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Satchu's Rich Wrap-Up
 
 
Thursday 24th of March 2022
 
Morning
Africa

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The Chart of Truth @RaoulGMI
World Of Finance


We are now above 2 standard Deviations about trend, just like 2018.

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A REGIME CHANGE IS UNDERWAY [in the markets]
World Of Finance

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



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These became known as the halcyon days, when storms do not occur. Today, the term is used to denote a past period that is being remembered for being happy and/or successfuL
Misc.


From Latin Alcyone, daughter of Aeolus and wife of Ceyx.
When her husband died in a shipwreck, Alcyone threw herself into the sea whereupon the gods transformed them both into halcyon birds (kingfishers). 

When Alcyone made her nest on the beach, waves threatened to destroy it. Aeolus restrained his winds and kept them calm during seven days in each year, so she could lay her eggs. 

These became known as the “halcyon days,” when storms do not occur. Today, the term is used to denote a past period that is being remembered for being happy and/or successful.

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T.S Eliot said in The Hollow Men
Misc.

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

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Here we go round the prickly pear The Hollow Men T.S. ELIOT
Misc.

Here we go round the prickly pear
Prickly pear prickly pear
Here we go round the prickly pear
At five o’clock in the morning.
This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.

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I watched Ghosts of Cite Soleil on @netflix @Variety
Misc.


“Ghosts of Cite Soleil,” a scary, fascinating documentary about gang life in Haiti’s worst slum.
The United Nations has declared Cite Soleil “the most dangerous place on Earth”; this slum of Port au Prince, populated by up to 500,000 people, makes the townships of South Africa look like Beverly Hills. 

As shown in the film, which was lensed in 2004, it’s an entirely lawless place presided over by sinister chimeres, or ghosts — violent young men allegedly employed and armed by then-President Jean-Bertrand Aristide and so named because given their typically brief lifespans, they’re already dead in a sense.
The chimeres are controlled by a few gang leaders representing various Cite Soleil neighborhoods. 

When you conjure up your worst nightmare image of an amoral, doped-up, gun-waving gangster who couldn’t care less if you live or die, you’ve got the guys who are front-and-center in this movie.
Leth is the son of Danish filmmaker and longtime Haiti resident Jorgen Leth, who collaborated with Lars von Trier on 2003 release “The Five Obstructions.” 

While it is sometimes difficult to believe that the self-described “thugsters” are letting him film what we’re seeing, 

Leth evidently appealed to the criminals’ desire for self-glorification, and they allowed him to cover their lives for several months in 2004, a pivotal year that marked Aristide’s flight from office and the country.
The main subjects are 2pac and Bily, 20-ish brothers loyal to Aristide who lord it over separate parts of Cite Soleil. 

2pac is the classic, charismatic gangster — arrogant, full of hubris and, in his case, keen to become a rapper like the man from whom he took his name. 

Bily seems a tad brighter, if less magnetic, and hopes to rise through the ranks of Aristide’s Lavalas political party all the way to president.
There are young women and little children in the background who may or may not be related to these men, but there are strikingly few signs of bonds or beliefs — no parents, religion, ideology or even a gangster code to live by. 

The two blood brothers have their disputes and at one point are on the verge of killing each another. It’s all about survival, control over a tiny patch of turf and longshot dreams of getting out.

A key and rather ambiguous figure is a white, blond Frenchwoman, Lele, described as a relief worker, although what she does in this regard is unclear. 

More relevantly, she acts as a conduit and buffer between the filmmakers and the brothers. 

The brothers both come to fancy her, and, unsurprisingly, she ends up choosing 2pac. One suspects there’s more of a behind-the-scenes story involving Lele than is revealed.
Backgrounding the gangsters’ everyday routines is the growing turmoil surrounding Aristide, serving a second term as president after having been exiled in 1991. 

As the action unfolds, he is under increasing pressure to step down, and once he does, the situation changes dramatically for his slum-based enforcers. 

The new police chief announces his intention to go after the chimeres, American and French troops patrol Cite Soleil, and a Disarmament Day is set to collect illicit weapons.

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Incredible optical illusion! When you zoom in, you realise that these black horses are actually the shadows of Zebras @StefSimanowitz
Misc.


The photo by Beverly Joubert - taken above the shallow waters of the Makgadikgadi Pan, a salt pan Botswana - won  @NatGeo’s Wildlife Photo of the Year in 2018.

