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Satchu's Rich Wrap-Up
Tuesday 17th of March 2020

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Putin Unleashes Strategic Hell on the U.S
Law & Politics

I am an avid board game player. I’m not much for the classics like
chess or go, preferring the more modern ones.
But, regardless, as a person who appreciates the delicate balance
between strategy and tactics, I have to say I am impressed with
Russian President Vladimir Putin’s sense of timing.
Because if there was ever a moment where Putin and Russia could
inflict maximum pain on the United States via its Achilles’ heel, the
financial markets and its unquenchable thirst for debt, it was this
month just as the coronavirus was reaching its shores.
Like I said, I’m a huge game player and I especially love games where
there is a delicate balance between player power that has to be
maintained while it’s not one’s turn.
Attacks have to be thwarted just enough to stop the person from
advancing but not so much that they can’t help you defend on the next
player’s turn.
All of that in the service of keeping the game alive until you find
the perfect moment to punch through and achieve victory.
Having watched Putin play this game for the past eight years, I firmly
believe there is no one in a position of power today who has a firmer
grasp of this than him.
And I do believe this move to break OPEC+ and then watch Mohammed bin
Salman break OPEC was Putin’s big judo-style reversal move.
And by doing so in less than a week he has completely shut down the
U.S. financial system.
On Friday March 6th, Russia told OPEC no. By Wednesday the 11th The
Federal Reserve had already doubled its daily interventions into the
repo markets to keep bank liquidity high.
By noon on the 12th the Fed announced $1.5 trillion in new repo
facilities including three-month repo contracts.
At one point during trading that day the entire U.S. Treasury market
went bidless. There was no one out there making an offer for the most
liquid, sought-after financial assets in the world.
Why? Prices were so high, no one wanted them.
Not only did we get a massive expansion of the repo interventions by
the Fed, but it was for longer duration.
This is a clear sign that the problem is nearly without an end. Repos
longer than three days are in this context a rarity.
The Fed needing to add $1 trillion in three-month repos clearly means
they understand that they are looking out to the end of the quarter as
the next problem and beyond that.
It means, in short, the world financial markets have completely seized up.
And worse than that…. It didn’t work.
Stocks continued to slide, gold and other safe-haven assets were hit
hard by a reversal of capital outflows from the U.S.
In the first part of the aftermath of Putin’s decision the dollar got
whacked as European and Japanese investors who had piled into U.S.
stocks as a safe-haven sold those positions and brought the capital
That lasted a few days before Christine Lagarde put on her dog and
pony show at the European Central Bank and told everyone she didn’t
have any answers other than to expand asset purchases and continue
doing what has failed in the past.
This touched off the next phase of the crisis, where the dollar begins
to strengthen. And that is where we are now.
And Putin understands that a world awash in debt is one that cannot
withstand the currency needed to repay that debt rising sharply.
That puts further pressure on his geopolitical rivals and forces them
to focus on their domestic concerns rather than the ones overseas.
For years Putin has been begging the West to stop its insane
belligerence in the Middle East and across Asia.
He’s argued eloquently at the U.N. and in interviews that the unipolar
moment is over and that the U.S. can only maintain its status as the
world’s only super power for so long.
Eventually the debt would undermine its strength and at the right
moment would be revealed to be far weaker than it projected.
This doesn’t sit well with President Trump who believes in America’s
exceptionalism. And will fight for his version of “America First’ to
the last using every weapon at his disposal.
The problem with this ‘never back down’ attitude is that it makes him
very predictable.
Trump’s use of sanctions on Europe to stop the Nord Stream 2 pipeline
was stupid and short-sighted. It ensured that Russia would be
merciless in its response and only delay the project for a few months.
Trump was easy to counter here. Sign a deal with Ukraine, desperate
for the money, and redirect the pipe-laying vessel back to the Baltic
to finish the pipeline.
And with natural gas prices in Europe already in the gutter from
oversupply and a mild winter, there isn’t much time or money lost in
the end.
Better to take the world oil price down well below U.S. production
costs which ensure that Trump’s prized LNG stays off the European
market as the myth of U.S. energy self-sufficiency vanishes in a puff
of financial derivative smoke.
Now Trump is facing a market meltdown well beyond his capacity to
fathom or respond to.
While Russia is in the unique position to drive costs down for so many
of the people while riding out the shock to the global system with its
Because money flows to where the best returns on it come, high oil and
gas prices stifle development of other industries.
Lowering the oil price not only deflates all of the U.S.’s inflated
financial weapons it also deflates some of the power of the petroleum
industry domestically.
This gives Putin the opportunity to continue remaking the Russian
economy along less focused lines. Cheap oil and gas means lower return
on investment in energy projects which, in turn, opens up available
capital to be deployed in other areas of the economy.
Putin just told the world he’s not riding his country’s oil and gas
resources like a cash cow but rather as an important part of a
different economic strategy for Russia’s development.
It’s like watching someone playing the first half of a game implying
one strategy and making a critical shift to a different one halfway
through, taking advantage of their opponents’ carelessness.
It rarely works, but when it does the results can be spectacular.
Game, Set, Match, Putin.

