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Satchu's Rich Wrap-Up
Tuesday 20th of September 2022

A Walk at Night Octavio Paz

A Walk at Night Octavio Paz 

The night draws from its body one hour after another. Each different, each solemn. Grapes, figs, sweet drops of quiet blackness. Fountains: bodies. Among the stones in the ruined garden, the wind plays the piano. 

The lighthouse stretches its neck, turns, goes out, cries out. Crystals a thought dims, softness, invitations: the night, immense and shining leaf plucked from the invisible tree that grows at the center of the world.

Around the corner, the Apparitions: the girl who turns into a pile of withered leaves if you touch her; the stranger who pulls off his mask and is faceless, staring at you fixedly; the ballerina who spins on the point of a scream; the who’s there?, the who are you?, the where am I?; 

the girl who moves like a murmur of birds; the great tower destroyed by an inconclusive thought, open to the sky like a poem split in two . . . 

No, none of these is the one you wait for, the sleeper who waits for you in the folds of her dream.

Around the corner, Lushness ends and the stones begin. There is nothing, you have nothing to give to the desert: neither a drop of water nor a drop of blood. 

You move with bandaged eyes through corridors, plazas, alleyways where three despicable stars conspire. The river speaks in a low voice. 

To your left and right, in front of you and behind, whispers and cruel laughter. 

The monologue traps you at every step with its exclamations, its question marks, its noble sentiments, its dots over the i’s in the middle of a kiss, its mill of laments, and its repertory of broken mirrors. Go on: you have nothing to say to yourself.

And I return to the plain, to the plain where it is always noon, where an identical sun shines relentlessly on an unmoving landscape. 

And the ringing of the twelve bells never stops, nor the buzzing of the flies, nor the explosion of this minute that never passes, that only burns and never passes.

In other times, every hour was born from the vapor of my breath, danced awhile on the point of my dagger, and disappeared through the shining door of my hand mirror

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May 29 Vanity of Vanities! All is vanity
Law & Politics

May 29 Vanity of Vanities! All is vanity

Blofeld: Kronsteen, you are sure this plan is foolproof?
Kronsteen: Yes it is, because I have anticipated every possible variation of counter-move.
Politics therefore suffers from a surfeit of narcissists.

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There is a little more than one month left until winter turns the Ukrainian terrain on the plains into mud @MayadeenEnglish Alastair Crooke
Law & Politics

There is a little more than one month left until winter turns the Ukrainian terrain on the plains into mud @MayadeenEnglish Alastair Crooke

This latter aspect has taken on added urgency as there is a little more than one month left until winter turns the Ukrainian terrain on the plains into mud, leaving tanks and heavy vehicles floundering. 

Furthermore, Ukraine’s public finances are in freefall, with external aid amounting to only $1.5 billion -- leaving a hole of some $7 billion per month that is being filled by Ukraine printing fresh money. 
The reality is that Europe’s cost-of-living crisis and the war on Ukraine are inextricably linked.  

As commentator Adam Tooze put it: 

“There is little doubt that Ukraine is living on borrowed time. To put it simply, Ukraine cannot afford the war it is fighting” -- and as the crisis in Europe worsens with winter, public patience with its governments’ spending on Ukraine is likely to evaporate. Kiev faces a grave financial crisis, one “which in coming months could produce misery and tear apart the home front”.
The Ramstein meeting reshuffled the deck on Western military and financial assistance to Ukraine, raising contributions to the ongoing NATO campaign against Russia from still more nations, whilst adding new, still more advanced precision strike weapons, to the mix of deliveries to Kiev. 
From his lightening side-trip to Kiev, Secretary of State Blinken, escorted by Victoria Nuland, announced a new $675 million package of US military equipment, as well as a $2.2 billion “long-term” investment to bolster the security of Ukraine and 17 of its neighbour countries (plainly intended to convey the notion of a coalition of the willing being assembled). 

Weeks earlier Biden had unveiled a $3 billion aid package, the largest yet. 

Though it is not so easy to distinguish between fresh monetary pledges and re-packaged repetitions of existing commitments, some analysts estimate the true figure of the US commitment to Ukraine at up to $40 billion in security assistance; or $110 million per day over the last year.
Ramstein plainly was intended as an exercise in showcasing the prospect of some Ukrainian military success, to bolster waning European support. 