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Mainstream media article admits Russia is avoiding civilian casualties and minimizing destruction in Ukraine @BenjaminNorton
Law & Politics


A US DIA analyst admitted, "The heart of Kyiv has barely been touched. Almost all of the long-range strikes have been aimed at military targets"

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Putin's Bombers Could Devastate Ukraine But He's Holding Back. Here's Why @Newsweek
Law & Politics


As destructive as the Ukraine war is, Russia is causing less damage and killing fewer civilians than it could, U.S. intelligence experts say.
Russia's conduct in the brutal war tells a different story than the widely accepted view that Vladimir Putin is intent on demolishing Ukraine and inflicting maximum civilian damage—and it reveals the Russian leader's strategic balancing act. 

If Russia were more intentionally destructive, the clamoring for U.S. and NATO intervention would be louder. 

And if Russia were all-in, Putin might find himself with no way out. 

Instead, his goal is to take enough territory on the ground to have something to negotiate with, while putting the government of Ukraine in a position where they have to negotiate.

Understanding the thinking behind Russia's limited attacks could help map a path towards peace, experts say.

In nearly a month since Russia invaded, dozens of Ukrainian cities and towns have fallen, and the fight over the country's largest cities continues. 

United Nations human rights specialists say that some 900 civilians have died in the fighting (U.S. intelligence puts that number at least five times UN estimates). 

About 6.5 million Ukrainians have also become internally displaced (15 percent of the entire population), half of them leaving the country to find safety.
"The destruction is massive," a senior analyst working at the Defense Intelligence Agency (DIA) tells Newsweek, "especially when compared with what Europeans and Americans are used to seeing."
But, the analyst says, the damage associated with a contested ground war involving peer opponents shouldn't blind people to what is really happening. (The analyst requested anonymity in order to speak about classified matters.) 

"The heart of Kyiv has barely been touched. And almost all of the long-range strikes have been aimed at military targets."

In the capital, most observable to the west, Kyiv city authorities say that some 55 buildings have been damaged and that 222 people have died since February 24. It is a city of 2.8 million people.

"We need to understand Russia's actual conduct," says a retired Air Force officer, a lawyer by training who has been involved in approving targets for U.S. fights in Iraq and Afghanistan. 

The officer currently works as an analyst with a large military contractor advising the Pentagon and was granted anonymity in order to speak candidly.

"If we merely convince ourselves that Russia is bombing indiscriminately, or [that] it is failing to inflict more harm because its personnel are not up to the task or because it is technically inept, then we are not seeing the real conflict."
In the analyst's view, though the war has led to unprecedented destruction in the south and east, the Russian military has actually been showing restraint in its long-range attacks.
As of the past weekend, in 24 days of conflict, Russia has flown some 1,400 strike sorties and delivered almost 1,000 missiles (by contrast, the United States flew more sorties and delivered more weapons in the first day of the 2003 Iraq war). 

The vast majority of the airstrikes are over the battlefield, with Russian aircraft providing "close air support" to ground forces. 

The remainder—less than 20 percent, according to U.S. experts—has been aimed at military airfields, barracks and supporting depots.
A proportion of those strikes have damaged and destroyed civilian structures and killed and injured innocent civilians, but the level of death and destruction is low compared to Russia's capacity.
"I know it's hard ... to swallow that the carnage and destruction could be much worse than it is," says the DIA analyst. 

"But that's what the facts show. This suggests to me, at least, that Putin is not intentionally attacking civilians, that perhaps he is mindful that he needs to limit damage in order to leave an out for negotiations."
Russia began its invasion of Ukraine on February 24 with an air and missile attack targeted against some 65 airfields and military installations. 

On the first night, at least 11 airfields were attacked. Some 50 additional military installations and air defense sites were hit, including 18 early-warning radar facilities.

In these initial salvos, a total of some 240 weapons were expended, including 166 air-, ground-, and sea-based missiles. 

Though there were a good number of longer-range bombers (flying from Russian soil), most of the airstrikes were shorter-range and most of the missiles launched were also short-range types of the Iskander (NATO SS-26 Stone) and Tochka (NATO SS-21 Scarab) classes.
The breadth of the attack—north to south, east to west—led many observers to compare the opening bombardment to a pattern seen in U.S. wars in Afghanistan and Iraq, where large salvos concentrating on air defenses and airfields had the intent of establishing air superiority, a shock strike that would then open the skies for follow-on bombing at will. When it came to Ukraine, not only did many observers "mirror-image" Russian objectives to match U.S. practices, they also made premature (and incorrect) observations that Russia was fighting such a conflict.

