|Wednesday 04th of May 2022
World Of Finance
THE FOREIGN EXCHANGE MARKET is the most liquid market of all. The market is always on and is largely organic [unlike for example the Gold and Crude Oil markets where we witness inorganic moves with some frequency] except for the early hours when liquidity is thin and Gremlins stalk the fx markets.
Forex markets had a daily turnover of $6.6 trillion dollars in 2019, up from $5.1 trillion in 2016.
The total value of the forex industry increased from $1.934 quadrillion dollars in 2016 to $2.409 in 2019
The United States Dollar (USD) is on one side of 88% of all forex trades.
$2 trillion worth of spot transactions traded daily in foreign exchange markets. After spot fx,
the instruments with the largest daily turnover are:
Forwards $1 trillion
Foreign Exchange Swaps $3.2 trillion
Currency Swaps $108 billion
Options and others $294 billion
Andy Warhol's 200 One Dollar Bills sold at @Sothebys in 2009 for $43.8 million.
I include andy Warhol because he managed to monetize the FX Market as effectively as the likes of George soros and Stanley druckenmiller amongst others.
There is a marvelous song by Deee-Lite – called Good Beat
And it begins
Depending on [how] you see a thing
Deee-Lite - Good Beathttp://bit.ly/2Y5X4FQ
Depending on you see a thing
The ship is free, or is it sinking?
Depending on how you see it
You cage your mind, or you free it.
Depending on how you see the times
The world divides or it closely binds
AND ITS CLEAR THAT THERE ARE MANY MOVING PARTS. LETS START WITH THE UBIQUITOUS DOLLAR.
AS I WRITE THIS PIECE THE DOLLAR INDEX $DXY IS TRADING JUST BELOW 103.50. CREDIT @Zima_The_Ape
I AM EXPECTING THE INDEX TO RALLY TOWARDS 110.00 BECAUSE WE HAVE UNDERGONE A REGIME CHANGE
$ REGIME CHANGE
THE PRINTER HAS BEEN SHUT OFF
THIS IS A BIG DEAL THERE IS A GREAT DEAL OF SCEPTICISM AROUND THE LONGEVITY OF THIS SHUTDOWN BUT THE UNANCHORED INFLATION RATE HAS BROUGHT POWELL TO HIS VOLCKER MOMENT.
MORE IMPORTANTLY FROM A GEOECONOMIC PERSPECTIVE THERE IS A STRONG CASE FOR THE US TO FLEX THE $ ESPECIALLY IN AN ENVIRONMENT WHERE THE UKRAINE SITUATION WILL REMAIN UNRESOLVED FOR THE FORSEEABLE FUTURE AND COMMODITY PRICES AND COMMODITY INFLATION ELEVATED.
FED goal of $95 billion per month of balance sheet runoff will be. split between $60 billion of Treasuries and $35 billion of MBS
The Federal Reserve signalled it will likely start culling assets from its $9 trillion balance sheet at its meeting in early May and will do so at nearly twice the pace it did in its previous "quantitative tightening" exercise as it confronts inflation running at a four-decade high.
This time, the annualized monthly rate of reduction works out to more than $1.1 trillion a year in balance sheet roll-offs. That means it will likely surpass the total of the entire 2017-2019 QT cycle by the end of this year or early 2023.
Many economists see officials targeting about $3 trillion in total balance sheet shrinkage over a three-year span
US Inflation REMAINS ELEVATED @mrmike7
CERTAINLY INFLATION SHOULD TAPER SOME BECAUSE OF BASE EFFECTS AS JOHN AUTHERS HAS NOTED BUT THE OVERARCHING POINT INFLATION IS OFF THE CHARTS.
a trimmed mean measure prepared by the Dallas Fed, excluding the biggest outliers in either direction, shows month-on-month inflation dipping back to conscionable levels after an extreme spike earlier in the year:
However, there’s at least one solid reason for hope that we’ve seen “Peak Inflation” — base effects are about to get very favorable.
Year-over-year inflation numbers for each of the next three months will see a month of very bad inflation from last year drop out of the equation. T
herefore, the eye-catchingly high numbers of late should soon moderate. The peak should be in.
I EXPECT $TNX YIELD TO TARGET 4%+ @ZeroDarkTradin1
THEREFORE, I EXPECT THE $ TO CONTINUE TO RALLY AND TO BROADEN OUT. I DON’T THINK YEN AT 150. 00 IS BEYOND THE REALMS OF POSSIBILITY WHICH IN TURN WILL PUSH THE YUAN LOWER AND THE CROSS CONTAGION EFFECTS ACROSS THE BOARD ARE VERY HIGH, PREDICTED AND PREDICTABLE
I ALSO EXPECT THE RUBLE TO CONTINUE ITS RALLY. @sudyk
Russian Ruble Euro @JONATHANSAYEB
I REFER YOU TO MY ARTICLE
Sunday, April 10, 2022 Apocalypse Nowhttps://bit.ly/3rfkf0c
‘’You can print money, but not oil to heat or wheat to eat’’ wrote @CreditSuisse’s Zoltan Pozsar.
Russia essentially gave the Euro the very same exorbitant privilege that King Abdul Aziz Ibn Saud of Saudi Arabia gave President Franklin D Roosevelt aboard the USS Quincy in Great Bitter Lake in February 14, 1945 when the petro dollar economy was symbolically born.
By insisting payments are made in Russian Rubles for Russian commodities Vladimir Putin has withdrawn that exorbitant privilege.
The Russian Ruble rally is real and has much further to go.
I EXPECT parity $eurusd imminently
$EURUSD Wkly Chart: Euro, has pushed through the 2008 crash trend-line and is about to break through that very LARGE descending triangle wedge.
If I do a measured move off that wedge pattern, the projected move down is CRAZY. That measured move is saying, there is no market. @FXPIPTITAN
Emerging and frontier market currencies are at the bleeding edge.
The Loneliest Man in the World @Hazlitt @avroch
A man is calling home from the phone booth of a hospital. He is in the emergency room, but doesn’t want to scare his wife, so he tells her that he has a stomach problem, nothing more.
The wife blames herself for not being there with him. He smiles and presses one hand against the glass partition of the booth. “Really, it’s not that bad,” he says.
She asks him about the doctor. He pauses before answering. If not for the pause, you’d never suspect that something else is at stake.
Now you understand that the man is lying: “Don’t worry, it’s nothing.” His hands are fumbling inside the booth for what he can’t bring himself to say.
Since Irrfan Khan died in 2020, I have returned often to this moment from The Namesake.
Something about the man’s tact—part of what Khan once called the “rhythm” of every character he plays—has remained with me for months: something about those hands.
Khan’s career was in many ways studded with tragic roles—a doomed lover in Maqbool, a stubborn outlaw in Paan Singh Tomar, a hands-on billionaire pursuing a dinosaur from a helicopter in Jurassic World—and yet I keep replaying the one death scene where his character doesn’t let the audience know what is about to come.
The man persuades his wife that he is alright before putting back the receiver. Then he withdraws his hands into his pockets and walks away from us.
There was Khan fifteen years ago, just when his film career was starting to take off, somehow able to embody the sense of an ending.
He would come to repeat the performance, this time for real, once he was diagnosed with cancer in 2018. In a span of two weeks, his calendar changed: his life, as he wrote then, quickly became “a suspense story.”
He moved with his wife, Sutapa Sikdar, to London for treatment. But a year later, he was back in India, shooting a film, looking happy on set.
For a while, as in that scene in The Namesake, his demeanour seemed to betray nothing untoward.
After his death, Sikdar revealed that his medical reports “were like scripts which I wanted to perfect.”
In his last months, while coming to terms with his illness, Khan was sparing his future biographers any qualms about pacing.
Actors’ lives do tend to mirror the imagined arcs of their movies, but Khan’s trajectory seems ultimately more redemptive than the elusive men he portrayed.
To those of us who grew up in India at the turn of the millennium, Khan first proved that it was possible to be a protagonist in a popular film and not sing and dance in the rain; that a character could be brought to life as much by what they said as what they didn’t; that a scene you watched unfold swiftly on screen often involved years of contemplation and restraint.
When Khan took up roles in international releases like The Namesake and A Mighty Heart, he didn’t undergo much of a makeover. He was still the outsider, born to middle-class Muslim parents in Jaipur.
He seemed worlds apart from the prancing heroes of Bollywood musicals, the handful of families who maintained an incestuous grip over the studio system in Bombay, or the older generation of cosmopolitan Indian actors who spoke Edwardian English and contented themselves with supporting roles in British period films.
In just over a decade, he became a presence on screens all over the world, with appearances in The Warrior, The Lunchbox, Slumdog Millionaire, Haider, Life of Pi, Jurassic World, even a sizeable part in The Inferno, where he outshone a glib Tom Hanks in scene after scene.
The first time I noticed Khan on a screen I thought he screamed like Al Pacino. Not the Pacino of Scarface or Dog Day Afternoon, braying out threats all over the place, but rather the don in The Godfather Part III: older, lonelier, the bravado all but invisible, howling skyward when his daughter dies in his arms.
The scene I watched Khan in, from Life in a Metro, didn’t feature any deaths, but the moment I remember was inflected with a similar sadness—a need, paradoxically private, to exert one’s lungs out.
Khan’s character, Monty, has dragged his work friend Shruti (played by Konkona Sen Sharma) out to the rooftop of their office building in Bombay.
Shruti happens to be dealing with multiple disappointments in her life. Her sister’s marriage is falling apart; the last man she dated lied to her about his identity.
“Who are you angry with?” Monty asks her. “Somebody in particular? Or just your luck? Whatever it is, just let it out.”
At first, Shruti is reluctant—“It’s not so easy,” she tells him—but then the two of them scan the skyline for a moment and start shouting together at once. Their voices ring out in the quiet. The building is tall enough to drown out the city’s sounds and impose a simulated silence.
When Shruti breaks down halfway through, you sense that she is facing up to her pain. But Monty’s yelling is tinged with the weariness of having tried a trick one too many times and still being doomed to try again.