The Kherson and Kharkov offensives clearly were timed with an eye to the Ramstein confab.  
The latter amounts to a NATO challenge to Russia. It challenges Moscow similarly to escalate its side of the war. 

The message of aid -- running to billions of dollars, training and weapons -- was reinforced by virtue of the nature of the weapons systems announced for delivery, such as missiles with accuracy of 1-2 meters when fired from distances of 20 or 30 kilometres, thanks to their GPS-guided flight, in contrast to the laser-guided missiles delivered to Ukraine up till now. 

In the same category, there are weapons designed to destroy the Russians’ radar systems used for directing artillery fire.
The test firing, on the same day, of a new intercontinental rocket, the Minuteman III, from Vandenberg air base in California, was the cherry on the cake.

All-in-all, Ramstein marked a new stage in the conflict. The US has incrementally been edging towards a NATO war against Russia. The meeting in Germany made this fully overt.  

There has been a current in the West that has read Russia’s reactions to the sinking of its naval vessels; the delivery of HIMARS rocket systems; the western ‘Ho Chi Min trail’ of daily weapons supplies to Kiev – as ‘green light’ for the West to go ‘fully NATO’ -- thinking that Russia will likely acquiesce to the stepped up paradigm.
But will it?
Unsurprisingly, the Ramstein ‘challenge’; the ‘psyops war’ centred on the Zaporizhzhia Nuclear Power Plant; and the Kiev offensives -- particularly taken in the context of Russia’s tactical military redeployment out of the Kharkov region to the West of the Oskil river, to reinforce the Donbas militia -- have catalysed a heated debate in Moscow about how to respond.  
Many are recalling President Putin’s statement: “We hear today that they want us to be defeated on the battlefield. Well, what can I say? Let them try. You ain’t seen nothing, yet. We barely started”. They are urging either a shift to full war, or at the least the ‘gloves coming off’ in respect to the western arms supply train.
This is a key moment. The pressure is on President Putin to respond to the transformation of a limited proxy affair into overt NATO war is increasing

Yet, he knows that that Europe’s cost-of-living crisis, and the war on Ukraine are inextricably linked.  

Kiev is living on borrowed time: in respect to Europe’s cost-living-crisis and the putative end to its’ subsidy. 

And in respect too, to Ukraine’s own financial crisis tearing apart its society.

 And in respect finally, to the coming wet season and mud (with Ukraine unlikely to make military progress for months ahead).
All these factors have a life of a month, or a little more. Will Putin wait it out, or will he bare Russia’s teeth? 

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Sunday, April 10 Apocalypse Now
Law & Politics

It is also clear that Russia took a military ‘’lite’’ approach. 

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Europe Is Bound to Collapse @epochtimes @mtmalinen
Law & Politics

Europe Is Bound to Collapse @epochtimes @mtmalinen 

I have been watching, with horror, the escalation of the economic situation in Europe since about mid-February. 

On Feb. 21, I published a short Twitter thread detailing the economic worst-case scenario for Europe if the war between Russia and Ukraine would break out, as it did.
The forecast had 10 stages:
The West would be likely to respond with sanctions.
Russia would respond by shutting gas to Europe.
This would lead to a massive spike in energy prices in Europe, pushing the continent into a recession with high inflation pressures (stagflation).
Inflation would reach double-digits within two to three months.
Asset markets would fluctuate heavily first, then crash.
Rampant inflation would force the European Central Bank to raise rates in a rapid manner and stop the Pandemic Emergency Purchase Program (PEPP) and quantitative easing (QE).
The European banking sector would crumble.
Sovereign yields would explode.
The eurozone would unravel.
Europe would fall into a depression.

Energy prices have skyrocketed, asset markets have fluctuated, and the European Central Bank (ECB) has stopped PEPP and QE (kind of). Inflation in the eurozone was 9.1 percent in August and shows no signs of relenting. 

So we most likely get to double-digits already maybe next month. 

So, ominously, we’ve already “checked” Nos. 1, 2, 3, 4, and 6 from the “worst-case” forecast.

