http://www.elliottwavema...t-wrap-11th-march-2011/

Definitely global stocks are about to rollover for weeks...

WHY THE DOLLAR IS CHEAPLY DATING OUT OUR SHILLING.



Today I want to explain why our shilling has become such a cheap girl in town.

But before I talk more of this, about it …….let me shift the blame to its handler….CBK

In monetary economics of exchange rate,………..we have what we call efficiency of foreign currency supply relative to volatility of demand…

What do I mean by this………..

What I mean is ………..that currency value is determined by demand too……………

But when you go deeper in to this studies ……….you will get what we call foreign currency supply ability over expected demand upsurge.

The difference between the two is simply demand gap over supply ability…then………just as a pendulum which balances in the middle a currency rate of exchange will be said to be in harmony or at equilibrium when either the balance of payment is balanced …….or the inflow and out flow supply of foreign currency is tallying out with the balance of payment.

Or in further sense.. the Balance of trade value in due, tallies with future expectation of foreign currency demand……off course you must have been taught this in class for those who covered monetary economic of international trade.

So every time the balance of payment widens negatively to, one side ……………..it means that the supply of foreign currencies in that country will not be sufficient, thus there will less of it …much less than it is demanded for other foreign purchases or settlements.

Alternatively ….if there arise a situation which hinders the flow of a particular foreign currency into a nation ……..it is evident that ……that foreign currency will be expensive in that country, as less of it is coming in now………..much less that it is needed for other foreign settlements.

Notwithstanding the two………if particular goods or commodities….imported by a certain country becomes expensive in its country of origin……….then that higher payment by the importing nation will lead into scarcity of the currency of the exporting nation in the market of the importing nation……..as more of the exporting nation’s currency will be needed for the same quantity of goods over the same period.

Hey…hey…hey…hey…..i know you nearly bit off your tongue here……this is not tongue twisting…no…

So if you do not know how to track and detect supply efficiency of a given currency in a given country …..Over the expected demand upsurge or demand dwindle…………then you can’t tell why you are buying or selling a certain currency.

……………..SO WHY IS THE DOLLAR DOING OUR CURRENCY……………..

Heheheh…….it shall be done…..bado…….! ! ! ! !

Once again………….. Our CBK

Let’s find out what makes the dollar cheap or expensive in our country first. By the way….i got shocked the other day when I saw on the television THE CHAIRMAN OF DYER AND BLAIR……….praising the high level dollar explaining how good it is for the economy due to exports………uuuuuuuuuiiiiiiiiiii…’’.bwana ‘’investor......’’hujawahi jua ati’’ your country is a net importer ….and being a net importer …an expensive dollar will always import inflation…….as for me,i will blame the whole inflation saga on weakening shilling.

……hey…..hey …hey …sorry …..Ours is not inflation…….in better terms…, call it stagflation…and I will be happy.

Anyway ……..lets go back to our discussion …so that we be able to identify why the dollar is expensive now.

Let’s look at inflow and outflow of the dollar first;

INFLOW;
The dollar comes into our country through tourism and agricultural exports……right! ! ! ! !

OUTFLOW;
The dollar flow out of our country via imports and other international purchases.

So when one of this (outflow/inflow) is hindered in any way …then there will be a destabilized supply.

For instance when the inflow is hindered, there arise a shortage of dollar supply over the same demand, thus high price value.

And when the outflow is hindered the dollar supply, surplus our market more than there is a demand for it thus it become cheap.

So…what really hindered the flow of the dollar in our country…………..

Assuming that every week a certain percentage of dollars leave and other come in to our economy………it is as such cases when the flow is smooth that the exchange rate can be said to be in harmony, balanced or at equilibrium …., by the way…. Equilibrium here doesn’t mean equal literary…….no….i mean smoothened ….there is no way an economy can attain full equilibrium of exchange rate, never on earth.

However, in our Kenyan case here, we had the dollar flow hindered by several factors which our CBK decide to ignore, and those are the one hitting us hard today.

We know very well that we export a lot of horticultural products, plus coffee and tea every day…..okay.

This export brings us foreign exchange mostly inform of dollars which helps in harmonizing the exchange rate stability.

Then early last year, around March and April there…… we had volcanic ash which disrupted air traffic for several weeks.

This made it impossible for us to send our products outside, which means there was little dollars inflow here in Kenya.

That is the first place where our market started to get scarcity of the dollars.

Our CBK knowing too well that there are unfilled pockets of dollar supply in our economy………we moved on to 2010 referendum in August which slowed business activities and even made investors to offload their portfolio from our financial market due to fear of political uncertainty.

