wukan wrote:lochaz-index wrote:wukan wrote:[quote=lochaz-index]
Considering the macros I'm 50% doing shorts, 50% doing longs. If Treasury gets its way on the debt levels then NSE must start to factor in inflation so there is an upside. On the short term there is still no liquidity to break the 4100 level, I don't expect repeal of the interest caps any time soon until we see a more severe crisis which favours the bears below 3000.
How about this for the macros:
1. A 3T budget is proposed with nearly 1T composed of debt repayment(I think it will exceed that number and then some). Budget deficits, fiscal consolidation and development be damned.
2. Debt ceiling fudging - apparently local debt is no longer considered - to increase borrowing appetite of GoK at the expense of the private sector.
3. Moving from manageable debt levels to a basket case is mostly hinged on interest rate levels not necessarily the accumulation of debt. The former changes drastically and impacts the debt service ratio drastically as opposed to the latter impacting on debt to GDP ratio which is a less telling metric on debt sustainability. This has put Italy in a tricky spot in a matter of weeks.
4. Inflation finance creates a false bull market kinda like stock splits and bonus issues.
5. Not accounting for wastage, embezzlement etc returns on GoK spending has been low and already in the diminishing marginal returns zone. So as the debt service ratio is increasing the corresponding returns are shrinking.
6. IMF driven reform/structural adjustments are a messy affair and involve alot of pain both the political elite(as the Jordanian PM and some Arabic countries are finding out) and the general population - via increased taxation which is already in motion for KE. Spending power and liquidity are the lifeblood of the stock market.
@Lochaz-index, why do you proceed on the basis that politicians are rational. Politicians love crisis cooking up crisis is how they get to govern. Argentina has been messed up many times with debt and politicians get away with it. Look at what the president's senior economic adviser is saying....
Quote:A tight fiscal policy/easy monetary policy mix is appropriate when easing government from a high deficit and where monetary policy is used to offset reduced growth momentum caused by cuts in fiscal spending.
The policy mix allows for growth of output to continue on target, but mainly shouldered by the private sector. It is thus a “switching” policy mix whose main effect is to shift output momentum from government to the private sector.
https://www.businessdail...946-14wx2h9z/index.html
contrast that with what CBK governor was saying a few weeks ago
Quote:“This is not time for hubris. This is time for action. Make no mistake, the CBK is under attack. This is a summons to act and courage to defend and strengthen it, reviving our hope in a common vision of a modern central bank at the heart of a vibrant financial system,” the governor said at a media briefing yesterday.“I have been warned variously about certain parties that lie in wait poised for mischief and that our actions have consequences. We are ready for that. That menace shall find us at our post and unafraid,” he added.
The market is usually extremely poor at pricing macroeconomics. It is what George Soros used to say
"Financial markets, far from accurately reflecting all the available knowledge, always provide a distorted view of reality. This is the principle of fallibility. The degree of distortion may vary from time to time. Sometimes it's quite insignificant, at other times it is quite pronounced....We all work with preconceived ideas and those ideas don’t necessarily correspond to reality so there is this gap between perception and reality and that’s the gap that I have really explored and exploited.
I'm well versed with the politicians' code of conduct. The current lot seem not to have the guile, temerity nor the foresight to pull off that stunt successfully. Secondly, politicians cook up a crisis they can either manage or pass on to the next regime but most importantly one that doesn't consume/cost them. This one will be an expensive venture in terms of political capital once the chickens come home to roost. Again Italy comes to mind, since the turn of the decade they have had close to 10 PMs with the current one already facing strong headwinds before he can settle in office. Same scenario played out in Greece since the European debt crisis. Spain has been ushered into the same realm.
KE is on a keynesian treadmill and a monetary strait jacket(no little thanks to the interest caps). I haven't got a proper read on the cbk governor other than the fact that he is an inflation hawk. Some MPC tools have been rendered blunt or irrelevant hence denying the economy some pressure valves to keep it chugging in close to optimal conditions. One of the pressure valves is the KES. By blunting the cbr, KES is in some kind of auto pilot heavily dependent on FDI and diaspora remittances. The Argentine cb jacked their benchmark rate by 40% to stem outflows and prop the peso. Does cbk have to the same luxury?
Puffing up on govt debt(central planning utopia as opposed to market based) to drive growth has only one end...deflation. No two ways about it. The way I look at it the policy makers are being dealt curve balls(especially on interest rates and the USD) with limited ammo in their quiver. The proposed ammendments to have other bodies executing cbk roles suggest the governor is an impediment to treasury's ambition of inflation finance. Good luck playing that fiddle.
Market is poor at pricing macros in the short-term, in the long run it is pretty efficient. The short term hurrah checked in last year, doubt much upside will be achieved save for the occasional dead cat bounce till the dust properly settles.
The main purpose of the stock market is to make fools of as many people as possible.