What to Expect in Coming Months

The ‘credit default swaps’ of Credit Suisse, a Swiss banking giant labeled as a global systemically important bank (G-SIB), have reached levels not seen since 2009. 

German government 2-year bond yields are currently trading some 100 basis points higher than the 2-year EUR OIS swap rates, which reflect the ECB rates over the next two years. 

We haven’t seen such a divergence since the height of the European debt crisis in 2012. 

This is leading to a massive “collateral crunch” in banks, as the value of most-used collateral (sovereign bonds) with respect to deposit rates is collapsing.

A Banking Crisis Is Brewing

Italian 10-year bond yields are flirting with the four percent mark thought to represent the ‘line in the sand’ for the Italian government not being able to cover its finances. 

The ECB has been using funds from maturing debt of, for example, Germany and the Netherlands to purchase the sovereign debt of Greece, Portugal, and especially Italy. 

At the end of July, ECB holdings of German, French, and Dutch bonds had fallen by $19.3 billion, while holdings of Italian bonds had increased by $14.3 billion. It’s expected that the ECB will increase its purchases further in the coming months.

However, the question is, will it be enough to stave off the onset of another debt crisis?

Inflation in Italy is running at a euro-era record, more than 8 percent, and her households and corporations are feeling the full brunt of soaring energy prices and the disruptions in the flows of Russian gas to Europe. 

According to modeling by the International Monetary Fund, if the European gas market fragments, meaning that there would be gas supply disruptions, the Italian gross domestic product could shrink by roughly 6 percent. 

We’re very close to that point after Russia cut off its gas supplies to Germany (Italy still receives Russian gas). The Italian government is also already working on a bailout fund for the small lenders. Small lenders aren’t the real problem, however.

Italy, and Thus Europe, Is Closing in a Full-Blown Debt Crisis

According to a report by Equinor, a Norwegian energy group, energy companies are facing an annihilating $1.5 trillion worth of margin calls because of the violent price reactions in the European energy markets. 

Energy companies are required to maintain a minimum margin deposit in the case of a default before supplying the energy. 

These margins raced higher with the soaring forward electricity prices, which, while off from their highs, remain elevated. 

Recently, Finland became the first European country to sign a “bridge agreement” to cover the collateral agreements of Fortum, Finland’s largest energy producer. Other governments are likely to follow.

The price of electricity remains high. For example, in Germany, the spot price is currently about 10 times higher than in the summer of 2021. Many households and corporations are seeing their energy prices multiply by 10 or more across the continent.

Alas, unsurprisingly, the unraveling of the European economy is already on its way.

Many European energy-intensive industries are closing down or slashing their production heavily because of high energy prices. 

Even bars in the UK are deciding whether to close their doors (effectively an “energy lockdown”) because they can’t afford the energy prices. 

At the same time, inflation in the country may top 20 percent next year!

Business loan delinquencies are on the rise across the continent (see, for example, this), and a ‘flood’ of business and household bankruptcies loom—all due to the weight of massively increased prices of electricity, inflation, rising interest rates, and an impending recession.

Thus, Europe is currently heading into an economic depression, and it won’t stay here. 

As I mentioned earlier, 10 of the global 30 G-SIBs reside in Europe (PDF). 

To compare, the United States has seven G-SIBs, but the housing market collapse of 2006–09, which led to a banking crisis in the United States, still almost collapsed the global financial system. 

If the European economy unravels, which seems likely at the time of writing, her banking sector will follow, taking the global financial system and possibly the European common currency (euro) with it.

Could Something Be Done to Avert All This?

I don’t think we can any longer escape European recession, which is also overdue, but there could still be time to stop it from escalating into a depression. 

While unpopular, the only thing that could bring immediate relief is turning the gas flows from Russia to Europe back on, which requires the removal of western sanctions.
Even if the storage, demand cuts, and global supply could replenish the Russian supply to Europe, which is very unlikely (see more, e.g., from my newsletter), prices of natural gas would be likely to skyrocket across the globe. 

Rising prices have already led to a “tsunami of shutoffs” in the United States. Just consider how bad the situation will get if natural gas prices double or triple from current levels.
It should be acknowledged that we’re here because of political decisions. 

First, green policies made Europe heavily dependent on Russian energy. 

