts and portfolios, tracking of funds, assets” as
well as take “precautionary measures”.

President Trump’s stance on conflict in the Middle East is a mixture
of bellicose threats and demonisation of opponents combined with
rather more cautious and carefully calculated action or inaction on
the ground. Leaders in Baghdad, Damascus, Riyadh and Tehran face the
same problem as those in Tokyo and London, uncertain where the
rhetoric ends and the reality begins and unsure if Trump himself
distinguishes much between the two.

Euro 1.1611
Dollar Index 94.92 The priced-in probability of a Fed interest rate
hike at the December 13 policy meeting is now 92.3%
Japan Yen 114.37 touched 114.66. highest since March
Swiss Franc 1.0004
Pound 1.3074
Aussie 0.7656
India Rupee 64.655
South Korea Won 1117.01
Brazil Real 3.3144
Egypt Pound 17.6415
South Africa Rand 14.2030

Brent futures LCOc1, the international benchmark for oil prices, hit
$62.44 per barrel early on Monday, their highest level since July
2015. Brent was at $62.27 per barrel at 0230 GMT, up 20 cents, or 0.3
percent from the last close and 40 percent above June’s 2017 lows.

U.S. West Texas Intermediate (WTI) crude CLc1 hit $56.00 per barrel in
early trading, also the highest since July 2015, and was at $55.79, up
15 cents, or 0.3 percent from the last settlement. WTI is a third
above its 2017 lows.

Crown Prince Mohammed bin Salman, also known as MBS, has tightened his
grip on power through an anti-corruption purge by arresting royals,
ministers and investors including prominent business billionaire
Alwaleed bin Talal and the head of the National Guard, Prince Miteb
bin Abdullah.

RBC Capital Markets said in a note that although the “purge represents
a stunning political development in Saudi Arabia,” it expected “no
immediate changes” in the oil policy of Saudi Arabia, which is the
world’s biggest exporter of crude oil.

“MBS seems strongly committed to anchoring the OPEC agreement deep
into 2018 and moving ahead with the Aramco sale,” RBC said.

Emerging Markets

Frontier Markets

On a hot, dusty day in April 2015, generals, ministers, senior ruling
party officials and members of parliament descended on the offices of
the ministry complex in South Sudan’s capital Juba. Some army men came
in their uniforms, accompanied by a flock of AK-47 toting soldiers.
Others, perhaps less willing to be seen, sent letters with requests,
bearing the seal of whatever government institution they worked for.
Some would simply pick up the phone to give instructions.
At first sight, the gathering may have looked like an emergency
meeting of the country’s leadership. In fact, South Sudan’s elites
were scrambling to cash in on dwindling foreign reserves - the
advanced stage of a systematic effort to loot the resources of the
world’s youngest nation.
At that time, South Sudan was well into the second year of a bloody
civil war — a war that is yet to be resolved. Oil revenues had
declined by a third, and the country’s dwindling foreign reserves had
become its most sought-after commodity — especially for those in
power.
In order to address the country’s acute shortage of hard currency, the
Bank of South Sudan earmarked $993-million in oil revenues between
2012 and 2015 to import vital goods like medicine and food. Ministries
allocated the hard currency to selected traders at a preferential
exchange rate through letters of credit (LCs), a documentary credit
facility commonly used to facilitate international trade.
But instead of helping South Sudan’s impoverished population, the LCs
became one of the biggest corruption scandals in South Sudan’s short
but troubled history, a Mail & Guardian investigation has found.
Rather than using the lifeline to import badly needed goods like
grains and medicine, many of those involved exploited it as a means to
buy scarce oil dollars at a highly discounted exchange rate and resell
them on the black market, potentially generating hundreds of millions
of dollars in profit.
“Many beneficiaries of the letters of credit seem to have managed to
get their payments without delivering the intended goods or services
to the country,” said the audit report, which was presented to
President Salva Kiir in December 2015. The LCs “have caused the
country huge financial losses [...] at the expense of the majority of
the populace in the country,” it concluded.
Initially launched when South Sudan shut down its oil production in
2012, the scheme took off just as conflict engulfed the young nation.
Almost 90% ($875-million) of the funds were allocated in four rounds
between May 2014 and April 2015. The practice flourished until the
country finally ran out of foreign reserves, eventually forcing the
Bank of South Sudan to abandon the fixed exchange rate in December
2015.
The dollar allocations were disbursed through the Qatar National Bank
and CFC Stanbic [a subsidiary of South Africa’s Standard Bank] in
South Sudan and transferred mostly to banks in Uganda and Kenya,
including Kenya Commercial Bank, Barclays Bank, Equity Bank and
Stanbic Uganda. Since the transactions occurred in USD, and were
cleared through US correspondent banks, US law enforcement agencies
could assert jurisdiction to prosecute any transactions found to
violate US anti-money laundering laws.