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Putin's Bombers Could Devastate Ukraine But He's Holding Back. Here's Why @Newsweek [continued]
Law & Politics


Even before Russian ground forces reached Kyiv and other cities, this narrative goes, the air and missile forces would have so damaged Ukraine—including its communications and other infrastructure needed for defenses to continue working—that it would secure victory on the ground.

Russia has not achieved any of these goals. Though the outlines of its first night of strikes suggested an air superiority campaign and an intense and focused destruction of Ukraine's military, after a month of war, continued targeting tells a different story. 

Russia still hasn't completely knocked out the Ukrainian air force, nor has it established air superiority. 

Airfields away from the battlefield are mostly still operable and some (in major cities) haven't been bombed at all. 

The fabric of communications in the country continues to operate intact. 

There has been no methodical Russian attack on transportation routes or bridges to impede Ukrainian ground defenses or supplies. 

Though electrical power plants have been hit, they are all in contested territory or near military installations and deployments. None have been intentionally targeted.
In fact, there has been no methodical bombing campaign to achieve any systemic outcome of a strategic nature. 

Air and missile strikes, which initially seemed to tell one story, have almost exclusively been in direct support of ground forces.
"Think of the Russian Air force as flying artillery," says the retired senior U.S. Air Force officer, who communicated with Newsweek via email. 

"It's not an independent arm. It has undertaken no strategic air campaign as American observers might be used to from the last 30 years of American conflict."

Ukrainian air defenses, both fixed and mobile missiles, have proven resilient and deadly.

"The Air Defense's survivability and efficacy have surprised many, not only in Kyiv, but also across the country," Kyiv-based military expert Oleg Zhdanov told the Kyiv Independent.
Ukrainian military reporter Illia Ponomarenko says that the air defense system defending Kyiv from aircraft and missiles "has been particularly effective.

"Most missiles targeting the city are successfully intercepted," Ponomarenko says.

Russia did not bomb stationary air defense emplacements protecting cities. U.S. analysts say Putin's generals were particularly reluctant to attack urban targets in Kyiv.
As a result, regardless of the Kremlin's plans—whether Russia was actually seeking air superiority or intended to limit damage in Kyiv—there is no question that Putin has had to revise the long-range attack plan.

Over the course of almost four weeks, missiles fired at Kyiv have been scarce. 

Ukrainian media have reported just more than a dozen incidents involving Russian cruise and ballistic missiles intercepted over the city and its closest suburbs since February 24. 

And all of them, U.S. experts say, have been clearly headed for legitimate military targets.

"The fact that the mobile S-300 SAM systems are still operating is a powerful indictment of Russia's ability to conduct dynamic or time-sensitive targeting," the Atlantic Council asserted this week in a military brief.

The DIA analyst disagrees: "For whatever reason, clearly the Russians have been reluctant to strike inside the urban megalopolis of Kyiv.
"Yes they might not be up to the U.S. task [in dynamic targeting] or in establishing air superiority ... But this is the Russian air force, subordinate to the ground forces. And this war is different: it's being fought on the ground, where everything strategic that Russia might destroy in front of its forces—bridges, communications, airfields, etc.—also becomes unusable to them as they move forward."
From the very beginning of air strikes, both U.S. analysts agree, some of the limited air and missile attacks have also had some internal logic. 

Take, for instance, the airfield at Hostomel, northwest of Kyiv. It wasn't directly attacked because Russia initially used it to land paratroopers, with the hope of advancing to the capital city. 

Instead the airfield and the surrounding countryside became the scene a major battle, as Ukrainian forces mounted a fierce defense.

In the south, Kherson airport also wasn't attacked. The reason has become clear: Russia is now using that very airfield to stage its own forces.
In Kyiv, only one of the major airports was struck, in Boryspil. 

The news media reported that the "international airport" was hit, but the dual civil-military airfield is also home to Ukraine Air Force's 15th Transport Wing, including the presidential Tu-134 jet that might have been used by Ukrainian President Zelensky if he chose to evacuate. The other major civilian Kyiv airport, Zhulyany, has never been attacked. Nor have two civil airports in Kharkiv (Ukraine's second largest city) been attacked.

Russia started the war with some 300 combat aircraft in Belarus and western Russia within range of Ukraine. T

hose and other aircraft pulled into the war have been flying about 80 strike sorties (individual flights) daily. 

Ukraine claims that 95 of those Russian aircraft have been lost, either shot down by air defenders or due to human error and technical problems. 