Second, the decision of Russian President Vladimir Putin to attack Ukraine, the decision by Western leaders to enact tough sanctions, and the decision by the Russian regime to respond to them set the crisis ablaze.

In 1924, John Maynard Keynes warned against using sanctions, which “would always run the risk of not being efficacious and of not being easily distinguished from acts of war.” 

In his “magnum opus,” “The General Theory of Employment, Interest and Money,” he also argued that a globalized economy would eventually stop all wars, because their economic costs would become so horrendous.

We’re slowly learning that lesson.

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This is the Titanic
Law & Politics

This is the Titanic

Our ability to Pull forward is exhausted. 

Emmanuel Macron  warned France to  prepare  for a miserable winter in which they must be ready to pay “the price of liberty”

Our Economies are teetering and the downside cascade effects are now in plain sight. Is anyone modelling what is now a cliff edge? 
How many Jobs are about to be vaporized? How many Businesses? Are we going to print more worthless Euros?Are our Leaders going to spin more weaponized babble? as we career at top speed off the cliff.

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24 August 2022 : in Germany, $2 trillion of value added depends on $20 billion of gas from Russia... War and Industrial Policy @CreditSuisse Zoltan Pozsar
Law & Politics

24 August 2022 : in Germany, $2 trillion of value added depends on $20 billion of gas from Russia... War and Industrial Policy @CreditSuisse Zoltan Pozsar

: in Germany, $2 trillion of value added depends on $20 billion of gas from Russia...

...that’s 100-times leverage more than Lehman’s.

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One of the preeminent Thinkers today is @CreditSuisse's Zoltan Pozsar and he said
World Of Finance

One of the preeminent Thinkers today is @CreditSuisse's Zoltan Pozsar and he said 

The policymakers to follow are no longer central bankers, but heads of state at the pinnacle of power who aren’t known for the transparency of their thinking – especially not when at war. @CreditSuisse Zoltan Pozsar
I have no faith in those at  the pinnacle of power. None. So I expect more babble and a doubling down.

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Sheep spend their entire lives being afraid of the wolf, but end up eaten by the shepherd. Fabio Vighi
World Of Finance

Sheep spend their entire lives being afraid of the wolf, but end up eaten by the shepherd. Fabio Vighi

The sacrifice of a sheep (1997) Kourush. Daghestan. RUSSIA Thomas Dworzak @fatalstrategies

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Be careful what you wish for in Russia’s defeat in Ukraine @asiatimesonline
Law & Politics

Be careful what you wish for in Russia’s defeat in Ukraine @asiatimesonline 

Western pundits, analysts, and even militaries are trumpeting Ukraine’s recent counter-offensive in its war with Russia. To be sure, this is a blow against the growing authoritarian axis
But there are dangers that many appear to be ignoring. Russian doctrine allows for using nuclear weapons when its position on the battlefield is threatened. 

Moreover, on a bureaucratic level, there are a variety of Russian institutions that will find it difficult to accept military defeat in Ukraine. 
Likewise, on an individual level, Russian President Vladimir Putin may be unable to abide by defeat. 

Each of these variables may interact with other variables in unpredictable ways, increasing the chances of miscalculation or accident, which could also lead to nuclear use, even if unintended. 

Finally, if Crimea comes into play, the peninsula is one that each side sees as a vital interest, thus increasing the possibility of nuclear use by Russia.
Dangers of escalation
In their excitement over seeing Russia punished for its aggression, Western observers may be missing the dangers of escalation. 

If Russia continues to take losses on the battlefield, one would expect conventional escalation, perhaps culminating in full-scale mobilization by Russia as well as more pronounced support from China. 
A less likely, but more impactful, escalation would be nuclear escalation. Although this remains unlikely at this juncture, the chances of such escalation have increased since Ukraine started to drive Russia back. 