From that moment on, you know that Monty and Shruti will fall for each other. The scene on the roof crackles with the thrill of seeing and being seen, the vulnerability usually associated with a first kiss.
Later in the film, Monty asks her why she ghosted him after that first date. She replies that she’d caught him staring at her breasts once. “That?” Monty bursts out shouting. “You rejected me for just that?”
Then he grins and steals a glance at her body again. Khan’s eyes carry that scene. You can’t really tell whether they seem glazed over because of the smoke from his cigarette, or because he is pretending to be upset.
I fell quickly for Khan: those pauses, those eyes. How they made you think there was more to him than he let on.
As a teenager, I’d spend days watching the Godfather movies on a loop, mouthing Pacino’s lines, memorizing his gestures to try on friends. Now I modelled myself on an Indian counterpart who didn’t even need a good line to be noticed.
When I moved to Bombay for college, I remember walking around the sea on my first evening and finding myself at the exact spot where they had filmed Monty confronting Shruti about her rejection of him.
It felt like a meaningful sign in a city that seemed to desperately believe in portents. Everywhere you went, you could glimpse in people’s faces either a placid certainty or a fear of transformation. Inside crowded trains during office hours, unsure if the incoming rush will part for me to get down at my stop,
I’d overhear lonely men consoling one another with their plans of getting married and rich. Couples lined the promenades and beaches late at night, their backs turned to the bright lights on land, as if their time together made more sense in the dark.
Each time you passed by the studio lots, rows of would-be actors sized you up around the gates, in case you were a casting agent looking to give someone new a break.
I, too, had come looking for a break. But what was it that I wanted to do? One week I’d design a billboard campaign for an ice cream brand, aspiring to end up in an ad agency.
The next week I was a documentary filmmaker, getting arrested while shooting undercover in a temple.
I longed for the exhaustion of experience: perhaps a job where, at the end of the day, someone might invite me to the rooftop of the office building and let me yell my feelings out.
Khan’s antics exuded depth, an air of having seen and lived through so much—precisely the image a college student, hungry for life, yearns to project.
Once, I asked a woman to meet me early in the morning near the waterfront. The idea was to find a quiet place and, I remember texting this, shout “our inner demons out.”
It must have been a confusing message and yet she showed up more or less on time. We sat on two chairs overlooking the beach and risked stern glances from morning joggers to awkwardly launch our voices across the sea.
The sun was already blazing on our backs and soon we gave up trying to impress one another. We started going out not long after, but never spoke of that day again.
The Loneliest Man in the World @Hazlitt @avroch continued
Irrfan Khan was born Sahabzade Irfan Ali Khan at a time, long ago now, when Indian Muslims were perceived as Indian above all.
His father was a lapsed aristocrat who had given up his family land and privileges but still liked to go on frequent hunting trips.
His mother was more introverted and usually at home.
Little Irfan, the second of four children and the first boy, would have liked nothing more than to be affirmed by her.
“I desired to be close to her,” Khan once said in an interview, “but somehow we’d end up fighting with each other. I used to imagine her patting my head in approval—I think I’ve been looking for that feeling all my life.”
His mother imagined that her children would settle not far from her in Jaipur, taking up modest jobs that just about paid the bills.
Years ago, her brother had travelled to Bombay, looking for work, and never returned.
Her husband’s early death only added to her fear of abandonment. Irrfan was nineteen then, and as the oldest son, expected to look after his father’s tire shop.
But his hopes had been stirred up watching leading men in Hindi matinees: a grandiose Dilip Kumar in Naya Daur, a raffish Mithun Chakraborty in Mrigayaa. Someone told Khan that he looked like Chakraborty: tall, dark, un-photogenic.
He began to style his hair like the hero. After high school, he joined evening theatre classes in a local college and even witnessed a couple of Bollywood shoots in town.
He wrote to the National School of Drama in New Delhi, bluffing in his application about plays he hadn’t acted in. They offered him a scholarship and Irrfan moved out of the house.
In Delhi, Khan nearly got his big break. The director Mira Nair had come to campus looking for actors to cast in her debut film, Salaam Bombay. One day, she noticed Khan in a classroom.
“He wasn’t striving,” Nair later recalled watching him act. “His striving was invisible. He was in it.” She cast him in the main role and Khan went to Bombay in the middle of the semester to train with the crew.
But after two months of rehearsals, Nair decided that Khan didn’t look the part. In the final film, Khan appears for a grand total of two minutes, as a letter writer who dupes the child protagonist.
In life, however, it was Khan who might have felt deceived: he had travelled all the way to a new city, thinking he had bagged the role, only to end up on the train back to Delhi before the shoot. His first role, as he would say later, also “became my first setback.”
Nair took another twenty years to cast him again in The Namesake. That Khan would rough it out for so long should not come as a surprise, for actors remain dispensable in Bollywood, unless they become box office gold or belong to insider families.
Squint at the backdrop of a scene in any Hindi film and you will spot a good actor—good, in spite of their measly roles.
“Talent is insignificant,” James Baldwin once wrote. “I know a lot of talented ruins.”
Thirty years ago in Bombay, around the production offices in the western precincts, you were likely to find just as many untalented plinths.
There was the shirtless scion of a famous scriptwriter who showed off his abs in every other scene (and keeps doing so these days opposite women thirty years younger than him).
There was the son of a powerful producer who became the country’s most bankable director by having his romantic leads tussle it out on a basketball court—then a rarity in India—and heralded the industry’s turn away from rural audiences to richer, albeit equally conservative, Indian expatriates.
Then there was the middle-aged director who liked to appear in medias res in all his movies. He would pop up halfway through a song or a scene, staring at the camera from under a sun hat, just so you didn’t forget you were watching his film.
Khan tried his best to find an opening in this milieu. He was told, for instance, that the showman director in a sun hat had seen Khan act somewhere and was apparently considering him for a part.
He spent the next few months waiting in vain for the director to call. Casting agents would glance at his portfolio and chide him for taking on diverse roles.
He was told not to fiddle with his looks and angle for essentially the same character in every film. He survived those years doing television gigs, daytime soap operas where the action happened once in real time and then again—twice—in slo-mo, so that viewers could follow what was going on with their eyes closed.
What was an actor’s actor doing in that world? Producers would tell Khan off on those sets for pausing between his lines. Cinematographers wanted him to look at the camera while talking.
He met Sikdar, a screenwriter, in drama school, and by the end of the millennium, they were married and had a son.
Sikdar even brought him aboard a couple of shows where she was employed as a writer, but Khan didn’t land a leading role throughout the ’90s.
One time he was so desperate for work that when someone pointed to a TV tower on a hill and joked that Khan might get a job there, he actually trekked up the mountain.
I know that tower on a hill: it was the landscape of my childhood. My mother worked as an engineer for India’s public broadcaster.
Every few years she’d be transferred to a different TV station across the country, which meant that we had to move from one housing campus near a TV tower to another.
At the same time Khan was struggling to find his bearings in soap operas, my mother was helping beam those episodes into homes week after week.
Later, when he talked about these shows in interviews, I’d recognize their names, but have no memory of their protagonists or storylines, never mind any flashback of Khan stumbling through a scene.
What I do remember is the tedium, the eternal blandness of those afternoons and evenings when a cricket game spread over five days would seem like the least onerous thing to watch.
Cable channels had arrived some years ago with the opening up of the economy, but their content was still lacklustre: turgid comedies, lachrymose adaptations of Hindu myths, stale reruns of Santa Barbara and The Bold and the Beautiful.
On weekdays, kids had just an hour of Disney cartoons—mostly DuckTales and TaleSpin—while on Saturdays, they could skip school to catch up with a preachy local superhero moonlighting as a buffoon in glasses.
Looking back on his lost decades, Khan felt that his biggest challenge was remaining interested in his craft: “I had to come up with ways to keep my inspiration going.”
The first time he got paid for a role after moving to Bombay, he bought a VHS player, apparently to avoid getting “bored of my own profession.”
The Indian viewer in those days was just as bored. I remember making do with little: listening to songs from forthcoming films, then watching the video sequences of the same songs on TV, so that by the time we caught the movie in a theatre, we’d get our money’s worth whistling and crooning when the songs came on.
The world opened up, at least for my generation, with the prevalence of CD and DVD burner drives on computers that freed us from the tyranny of television and the next Friday release.
By the time I was eleven, I was hanging out at a friend’s house every afternoon just to copy out discs from his older brother’s collection of MP3s.
Vendors on the street would sell bootlegged prints of everything from Rashomon to Home Alone to Deep Throat, and soon enough, grainy camera recordings of the newest movie in theatres, for the exact price of a balcony seat.
The Loneliest Man in the World @Hazlitt @avroch further
I remember watching a pirated print of The Warrior, the film Khan credits with reviving his career. The scenes were gorgeously rendered: Khan, long-haired and lanky, brandishing a sword in a forlorn expanse of sun and sand.
Then later, with his hair cut, looking both lost and determined as he treks his way through cascading woods in the Himalayan hills. Khan didn’t need to puff up his arms or chest to play the part of an enforcer to a medieval warlord.
His eyes gleam with menace when he goes plundering across villages on horseback, and afterwards with trauma, when he is forced to watch his little son being executed in an open field.
Silences suffice in this world of mythical beauty and carnage. Feelings are conveyed with the slightest of frowns and hand movements; everyone speaks in hushed tones despite the bloodshed.
When the director Asif Kapadia—who later made the Oscar-winning documentary Amy on the singer Amy Winehouse—first auditioned Khan, he thought he looked like “someone who’s killed a lot of people, but feels really bad about it.”
Kapadia had discerned something essential about Khan’s appearance in any movie: the story of a film often played out on his face.
The Warrior was never released in Indian theatres. (US rights were bought by Miramax, where it became another film that Harvey Weinstein shelved for years.)
But a couple of new directors noted Khan’s ability to evoke menace and cast him in two films that gave him a footing in Bombay: Haasil and Maqbool.
His characters in both films have killed a lot of people, but it is in Maqbool, where he plays the lead again, that you get to see how he feels about it.