This made it there to emerge an upsurge of dollar demand in our market ….more than it was flowing in while those guys were converting back to dollars, to hibernate their assets abroad in order to watch the Kenyan scenario from a distance. off course it should be watched from a distance ….why lie….! ! !

As in less supply as it was …this unprecedented demand made the supply of the dollar in our market to diminish even more …not forgetting that….the supply shortage of during volcanic ashes was still unfilled.

Such an upsurge of demand during flight to safety, over previous supply inefficiency in March and April, coupled with weak supply due to less business activity ahead of the referendum, brought about a disrupted circulation which led into scarcity of dollars in the market.

Our CBK assuming all these, we moved into season where we get the largest portion of dollar inflow, this being Christmas season, as tourist comes with their dollars in large numbers which harmonize demand.

Usually when we get this inflow, we outflow it in the first quarter of the year, where demand for the dollars is very high, as companies rush to make international purchases in order to restock following massive consumption during Christmas festivities.

There is a large demand of dollars too during this time due to purchasing of agricultural inputs like fertilizers,etc…and do not forget that ‘’ wale wanabiashara huleta bidhaa kutoka china, middle east na kwungineko……’’are also queuing to buy the dollar as they too have to restock after a big sale out during Christmas……

Therefore, the entire dollar brought in during Christmas holiday by the tourist really helps to balance out this kind of demand …thus harmony in the exchange rate market…..

Then what happened in December…….hehehehe…we did not get enough number of tourist as usual because there was a very heavy snow which once again curtailed air transport ……meaning what,…..as much as we did not get the usual numbers of tourist in our country the same we did not had enough amount of dollar inflow to cater for this kind of demand which is there now.

Our beloved CBK doesn’t have strategic currency reserves ……..hehehehe….have a look at this just recently an earthquake took place in Japan ……so far so good the Japanese govt has already pumped in closely to 300 billions dollars in to its market from their strategic reserves to salvage the economic situation.

Then what would have been wrong with our CBK to purchase the dollar at Ksh 60 ,then…and reserve it in the strategic currency reserve then…use it today to supplement this gap that is bringing this escalating dollar to hit us this way……?...anyway that is part one……. the following is………………….

…………………..HOW THE DOLLAR IS DOING OUR SHILLING USING OIL……………

If I am not wrong…..our CBK has got the finest brain of economist in its closet.

Now…….if this economist from CBK did not know that the crude oil is going to appreciate in price at the international level ……I wonder who else should know.

High price of crude oil at the international market has also played a big role in hindering out dollar flow.
These high crude prices accelerate excessively in flowing out the dollars from our market too.
Before that, remember our economy is already anemic of the dollar supply, as I have explained there before.
Therefore, when the price of crude oil goes up at the international market, the multinational oil dealers are forced to give more dollars, over the same amount of oil.

For instance ……….lets say a barrel of oil is costing around us dollars 60 at the international market, and shell Kenya buys 100 barrels of oil from the international market ,then it is true that shell Kenya will have to pay US dollars 6,000 ie ( $60 X 100barrels = $6,000)

If the price of crude oil appreciate up to $90 per barrel………then shell Kenya will still buy 100 barrels but this time round pay out US dollars 9,000.

See…….. ! ! ! ! ! !..............there emerge a new demand of US dollars 3000,that was not there before.

Now that the supply efficiency wasn’t prepared for this new demand upsurge, automatically this will lead into volatility of dollar price out of its scarcity……………….Right…. ! ! !

Imagine an economy like ours facing this as it is now, yet it still has wounds of empty pockets of unsupplied dollars.

In this situation like the Kenyan case, even before the oil price escalated to those levels following political instability in the Arabs nations, our market was already having shortage of dollars as earlier explained.

Then, there comes, this high level price of oil, which flow out excess dollar in our market, in spite of the already insufficient supply……

That’s why we have some unbelievable developing here, where by the dollar is losing in the international market as weighted by the dollar index basket ,yet it is having good times cheaply with our shilling here…………did you note that.

That categorically shows you how the problem, is right here with us which I have explained.

Truly the dollar must trade at such unprecedented levels, am not even surprised to see it dating our shilling at the highs of 90……..who knows…..