There are a variety of reasons nuclear escalation is more likely now than it was a week ago.
Russian nuclear doctrine
Russia’s nuclear doctrine allows for nuclear use to end conventional conflicts. 
Article IV of the Basic Principles of the State Policy of the Russian Federation “provides for the prevention of an escalation of military actions and their termination on conditions that are acceptable for the Russian Federation and/or its allies.”  
Though declaratory policy is not always a guide for employment policy, this nevertheless provides justification for the use of nuclear weapons to terminate a conventional conflict.
Many institutions in Russia would be undermined by defeat in Ukraine. Most obviously, the Russian military would be weakened by any loss in Ukraine.
But likewise, the Federal Security Service (FSB), probably the Main Intelligence Directorate (GRU – military intelligence), and perhaps the Foreign Intelligence Service (SVR), miscalculated grievously.
Each has some share of the blame for the misguided operation and each has incentive to end the operation on terms favorable to Russia. 

Additionally, weapons manufacturers and procurement groups have much to lose. All of these organizations have reasons to seek a decisive end to the war.
President Putin has every reason to attempt to snatch victory from the jaws of defeat. Not only is this his war, but he is a dictator in fact if not name. Dictators often do not survive humiliating battlefield defeats. 
Given the way Putin has shamed and murdered opponents, he must suspect that decisive defeat in Ukraine would make him the scapegoat. 
The oligarchs would want him out so they could resume plundering Russia. T

he generals would want him out so as to direct blame elsewhere. There are many who would seek vengeance or need to deflect blame. 
Another reason Putin cannot accept defeat in Ukraine is that it would squander all the fear he built in reasserting Russian control in Georgia, South Ossetia, Transnistria, Chechnya, Dagestan, and of course, Crimea itself. 
In fact, a loss in Ukraine would encourage the people in all these other areas to rise up. Indeed, there is evidence of recent protests in Crimea. Russia cannot manage multiple uprisings.
These variables are likely to interact in unpredictable ways. For example, losses in one region may encourage instability in other regions. 
Widespread unrest or a coup emanating from one of the aggrieved Russian bureaucracies could encourage other actors such as the oligarchs to move on the levers of government. 
Greater instability within Russia means control over nuclear weapons may deteriorate. 

Accident or miscalculation could follow, leading to the loss of a weapon or, worse yet, the unintended detonation of a weapon. 
These unstable interactions would be multiplied by external nuclear threats, even if implicit.
The West
If a nuclear weapon were used, the West would find itself in the unenviable position of accepting that use and possibly the defeat of Ukraine, or of responding and risking uncontrolled escalation.

 We have little guidance for what would happen if a nuclear weapon were detonated in anger in a multipolar nuclear world. 
Finally, Crimea complicates these issues. If Russia were pushed out of eastern Ukraine, this would be a dramatic defeat, but perhaps one that Russia could accept. 

But Crimea, like Taiwan for China and the US, is an area where both sides perceive their interests as vital. 
Neither side can back down. Ukrainian President Volodymyr Zelensky has indicated he will not accept peace until Crimea is back in Ukraine’s hands. 
Putin considers Crimea to be part of Russia and sees it as being under Ukrainian jurisdiction only because of an indefensible decision made by Soviet leader Nikita Khrushchev almost 70 years ago.  
It seems doubtful that Ukraine could eject Russia from Crimea, but if it did, the pressure on Russia to use at least one nuclear weapon would increase markedly. 
Nuclear use unlikely but increasing
Although nuclear use remains unlikely, Ukraine’s battlefield successes make such use more likely than before. As Ukrainian success grows, so does the pressure for Russia to escalate. 
Once a single nuclear weapon is used, we are in uncharted territory. There will be pressure on Western states to respond, which in war games often rapidly leads to global catastrophe.

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“Is it safe?”
Law & Politics

“Is it safe?”

In the movie Marathon Man [directed by John Schlesinger] Laurence Olivier who plays Dr. Christian Szell a Nazi war criminal straps Dustin Hoffman into a dentist's chair and without any anaesthetic starts drilling into Hoffman's mouth

“Is it safe?”