There is a moment when Maqbool is staring at the corpse of his best friend, having himself ordered the hit, and he imagines that the dead man has opened his eyes again. Maqbool falls tumbling backward in shock.
Apparently on set, Khan was so persuasive while doing the scene that his co-actor Naseeruddin Shah thought he had really lost his balance and held out his arms to support him.
Shah had been one of Khan’s idols in drama school, and there he was, taken in by the latter’s performance. “You’re bloody good,” he told Khan.
By the time I saw a pirated print of The Warrior, Khan had impressed many others with his breakout roles. He stood out in The Namesake as the withdrawn father.
Wes Anderson wrote a part in The Darjeeling Limited just for him. He was cast as a cop in both A Mighty Heart and Slumdog Millionaire.
In India, Life in a Metro showed that Khan need not always play the brooding murderer. He even appeared in a TV ad that became very popular because of its setup: sixty seconds of Khan just impishly chatting up the viewer from a screen.
Those were indulgent days. Bollywood was finally catering to the country’s craving for realism.
Filmmakers could hope to break even by releasing a movie only to select audiences in cities, which meant that they could steer clear of big studios and song-and-dance routines, and instead cast new actors as leads.
In Bombay, a decade ago, I often had the sensation that we were making up for lost time: all those hours squandered in childhood when we were deprived of things to watch.
I lived at the YMCA with a roommate who was glued to his laptop all day and night, watching something or the other. D. had a couple of 500 GB hard drives, stacked with torrent downloads of the latest Japanese anime series, episodes of every American TV show aired in the last thirty years, and an unbelievable archive of international movies grouped in alphabetical order by their directors’ last names.
He would be at his desk early mornings, sipping tea, his eyes blazing red from the memory of the show or movies he had stayed up all night to watch.
On weekends he’d head out to a friend’s place in the suburbs, to replenish his stock of content.
The diligence with which he’d finish a series in the span of a day, or go looking for a director’s deep cut: I never thought of him as a passive binger. To D., watching was work.
Khan, too, was putting in the work. In Bollywood, this often involved playing to the gallery, for as he once admitted in an interview, “You don’t need nuance here as an actor. Attitude is enough.”
He disliked repeating himself. If he was asked to do eight takes for a scene, he’d do them in eight different ways, letting the director figure out the rest.
Even with subtler roles, Khan didn’t believe that an actor could always become the character and trusted his imagination more than research.
Before playing an Indian-American man in The Namesake, for instance, Khan had never travelled to the US. He understood that getting the clothes and the accent right could go only so far in conveying the inward rift of an immigrant.
He fell back on his memory, recalling a previous trip to Canada where he had noticed some dour-looking immigrant workers in shops.
“Something stayed in my mind,” he told TIME magazine in 2010. “A strange sadness…A rhythm that middle-aged people have.”
In The Warrior, he didn’t quite believe the scene where his character watches his son being killed. He approached the moment by telling himself that the experience of shooting a film was like life, and “sometimes you have to live a life because you have no choice.”
My favourite Khan anecdote is from the set of 7 Khoon Maaf, where he was cast as the third of the seven husbands of the protagonist Susanna, played by Priyanka Chopra.
Khan couldn’t relate to his role: a “wife beater” Urdu poet. The poet was just supposed to be persistent with his abuse, so that the audience could empathize with Susanna when she killed him.
While getting ready for his scenes, Khan happened to be listening to a random ghazal by the singer Abida Parveen.
“All of a sudden,” he told Kapadia later, “that ghazal created a whole world around me.” The song helped him delve into the inner life of the poet, find a pattern to his behaviour. He was able to transform himself within moments.
On talk shows, Khan would often recount the story of inviting his mother to the premiere of The Namesake in Bombay.
After the screening, she apparently asked Khan to introduce her to the director, Mira Nair.
“Let me talk to her,” his mother told him. “I want to ask her why, of all the people in the world, she had my son killed off in the film?” His mother was joking, of course, but something about the recurring deaths of his characters can seem, at first glance, manipulative.
The scripts that came his way seemed to repeatedly indulge the fantasy of his eventual disappearance. But death is also the script everyone wants to perfect: it is the endpoint of “striving”—the word Nair used to contrast the experience of watching Khan act in drama school—and if you dig deep into many of Khan’s roles, you’ll find a striver, a man relentlessly searching for something.
Whether he is projecting nonchalance (Maqbool), pain (The Warrior), or disdain (Slumdog Millionaire), signs of hustling are always evident.
In Life in a Metro, Monty is even striving to find a wife. Towards the end of the film, Monty encourages Shruti to move on from her bad relationships and try dating someone new.
“Take your chance, baby,” he tells her. You almost feel that it is Khan talking, counselling the viewer to keep looking for all there is to find.
The Loneliest Man in the World @Hazlitt @avroch more
What was Khan really striving toward? He seldom gave any straight answers. In public he offered zen disquisitions about the mystery of life.
Hours after his death, a scene from Life of Pi, in which he delivers a heartfelt monologue about “letting go,” went viral.
He went back and forth on his name, adding an extra r to “Irfan,” dropping the “Khan” because “I should be known for what I do, not for my background or caste or religion.” I
in Bombay, he refused the trappings of a star despite his American fame. He lived on Madh Island, a ferry ride away from the studio lots and the inland neighbourhoods where celebrities usually splurged on landmark mansions and apartments.
The distance was partly self-imposed: he never got over his disdain for messianic Bollywood heroes. For all his cameo parts in franchise movies abroad, Khan first tasted blockbuster success in India with Hindi Medium, which was released just three years before his death.
He didn’t seem to mind being typecast in big Hollywood projects, turning up invariably as the “international man.”
But he turned down roles in The Martian and Interstellar when their production dates clashed with smaller projects.
And there was that unforgettable photograph of him looking sullen when Slumdog Millionaire won Best Picture at the Oscars, while the rest of the crew are smiling and exulting around him.
Both In Treatment and The Lunchbox make good use of this enigma: the way Khan couldn’t help but look slightly disaffected everywhere.
“He’s got the loneliest face I’ve ever seen,” Paul, a therapist played by Gabriel Byrne, says of Khan’s character,
Sunil, in one episode of In Treatment. And indeed, Sunil is alone, even though he lives in Brooklyn with Arun and Julia, his son and daughter-in-law, six months after his wife passed away in Calcutta.
Every few episodes, Sunil sits in Paul’s office and grudgingly reveals his woes—how his wife had in her last moments made sure that Sunil would move in with their son overseas, how he can’t stand the fact that Julia gives him a weekly allowance and monitors his time with the grandkids, how she goes around calling his son Aaron, how he is absolutely certain that she is having an affair.
There is something bleak about Sunil’s obsession with Julia: his eyes visibly light up when he describes the way she talks, the visions he has of “smothering” her when he hears her laugh. T
he showrunners keep circling back to the creepiness of Sunil’s fixation, but they miss the fact that this revulsion gives him a reason to wake up every morning in a new country.
Just for a while, he can forget that his wife of thirty years has died. The deeper rift is between Sunil and Arun; Julia is just a proxy for the repressed feelings. The son has travelled too far, too soon, and the father can’t keep up.
The distance between Sunil and Arun is precisely the one Khan covered in his lifetime: from Jaipur to Jurassic Park; from the rooftop of an office building in Bombay to a therapist’s couch in New York; from playing a melancholy gangster in Maqbool to swishing in and out of boardrooms as Simon Masrani in Jurassic World.
Together his roles encompass the story of South Asian globalization in the last three decades: these are men whose lives look nothing like their fathers’. For all their striving and ambition, their private lives are stunted. They don’t quite know how to be well-rounded in a rapidly changing world.
The journalist Aseem Chhabra writes in his book, Irrfan Khan: The Man, The Dreamer, The Star that Khan was squeamish about doing sex scenes.
Perhaps this is why so many of his characters are literally learning to love. In Paan Singh Tomar, he has to teach his wife how to kiss.
In Road to Ladakh, where he plays a fugitive on the run, a lover must demonstrate the correct way to lock lips. “I don’t suppose you watch too many movies,” she teases him in bed. “We watch movies to learn these things.”
In The Lunchbox, Saajan Fernandes neither cooks nor watches movies. He is a widower, with no children, no friends. He plans to retire from his job soon and move out of Bombay.
Years ago, when his wife was alive, she used to record her favourite TV sitcoms on tapes, so that she could return to them on weekends and laugh at the same jokes again.
Now he stays up at night watching those old tapes, smoking on his porch, counting the hours until morning when he can go back to work.
(Saajan is what Monty in Life in a Metro might have become if he had never met Shruti. Sunil, from In Treatment, can also look forward to a similar existence once he is deported back to India.)
After a lunch delivery service misplaces their orders, Saajan starts exchanging letters with a youngish housewife, Ila.
He tells her about his past, how he keeps forgetting things because he has “no one to tell them to”; she shares her darkest impulses of sometimes wanting to jump from her apartment window upstairs.
They decide to meet and run away together to Bhutan. They arrive at the same café for their first date, and he sees her waiting alone at a table.
But he can’t bring himself to walk up to her and reveal his face. He sits at another table and watches her scanning the door for his arrival. He fears that he is too old for romance.
The Loneliest Man in the World @Hazlitt @avroch ......
Saajan may have missed his chance with Ila, but Khan’s performance in the movie was universally acclaimed. The Lunchbox won an important award at Cannes.
Sony Pictures Classics picked it up for distribution in the US where it did good business during Oscar week.
The reviews in the American press were all so gushing that I couldn’t help but slightly wonder about the applause.
Why were people in New York and Los Angeles connecting so much to this portrait of a loneliness I associated with Bombay?
After all, not too long ago, Slumdog Millionaire, a lacklustre musical even by Bollywood’s standards, had been championed at the Academy Awards.
But my doubts mostly stemmed from an immigrant’s anxiety about their new home, for by then I was a graduate student in the Midwest.
From the moment I first landed at O’Hare Airport, I was conscious of being mistaken for someone else, someone who fitted a perceived notion of being Indian.
“Creative writing, really?” The immigration officer who stamped my passport did a double take while scanning my I-20 form, no doubt more accustomed to incoming Indian students enrolled in engineering and life sciences courses.