(Russia has moved additional aircraft from other bases to replenish most of its losses.)

The strikes inside major cities (Kyiv, Kharkiv, and Odessa) have not only been limited, but the retired U.S. Air Force officer points out that even when long-range aviation—Russian Tu-95 "Bear" bombers delivering cruise and hypersonic missiles —have flown strikes in western Ukraine, away from the battlefield, they have been directed at military targets.
And there has been strategic logic, at least in Russia's view.
"They've been signaling," the retired officer says. "Western airfields [at Lutsk, L'viv, and Ivano-Frankivsk] were hit because they were the most likely steppingstones for donated fighter aircraft coming in from Poland and eastern European countries. When those targets were prepped," he adds, "there was also talk of a western no-fly zone where those [western] airfields might have been essential.

"And the so-called peacekeeper training ground [in Yaroviv] was hit because it was the place where the 'international legion' was to have trained," the officer says. "Moscow even announced that."
Russia, the DIA analyst adds, has also been careful not to cause escalation onto Belorussian or Russian territory, or to provoke NATO. 

Despite operating from Belarus, Russian ground and air operations have mostly been confined to the southeastern portion of the country. 

And the attacks in western Ukraine, have been careful to avoid NATO airspace. 

For example, the Ukrainian airbase at Lutsk, home to the 204th Aviation Wing and just 70 miles south of the Belarus, was attacked March 13th by long-range bombers. The missiles were launched from the south, from over the Black Sea.
None of this is to suggest that Russia is not at fault in its invasion, or that the destruction and the civilian deaths, injuries and dislocation aren't due to its aggression. 

Evidence on the battlefield, where there has been grinding fight for territory—in Kharkiv, in the contested front line towns like Mariupol, Mikolaiiv, and Sumy in the east; and Chernihiv northeast of Kyiv—indicates that civilian deaths have been much higher where ground forces are operating.

Even though the majority of Russian airstrikes have taken place in these areas, the increased civilian harm is due to the use of artillery and multiple rocket launchers, not Russian air or long-range missile strikes.

"People are talking about Grozny [in Chechnya] and Aleppo [in Syria], and the razing of Ukrainian cities" a second retired U.S. Air Force senior officer tells Newsweek. 

"But even in the case of southern cities, where artillery and rockets are within range of populated centers, the strikes seem to be trying to target Ukrainian military units, many of which by necessity operating from inside urban areas."
The officer requested anonymity because he is being privately briefed on the war by the Pentagon and is not authorized to speak to the news media.

He and the other analysts who spoke to Newsweek argue not only that the destruction is only a small fraction of what is possible, but also that they see a glimmer of hope in a fact-based analysis of what Russia has done.

"I was initially puzzled as to why more long-range missiles haven't been sent into Kyiv and other major cities such as Odesa, and also why long-range aviation hasn't been used more in strategic attacks," says the second senior officer.

 "But then I had to shift to see the war through [Vladimir] Putin's eyes."
"Caught with his pants down, perhaps Putin indeed pivoted after he realized that Ukraine wasn't going to be a cakewalk and that Kyiv wasn't conquerable. Maybe he decided to solely focus on taking territory along the periphery and linking up his consolidations in the south, to be in a position to hold enough territory to extract concessions from Ukraine and the west—security guarantees or some demilitarized zone."

The second senior officer says that Putin obviously continues to apply pressure against Kyiv, but Russia hasn't shifted much of its own forces and has continued to back off bombing in the city proper.

"In that, maybe he is leaving room for a political settlement," the officer says.
Sunday, Volodymyr Zelensky told CNN he is prepared to talk to the Russian president. "I'm ready for negotiations with him. I was ready for the last two years. And I think that without negotiations, we cannot end this war," said Zelensky.
The fact that both sides are talking, experts say, indicates not only how shocked they are by the destructiveness of a land war in Europe, but are also stymied in achieving their military objectives. 

As Russia advances, it is running out of supplies. Its forces are also exhausted. As Ukraine continues its valiant defense, it too is reaching the limits of human endurance, facing major losses and running low on ammunition.

It is now absolutely clear, all U.S. observers agree, that Putin and his generals overestimated their own military prowess while grossly underestimating Ukraine's defenses.

"I'm frustrated by the current narrative—that Russia is intentionally targeting civilians, that it is demolishing cities, and that Putin doesn't care. Such a distorted view stands in the way of finding an end before true disaster hits or the war spreads to the rest of Europe," the second U.S. Air Force officer says.