“Yes, it’s safe. Very safe. So safe you wouldn’t believe it.”
[long pause]
“Is it safe?”
“No. It’s not safe. It’s very dangerous. Be careful.”
That Snippet from that Film seems to me the perfect accompaniment preferably on an eternal loop to the World and the markets we find ourselves in today.
''We are off to Moscow off to Moscow we go to Regime Change The Wicked Witch of the West [or is it the East?] aka Vladimir Putin''

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The price of bread in the Eurozone increased by 18% YoY, which is the fastest yearly increase ever recorded. ''Let them eat cake'' @MacroAlf
Food, Climate & Agriculture

The price of bread in the Eurozone increased by 18% YoY, which is the fastest yearly increase ever recorded. ''Let them eat cake'' @MacroAlf

It reminds me of the famous French Revolution anecdote:
''Queen Marie-Antoinette, the peasants can't afford bread anymore''
''Let them eat cake''

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Currency Markets At A Glance
World Currencies

Currency Markets at a Glance WSJ

Euro 1.002320
Dollar Index 109.657
Japan Yen 143.3170
Swiss Franc 0.96584
Pound 1.142625
Aussie 0.671565
India Rupee 79.6245
South Korea Won 1389.995
Brazil Real 5.1732000
Egypt Pound 19.425000
South Africa Rand 17.69640 

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World Currencies



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"#Bitcoin, I call it a tumor. Real estate is another tumor," says @nntaleb @CNBC
World Currencies

"#Bitcoin, I call it a tumor. Real estate is another tumor," says @nntaleb @CNBC

"People have this notion that markets should behave the way they think they should behave. When you look at markets they swing from overvalue to undervalue."

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"Courage!" he said, and pointed toward the land, "This mounting wave will roll us shoreward soon." #Bitcoin
World Currencies

"Courage!" he said, and pointed toward the land, "This mounting wave will roll us shoreward soon." #Bitcoin

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

T.S Eliot said in The Hollow Men 

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

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

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

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

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

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

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

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

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

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What’s behind the sharp drop in Bitcoin’s value? $BTC #Bitcoin @AJInsideStory
World Currencies

What’s behind the sharp drop in Bitcoin’s value? $BTC #Bitcoin @AJInsideStory 

Presenter: Sami Zeidan
Aly-Khan Satchu – Investor and CEO at Rich Management
Naeem Aslam – Chief market analyst at AvaTrade
Brian Lucey – Professor of international finance and commodities at Trinity Business School

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"I think that we've had 15 years of Disneyland that basically has destroyed the economic structure," says @nntaleb @SquawkCNBC
World Currencies

"I think that we've had 15 years of Disneyland that basically has destroyed the economic structure," says  @nntaleb @SquawkCNBC

"You are hurting the economy.. creating tumors like #bitcoin. There was at some point such a thing as a discount rate. All these notions escape the new generation."

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EGP is once again outpaced by a parallel market that is pricing the dollar around 22.5 EGP & that gap is likely to grow @tekaldas

EGP is once again outpaced by a parallel market that is pricing the dollar around 22.5 EGP & that gap is likely to grow @tekaldas

Any theories on govt’s thinking on this controlled devaluation? No one believes it’s floating. They’re throttling imports to preserve dollars & value of the EGP is once again outpaced by a parallel market that is pricing the dollar around 22.5 EGP & that gap is likely to grow

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Turbulence in Nigeria dollar market hits airlines and investors @FT @aanuadeoye & @davidpilling

Turbulence in Nigeria dollar market hits airlines and investors @FT @aanuadeoye  & @davidpilling 

So tight is the supply of dollars in Nigeria these days that even big international airlines are struggling to repatriate revenue from ticket sales. 

Emirates announced it would suspend flights to and from Nigeria from September, only resuming flights to Lagos when the central bank released $265mn of the estimated $464mn that airlines say it was sitting on.
Currency traders and investors say Nigeria’s chronic dollar shortage, a constant complaint of businesses operating in the country, has recently tipped into crisis. 

The naira, which trades officially at N421 to the dollar, has fallen to N700 on the parallel market, with talk that it could weaken further.
“It’s really a perfect storm,” said Iyin Aboyeji, a fintech entrepreneur in Lagos. “No one could have foreseen it: low oil production and high dollar demand.”
On the supply side, dollar revenues from oil have plummeted because of massive theft, pushing down official daily production of crude to 1.1mn barrels, far below Nigeria’s Opec quota of 1.8mn b/d. Angola has now usurped Nigeria as Africa’s biggest oil producer.
Nigeria’s petrol subsidy, under which its car owners enjoy among the cheapest fuel in the world ($0.40/litre), means the federal government receives less revenue. 

The higher the oil price, the bigger the gap between the real and the subsidised price and the higher the bill for the government. 