My landlord in Iowa City picked me up from the nearby airport and seemed surprised that I spoke “good English.”
It was in Iowa City that I first saw The Lunchbox, in a narrow one-room theatre at the Ped Mall. Richard Linklater’s Boyhood had been screened earlier in the afternoon, and a section of the audience, which included an author who was among the faculty at the Iowa Writers’ Workshop, had stayed back to catch the evening show of an Indian film.
After the screening, the author and his wife waved me over to their seats. We fell into the usual post-show chatter about the film. “Watching it I felt so hungry, you know,” the author said, “The food! The spices!” He turned to his wife. “Honey, do you mind eating out tonight?”
Where I had glimpsed something ineffable—two lonely people in a city—he had spotted something expedient: his dinner plans.
And indeed, later that night, when I passed by the only South Asian restaurant downtown, he was seated at a table by the window, stuffing his face with a naan.
When I watched the movie again, I realized there were barely any close-up shots of the spices or the food: mostly you saw Ila filling up the containers of the lunchbox in the mornings and Saajan licking his fingers clean at lunch. I guess, for the author, the spices were a part of what was clearly an Indian night.
The Loneliest Man in the World @Hazlitt @avroch ..... further
“You look like the guy from Life of Pi.” I heard this often enough in Iowa City to know that it wasn’t just an old white man thing.
Baby-faced theatre majors part-timing as baristas in cafés, international writers staying over on a residency during the fall: they’d all recall the last time they had seen an Indian on screen, moments after meeting me, and offer what they no doubt thought was a compliment.
The child in me wished that they were talking about Khan, though they probably meant I reminded them of Suraj Sharma, who plays the half-naked kid stranded in the middle of the ocean for much of the film.
I looked nothing like Sharma, but did feel some affinity for Pi during the shipwreck. Before boarding, the boy had watched his father’s zoo being loaded on the docks, all those animals that they hoped to carry over into their new lives.
I missed Bombay, and worried about forgetting the place during my time away. In the stories I wrote during those years, I was recreating the city in my head, street by street.
To workshop those stories in the Midwest was to receive an education in distance: I grew aware of the difficulty of things travelling through intact, the quixotic task of carrying over one’s past.
There was the time twelve graduate students sparred in a room for over two hours on whether my characters should be talking to one another in Hindi.
Or the afternoon I lost my patience when someone suggested that a story by another writer about an Indian family in Alaska could be improved if the children ate more curry.
Each morning I might return on the page to the roads and promenades I had moved through for years, but the American reader would be stuck wondering—this was a verbatim comment I received on one of my stories—if “the city of Mumbai allowed double parking.”
I thought of Khan buying a VHS player decades ago, to keep up with actors abroad, or my friend D. staying up all night and watching movies in Bombay, to keep up with the world.
We might spend our lives back home bridging the gap with the West. But not many here were keeping up with us.
The Loneliest Man in the World @Hazlitt @avroch conclusions
The years just prior to Khan’s cancer diagnosis were his busiest. According to Chhabra, Khan acted in sixteen projects between 2015 and 2018.
He turned producer with Madaari, a jingoistic thriller where he positioned himself as a man taking on a nexus between politicians and businessmen.
In Haider, an adaptation of Hamlet set in Kashmir, he embodied the part of the ghost, apprising the protagonist of his uncle’s betrayal.
Judging from his roles in films like Piku, Hindi Medium and Angrezi Medium, he was branching out in this period as a comic hero.
The loneliness was again evident: his droll characters don’t come across as clowns so much as men cracking jokes to fill up an awkward silence.
Awkward silences were becoming a norm in Bollywood as India was succumbing to Hindu nationalism under a new leader.
The country’s biggest actors and directors held their peace when more and more films began to be censored after Narendra Modi became prime minister in 2014; they refrained from commenting when mobs of armed policemen stormed university campuses, when Muslims were stripped of their citizenship and lynched on streets; they chose to appear in group selfies with Modi and call him a “saint,” even as multiple dissenting activists ended up in prison without a trial or, worse, dead.
They didn’t even speak up when a young male actor died of suicide in 2020, and his girlfriend, also an actor, found herself being vilified night after night on partisan TV news channels.
One woman took the fall in a media trial fueled by wild insinuations and blinkered opinions.
She was blamed for swindling her boyfriend’s finances and accused of practicing “black magic.”
In the end she was arrested, allegedly for buying him marijuana, weeks before a crucial election in the deceased actor’s home state.
I watched this tragedy unfold month after month back in the country where I was less likely to be confused for someone else.
To assert that a place has changed in your absence is perhaps the oldest truism in the world, but the vitriolic mood of the Modi years is undeniable.
In newspapers you read every day of someone being arrested or beaten up or killed because they hurt “Hindu sentiments”: victims of hate crimes get treated as accomplices.
Cities like Delhi and Bombay are now unrecognizable. Those old buildings and seafronts where Khan’s characters had once reflected on their misspent lives are being razed as colonial hangovers.
If you stare into the horizon, you won’t see the TV towers of my childhood.
Everywhere you look, the skyline is obscured by creepy portraits of Modi. The values of this new India—violence, patriarchy, resentment, a paranoiac fear of others, a toxic mix of capitalism and religious conservatism—are exactly the ones promoted by devotionals and revenge sagas from the ’80s and ’90s, the movies that Khan had once found himself shut out of.
And if the influence of some old box office heroes has waned, it is partly because Modi has annexed their passionate cults of personality.
Years ago, I’d wonder at the crowds waiting outside actors’ houses in Bombay, people who had travelled hundreds of miles away from their homes just to catch a fleeting glimpse of their idols.
Now I recognize the same loud fervour in Hindu men who swear they’ll always vote for Modi.
After Khan died, it struck me that his last two films—Doob and Angrezi Medium—were going against the grain of patriarchal South Asian expectations: those oppressive social mores, reinforced by celluloid, that allow parents to dictate to their adult children who they can marry and what they can eat.
(I still wince at the coercive tagline of a blockbuster movie from the 2000s: “It’s all about loving your parents.”)
In both films, Khan plays a flawed father who is refreshingly worried about the ways in which he might be failing his children, how he might have scarred them with his choices.
For a change, we see protagonists striving to be helpful to the generation after them, endeavoring to be more empathetic parents.
There is a terrific scene in Doob where Javed, a troubled filmmaker, realizes that his teenage son is being bullied in school after the parents’ divorce.
He tells his son to make him out to be a bad father, but the son knows better: he knows that his parents were stuck in a miserable marriage.
Angrezi Medium is not as nuanced, but the bond between generations again seems compassionate. Khan’s character is a single father to a girl who seems to be reprising Khan’s own childhood in a sleepy Indian town.
She, too, has dreams of seeing the world, and her artless father and his friends struggle to get her admitted to a college in London.
They beg, borrow and steal, until the daughter realizes that she doesn’t need to empty her father’s savings for a degree abroad.
When she tells him she’d rather study in India, you’d think any father would hug his child in that moment, but no, Khan just smiles and leans out of the window of the cab they are travelling in. He glances away, holding it all in, looking happy for once.
Asset Pricing and Sports Betting Journal of Finance Tobias J. Moskowitz HT @johnauthers
World Of Finance
Sports betting markets offer a novel laboratory to test theories of cross-sectional asset pricing anomalies. Two features of this market – no systematic risk and terminal values exogenous to betting activity – evade the joint hypothesis problem, allowing mispricing to be detected. Examining a large and diverse set of liquid betting contracts, I find strong evidence of momentum, consistent with delayed overreaction and inconsistent with underreaction and rational pricing. Returns are a fraction of those in financial markets and fail to overcome transactions costs, preventing arbitrage from eliminating them. An insight from betting also predicts value and momentum returns in U.S. equities.
Commodity Chokepoints and QT @CreditSuisse Zoltan Pozsar
In today’s dispatch, we will review some news items that we think are relevant to understand near-term tail risks to commodity prices, economic activity and... ..funding markets.
In Money, Commodities and Bretton Woods III, we built on Perry Mehrling’s four prices of money framework (par, interest, FX, and price level),
adding the four pillars of commodity trading (protection, shipping and foreign cargo as factors that determine the price of commodities that determine the price level in developed economies – Credit Suisse’s “theory of the price level” if you will).
Today we’ll review some news headlines that are relevant for this framework. Some headlines are from after the start of the war, and some are from before.
Some of the headlines from before the war seemed inconsequential in January, but seem far more consequential in the context of geopolitical developments since then.
Our aim with this review is to build an “inventory” of triggers that may lead to “G-SIB score-like” chokepoints to the flow of commodities (oil and gas) and hence spikes in spot commodity prices, and to the flow of production through supply chains dependent on commodity inputs like oil, gas, or neon for semiconductors.
The chokepoints we are after can uncover hidden leverage: sudden spikes in spot prices can cause liquidity drains for broker-dealers and commodity traders through commodity derivative exposures, and sudden stops in the flow of crucial inputs can cause production shutdowns and furloughs, which can then trigger the drawdown of bank credit lines and fiscal responses.
All three would be funding events, especially if they occurred at the same time.
Banks are swimming in excess reserves for now, and spot price spikes to date haven’t wreaked havoc in funding markets to date, but the war in Ukraine is getting more complex for forecast
(Sweden and Finland are considering to join NATO, southern Ukraine is now firmly under Russian control, the fog of war is now spreading to include Transnistria, and gas to Poland and Bulgaria has been turned off) and the Fed is about to embark on QT.
Over the next six months, liquidity will diminish and the flow of commodities might hit some chokepoints, which can trigger spot price spikes, margin calls and credit line drawdowns.
I continue to believe that STIR traders will benefit from increased literacy about the world of commodities trading and the workings of commodity derivatives, so in today’s dispatch, we’ll review risks than run through commodity chokepoints, and in an upcoming dispatch, we’ll map out the commodity derivatives complex.
To start, I have learned this week from the indispensable Izabella Kaminska that the besieged Azovstal steel plant in Mariupol is not an average steel plant.