Vice President Emmerson Mnangagwa's ally, controversial businessman
Energy Mutodi says a coup is likely in Zimbabwe if President Robert
Mugabe fails to "carefully choose his successor" amid rising
succession tensions within the ruling Zanu-PF.

At her dusty market stall, Anna Magaya doles out tiny portions of used
cooking oil, measured carefully in miniature perfume bottles.

She buys the bottles from rubbish recyclers, allowing her to sell her
cooking oil in minuscule portions for 20 or 30 cents each – enough for
a family's needs for a day or two. That's all her customers can
afford. "People have no money," she says.

Even the multinational food company Nestlé has opened a new packaging
plant in Zimbabwe to sell its products in 35-cent packages.

"We have doctors and engineers on the streets, selling tomatoes," says
Sten Zvorwadza, head of the National Vendors Union of Zimbabwe. "If
you remove the vendors from the street, the economy will collapse. The
economy is almost totally informal now."

Another economist, John Robertson, calculates that Zimbabwe's official
money supply jumped by 36 per cent in the 12 months after August,
2016, because of heavy government borrowing from the banks. "That's a
clear warning of inflation," he says. "Prices haven't ballooned yet,
but they could."

The state borrowing has sucked cash out of the banks and off the
streets. Banks have been forced to limit withdrawals, and pensioners
can't get access to their savings.

Some banks in recent days have halted all withdrawals because they
simply have no cash. "We've nearly hit rock bottom," Mr. Robertson
says

While attention has focused on the raging conflict and humanitarian
crisis in Kasai in the southern Democratic Republic of Congo, armed
opposition groups in the east of the country have stepped up attacks
and are threatening to wage all-out war.

Tension and frustration are mounting across Congo as President Joseph
Kabila clings to power well after his second and supposedly final term
in office expired last year.

Eastern Congo was the main theatre of two devastating civil wars,
fought in 1996-1997 and then from 1998 to 2003. It still plays host to
dozens of small, armed groups, many of them local “self-defence”
militias known as Mai-Mai.

But recent months have seen the emergence of at least two new
insurgencies that claim to have increasingly broad support in their
shared aim of toppling Kabila.

The documents confirm that in 2009, Glencore loaned Gertler $45m with
the caveat that it would be repayable if agreement with DRC
authorities was not reached to secure a mining contract for a company
linked to Glencore.

Gertler’s notoriety in the resource-rich but conflict-riven and
corrupt DRC spans nearly two decades. He was cited by a 2001 UN
investigation that said he had given the DRC president, Joseph Kabila,
$20m to buy weapons to equip his army against rebel groups in exchange
for a monopoly on the country’s diamonds, and a 2013 Africa Progress
Panel report said a string of mining deals struck by companies linked
to him had deprived the country of more than $1.3bn in potential
revenue.

“Take your money out of South Africa. This country is in deep trouble.”

This is the shattering advice given by Efficient Group’s chief
economist Dawie Roodt following the release of the auditor-general’s
report on national irregular expenditure.

The report showed that irregular expenditure increased 55% since the
previous year to R45.6billion and could rise to as high as R65bn.

Auditor-general Kimi Makwetu said this amount could be even higher as
it did not include the irregular expenditure where audits were still
ongoing. This included the Passenger Rail Association of SA, at which
irregular expenditure last year was almost R14bn.

KwaZulu-Natal, Free State and Limpopo were among the provinces that
were the main contributors to the significant increase in irregular
expenditure.

The sectors with the highest amounts of irregular expenditure were
health at R11.77bn, transport at R6.38bn and education at R6.09bn.

Dollar versus Rand 6 Month Chart INO 14.1950
http://quotes.ino.com/charting/index.html?s=FOREX_USDZAR&v=d6&t=c&a=50&w=1

Egypt Pound versus The Dollar 3 Month Chart INO 17.6415
http://quotes.ino.com/charting/index.html?s=FOREX_USDEGP&v=d3&t=c&a=50&w=1

It is just as the main course arrives that Wole Soyinka — playwright,
poet, novelist, essayist and part-time agitator — reaches into his
pocket and brings out a plump green chilli. “Actually, when I travel I
always carry a special paste, which I have made for me — paste which I
put in my pocket,” he offers by way of explanation in his plummy
baritone. “This one,” he says, proceeding to dissect the dapple-green
pepper, “I got when I arrived in London. Because I forgot my paste in
the fridge in Sochi.”