Heartbreaking images make it easy for the news to focus on the war's damage to buildings and lives. But in proportion to the intensity of the fighting (or Russia's capacity), things could indeed be much worse.
"I know that the news keeps repeating that Putin is targeting civilians, but there is no evidence that Russia is intentionally doing so," says the DIA analyst. 

"In fact, I'd say that Russian could be killing thousands more civilians if it wanted to."
"I'm no com-symp," the analyst says. "Russia is dead wrong, and Putin needs to be punished. But in terms of concluding the war in a way that both sides can accept and where we don't see Armageddon, the air and missile war provides positive signs."

Every war is unique and awful, and Ukraine is no different. But Russia's choice to modulate its destructiveness is an important counterintuitive element. 

Vladimir Putin can't easily win; he can't accept loss or retreat; and he can't escalate. He has to keep destruction and pressure at a very careful, just-bad-enough level to keep some advantage.
"I know it's thin consolation that it could be a lot worse," the DIA analyst says, "but to understand how that is the case should really change people's perspectives, even inside the U.S. government, as to how to end this."

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When the dust settles, I think the only folks who’ll find themselves isolated are the west. Nobody is watching this onslaught of sanctions with fear, but clarity. @VikSoho
Law & Politics


This talk of the EU and NATO being united more than ever is wishful thinking, not consistent with reality. 

When the dust settles, I think the only folks who’ll find themselves isolated are the west. Nobody is watching this onslaught of sanctions with fear, but clarity.

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Scholz: Russian energy ban would mean European recession @POLITICOEurope
Law & Politics

An immediate ban on Russian energy imports would trigger an economic recession in Germany and across Europe, German Chancellor Olaf Scholz warned Wednesday.
Speaking to the Bundestag, Scholz said Germany would end its energy dependence on Russia in due course but cutting all ties now would hit the German economy unprepared.
"We will end this dependence [on Russian oil, coal and gas] as quickly as we can, but to do that from one day to the next would mean plunging our country and all of Europe into a recession," the chancellor said, warning that "hundreds of thousands of jobs would be at risk, entire industries would be on the brink."

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#Zoltan Night time sneak attack. via @TheBondFreak
Law & Politics


We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West.
A crisis is unfolding. A crisis of commodities. Commodities are collateral, and collateral is money, and this crisis is about the rising allure of outside money over inside money. 

Bretton Woods II was built on inside money, and its foundations crumbled a week ago when the G7 seized Russia’s FX reserves...
The beautiful paradox of linear rates (the stuff you trade and I write about) is that you need to think linear to find relative value most of the time, but you have to think non-linear to recognize and survive regime shifts

We are seeing a regime shift unfold in funding markets currently (which, as always, will pass), and a sea change in inflation dynamics and FX reserve management practices.
We have two convictions today. First, June FRA-OIS spreads can widen more, to at least 50 bps, both due to funding premiums driven by commodity prices and the market taking out Fed hikes, 

and second, it’s a good time to get long... ...shipping freight rates. Yes, freight rates, which, at the current juncture are linked to “geo-monetary” dynamics. 

Freight rates are the price of balance sheet for “commodity RV traders” (the commodity trading houses) and for sovereigns that can take the risk of moving and storing subprime, sanctioned commodities.
First, funding. Since the start of the conflict in Ukraine, spot U.S. dollar Libor, FRA-OIS, and FX swaps have been showing signs of stress. 

Not much, but we hear two things from funding desks: cash is bid, and term cash is hard to come by

Normally, where o/n points trade in the FX swap market determines how the rest of the curve trades (low premia in o/n space mean low premia in term space). But these aren’t normal times. 

We have a crisis of sorts unfolding, and in a crisis, like in 2008, everyone lends at short maturities and the collapse in o/n premia is at the expense of term premia – 

in a crisis, term funding premia increase on the back of compressed o/n premia, as opposed to decline as they normally would.
Who drives the bid for cash, i.e. whose bid is driving term funding premia in this environment where lenders are less willing to lend cash for longer tenors? 

The commodities world, for three reasons. 

First, non-Russian commodities are more expensive due to the sanctions-driven supply shock that basically took Russian commodities “offline”. 

If you are a (leveraged) commodities trader, you need to borrow more from banks to buy commodities to move and sell them.
Second, if you are long non-Russian commodities and short the related futures, you are likely having margin calls that need to be funded. 

Anyone in the commodities world is experiencing a perfect storm as correlations suddenly shot to 1, which is never a good thing. 