It’s one of the biggest steel plants in the world, and because of its scale, it can produce neon gas on industrial scale.
Another plant in Ukraine, the Zaporizhstal steel plant is another major producer of neon gas, and just like the Azovstal steel plant, its neon-producing capacity is due entirely to its scale.
These two Soviet-era steel plants are the largest steel plants in the world, and have no equivalents in developed countries, because “the capitalist system has never been able to produce equivalents due to the upfront costs”
To which I’d like to add the following: both the Azovstal and Zaporizhstal plants need lots of oxygen to make steel. Oxygen and steelmaking are inseparable, and steelmakers get oxygen through an industrial process called air separation.
Air is 78% nitrogen and 21% oxygen plus residuals. When steel plants conduct air separation, they separate oxygen and nitrogen for the basic oxygen process, an oxidation process that converts a charge of liquid blast-furnace iron into steel. Steelmakers aim to forge iron ore into steel with pure oxygen – not air – because nitrogen can cause inconsistent (faulty) mechanical properties in steel.
The point about the basic oxygen steelmaking process, is that an important byproduct of air separation is neon gas. Steel plants perform air separation on industrial scale.
The bigger the steel plant, the more air separation they do, and the more air separation they do, the more neon gas they get.
Because neon makes up only 0.002% of the air around us, we need lots of air separation to be able to produce neon on an industrial scale. Let’s now review some facts...
Metinvest, the holding company that owns several plants in southern Ukraine, has not only the Azovstal and Zaporizhstal plants in its portfolio, but also the smaller Ilych Iron and Steelworks (also in Mariupol).
All three perform air separation – the Azovstal and Ilych plants for their basic oxygen furnances (see here and here), and the Zaporizhstal plant for a different process (we are not sure what process, but we know that the plant uses oxygen and argon to purge steel produced using open-heart furnances, and that it is a major provider of medical oxygen, and we deduce that if there is oxygen production there must be air separation).
In English, there is a lot of air separation going on in southern Ukraine...
...and there have been fights about air separation capacity even before the war: Metinvest’s portfolio also used to include the Yenakiive Iron and Steel Works, which according to a statement by the company, it lost control over in 2017 over a tax dispute between the steel plant and the Donetsk People’s Republic.
The Yenakiive plant was the site of another major air separation operation for its basic oxygen furnance, which it updated in 2014.
Furthermore the map on page 4 of this presentation to the OECD, shows that southern Ukraine has a total of twelve steel plants, and this map by the FT that tracks territories under Russian control in Ukraine shows a near-perfect overlap – Russia’s control of southern Ukraine effectively means a Russian control of Ukraine’s steel plants...
...and by extension the Russian control of air separation capabilities in Ukraine!
Big steel plants are usually not the companies that purify the non-oxygen, non-nitrogen “parts” of air into component gases.
Rather they typically sell the residual gases in bulk to companies that further separate them into components, like neon gas and then sell them to the largest consumers of neon, which are...
Chipmakers use neon gas to operate high precision lasers that turn silicon into circuits, through a process called lithography. Lithography involves using lasers
to etch tiny delicate patterns onto the glass, which is how silicon wafers are transformed into sheets of chips.
Manufacturers need to control the exact wavelength of light emitted by their lasers, which is what neon gas is used for...
...to serve as a “buffer” gas to control the wavelength of laser for lithography.
Chipmakers account for about 75% of global demand for neon, which is a lot, and two of the five largest neon gas manufacturers in the world, Ingas and Cryoin Engineering are both based in Ukraine.
Ingas’ plant in Mariupol is an eight minute drive from the Azovstal steel plant, and Cryoin’s plant is in Odessa, and the two plants supply half the world’s semiconductor-grade neon (see here).
Southern Ukraine is thus chokepoint #1: a neon gas chokepint.
While Odessa (home to Cryoin Engineering) is not under Russian control – as per the FT map above – it is sandwiched right between Transnistria (a breakaway, pro-Russia republic in Moldova) on the left and the regions in southern Ukraine already under Russian control on the right.
Half the world’s neon supply might thus get under Russian control soon, which is important to realize given that chip companies and industry analysts say that there is only one to six months worth of neon gas in reserve (see here). So there you go:
the Strategic Petroleum Reserve (SPR) is down and is not easy to refill, and the “Strategic Neon Reserve” is down too and is also not easy to refill. That’s bad, and so chipmakers in Taiwan, South Korea and Japan are in the midst of all this.
No neon, no chips.
South Korea’s breakthrough in January where POSCO managed to produce neon as a byproduct of steelmaking is a good start to “hedge” the neon needs of chipmakers, but POSCO can produce only 22,000 cubic meters of neon per annum currently. Cryoin and Ingaz produced that much per month each, and so substituting the supply of neon from southern Ukraine won’t be easy.
Chip shortages are looming again...
...which brings us to another news item which we remember from January 25th, in which the U.S. Department of Commerce announced the results of a request of information on the state of semiconductor supply chains (see here).
More than 150 companies responded to the survey from across the world, and the key findings were as follows: current demand for chips is very strong, running 20% above 2019 demand; most foundries are running at 90% utilization, and the median inventory of chips has fallen from 40 days in 2019 to less than five days today, with these inventories even smaller in some key industries.
To quote from Secretary Raimondo’s statement:
“if another COVID outbreak, a natural disaster, or political instability disrupts [our emphasis] a foreign semiconductor facility for even just a few weeks, it can shut down a manufacturing facility in the U.S.,” putting the economy, jobs and inflation at risk of shutdowns, furloughs and spikes, respectively.
To quote from an FT article from that very day covering Secretary Raimondo’s press conference (which I think is more important than Chair Powell’s presser):
“Right now we make zero leading-edge semiconductor chips in the U.S.; we buy almost all of them from Taiwan. [...] Those are the chips needed in sophisticated military equipment [our emphasis]”.
Those are some comments during wartime and the U.S. military’s chip shortage and sourcing problem puts Russia-China relations and Russia’s intense focus on southern Ukraine into a different context: set aside Taiwan as a link in the daisy chain of things,
Taiwan needs neon from Ukraine to produce chips, and chips are needed to replenish sophisticated military equipment that are getting shipped to Ukraine.
This reminds us of the importance of the Alsace-Lorraine region in past wars...
Like southern Ukraine today, the Alsace-Lorraine region was rich in iron ore and was home to many steel making plants that the German Empire incorporated into its territory after France’s defeat in the Franco-German War in 1870-71, and was then retroceded to France in 1919 after World War I, and was then occupied by Germany in 1940 during World War II.
Steel was important then, and it is important today too, but basic oxygen steelmaking did not take off until after 1949, i.e., well after the end of World War II. Back to the present...
...where we fight with precision missiles which need lots of chips and neon.
Donbass (a large slice of southern Ukraine) has the largest coal field in Ukraine (coal is an essential input to steel production) and the Krivoy Rog mountains nearby have the largest iron ore deposits in Ukraine (another essential input) – hence the many steel plants in southern Ukraine with air separation and neon production capabilities.
What southern Ukraine is to Russia and to Ukraine today is a bit like what the Alsace-Lorraine region was to Germany and France during the Franco-German War and WWI and WWI. But Alsace was about steel, and......Donbass is about neon.
According to one astute market participant, who is also a keen observer of the chip market, Japan, South Korea and Taiwan form a sort of “Chip NATO”, or NeATO (Northeast Asian Technology Organization), and so there you have a thematic overlap between the role of NATO and the needs of “NeATO” today.
Chip shortages are important to track.
We know that massive stimulus checks driving demand for consumer electronics can “crowd out” industries like autos (see our concept of commodity leverage, and Japan’s experience with a 40% decline in auto production in 2020, when shutdowns due to the first wave of the Covid pandemic caused chip shortages).
We might soon learn that military demand (it’s wartime and there is legitimate reasons to re-stock in case the proxy war escalates into something far bigger) can also crowd out civilian demand for chips – a phones versus missiles thing...
If that happens, appreciate that missiles are not in the CPI, but phones are...
...and this is another thing that the Fed can’t do much of anything about, and also keep in mind that as Secretary Raimondo reminded us back in January, industries can shut down not only because people have to quarantine at home, but also because neon gas is “quarantined” in Ukraine.
Shutdowns are painful, and like in March 2020 then can trigger a massive drawdown of credit lines, and massive fiscal stimulus to ease the burden on furloughed workers.
And that’s just the “neon-chips-manufacturing” supply chain, and not the chain in Germany and the EU that is highly reliant on Russian natural gas as an input.
Banks’ stock buybacks are lowering SLRs as we speak, and the Fed is about to embark on QT, and these nominal balance sheet and liquidity trends, will at some point clash with the realities of a garden variety of supply chain issues.
Commodity Chokepoints and QT @CreditSuisse Zoltan Pozsar continued
Now onto other news items. Let’s stick with southern Ukraine and focus on the sea to the south of southern Ukraine – the Black Sea.
Earlier this week, the FT reported that NATO rejected a plea for naval escorts in the Black Sea.
Remember that what par is to money, protection is to commodity traders – protection of sea lanes and vessels.
According to the FT, “the head of the world’s largest ship manager has urged NATO to provide naval escorts for commercial vessels passing through the Black Sea [...] as dozens remain stuck in the conflict zone”.
According to the article René Kofod-Olsen, CEO of V. Group, the world’s largest ship manager, demanded that “our seafaring and marine traffic is being protected in international waters,” adding that “I’m sure NATO [...] has a role to play in the protection of commercial fleets”.
Do remember the nexus between global trade and the global military alliances: to remind, as we discussed in Money, Commodities and Bretton Woods III, there are precedents of NATO providing cover for commercial private ends
(see for example the first page of the book The World for Sale, by Javier Blas and Jack Farchy, recounting the turbulent descent of Vitol’s private jet with the oil trader Ian Taylor aboard under the protection of a NATO drone chaperoning its plane into war-torn Libya to negotiate a deal with rebels to trade crude oil from fields controlled by the rebels for gasoline to fight the forces of Gaddafi).
But that was a civil war, and the war in Ukraine is a proxy war...