Nigeria will spend an estimated $9.6bn on petroleum subsidies this year, about 2 per cent of gross domestic product and almost 10 times the budgeted amount.
On the demand side, August is always a crunch month because an estimated 100,000 Nigerians need dollars for tuition fees abroad.
Political parties also scrambled for dollars to hand out to delegates in presidential primaries held in May and June, pushing demand and supply further out of kilter. 

Central bank governor Godwin Emefiele may have compounded the problem by warning politicians that those caught changing naira into dollars on the black market would be arrested.
Wilson Erumebor, economist at the Nigerian Economic Summit Group, a think-tank, said of the widening spread on the black market, “If we had enough supply of foreign currency, this would never be an issue.”
The collapsing naira makes imports more expensive, stoking inflation, which reached a 17-year high of 19.6 per cent in July. The central bank has raised interest rates by 250 basis points to 14 per cent since May.
Nigeria has a complex and opaque exchange rate regime with multiple exchange rate “windows”. 

The central bank seeks to manage limited supply and to prioritise allocation of dollars to areas of the economy, such as agriculture, that it deems a priority. 

Last year, the bank stopped selling dollars to bureau de change operators to guard its limited reserves of $38bn, further spooking the market.
“The black market is the free market,” said Aboyeji, who added that Nigerians needing dollars for things such as school fees should use the parallel market instead of receiving what is effectively subsidised dollars at the official rate.
Investors complain that the multi-window system is unnecessarily opaque. Those who receive dollars can buy naira on the black market in a gambit known as “round tripping”.
Nigeria’s dollar crisis has its origins in the oil price crash of 2014, when prices fell by 52 per cent in six months. 

The federal government, which collects taxes worth only 6 per cent of GDP, one of the lowest rates in the world, earns the bulk of its revenue and almost 90 per cent of its foreign exchange from oil exports.
Erumebor of the NESG said Nigeria’s problems were compounded by a lack of significant exports in sectors other than oil. 

Data from the national statistics agency put Nigeria’s non-oil export earnings in 2021 at $16bn against $145bn from crude oil sales.
Years of under-investment in oil infrastructure have eroded production, meaning Nigeria has not benefited from the higher oil prices resulting from Russia’s invasion of Ukraine. 

Widespread crude oil theft, estimated by the Nigerian National Petroleum Company at 400,000 barrels daily, has depressed production

Some pipelines have suspended operations, including a Shell installation that shut down in June. 

Nigerian authorities have contracted Government Ekpemupolo, a former militant in the Niger Delta, to secure pipelines.
Nigeria’s other sources of foreign exchange earnings have also dipped. 

Foreign direct investment in 2021 was just below $700mn, down from $3.1bn at the start of president Muhammadu Buhari’s tenure in 2015.
Mosope Arubayi, economist at IC Group, an investment consultancy, said Nigeria had become less attractive for foreign investors, partly thanks to the difficulty of repatriating revenue.
“The FX market is very tight in terms of liquidity,” she said. “Nigeria relies significantly on oil inflows, but you need other flows of capital like remittances, most of which do not go through official channels.” 
Half a dozen analysts and executives interviewed by the Financial Times, who declined to be named for fear of central bank retribution, said the bank’s policies were damaging the investment environment.
“They give you no indication of when you’ll be able to get your money out of the country,” said one executive, adding that their company would make no further investments until the matter was resolved. “Investors walk away.”
Experts said there would be no significant change of strategy before presidential elections to be held next February.
But Charlie Robertson of Renaissance Capital said the central bank may only be delaying the inevitable. “In the face of economic realities, you don’t have the resources to fight the market forever,” he said.

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9 DEC 19 :: Time to Big Up the Dosage of Quaaludes

9 DEC 19 :: Time to Big Up the Dosage of Quaaludes

we were all popping Quaaludes [Quaaludes ‘’to promote relaxation, sleepiness and sometimes a feeling of euphoria. It causes a drop in blood pressure and slows the pulse rate. These proper- ties are the reason why it was initially thought to be a useful sedative and anxiolytic It became a recreational drug due to its euphoric effect’’].

Everyone knows how this story ends. When the music stops, everyone will dash for the Exit and the currency will collapse 

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

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