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The virus may be the most dangerous adversary America has ever faced. It's like the US was invaded. @balajis
Law & Politics

The normal defenses fail. It can't be bombed. Bank accounts can't be
frozen. Unbreakable morale. No supply chain. Lives off the land.
Infinite reinforcements. Fully decentralized.

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Over 14 000 new cases of COVID-19 were reported in a single day - today Exponential growth is continuing unabated @zorinaq
Law & Politics

Far more cases are reported around the world every day than when the
epidemic peaked in China (~4000 new cases per day)
Exponential growth is continuing unabated

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Coronavirus: Why You Must Act Now @tomaspueyo
Law & Politics

The coronavirus is coming to you.
It’s coming at an exponential speed: gradually, and then suddenly.
It’s a matter of days. Maybe a week or two.

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16-FEB-2020 :: #COVID19 #coronavirus #2019nCoV
Law & Politics

Let me tell you, world,
If a thousand challengers lie beneath your feet,
Count me as number thousand and one.

I don't believe the sky is blue;
I don't believe in thunder's echoes;
I don't believe that dreams are false;
I don't believe that death has no revenge.

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The global impact of COVID-19 has been profound, and the public health threat it represents is the most serious seen in a respiratory virus since 1918 H1N1 influenza pandemic @imperialcollege
Law & Politics