Much like NATO is unwilling to create a no-fly zone in Ukraine, it is unwilling to guarantee safe passage to seafarers in the Black Sea, which is another twist in our neon story.
As this page on Ingas’ webpage shows and describes, neon is transported in containers (see images) either by road, sea or air transport, which brings up the following issue: if sea and air routes are not safe for neon (and they are not safe because NATO is hesitant to guarantee safe passage), then the only way out for neon is via road.
From Mariupol, which is home to Azovstal and Ingas and is under Russian control, neon gas can only go east, but for neon to get to chipmakers in South Korea, Japan and Taiwan by road, it has to pass through China first and then onto a ship to reach the final stop...
...which is chokepoint #2: the neon transportation chokepoint.
The west can still secure neon from Odessa (not under Russian control), but the west’s ability transport neon from Odessa to the Far East by air or sea is a function of who controls Odessa in the “Alsace-Lorraine region” for neon.
And that assumes that steel plants in southern Ukraine have not been damaged and that there are enough workers left to operate them. So either way is bleak:
plants can either produce neon but we can’t get neon to the Far East, or the plants are destroyed or unmanned and can’t produce neon period.
Oil shocks aren’t as consequential these days as they were in 1973, because cars and everything else is more energy efficient, but neon and chip shocks we are not ready for because we have never been forced to think about chip efficiency, and the findings of the U.S. Commerce Department’s survey underscore that.
Commodity Chokepoints and QT @CreditSuisse Zoltan Pozsar further
Let’s now leave neon gas and move on to natural gas.
Natural gas pipelines are commodity chokepoint #3: Poland and Bulgaria not getting gas any longer for failure to comply with Russia’s payment terms (gas for rubles) is an important precedent.
Everyone understands Germany’s and Italy’s reliance on Russian gas, and the EU’s reluctance to pay in rubles heightens the risk of disruptions to gas supplies, which would cause massive spot price spikes, margin calls, non-payments due to force majeure clauses and industrial shutdowns and furloughs as described above and here and here.
Let’s next move from gases to liquids – crude oil.
The U.S. has already boycotted Russian oil and Europe is getting ready to do it, and the pressure is on for the rest of the world to not buy any Russian crude.
Unlike natural gas, surprisingly little Russian oil is flowing directly to consumers via pipelines. The only exception is the ESPO pipeline which runs from Siberia to China, Japan and Korea.
The vast majority of Russian oil travels from fields to ports via pipelines, where they get loaded on to oil tankers for shipment.
There are two extreme scenarios for Russian oil.
First, the entire world boycotts Russian crude, bar the oil flowing via ESPO. Once tank tops are reached, Russia is forced to turn off oil production and the 7 million barrels per day that Russia produces for export disappears.
Once you turn oil off, it’s hard to get supply back online quickly. The spot oil price does not price this scenario, despite consumers’ eagerness to boycott Russian oil.
The release of oil from the SPR and from the reserves of other IEA members certainly helps at the moment, and China’s oil demand is weak at the moment due to lockdowns, but the SPR is not infinite, neither are lockdowns in China.
Second, the world splits and while the West boycotts Russian oil, Russia will find willing buyers in the East. India for example is buying more Russian oil (see here), and the volume of Russian oil on the water has reportedly increased since March
(Russian oil loaded on tankers on a given day, less oil discharged on the same day) which also indicates that Russian oil is being re-routed from the Baltics to the Far East.
That’s all well, but as we noted in this dispatch, you can’t really do that with all Russian crude, because if you do so you end up with a shortage of about 80 very large crude carriers (VLCCs).
And likely more, because since we published that dispatch, Euronav, the single largest owner of VLCCs (with a fleet of 45 VLCCs, see here) announced that it suspended the shipment on Russian oil (see here).
India only has 5 VLCCs (see here), and so it needs others’ fleets to stock up on cheap Russian oil from the Baltics.
Since China still receives Russian oil through the ESPO pipeline, it may boost purchases of Russian seaborne oil too, but we would still end up short VLCCs.
So the question of Russian crude oil leads to chokepoints #4 and #5:
First, a supply chokepoint if the entire world boycotts Russian oil and Russia is forced to shut down its oil fields, we lose 7 million barrels per day in exports.
Second, a shipping chokepoint if India and China buy Russian oil and we don’t have enough VLCCs to ship the oil.
Furthermore, if India and China cannot take up all Russian oil due to VLCC bottlenecks, then Russia will have to cut output which means turning off oil fields and so we’re back to a supply chokepoint...
Either way, Russia will export less, perhaps 3-4 million barrels less per day, and the SPR won’t be able to cover that kind of a shortfall.
If oil gets to $200, margin payments for commodity traders and for broker dealers with large commodity derivative books would skyrocket – another funding event to watch.
In “The “G-SIB” of Shipping” we wrote about the planned merger between Frontline and Euronav, which would create the world’s largest fleet of VLCCs – 67 vessels combined.
As a matter of national security for the West, government officials should be cognizant of the non-zero probability risk of a Chinese takeover of the combined Frontline-Euronav entity.
The U.S. or the EU do not have any tanker fleets, much like they do not have any chip foundries, or neon gas supplies for chips.
The largest tanker fleet controlled by China.....could chokepoint #6: our “commodities, your problem” compounded with “our VLCCs, your problem”. And the flow of oil can get even more complicated:Iran, China and Russia held naval drills in the Indian Ocean as part of the “2022 Marine Security Belt” exercise in January (see here), and have been holding trilateral drills since 2019 in the Indian Ocean and the Sea of Oman to “expand multilateral cooperation between the three countries to jointly support world peace, maritime security and create a community with a common future”.Discount the chances of an oil deal with Iran (to re-fill the SPR) in this context, and also the risk that the naval cooperation between Russia, China and Iran in the present context of world affairs represents to the mother of all chokepoints...
...the Strait of Hormuz, which a lot of Middle Eastern oil passes through not to mention the LNG shipments from Qatar that the EU plans to soon transition to.The Strait of Hormuz is chokepoint #7.
Alan Greenspan used to worry about the Strait of Hormuz while he was Chair (see Greg Ip’s interview with Greenspan in the Wall Street Journal from 2007), and maybe it’s time to dust off some of those worries.
Volcker had OPEC. Greenspan had Iraq. Powell has Russia. OPEC and Iraq were about oil only, but the present conflict is about oil, VLCCs, natural gas, neon gas and chips...
...and who knows what else will come.
Oil, VLCCs, distillates, natural gas, neon and chip shortages mean two things: spot prices can spike for each and they can also shut down supply chains.
Spot price spikes for commodities with large derivative markets behind them (oil and gas) can cause funding stresses for commodity traders and broker-dealers, and a shutdown of supply chains, either because there is no oil, gas or neon can cause a similar “tsunami” of credit line drawdowns that a shortage of workers caused when governments enforced quarantines globally during March 2020.
There are plenty of chokepoints already...
...and QT and SLR constraints can become chokepoints #8 and #9 on the list.
But then remember the overarching context in which we have been writing about current events: according to the four prices of money framework, where the four prices of money are par, interest, foreign exchange and the price level, central banks can only deal with nominal, not real chokepoints.
It is easy to call force majeure on QT and to exempt banks from the SLR (temporarily) to address the liquidity issues that might arise from chokepoints #1 - #7, but central banks won’t be able to do anything about the chokepoints themselves.
Dealing with those chokepoints is the responsibility of the sovereign...
...and the sovereign will need a lot of money to deal with them.
Thus, while we think QT is certainly happening in the near-term, its days and scale will be numbered straight from the get go. The Fed will do QE again by summer 2023.
How a powerful dynasty bankrupted Sri Lanka in 30 months @AJEnglish @business
Ahead of the November 2019 election, Sri Lankan presidential challenger Gotabaya Rajapaksa proposed sweeping tax cuts so reckless the incumbent government thought it must be a campaign gimmick.
The finance minister at the time, Mangala Samaraweera, called a briefing to assail the “dangerous” pledge to reduce the value-added tax to 8% from 15% and scrap other levies.
To him, it was simple math: Sri Lanka collected relatively less revenue than nearly any other country, and its high debt load had forced it to seek cash from the International Monetary Fund.
“If these proposals are implemented like this not only will the entire country go bankrupt,” the minister warned, “but the entire country will become another Venezuela or another Greece.”
It took about 30 months for his prediction to come true, in what’s become a cautionary tale for populist leaders navigating through a world of war, disease and high inflation.
After Rajapaksa won the 2019 election, reviving one of Asia’s most powerful dynasties, he passed the tax cut immediately in his first cabinet meeting.
He then quickly restored presidential powers held during the 10-year rule of his strongman brother, Mahinda Rajapaksa, a period that saw the family end a nearly three-decade civil war before getting voted out in 2015 by a citizenry wary of increased oppression and indebtedness to China.
Instead of learning to govern with more humility, Rajapaksa rushed to restore the family’s brand of populist authoritarianism laced with appeals to nationalism among Sinhalese Buddhists, who make up 75% of the population.
But that strategy quickly backfired. In recent weeks Sri Lanka ran out of cash to pay for essential goods like food and fuel, leading to long petrol lines and daily 13-hour power cuts.
Irate citizens burned loaves of bread and ransacked the health ministry to find medicine.
Protesters have camped outside the president’s office in downtown Colombo for weeks to demand his resignation.
The Rajapaksa family now is in full damage control mode, racing to ensure basic goods for the citizenry while seeking emergency funds from the IMF, World Bank, China and other lenders.
It has stopped paying back foreign debt, defaulting for the first time since achieving independence from the British in 1948.
The country’s stock exchange, which had soared after the tax cuts, is the world’s worst performer this year — below even Russia.
What’s more, the Rajapaksas have also been forced to retreat on the two major policies it implemented after the 2019 election.
Finance Minister Ali Sabry said the value-added tax must rise for Sri Lanka to shore up its finances, and the Rajapaksas have offered to roll back presidential powers as opponents seek to impeach Gotabaya as president and remove Mahinda as prime minister.