Cbk forex trading audit helps shilling gain ground.
http://www.businessdailyafrica..../-/15dsrqqz/-/index.html

Kenya Shilling Gains for Second Day on Bets Currency Oversold
http://www.bloomberg.com/news/2...s-currency-oversold.html

hisah, are you saying the global economy is as worse off now as it was during the GFC? BRIC is showing strong growth. They even manged to add a couple of billionaires (see Forbes).
Demand for Africa's raw materials is growing.
Concerning the revolutions in Middle East, the citizen will eventually come out of it better. I doubt we will sink to those lows of 2007/2008 again.
Some commentators are even saying that the Earthquake/Tsunami in Japan will lead to a faster growth due to all the money they will spend in reconstruction.
If as you say the equity markets fall, no much harm will be done by gradually buying into stocks as indices continue the slide until the end of the "crisis", as I feel some counters (banks) are undervalued. This is important as no one has a crystal ball to no which direction the market will take.
Still got an eye on NIC?

Wikileaks is making politicians in India to sweat - http://www.newkerala.com...ld/fullnews-173572.html

Seeking Early Stage Resource Investments in Africa (Oil and Gas, Mining, Agriculture)

The investor(s) expect to see (for evaluation purposes):

1. A presentation. Executive Summary, Background, Opportunity, Team, Business and Operations, Financials, Returns, Timeline. If a project, describe the project.

2. A financial model.

3. An information memorandum / document (that explains stuff in greater detail) including analysis of the risk factors.

4. Any useful supporting information.

5. Return profile: >25% and Size: US $50MM minimum


The project must be in a finished state with a company with some kind or organizational structure already having been formed. The company has to put together an investment thesis for their investment. A financial model is great (when it works) but it is not an investment thesis.


Please let me of a good candidate via karanjakinuthia@hotmail.com



Kind regards,


Kinuthia Karanja
Associate Partner,
Interim Solutions
Deal Flow Provider,
Equity Partners Fund SPC
Skype: kinuthia.karanja
Linked In: http://ke.linkedin.com/p...thia-karanja/1b/501/479
Deal Avenue: http://investorslounge.tumblr.com/

REMEDIAL SOLUTIONS FOR OUR FX WOES..........



Last time I exposed to you guys how and why the dollar is beating our currency like a wet mule.
Today I want to come to you with just 2% of the initiatives that are needed, as a solution to stabilize our exchange rate.

You see …….the other day our CBK went messy all over again and decided to hike our interest rate……hehehehe…..what’s wrong with this guys…..

The verdict here is obvious …that when you hike the rate in Kenya under current situation, you are only weakening the shilling in the long run …period .nothing more nothing less.

Higher rates in Kenya means expensive cost of borrowing…..when you make the borrowing expensive then you will have simply undermined the momentum of entrepreneurship and investment in our already ailing economy….as you will have hindered or brought into a halt the momentum of monetary supply.

We all know that a stable rate of exchange also helps in not only stabilizing…. but enhancing an economy of a nation.

So what can we really do in order to make the dollar cheap as our nation being the net importer, we know very well that a cheap dollar here locally also means cheap cost of goods and services.

Still using the same theory of inflow and outflow, I would like to advise on some initiatives that gives a balance of higher inflow of the dollar, with little or no outflow of the dollar as well.

With high inflow and low outflow as such, we will end up having the dollar flooding our market thus making it cheap.

The following are some few outline of solution that I would propose therein:

…………IF I WAS THE CBK GOVERNOR…………..,

First….. I would not be issuing saving and investments bonds as he is doing today to raise capital of funding the stalled govt projects…..no…no…no…

Instead I would be issuing out what we call sovereign bonds…a sovereign bond is a debt security issued by a national government within a given country and denominated in a foreign currency. Usually the government of a country with an unstable economy will tend to denominate its bonds in the currency of a country with a stable economy.

Through such an initiative, we will attract plenty of American investors coming to buy those bonds as they will be taking the advantage of interest rate differential whereby they can only get 0.25% return when they invest in their country (USA) ,whereas the same investment can give out a 6% return here in Kenya which is 2400% more compared to what they can get back at home……

Again this will likely have to influence the Americans to borrow cheaply from their market at 0.25% and invest expensively in Kenya at 6%....and our CBK will have wittily ensnared the American billions in to our economy………………..

Do you see how brainy central bankers around the world take advantage of situations…….?
Hehehehehe……uuuuuuiiiiiiii………nyinyi wakenya mko na central bank….. kweli

However such kind of a move will help a lot in giving plenty supply of dollars in our economy …which in turn will help in loosening the tight supply of the dollars which is affecting us seriously.