Non-pharmaceutical interventions (NPIs) – aimed at reducing contact
rates in the population and thereby reducing transmission of the virus
We conclude that the effectiveness of any one intervention in
isolation is likely to be limited, requiring multiple interventions to
be combined to have a substantial impact on transmission.
Two fundamental strategies are possible:
(a) mitigation, which focuses on slowing but not necessarily stopping
epidemic spread – reducing peak healthcare demand while protecting
those most at risk of severe disease from infection, and
(b) suppression, which aims to reverse epidemic growth, reducing case
numbers to low levels and maintaining that situation indefinitely.
Each policy has major challenges. We find that that optimal mitigation
policies (combining home isolation of suspect cases, home quarantine
of those living in the same household as suspect cases, and social
distancing of the elderly and others at most risk of severe disease)
might reduce peak healthcare demand by 2/3 and deaths by half.
However, the resulting mitigated epidemic would still likely result in
hundreds of thousands of deaths and health systems (most notably
intensive care units) being overwhelmed many times over.
For countries able to achieve it, this leaves suppression as the
preferred policy option.
The major challenge of suppression is that this type of intensive
intervention package – or something equivalently effective at reducing
transmission – will need to be maintained until a vaccine becomes
available (potentially 18 months or more) – given that we predict that
transmission will quickly rebound if interventions are relaxed.
Last, while experience in China and now South Korea show that
suppression is possible in the short term, it remains to be seen
whether it is possible long-term, and whether the social and economic
costs of the interventions adopted thus far can be reduced.
The COVID-19 pandemic is now a major global health threat. As of 16th
March 2020, there have been 164,837 cases and 6,470 deaths confirmed
worldwide. Global spread has been rapid, with 146 countries now having
reported at least one case.
world face the same challenge today with COVID-19, a virus with
comparable lethality to H1N1 influenza in 1918.
(a) Suppression. Here the aim is to reduce the reproduction number
(the average number of secondary cases each case generates), R, to
below 1 and hence to reduce case numbers to low levels or (as for SARS
or Ebola) eliminate human-to-human transmission.
The main challenge of this approach is that NPIs (and drugs, if
available) need to be maintained – at least intermittently - for as
long as the virus is circulating in the human population, or until a
vaccine becomes available.
In the case of COVID-19, it will be at least a 12-18 months before a
vaccine is available3. Furthermore, there is no guarantee that initial
vaccines will have high efficacy.
(b) Mitigation. Here the aim is to use NPIs (and vaccines or drugs, if
available) not to interrupt transmission completely, but to reduce the
health impact of an epidemic, akin to the strategy adopted by some US
cities in 1918, and by the world more generally in the 1957, 1968 and
2009 influenza pandemics.
In the 2009 pandemic, for instance, early supplies of vaccine were
targeted at individuals with pre-existing medical conditions which put
them at risk of more severe disease4.
In this scenario, population immunity builds up through the epidemic,
leading to an eventual rapid decline in case numbers and transmission
dropping to low levels.
With the parameterisation above, approximately one third of
transmission occurs in the household, one third in schools and
workplaces and the remaining third in the community
We assumed an incubation period of 5.1 days9,10. Infectiousness is
assumed to occur from 12 hours prior to the onset of symptoms for
those that are symptomatic and from 4.6 days after infection in those
that are asymptomatic with an infectiousness profile over time that
results in a 6.5-day mean generation time.
Based on fits to the early growth-rate of the epidemic in Wuhan10,11,
we make a baseline assumption that R0=2.4 but examine values between
2.0 and 2.6. We assume that symptomatic individuals are 50% more
infectious than asymptomatic individuals.
Individual infectiousness is assumed to be variable, described by a
gamma distribution with mean 1 and shape parameter =0.25.
On recovery from infection, individuals are assumed to be immune to
re-infection in the short term.
Evidence from the Flu Watch cohort study suggests that re-infection
with the same strain of seasonal circulating coronavirus is highly
unlikely in the same or following season (Prof Andrew Hayward,
personal communication).
Infection was assumed to be seeded in each country at an exponentially
growing rate (with a doubling time of 5 days) from early January 2020,
with the rate of seeding being calibrated to give local epidemics
which reproduced the observed cumulative number of deaths in GB or the
US seen by 14th March 2020.
For an uncontrolled epidemic, we predict critical care bed capacity
would be exceeded as early as the second week in April, with an
eventual peak in ICU or critical care bed demand that is over 30 times
greater than the maximum supply in both countries
Our projections show that to be able to reduce R to close to 1 or
below, a combination of case isolation, social distancing of the
entire population and either household quarantine or school and
university closure are required (Figure 3, Table 4). Measures are
assumed to be in place for a 5-month duration

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"During the incubation period, they say that this virus can be transmitted. There is no scientific evidence for that. It is just, you know, a fear factor" @qatarairways CEO Akbar Al-Baker @arabnews H/T @alyhdi
Law & Politics

“For them to do what they did to the Chinese cabin crew ... whoever
goes to China cannot now go anywhere else in these countries for the
next 14 days. They don’t realize the operational impact it would
create on an airline,” Baker said.
“What evidence [do] you have that on every single airplane you do not
have three or four people with contagious disease sitting next to
Qatar on Wednesday said 238 new coronavirus cases had been discovered
among expatriates quarantined in a residential compound, bringing the
total to 262.