“The Rajapaksas are withdrawing, but that doesn’t mean they’re going to surrender,” said Jehan Perera, a newspaper columnist and the executive director of the National Peace Council of Sri Lanka, an independent advocacy group.
“The Rajapaksas are afraid that if they go, they’ll be very vulnerable both in and outside the country. They face human rights violations, accusations of war crimes, and corruption charges.”
For 12 of the last 20 years, members of the Rajapaksa family have controlled the highest reaches of Sri Lanka’s government.
Under their watch, critics in the opposition and the media have called Sri Lanka a “soft dictatorship” and described the Rajapaksas as characters like those conjured up by Mario Puzo, who wrote the screenplay for “The Godfather.”
Gotabaya, 72, a former defense chief, led a deadly final push to end the war against Tamil separatists, which killed as many as 100,000 people before a cease-fire in 2009.
His brother, Mahinda, 76, the family’s political brain, has served as president and twice as prime minister.
Two other siblings, Chamal, 79, and Basil, 71, carved out niches managing ports, agriculture and money. Dozens of relatives hold top posts.
Milinda Rajapaksha, a government spokesperson, declined to comment for this article.
Namal Rajapaksa — the president’s nephew, who recently resigned as sports minister — said that while the government had inherited a bad economy from the previous administration, it also made some key policy errors and failed to pivot quickly when the pandemic hit.
The tax cuts, he said, should’ve been adjusted after a year because the government was losing revenue and not reaping the investment expected from local businesses.
“There were certain decisions that we did not agree on as a political party when it comes to implementation,” Namal Rajapaksa said by phone, adding that the administration should’ve been more transparent and taken time to educate the public on the challenges.
“I don’t blame the public for blaming the Rajapaksa-led government because they are in power. The government is in power, so the government is responsible.”
“The current situation is purely based on the breakdown of the supply chain and governance,” he added.
“The president has to take decisions, firmly, and govern the country. And also get the institutions back on track.”
Even before the Rajapaksas took power, the country was in financial trouble. During the family’s first stint in office, the government took out big loans from China to invest in projects like a deep-sea port in its home district of Hambantota on the island’s southern coastline, part of an effort to turn the nation into a South Asian version of Singapore.
But many projects stalled and foreign debt more than doubled between 2010 and 2020.
On top of that, the country was still reeling from terrorist attacks on Easter Sunday in 2019, when suicide bombers linked to the Islamic State killed more than 250 people in strikes on churches and luxury hotels.
The pervasive fear prompted voters to rally behind the candidate with experience crushing insurgencies: Gotabaya Rajapaksa.
“There was this assumption that the way out of the post-Easter Sunday slump was tax cuts and low-interest rates,” said Anushka Wijesinha, an economist and former adviser to the government’s ministry of international trade and development. “It was a mistake.”
Fears of a broader meltdown first emerged with the pandemic, which suddenly sapped revenue from tourism and remittances.
Credit rating companies downgraded Sri Lanka. To stay afloat, the government printed money, boosting supply by 42% between December 2019 and August 2021 — helping to stoke what would become Asia’s fastest inflation.
Last April, Sri Lanka suffered another shock: the government abruptly banned chemical fertilizer imports.
In public, officials framed the move as delivering on a campaign promise to embrace organic farming and fight the “fertilizer mafia.”
In reality, many saw the decision as an attempt to save dollars, according to Wijesinha and other economists. Namal Rajapaksa said the timing of the fertilizer decision was a point of disagreement within the ruling party.
The ban backfired. Sri Lanka’s entire agricultural chain — around a third of the labor force and 8% of gross domestic product — faced disruptions.
The paddy harvest failed, forcing the government to import rice and start an expensive food aid program to support devastated farmers.
Export earnings from tea, a key revenue source, also dried up. In November, as protests flared, the government partially reversed the ban.
“So many experts came forward and said this is a disastrous policy that will affect food security,” said Dhananath Fernando, the chief operating officer of Advocata, an economic policy research group in Colombo. “But unfortunately, the government was hell-bent on its decision.”
In recent weeks, Sri Lanka ran out of cash to pay for essential goods like food and fuel, leading to long petrol lines and daily 13-hour power cuts.
The policy mistakes led to shortages of food, electricity and medicine for the poor, and soon prompted angry protesters to hit the streets yelling “Go home Gota!” and “Gota is a madman!”
The Rajapaksas lost their two-thirds majority in parliament as coalition members defected, and they’re now trying to withstand the opposition’s efforts to remove them from power.
While the current financial troubles make an election difficult to hold at the moment, opinion surveys suggest the Rajapaksas would lose in a landslide.
The first “Mood of the Nation” poll carried out in January by Verite Research showed that the government’s approval rating stood at just 10%.
The Rajapaksa government is “testing our level of patience and perseverance,” said Malik Nazahim, 24, who has attended several demonstrations. “That’s what’s pushing us forward. We want change and we want it now.”
Falling living standards, mass unemployment and hunger mean ruling Movimento Popular de Libertação de Angola (MPLA) & its leader, President João Lourenço, face the first realistic chance since independence of losing an election @Africa_Conf
The opposition is uniting behind the União Nacional para a Independência Total de Angola's (UNITA) leader since 2019, Adalberto Costa Júnior, at the head of the Frente Patriótica Unida (FPU) electoral alliance with two other major opposition parties with charismatic leaders.
Abel Chivukuvuku leads the new PRA-JA Servir Angola party, which still awaits approval from the Constitutional Court, and Bloco Democrático's (BD) Filomeno Vieira Lopes, who was previously part of the Convergência Ampla de Salvação de Angola – Coligação Eleitoral (CASA-CE) coalition.
The three men will list from one to three in the coalition electoral lists.
An opinion poll by Angola's most respected agency, Angobarometro, put the combined support of UNITA and BD at 64% of the popular vote in early February, 14 points higher than a year before – even without counting the still unauthorised PRA-JA.
The MPLA polled at 28%, while Lourenço's personal approval stood at a disastrous 26%, way behind the 56% commanded by the outspoken Costa Júnior.
President Lourenço was elected on the basis of ending the relentless pillaging of state assets by the MPLA elite during the 39 years President José Eduardo dos Santos was in power, but perceptions of corruption are little altered.
While the most notorious individuals and symbols of that period have been purged, the MPLA has proved reluctant to part with its privileges and with the economy in dire straits because of the decline in oil exports and prices, the government had little room for manoeuvre until the Ukraine war revived hopes for the industry.
In private, MPLA officials speak fondly of the Dos Santos boom years, and reminisce about the flow of massive oil income, infrastructure projects and easy credit.
But the economy will be in a worse state come the August election than at any other election time since the end of the war with UNITA, 20 years ago.
What has not changed, to the opposition's dismay, is the electoral system. The National Election Commission (CNE) is controlled by the MPLA and its nominee Manuel da Silva.
The opposition tried to prevent his appointment and challenge the nomination in court, but without success.
The CNE has picked the same company to manage the vote-counting and tallying process, Spain's Indra Group, as in previous elections.
UNITA claimed the count was fraudulent and made detailed complaints against Indra in 2017 (AC Vol 58 No 13, The ghost of elections past).
The tender launched by CNE required bidders to have 10 years' experience in elections in Southern African Development Community countries. Indra handled Angola's elections in 2008, 2012 and 2017.
The courts are another obstacle for the opposition. UNITA had to call another party conference to appoint Costa Júnior leader in December after the Supreme Court, which is run by the President's former aide Laurinda Cardoso, ruled that his election at the 2019 UNITA congress was unlawful.
The media is also making the opposition's job harder. Media that were previously privately owned – albeit by members of the MPLA elite – now belong to the state.
Outlets like O País newspaper or TV Zimbo now do not differ in their coverage from the historic state media.
And for the first time since before the pandemic struck in 2020, the state media has some good economic news to report. Angola with its gas and oil exports is likely to be a net winner in the otherwise grim prospects faced by most countries in the region.
The stock exchange in Luanda will finally start trading equities led by Banco BAI, the country's biggest financial institution, which is due to offer 10% of its shares in an initial public offering.
It's all part of the government's sweeping privatisation programme which is due to market 195 state assets, including the Sonangol oil company and the Endiama diamond company.
And the Treasury is confident enough that the windfall earnings from oil exports this year will be enough to finance the budget that it has dropped plans to float another billion-dollar Eurobond.
For MPLA insiders, that may seem like a return to the golden era of untrammelled state spending. But the reality for most Angolans is sharply different – even if the state media tries to ignore that.
Angolan journalist Carlos Rosado de Carvalho recently took a straw poll of topics covered in the nightly news broadcast on the state-owned Televisão Pública de Angola (TPA) station and found over 90% of airtime was dedicated either to government or MPLA activities, while UNITA got about 1%.
But increasingly, Angolans get their news from independent online sources as smartphones become more common.
Angobarometro reported that 63% of the sample polled do not believe there will be a free and fair election, which 'demonstrates the lack of trust in the election bodies, calling into question their legitimacy that could, therefore, further weaken the country's institutions.'
Debt repayment costs are rising fast for many African countries @TheEconomist
African finance ministers trying to manage debt must be cursing their luck. First the pandemic slammed their finances. In December a pandemic-inspired scheme to suspend interest payments to bilateral creditors ended. It had delayed debt problems but did not fix them.
In February Russian tanks rolled into Ukraine and jumpy investors began to ditch African government bonds.
In March the Federal Reserve began to raise interest rates, which will make financing pricier everywhere.
Meanwhile, China, a big economic partner for the continent, is struggling because of a rumbling property-debt problem of its own and lockdowns to slow covid-19.
All this has taken a toll. In 2015 the imf judged that eight countries in sub-Saharan Africa were in debt distress or at high risk of it. Zambia defaulted in 2020.
By March the imf’s list had grown to 23 countries. African governments owe money not only to rich countries and multilateral banks but also to China and bondholders.
The good news is that few countries in sub-Saharan Africa need to make big principal repayments to private creditors this year.
It is therefore unlikely that there will be bond defaults in sub-Saharan Africa in 2022, even as countries elsewhere miss payments, says Gregory Smith, an economist and fund manager.