After attending Abeokuta Grammar School, where he won several writing
prizes, Soyinka went on to University College Ibadan to study English
literature, Greek and western history, and from there, in 1954, to
Leeds University. Already prolific, after he graduated he wrote plays
including The Lion and the Jewel, which attracted the attention of
London’s Royal Court Theatre. His first work to appear there was a
one-act play about apartheid South Africa called The Invention. It was
preceded by a poetry recital to which Soyinka invited his cousin, a
young musician called Fela Kuti, to accompany him on stage. That was a
big break for Fela, who went on to become the legendary father of
Afrobeat.

The two shared a flat in Bayswater. “We were impecunious. We shared
everything,” he says, polishing off the last sliver of octopus and
mopping a dab of sauce from his prodigious beard. “Everything. I won’t
say more than that. It was a wild apartment.”

What about smoking? “I used to smoke hard cigarettes. Gitanes,
Gauloises, cigars and cheroots especially. But I lost interest several
years ago,” he says, draining the Montepulciano.

We’ve been talking for nearly three hours, but he can’t resist one
last story. “I had an argument with Fidel Castro about it,” he says,
as if this might be a common occurrence. “By that time Castro had got
religion about the perils of smoking and he rounded on a guerrillero,
saying, ‘This is bad for you. I have medical evidence.’ He started
bullying him. I said, ‘Wait a minute. Leave the man alone. Let him
find his own time.’ ” Soyinka says this triggered a two-hour
discussion. “Castro loved to argue. But I think that day he met his
match.”

The two called it an evening and Soyinka retired to bed. “The
following morning a box of cigars — Cohiba — arrived at my hotel. It
just said, ‘With compliments of the Cuban government.’ Who did it? To
this day, I’ve no idea. But I still have some of them in Abeokuta.” He
pauses. “That’s the story of my smoking career.”

Ghana Stock Exchange Composite Index Bloomberg +40.15% 2017
http://www.bloomberg.com/quote/GGSECI:IND

Tanzania's experiment with multi-party democracy may be drawing to a
close after 25 years and five general elections. @Africa_Conf
https://www.africa-confidential.com/article-preview/id/12159/Laying_down_the_law

During my morning tour, I met Peninah Kaitigimba (centre), a
neighbour, whom I gave a bull to fertilise her cows and improve milk
yield. @KagutaMuseveni
https://twitter.com/KagutaMuseveni/status/927187083202060288

The “economic liberation” programme began on Friday with a call for
Kenyans to stop using the goods and services of Safaricom, the
country’s dominant mobile telecom company; Brookside, the largest
dairy company; and Bidco Africa, a manufacturer of edible oils and
other consumer products.

The opposition National Super Alliance (Nasa) is also planning to hold
a “people’s assembly” and protests as part of its campaign to force a
new election by the end of January.

But James Wandayi, one of the two dozen Nasa MPs who unveiled the
boycott, said: “There is no price too high to pay for democracy.”

“The support enjoyed by the opposition in some areas borders on
fanaticism and so the boycott might work,” said Duncan Otieno, an
independent analyst. “But on the other hand it’s often hard to find
alternatives to Safaricom and Brookside because they’re virtual
monopolies.”

Mr Otieno said he thought part of Nasa’s strategy might be
“psychological warfare”. “The aim might be to bring the business
community into the national political conversation,” he added. “If
business owners are saying loudly that they’re suffering then the
government might be more inclined to listen to the opposition.”

The election crisis is really a struggle over elite power

It is within the context of this historically frustrated effort to
bring the colonial state to heel that we must locate the current
political impasse. It must not be made out to be about the Luo versus
the Kikuyu (although there is an aspect of that), or Kenyatta versus
Odinga (although that matters too), or election winners versus
election losers (a much less convincing argument).

The real question is whether the wenyenchi (the owners of the nation)
will give up their control of the state to the wananchi (the people of
the nation); whether they will allow the constitution to dismantle and
remake the colonial state into one that works for all Kenyans.

Nairobi All Share Bloomberg +23.37% 2017
http://www.BLOOMBERG.COM/quote/NSEASI:IND

Kenya’s main opposition alliance called for a boycott of three of the
country’s biggest companies, including mobile operator Safaricom Ltd.,
to press its demands for electoral reform.

The National Super Alliance said its supporters should also spurn
Brookside Dairies Ltd., part-owned by Danone SA of France, and closely
held Bidco Oil Refineries Ltd., a Nairobi-based manufacturer of edible
oils. The boycott forms part of a so-called economic liberation
program the alliance started on Friday after earlier rejecting the
results of last week’s presidential-election rerun.

“We’re calling for a boycott that will hurt, a boycott that will be
painful, a boycott that will bring these corporations to their knees
and to their senses until they stand up for electoral justice
expressed through free, fair and credible elections,” the alliance
said in a statement.