But that’s precisely what happens when the West sanctions the single-largest commodity producer of the world, which sells virtually everything. 

What we are seeing at the 50-year anniversary of the 1973 OPEC supply shock is something similar but substantially worse – the 2022 Russia supply shock, which isn’t driven by the supplier but the consumer.
Third, if you are short Russian commodities and long the related futures, then you are likely having margin calls too that also need to be funded like above.
The aggressor in the geopolitical arena is being punished by sanctions, and sanctions-driven commodity price moves threaten financial stability in the West. 

Is there enough collateral for margin? Is there enough credit for margin? What happens to commodities futures exchanges if players fail? Are CCPs bulletproof?
I haven’t seen these topics in the wide offering of Financial Stability Reports, have you? 

Is the OTC commodity derivatives market the gorilla in the room? 

The commodities market is much more financialized and leveraged today than it was during the 1973 OPEC supply crisis, and today’s Russian supply crisis is much bigger, much more broad-based, and much more correlated. It’s scarier.
The higher non-Russian commodity prices get and the lower Russian commodity prices fall, the wider FRA-OIS will get, and if you want to express all this in the credit space, look at what CDS spreads on some bigger commodity traders have done since we published our Dispatch on commodity derivatives on Friday.
Spot on! Next, let’s move on to the freight rates and Bretton Woods III angles.
Regular readers of this publication know of Perry Mehrling: my “Keynes” and father of the money view. 

As Perry Mehrling taught me, money has four prices:
(1) Par – which is the price of different types of money and which means that cash, deposits, and money fund shares should always trade 1:1.
(2) Interest – which is the price of future money and which refers to OIS and spreads around OIS across all possible money market segments.
(3) Exchangerate–thepriceofforeignmoney,i.e.U.S.dollarsvs.therest.
(4) Price level – which is the price of commodities (all of the Russian, non-Russian stuff) and, via commodities, the price of everything else.
Recall our conversation in Friday’s Dispatch about the parallels between the currently unfolding crisis and the crises of 1997, 1998, 2008, and 2020, and the conclusions that we drew from the review of these crises. 

These were that every crisis occurs at the intersection of funding and collateral markets and that, in the presently unfolding crisis, commodities are collateral, and more precisely, Russian commodities are like subprime collateral and all other stuff is prime. 

Now, back to the four prices of money and how they link up with these themes:
(1) Par – this is what broke in 2008 when money funds broke the buck and funding markets froze from fearing subprime mortgage collateral.
(2) Interest – this is what broke in 2020 when bond RV trades crashed as the drawdown of credit lines pulled funding away from good collateral.
(3) Exchangerate–this is what broke in 1997 when collateral (FXreserves) went missing and U.S. dollar funding staged a sudden stop in Asia.
(4) Price level – this is what’s in play as we speak...
Bretton Woods III 2 7 March 2022
...and if you see the pattern I see, you should be concerned. Commodities used to trade at tight spreads until now. 

There was one global market across all commodities that the large commodities traders arbitraged, much like a bond RV hedge funds arbitrage the cash-futures basis. 

Mortgages were like that too before 2008 – public or private, prime or subprime, they all traded at par......until they didn’t.
Commodities no longer trade at par. There are Russian commodities that are collapsing in price and there are non-Russian commodities that are rallying – this rally is due to the 2022 Russia supply shock that we referred to above, which, once again, is driven by present and future sanctions-related stigma.
It’s a buyers’ strike. Not a seller’s strike, to make things all the more absurd...
Russian commodities today are like subprime CDOs were in 2008. Conversely, non-Russian commodities are like U.S. Treasury securities were back in 2008. 

One collapsing in price, and the other one surging in price, with margin calls on both regardless of which side you are on. The “commodities basis” is soaring!
Commodity correlations are also at 1, which, to stress, is never a good thing.
From the 1997, 2008, and 2020 crises, we also learned that...
...every crisis is about the core vs. the periphery (large New York banks refusing to roll U.S. dollar funding in Southeast Asia in 1997; secured funding against subprime collateral to SIVs, 

Bear Stearns, and Lehman Brothers in 2008; and secured funding against good collateral to RV hedge funds during 2020).
And from these crises we also learned that...
...someone, somehow must always provide a backstop – or as Perry Mehrling would say, an “outside spread” (the IMF in Southeast Asia in 1997 in exchange for Washington consensus-type structural reforms; the Fed backstopping the shadow banking system with a range of facilities in 2008 in exchange for Basel III; and the Fed backstopping RV funds with QE and the SRF in March 2020, in exchange for “we don’t yet know what,” but history says there will be a price).
Which brings us back to today – the present – and shipping freight rates.
If we are right, and if this is a “crisis of commodities” – a 2008 of sorts thematically, if not in terms of size or severity – who will provide the backstop?
We see but only one entity: the PBoC!