In Sri Lanka, for example, protesters are occupying the entrance to the president’s office and the government has cancelled exams for millions of schoolchildren because it could not afford the paper to print them on.
The bad news is that African countries have some of the world’s highest interest bills relative to revenues.
That leaves less for spending on education and health. It could also foreshadow bigger trouble in 2024, when big loan payments are due.
In 2010, amid a commodity boom and after a big debt write-off for many poor countries, African governments were on average spending less than 5% of revenues servicing foreign loans.
By 2021 this had jumped to 16.5%, says the Jubilee Debt Campaign, an ngo.
This is higher than the 12.5% average of other emerging markets.
In Ghana external debt costs consume 44% of government revenues, reckons the imf. Cameroon, Ethiopia and Malawi all shelled out about a quarter of revenues.
For oil exporters such as Angola and Gabon, higher crude prices help. In Angola the local currency has soared along with oil.
Nigeria, paradoxically, may find itself in deeper trouble as oil prices rise. Although it exports the stuff, it also burns cash on fuel subsidies, which increase as the oil price does.
It issued a $1.25bn seven-year bond in March, though at an expensive interest rate of 8.4%.
The war in Ukraine has jolted metal and mineral prices upwards, helping exporters. Y
et this will be offset if dearer fuel drains their currency reserves, which are scant for many.
On average about 60% of debt owed by sub-Saharan countries is in foreign currencies.
Mozambique’s foreign-currency borrowing stands at 113% of gdp. There and in Angola, Rwanda and Zambia every 10% fall in their currency increases debt-to-gdp by six to 11 points, says Capital Economics, a consultancy.
These problems stem from a stubborn fact. Debt-funded spending by African governments has not generated enough economic growth, tax revenue or export earnings to pay back the debt comfortably.
The pandemic bears much of the blame but plenty of spending was inefficient. In Ghana, for example, it soars in election years and much goes on salaries and handouts.
Few remedies appeal. Egypt, Ghana and Tunisia may need imf bail-outs. These are unpopular, especially in Ghana, where the government has staked its reputation on sound financial management.
Governments could try to restructure their debts. When Africa’s debt costs were previously this high, rich countries agreed to big write-offs.
Last year the g20, a group of large economies, set up the Common Framework to help countries at risk of default.
In theory the scheme requires private creditors to take the same hit as government lenders, which may explain why they want nothing to do with it. The result is stasis.
Only Chad, Ethiopia and Zambia have applied—and none has got beyond talks. Ethiopia had its credit rating cut after applying, putting others off trying.
Some hope to fix their problems without outside help. That will be painful.
To stabilise its debt Ghana needs to find savings or taxes worth 6% of gdp, reckons Capital Economics.
Ghana has promised to slash discretionary spending by almost a third and has ignored street protests to ram through a tax on electronic payments.
The cedi, the local currency, has fallen by about a fifth against the dollar this year.
To try to stop the slide the central bank recently raised interest rates by 2.5 percentage points to 17%, its biggest-ever jump.
Most countries in sub-Saharan Africa need to cut spending or raise more taxes to avoid debt trouble, says the imf.
Many governments would rather bet on economic growth and the debt-fuelled spending they hope would spur it. Yet if that does not work, the fallout will be brutal. Just ask Sri Lankans. ■
The Phenomenon is spreading like wildfire in large part because of the tinder dry conditions underfoot.
Prolonged stand-offs eviscerate economies, reducing opportunities and accelerate the negative feed- back loop.
Antonio Gramsci wrote, “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum, a great variety of morbid symptoms appear. now is the time of monsters.”
Ryszard Kapucinski also said: “If the crowd disperses, goes home, does not reassemble, we say the revolution is over.”
It is not over. More and more people are gathering in the Streets.
Paul Virilio Speed and Politics
“The revolutionary contingent attains its ideal form not in the place of production, but in the street, where for a moment it stops being a cog in the technical machine and itself becomes a motor (machine of attack), in other words, a producer of speed.’’
IMF Projections 2022 @IMFAfrica
Côte d’Ivoire🇨🇮: 6.0%
DR Congo🇨🇩: 6.4%
South Africa🇿🇦: 1.9%
Yet another shock @IMFNews @IMFAfrica
The economic recovery in sub-Saharan Africa surprised on the upside in the second half of 2021, prompting a significant upward revision in last year’s estimated growth, from 3.7 to 4.5 percent.
This year, however, that progress has been jeopardized by the Russian invasion of Ukraine which has triggered a global economic shock that is hitting the region at a time when countries’ policy space to respond to it is minimal to nonexistent.
Most notably, surging oil and food prices are straining the external and fiscal balances of commodity-importing countries and have increased food security concerns in the region.
Moreover, the shock compounds some of the region’s most pressing policy challenges, including the COVID-19 pandemic’s social and economic legacy, climate change, heightened security risks in the Sahel, and the ongoing tightening of monetary policy in the United States.
Because of this, the growth momentum for the region has weakened this year with economic activity expected to expand by 3.8 percent.
While the economic recovery is projected to accelerate in 2023 to about 4 percent over the medium term, this pace is not enough to make up for lost ground from the pandemic.
Beside accelerating the COVID-19 vaccination campaign, immediate policy priorities include helping the most vulnerable households cope with high food and energy costs without adding to existing debt vulnerabilities, containing inflation pressures, and managing exchange rate adjustments.
Looking beyond the pandemic and current geopolitical tensions, job creation and meeting the Sustainable Development Goals will require strong, inclusive, and sustainable growth in the region.
To this end, decisive policy action is needed to enhance economic diversification, unleash the private sector’s potential, and address the challenges posed by climate change.
Around 85% of the region’s wheat supplied are imported. By Abebe Aemro Selassie and Peter Kovacs
The effects of the war in Ukraine leave policymakers with little room to maneuver.
Sub-Saharan African countries find themselves facing another severe and exogenous shock.
Russia’s invasion of Ukraine has prompted a surge in food and fuel prices that threatens the region’s economic outlook.
This latest setback could not have come at a worse time—as growth was starting to recover and policymakers were beginning to address the social and economic legacy of COVID-19 pandemic and other development challenges.
The effects of the war will be deeply consequential, eroding standards of living and aggravating macroeconomic imbalances.
We now expect growth to slow to 3.8 percent this year from last year’s better-than-expected 4.5 percent, according to our latest Regional Economic Outlook.
Though we project annual growth to average 4 percent over the medium term, it will be too slow to make up for ground lost to the pandemic.
Inflation in the region is expected to remain elevated in 2022 and 2023 at 12.2 percent and 9.6 percent respectively—the first time since 2008 that regional average inflation will reach such high levels.
There are three main channels through which the war is impacting countries—with notable differentiation both across and within countries:
Prices for food, which accounts for about 40 percent of consumer spending in the region, are rising rapidly.
Around 85 percent of the region’s wheat supplies are imported. Higher fuel and fertilizer prices also affect domestic food production.
Together, these factors will disproportionately hurt the poor, especially in urban areas, and will increase food insecurity.
Higher oil prices will boost the import bill for the region’s oil importers by about $19 billion, worsening trade imbalances and raising transport and other consumer costs.
Oil-importing fragile states will be hit hardest, with fiscal balances expected to deteriorate by around 0.8 percent of gross domestic product compared to the October 2021 forecast—twice that of other oil-importing countries.
The region’s eight petroleum exporters, however, benefit from higher crude prices.
The shock is set to make an already delicate fiscal balancing act more difficult: increasing development spending, mobilizing more tax revenues, and containing debt pressures.
Fiscal authorities generally aren’t well-positioned for additional shocks after the pandemic.
Half of the region’s low-income countries are already in or at high risk of distress.
Rising oil prices also represent a direct fiscal cost for countries through fuel subsidies, while inflation will make reducing these subsidies unpopular.
Spending pressures will only increase as growth slows, while rising interest rates in advanced economies may make financing more costly and harder to obtain for some governments.
Countries need a careful policy response to address these daunting challenges. Fiscal policy will need to be targeted to avoid adding to debt vulnerabilities.
Policymakers should as much as possible use direct transfers to protect the most vulnerable households. Improving access to finance for farmers and small businesses would also help.
Countries that can’t provide targeted transfers can use temporary subsidies or targeted tax reductions, with clear end dates.
If well-designed, they can protect households by providing time to adjust to international prices more gradually.
To enhance resilience to future crises, it remains important for these countries to develop effective social safety nets.
Digital technology, such as mobile money or smart cards, could be used to better target social transfers, as Togo did during the pandemic.
Net commodity-importers, such as Benin, Ethiopia and Malawi, will need to find resources to protect the vulnerable by reprioritizing spending.
Net exporters, like Nigeria, are likely to benefit from rising oil prices, but a fiscal gain is only possible if the fuel subsidies they provide are contained.
It is important that windfalls are largely directed to strengthen policy buffers, supported by strong fiscal institutions such as a credible medium-term fiscal framework and a strong public financial management system.
To navigate the trade-off between curbing inflation and supporting growth, central banks will need to monitor price developments carefully and raise interest rates if inflation expectations drift up.
They must also guard against the financial stability risks posed by higher rates and maintain a credible policy framework underpinned by strong independence and clear communication.
The need for international solidarity
The international community must step up to ease the food security crisis.
The IMF’s recent joint statement with the World Bank, the United Nations World Food Programme and the World Trade Organization called for emergency food supplies, financial support, including grants, increased agricultural production and unhindered trade, among other measures.
Following through on the commitment by Group of Twenty countries to re-channel $100 billion of their IMF Special Drawing Rights allocation to vulnerable countries would be a major contribution to the region’s short-term liquidity needs and longer-term development.
There are options for re-channeling SDRs, for example through the IMF’s Poverty Reduction and Growth Trust or the newly created Resilience and Sustainability Trust, which has received almost $40 billion in pledges.
Finally, for some countries, restoring debt sustainability will require debt re-profiling or an outright restructuring of their public debt.
To make this a reality, the G20 Common Framework needs to better define its debt restructuring process and timeline, and the enforcement of the comparability of treatment among creditors. Importantly, debt service payments should be suspended until an agreement is reached.