Safaricom is the Big Beast at the Nairobi Securities Exchange, carries
a market capitalisation of 1.021 Trillion shillings which represents
42.63% of the value of the entire Nairobi Securities Exchange.
Safaricom has served up a mouth-watering +38.22% Total Return in 2017,
which is close to twice the return of the Nairobi All Share in 2017.
These raw numbers confirm the importance and centrality of last weeks
Earnings Release to Kenya Inc. Mr. Collymore who has presided over a
miraculous +420% share price appreciation [that is excluding the very
juicy dividends that shareholders having received] during his tenure,
a performance that has only been bettered by the likes of Apple,
Amazon and Ali Baba. Safaricom under Bob Collymore exists in the very
top percentile of world-wide performance and consequently last weeks
Earnings Release resonates world-wide. The Value of Safaricom is much
more than the share price performance, its produced a plain
exponential return.  KPMG estimates that the total value Safaricom
created for Kenyan society in FY17 was KES 486 billion around 10 times
greater than the financial profit the company made in the same year.
its produced a plain exponential return. The ubiquity of M-PESA
allowed us to re-invent our Brand [which by the way has been some very
big hits of late] across the World. Last weeks Earnings release's
importance cannot be gainsaid. Mr. Collymore is in London and I am
reliably informed watched last weeks proceedings on the Live Feed. In
his absence, Safaricom subtly sent a message of bench strength with
the thoughtful chairman Nicholas Ng’ang’a, the CFO Sateesh Kamath and
Joseph Ogutu [director of Strategy and Innovation] taking up the
Baton.

Safaricom reported a +12.0% shift higher in First Half Services
Revenue which clocked 109.73b. Customer Numbers [the demographic
dividend] grew +10.8% to 29.5m. First Half Net Income expanded +9.5%
to 26.2b and if we exclude a one off positive adjustment from the
previous set of results, H1 Net Income grew +21.4%. Voice Revenue grew
+3.6% to 47.35b. Nearly every Year for as long as i can remember Folks
have been keen to pronounce the last rites on Voice but year in year
out Safaricom has confounded the naysayers. Voice at +3.6% is
counterintuitively off the charts. SMS revenue clocked a +3.4%
increase to 8.92b. I recall Bob telling me a few years ago, how he was
increasing the spike limit of the SMS platform by a factor of 10, a
few years ago and I thought to myself why on earth is he doing that.
WhatsApp was lifting off just about that time. Today, when the Betting
Companies blast via SMS, they utilise 100% of that spike capacity
increase. Safaricom have proven skilful at maximising yield, really
skilful.

Lets now turn to the more ''Go-Go'' Trajectories. H1 Mobile data
revenue accelerated +31% to 17.55b. Sateesh informed me that average
per capita mobile data consumption accelerated +66% and this confirms
Kenya Inc is surfing the new c21st Information Superhighway, something
Ali Baba's Jack Ma also alerted us to when he visited. He was asked
about our Infrastructure deficit and he replied ''But the most
important infrastructure in the c21st is the Internet and Yours is
fast!''  Safaricom have invested heavily in building out this c21st
Information highway, it represents the democratisation of Data and
Safaricom have given every Kenyan an Entry Ticket and not any old
Entry Ticket but a Ferrari to this new c21st of ours. Calls for the
boycott of Safaricom is ''kindergarten'' economics and will surely tip
Opposition strongholds into economic recession.

The ubiquitous M-PESA Platform grew H1 Revenue +16.2% to 30.05b.
Higher Frequency Data confirms a slow-down in the velocity of the
Mobile Money since August and I have to believe that within this First
Half Revenue narrative is a story of two halves with the 2nd Half
materially slower than the first. M-PESA continues to expand its
Platform capabilities and is deeply embedded in the economic
ecosystem.

The Chairman Nicholas Ng’ang’a spoke of Safaricom casting its eyes
beyond our borders. Shareholders, in my view, have not baked this news
into the share price. M-PESA, for example, surely, can be inserted
into many countries on this continent.

Safaricom also launched their M-SOKO E-Commerce Platform. E-Commerce
has exploded. Its made Jeff Bezos of Amazon the richest man on the
Planet and Jack Ma cannot be far behind. E-Commerce is going to be a
very big Thing and Safaricom have all the levers with which to secure
a leadership position in this space. Their M-PESA Agents can double up
as delivery points, for example.

Any share price softness is an Opportunity for Investors to load the
boat for the next leg higher.

Stanley Druckenmiller said ''The way to build superior long-term
returns is through preservation of capital and home runs...When you
have tremendous conviction on a trade, you have to go for the jugular.
It takes courage to be a pig''

Every Listed Share can be interrogated here
http://www.rich.co.ke/rcdata/nsestocks.php