Western central banks cannot close the gaping “commodities basis” because their respective sovereigns are the ones driving the sanctions. 

They will have to deal with the inflationary impacts of the “commodities basis” and try to cool them with rate hikes, but they will not be able to provide the outside spreads and won’t be able to provide balance sheet to close “Russia-non-Russia” spreads.
Commodity traders won’t be able to either. Remember that Glencore rose from the ashes of Marc Rich + Co, and with Switzerland along with the sanctions, Swiss-based commodity traders will think twice about arbitraging the spreads.
But the PBoC can... ..as it banks for a sovereign who can dance to its own tune. To make things more complicated, China is probably thinking deep and hard about the value of the inside money claims in its FX reserves, now that the G7 seized Russia’s.
The PBoC has two “geo-strategic” = “geo-financial” options...

Bretton Woods III 3 7 March 2022
...sell Treasuries to fund the leasing and filling of vessels to clean up subprime Russian commodities. 

That would hurt long-term Treasury yields and stabilize the commodities basis and would give the PBoC control over inflation in China, while the West would suffer commodity shortages, a recession, and higher yields.
Yuck.
That can’t be good for long-term Treasury yields.
The PBoC’s second option is to do its own version of QE – printing renminbi to buy Russian commodities. 

If so, that’s the birth of the Eurorenminbi market and China’s first real step to break the hegemony of the Eurodollar market. 

That is also inflationary for the West and means less demand for long-term Treasuries.
Yuck.
That can’t be good for long-term Treasury yields either.
The idea behind going long shipping freight rates is simple: the price the PBoC will be paying to lease ships to fill them up with Russian commodities can in theory rise as much as the collapse in the price of Russian commodities: a lot. 

Renting boats is like renting balance sheet at a dealer to fund inventory, and if China does not have enough storage capacity on the mainland, it will store Russian commodities on vessels floating on the seas, encumbering not balance sheet (the PBoC is funding all this by printing money) but shipping capacity, which, for the rest of the world, will also be inflationary. Once again:
if you believe that the West can craft sanctions that maximize pain for Russia while minimizing financial stability risks and price stability risks in the West, you could also believe in unicorns. What G-SIBs are for financial stability...
...Glencore is for price stability.
In this instance, price instability (surging and collapsing commodity prices) feeds financial instability: margin calls may trigger the failure of some smaller commodity traders and maybe even some CCPs – the commodity exchanges.
Again, commodity correlations are at 1, which is never a good thing...
The Fed and other central banks will be able to provide liquidity backstops...
...but those will be Band-Aid solutions. The true problem here is not liquidity per se. Liquidity is just a manifestation of a larger problem, which is the Russian-non-Russian commodities basis, which only China will be able to close.
Do you see what I see?
Do you see inflation in the West written all over this like I do?
This crisis is not like anything we have seen since President Nixon took the U.S. dollar off gold in 1971 – the end of the era of commodity-based money.
When this crisis (and war) is over, the U.S. dollar should be much weaker and, on the flipside, the renminbi much stronger, backed by a basket of commodities.
From the Bretton Woods era backed by gold bullion, to Bretton Woods II backed by inside money (Treasuries with un-hedgeable confiscation risks), to Bretton Woods III backed by outside money (gold bullion and other commodities).
After this war is over, “money” will never be the same again... ...and Bitcoin (if it still exists then) will probably benefit from all this.

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A REGIME CHANGE IS UNDERWAY [in the markets]
Law & Politics

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



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UK government looking to nationalize Gazprom UK. If that happens it may cost tax payers $5.3 billion. @Theimmigrant84
Law & Politics

That’s because the company’s hedges wouldn’t be passed on, forcing the government to buy gas and electricity for customers at current high prices. Basically a disaster

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Currency Markets at a Glance WSJ
World Currencies

Euro 1.09844 
Dollar Index 98.796
Japan Yen 121.2330 
Swiss Franc 0.93218 
Pound 1.318875 
Aussie 0.747070 
India Rupee 76.35220
South Korea Won 1218.810 
Brazil Real 4.8258 
Egypt Pound 18.407100 
South Africa Rand 14.764300