As the dollars will now surplus our market thus making it cheap…, which the same shall translate to our cost of import…and being an importing nation then we shall import cheaply thus stabilizing our cost of living, enhancing the purchasing power of our shilling and even making the condition of living cheaper and bearable as we would have also brought down our unprecedented level of inflation………right ! ! ! !

Again this kind of approach will not have any negative impact on our economy as it will not affect our money supply since the CBK will not be taking money from the people as it is doing now……….

Instead it will be very advantageous because a lot of capital will be left still in circulation and more will even be added on.

Beside that our govt will have a very big advantage as it would have borrowed expensively but paid cheaply……………..what do I mean by this…………….?

What I mean is…….if our govt borrows 1 million dollars at the current exchange rate…….after conversion, it will have roughly around 82millions Kenya shilling……as cash at hand….

As this move of issuing sovereign or dollar dominated bond will make it cheaper due to it surplus in the market…………then the exchange rate will have to go down as the dollar value will have depreciated even lets say to a level of 60ksh…………….

Then during the time of pay back…………our govt will only have to raise 60 millions Kenya shilling to pay back 1 million dollar….,as opposed to 82 millions when it was borrowing …….see ! ! ! ! ! 24 millions extra will be left in our economy..

hehehehe…..now you know what I mean by govt borrowing expensively and paying back cheaply.

This is the approach I would have made if I was the CBK governor today………….

………IF I WAS THE MINISTER FOR FINANCE…..

…..i would waive export taxes in all exported goods that have been produced locally.

This will promote export so much that in the end, we will have plenty of dollars flooding our market which will also make it cheap thus with a cheap dollar, it means we will also import cheaply.

Also, I would not enter into trade agreements blindly.
Actually first of all, I could pull out of COMESA there and then.

If you enter into economic blocks like a fool, you will have sly countries with cheap cost of production than yours, flooding your market with goods that can be produced by your local industries ,which will end up killing your national productivity….yet there is nothing you can do as you are already bonded by the trade agreements……ie how Egypt is now dumping cheap goods locally which we have capability of producing ……….how can we have sugar from a desert nation like EGYPT…..yet we are not able to pay our farmers locally…….?

Instead …,i would choose trade partners carefully basing my search mostly on…..UNDER PRODUCER OF WHAT WE OVER PRODUCE …BUT ARE OVER PRODUCER OF WHAT WE UNDER PRODUCE….right ! ! ! !

For instance IRAN is an over producer of oil and pharmaceuticals but are under producer of milk, beef, coffee and tea………whereas Kenya is an over producer of what IRAN under produce.

Still on the same approach I would court Pakistan as it is the over producer of rice which we under produce but are over consumer of tea which we over produce.

As a minister for finance .i would enter into trade agreement with such partners based on currency swap agreement, in that we be reviewing often the value of trade deficit….., as in who has over supplied who …and who has under supplied who……..

In that sense, the difference of supply will be settled through supplying extra quantity in the value of deficit rather than using cash for settlements.

This will help in curbing flowing out of the dollars in our market as such settlements are usually done using the dollar which is easy to liquidate ….., hand in hand with that …this will help in maintaining exchange rate stability as well as harmonizing the balance of payment which is the most infectious source of an ailing rate of exchange rate stability in a country.

Other than dollar flow out….., foreign settlements and purchases, act as a leakage of capital circulation in an economy, since our local currency must be sent out to do purchases, when there is less of foreign currency locally that can be converted in to that preferred foreign currency of intended purchase in that foreign country………then we have to move ours there.

Like our Kenyan case ,when our currency is sent out to those foreign reserves, for prospected import purchase, this lead to capital dehydration in our economy out of our currency being held in foreign reserves by foreign banks.

If the foreigners have less or no purchases to make from our country, then our currency is held in their vaults and counted as settlement deficit in dues.

Such settlements’ in due ,held in overseas banks reserves actually acts as leakage in the stream of capital circulation, which in turn dehydrate our economy off money supply ,which leads in to deficiency of business activities in our economy and eventually we end up with an anemic economy…..’’ndio unaona watu Kenya hawana pesa ama …Kenya hakuna pesa’’…’’unashindwa pesa imeenda wapi’’

And this is just 2% of 100% of what should be done…….simple yet great

And this is brent oil... I thot the haus of saud said above $120/barrel they'd intervene mercilessly than the ECB, BOJ & the recent G7 yen intervention... Expensive oil with global econ recovery... Interesting theme this one... How will central banks cook figures this time? Welcome to global deflation yet again! Wash, rinse, wringe, dry & repeat, history cycles with global debt bubble for sub-prime bubble instead...