International Markets

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Currency Markets at a Glance WSJ
World Currencies

Euro 1.1126
Dollar Index 98.374
Japan Yen 106.79
Swiss Franc 0.9503
Pound 1.2206
Aussie 0.6084
India Rupee 74.0225
South Korea Won 1239.664
Brazil Real 5.0011
Egypt Pound 15.74
South Africa Rand 15.749

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Coronavirus will bankrupt most airlines by the end of May unless governments and the industry take coordinated action, an aviation consultant warned @business.
World Currencies

The coronavirus pandemic will bankrupt most airlines worldwide by the
end of May unless governments and the industry take coordinated steps
to avoid such a situation, an aviation consultant warned.
Many airlines have probably been driven into technical bankruptcy or
substantially breached debt covenants already, Sydney-based
consultancy CAPA Centre for Aviation warned in a statement Monday.
Carriers are depleting cash reserves quickly because their planes are
grounded and those that aren’t are flying more than half empty, it
“Coordinated government and industry action is needed — now — if
catastrophe is to be avoided,” CAPA said.
Otherwise, “emerging from the crisis will be like entering a brutal
battlefield, littered with casualties,” it said.
Most of the biggest carriers in the U.S., China and Middle East are
likely to survive because of government help or support from their
owners, CAPA said.
Airlines have been among the biggest corporate casualties of the virus
outbreak as the coronavirus grinds air traffic to a halt.
Carriers from American Airlines Group Inc. to Australia’s Qantas
Airways Ltd. have slashed capacity, while some like Sweden’s SAS AB
have temporarily laid off most staff.
Flybe, Europe’s biggest regional airline, has already collapsed.
Carriers could face as much as $113 billion in lost revenue this year,
according to the International Air Transport Association.

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2-SEP-2019 :: the China EM Frontier Feedback Loop Phenomenon. #COVID19
Emerging Markets

China EM Frontier Feedback Loop Phenomenon. This Phenomenon was
positive for the last two decades but has now undergone a Trend
The Fall-out is being experienced as far away as Germany Inc. The ZAR
is the purest proxy for this Phenomenon.
African Countries heavily dependent on China being the main Taker are
also at the bleeding edge of this Phenomenon.
This Pressure Point will not ease soon but will continue to intensify.

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Mexico in a real policy dilemma with the Mexican peso trading at a record low. @VPatelFX
Emerging Markets

Fed has slashed rates by 150bps but Banxico can't really match that
given the weakness in the peso and inflationary impact that would
have. Monetary policy can't react to demand shock effectively $MXN

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Brazil's real tumbles back below 5.00/$, eyeing last week's record low 5.0278/$ @ReutersJamie
Emerging Markets

Market pricing in aggressive rate cuts near term - some (UBS's Tony
Volpon, ex-central banker) even calling for immediate 100 bps cut
today to follow Fed.

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Debt, virus and locusts create a perfect storm for Africa @TheAfricaReport