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Top 5 most valuable Cos in SSA by market capitalization: @DollyOgutu
Africa


1. MTN Group-US$ 23.364B
2.Safaricom- US$ 12.651B
3.Dangote Cement-US$11.21B
4. MTN Nigeria-US$ 9.841B
5. Airtel Africa-US$ 7.161B
20.Equity Bank-US$ 1.626B
22.KCB Bank-US$ 1.268B
25.EABL-US$ 1.104B

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NCBA Group PLC reports FY 2021 EPS +124.18% Earnings here
N.S.E Equities - Finance & Investment



Par Value:                  5/-
Closing Price:           24.00
Total Shares Issued:          1497745029.00
Market Capitalization:        35,945,880,696
EPS:             6.21

PE:               3.864



NCBA reports FY 2021 Earnings versus FY 2020

FY Total Assets 591.088037b versus 527.953979b
FY Kenya Government Securities HTM 121.164457b versus 87.407372b
FY Kenya Government Securities Available for Sale 72.887496b versus 60.933924b
FY Loans and Advances to customers [net] 244.037961b versus 248.497903b
FY Customer Deposits 469.890083b versus 421.504454b
FY Total Interest Income 46.514408b versus 44.244631b
FY Total Interest expense 19.477455b versus 18.751339b
FY Net Interest Income 27.036953b versus 25.493292b
FY Total Non-Interest Income 22.114303b versus 20.943361b
FY Total Operating income 49.151256b versus 46.436653b
FY Loan Loss Provision 12.716521b versus 20.441270b
FY Staff Costs 7.959949b versus 7.235776b
FY Other Operating Expenses 9.833224b versus 8.937744b
FY Total Operating Expenses 33.449887b versus 40.033431b
FY Profit before Tax 15.034990b versus 4.981921b 
FY Profit after Tax 10.223644b versus 4.570867b
FY EPS 6.21 versus 2.77 +124.18% 
FY Interim Dividend 0.75 versus 0.00
FY Final Dividend 2.25 versus 1.50

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NCBA Group [@NCBABankKenya] FY21 Results [ KES, YoY] @MwangoCapital
N.S.E Equities - Finance & Investment


Total Interest Income : +6.1% tov27B
Loans & Advances: -1.8% to  244B
Total Assets: +12.0% to 591B
Customer Deposits:  +11.5% to 469.9B
Loan Loss Provision: -37.8% to 12.7B
DPS: 2.25 [2020: 1.5]
EPS: +124.2% to KES 6

Conclusions

Trades on an egregious PE Ratio and on that basis a big discount versus its Peers

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Kakuzi Ltd reports FY 2021 EPS -48.6% here
N.S.E Equities - Agricultural


Par Value:                  5/-
Closing Price:           415.00
Total Shares Issued:          19600000.00
Market Capitalization:        8,134,000,000
EPS:              16.34 
PE:                 25.3977

Kakuzi reports FY Earnings through 31st December 2021 versus 31st December 2020

FY Sales 3.296414b versus 3.608941b

FY Profit before fair value gain 333.435m versus 789.719m

FY Fair Value gain in non-current biological Assets 138.121m versus 57.813m

FY Profit before Income Tax 471.556m versus 847.532m

FY Profit after Tax 319.736m versus 622.034m

FY EPS 16.31 versus 31.74

FY Dividend 22.00 versus 18.00 

Cash and cash equivalents at the end of the year 1,656,219

Commentary

The year saw the group post reduced earnings due to lower avocado production and prices. 

This was due to the avocado orchards entering their bi-annual offseason bearing cycle which results in a large crop of avocados in one year, followed by a small crop the following year

We, however, experienced greater earnings from macadamia sales during the year as a result of increased yields from our young orchards. 

Product diversification and value addition remain key investment areas to enhanced stakeholder value and our continued commitment to these is critical for the long term.

Your Board recommends an increase in the dividend per share to Shs 22.00 compared to Shs 18.00 per share in 2020.

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Kakuzi Ltd [@Kakuzi_Plc] FY 2021 results: @MwangoCapital
N.S.E Equities - Agricultural



- Sales down 8.6% to KES 3.296B
- EPS down 48.6% to KES 16.31
- Reduced earnings are due to lower avocado production and prices
- DPS increases by 22.2% to KES 22 per share
- DPR of 135%

Conclusions

very well diversified, well positioned in a space that is is expected to remain dynamic notwithstanding major headwinds like input costs.

Buy on dips.

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