The year began with promise for sub-Saharan Africa.
All the major institutions tracking African growth said so:
The African Development Bank pronounced in its Economic Outlook that
Africa’s economic outlook continues to brighten. Its real GDP growth,
estimated at 3.4% for 2019, is projected to accelerate to 3.9% in 2020
and to 4.1% in 2021.
The IMF said in its World Economic Outlook sub-Saharan Africa growth
is expected to strengthen to 3.5% in 2020–21 (from 3.3% in 2019).
The World Bank predicted ”Regional growth is expected to pick up to
2.9% in 2020”
Interestingly the World Bank added a caveat which was prescient:
A sharper-than-expected deceleration in major trading partners such as
China, the Euro Area, or the United States, would substantially lower
export revenues and investment.
A faster-than-expected slowdown in China would cause a sharp fall in
commodity prices and, given Sub-Saharan Africa’s heavy reliance on
extractive sectors for export and fiscal revenues, weigh heavily on
regional activity.
Those forecasts are now defunct and it’s only March.
The Coronavirus has to date barely made landfall on the African
continent with only 5 countries reporting infections but a Virus is in
its essence non-linear, exponential and multiplicative and it would be
a Shakespeare-level moment of hubris if policy makers were to pat
themselves on the back.
Diagnostic kits were only recently availed and if South Korea had
tested the same number of People as the entire African Continent, they
too would be reporting single digit cases.
We all know now ”what exponential disease propagation looks like in
the real world. Real world exponential growth looks like nothing,
nothing, nothing … then cluster, cluster, cluster … then BOOM!” and
therefore we will know soon whether we really have dodged the
#Coronavirus Infection Bullet.
The issue at hand now is around the violence of the blowback from the
China #Coronavirus feedback loop phenomenon.
The virus is not correlated to endogenous market dynamics but is an an
exogenous uncertainty that remains unresolved and therefore, it is a
”Black Swan”.
Fantasy predictions of a V shaped recovery in China have been dashed.
In fact China cannot just crank up the ‘Factory’ because that will
risk a second round effect of infections.
Therefore, I expect negative GDP Growth through H1 2020 in China as my
base case.
Standard Bank’s Chief Economist has calculated that a one percentage
point decrease in China’s domestic investment growth is associated
with an average 0.6 percentage point decrease in Africa’s exports.
Those countries heavily dependent on China being the main taker of
their commodities are at the bleeding edge of this now negative
feedback loop phenomenon. Commodity prices [Crude Oil, Copper, Coal]
have crashed more than 20% since the start of the year.
You don’t have to be a rocket scientist or an Economist to calculate
which countries in are directly in the line of fire. Angola, Congo
Brazzavile, DRC, Equatorial Guinea, Zambia, Nigeria and South Africa
spring immediately to mind.
Notwithstanding comments by the always upbeat and bright-eyed
President Adesina of the African Development Bank that Africa is not
facing a debt crisis.
He told Bloomberg, “Debt is not a problem, it’s very bad debt that’s a
The point is this.
SSA Countries with no exception that I can think off have gorged on
borrowing and balance sheets are maxed out.
Africa’s sovereign issuance in the Eurobond markets totaled $53bn in
2018 and 2019 and total outstanding debt topped $100bn last year.
Debt burdens have increased and affordability has weakened across most
of Sub-Saharan Africa, while a shift in debt structures has left some
countries more exposed to a financial shock, said Moodys in November
last year.
Very few of the investments made are within spitting distance of
providing an ROI [Return on Investment].
Rising debt service ratios are best exemplified by Nigeria where the
Government is spending more than half of its revenue servicing its
More than 50% of SSA GDP is produced by South Africa, Nigeria and Angola.
South Africa reported that GDP in Q4 2019 shrank by a massive 1.4%.
Annual growth at 0.2% is the lowest yearly growth since 2009 and the
tape is back at GFC times.
The rand which has been in free fall has a lot further to fall in 2020.
And this is before the viral infection.
Nigeria’s oil revenue is cratering and there is $16bn of ”hot money”
parked in short term certificates which is all headed for the Exit as
we speak. A Currency Devaluation is now predicted and predictable.
South Africa, Nigeria and Angola are poised to dive into deep recession.
East Africa which was a bright spot is facing down a locust invasion
which according to the FAO could turn 500x by June.
It is practically biblical.
“If I shut up heaven that there be no rain, or if I command the
locusts to devour the land, or if I send pestilence among my people;”
– 2 Chronicles 7:13-14
This is a perfect storm. Buckle up, and let’s stop popping the Quaaludes.

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Nigerian central bank will be unable to maintain the naira's value for much longer as a slump in oil prices drains foreign reserves, according to a Bloomberg survey of investors and analysts. @markets

The Nigerian central bank will be unable to maintain the naira’s value
for much longer as a slump in oil prices drains foreign reserves,
according to a Bloomberg survey of investors and analysts.
Seven of 16 respondents expect the currency to be devalued in the
third quarter, while four forecast a downward adjustment as early as
the second quarter. Another three foresee a devaluation in the fourth
quarter and two next year.
Oil prices collapsed this week after the world’s biggest exporters
failed to agree on how to respond to a drop in demand as global
economic growth slows because of the spreading coronavirus. Nigeria is
Africa’s top crude producer.
Since the virus first appeared in China late last year, the naira has
weakened 1.3% on the spot market to 366.63 per U.S. dollar.
The currency’s decline picked up pace in February, when reserves fell
more than 4.5% to $36.1 billion.
Nigerian central bank spokesman Isaac Okorafor declined to comment on
the survey.
Nigerian presidency spokesmen Femi Adesina and Garba Shehu didn’t
respond to emailed requests for comment and neither answered calls to
their mobile phones.
Although the naira is at its weakest since August 2017, when it was
last devalued, it has traded in a narrow range in that period under
the management of the central bank.
“If the base and bear case scenarios play out, it’s difficult to
imagine the Central Bank of Nigeria being able to hold the currency at
these levels,” analysts at FirstRand Ltd.’s Rand Merchant Bank wrote
in a research note. They estimate the naira is 17% overvalued.
The central bank will likely opt for a devaluation of between 10% and
15%, according to 10 of the survey participants.
Four expect a devaluation of between 5% and 10% and the rest foresee
an adjustment of at least 20%.
A previous survey conducted in February forecast the naira wouldn’t be
devalued until 2021.
Concerns of a devaluation have also weighed on Nigerian stocks. The
benchmark index in Lagos fell 1.8% on Thursday, taking its decline in
the past five days to more than 12% and dragging the gauge to levels
last seen in early 2016.
Reserves Burned
To keep the naira stable, central bank Governor Godwin Emefiele has
burned through a quarter of the nation’s reserves since June.
He’s also restricted importers’ access to hard currency and stepped up
the sale of high-yielding government debt known as OMO bills.
The bank could opt for more capital controls to sustain the naira. A
stable currency is critical to President Muhammadu Buhari’s plan to
revive local industries and wean the economy off oil.
Emefiele has vowed to keep the naira steady, saying in late November
that the slide in reserves wasn’t a cause for concern.
“We will not hesitate to deploy additional measures to shield the
Nigerian economy from headwinds,” he said at a conference in the
capital, Abuja, on Wednesday.
Participants in the survey, conducted March 9-10, included money
managers, analysts and economists based in Nigeria and abroad. Most
asked for their submissions to remain anonymous.
Oil futures fell more than 30% in New York and London on Monday, the
biggest drop since the Gulf War in 1991, before recovering some
ground. Crude sales account for about half of Nigerian government
revenue and 90% of the nation’s exports.

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09-DEC-2019 :: Everyone knows how this story ends. When the music stops, everyone will dash for the Exit

Foreign Investors are propping up the Naira to the tune of NGN5.8
trillion ($16 billion) via short-term certificates.

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"We have to ask the question: How strong are our monitoring systems, especially those in rural areas or with limited technology?" @AP.

“We have to ask the question: How strong are our monitoring systems,
especially those in rural areas or with limited technology? That is a
reality on the continent and perhaps why we have not yet seen a surge
in cases,” public health researcher Dr. Shakira Choonara told The
Associated Press.
Professor Cheryl Cohen with South Africa’s National Institute for
Communicable Diseases expressed concern that the current numbers could
rise rapidly.

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02-MAR-2020 :: The #COVID19 and SSA and the R Word

The First Issue is whether The #CoronaVirus will infect the Continent
We Know that the #Coronavirus is exponential, non linear and multiplicative.
what exponential disease propagation looks like in the real world.
Real world exponential growth looks like nothing, nothing, nothing ...
then cluster, cluster, cluster ... then BOOM!

read more

2-SEP-2019 :: the China EM Frontier Feedback Loop Phenomenon. #COVID19

China EM Frontier Feedback Loop Phenomenon. This Phenomenon was
positive for the last two decades but has now undergone a Trend
The Fall-out is being experienced as far away as Germany Inc.
The ZAR is the purest proxy for this Phenomenon.
African Countries heavily dependent on China being the main Taker are
also at the bleeding edge of this Phenomenon. This Pressure Point will
not ease soon but will continue to intensify.

read more

by Aly Khan Satchu (www.rich.co.ke)
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March 2020

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