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Forex crisis – Don’t panic; the tipping point is near

As a Stockbroker, you struggle for the equilibrium price in making your deal.

The equilibrium price is the point where demand and supply meet and at that point you lock down.

Now the equilibrium prices proposes that all other factors are constant. No distortions and no artifical manipulations but even as that, the manipulations always only just postpones the convergence of demand and supply.

I have looked very critically at this Forex crises and have seen that the continuous fall of the Naira although leveraged on a supply issue worsened by dislocations and corruption, t have been panic and a loss of confidence by the markets in the system and it’s leadership.

This has been very clear in the last eight months, when Mr President at his inauguration made a proclamation on subsidy without thinking thru.

No doubt, the Naira deserved some level of devaluation at least about 20% of its then value with a long lay off of stability before a further devaluation, if the supply issues are not corrected and if the Government continued with lethargic policies before finding its true value hinged on the free market forces of demand and supply.

But what we have seen so far is what I want to call a ‘yepa’ devaluation. A ‘yepa’ devaluation, is a free Fall.. Like an elevator dropping or a plane crashing from the sky. That is what we are seeing with almost an hourly fall of the Naira with a respite only on Sundays when every body is resting.

By Monday morning it resumes and everybody from the President to the CBN Governor to the prostitute are shouting yepa as the Naira is belly hopping and embarrassing its self.

As it spirals down, it’s weight throws up inflation leading to low purchasing power and it’s attendant fall in profitability – did you see that NBL loss position? A real yepa loss.

Then this hits food prices with the inflation in that sector hitting 40% in some states and this leads to social challenges and a restive populace.

But let’s calm down. The tipping point would soon be reached and there is nothing that can stop it . It will get to that point where it will just not make sense to buy the dollar at that price and we will now start looking for alternatives and we will begin to see a reversal.

The rate of fall of the Naira slowed down a few days ago and picked up somewhat. But I can sense that we are getting to the tipping point very slowly but for sure.

So now when u do the Exchange for a pair of shoes for example and see the figure in Naira, you will calm down. No matter the level of corruption and dislocation, it will just not make sense to buy the dollar at a particular price again

Don’t forget I had ascribed the fall of the Naira to articificial dislocations-hoarding, store of value, corruption being at least 60% of its causative factor meaning that there is really no fundamental reason for it at least not at this rate .

What that means in essence is that when we hit the tipping point, the fall of the dollar will also make some people cry.

Today people are refusing to buy dollar denominated houses in high brow ikoyi cos it doesn’t make sense. They would rather go to Manhattan to buy a flat rather than buy a a property here in Ikoyi where LASTMA will still Jack up your car for the same price of a condo on 5th avenue in New York.

My advice is for sectors like health, education, agric to start preparing for the floodgate from the reversal. They should raise fresh capital and expand their structures to accommodate fresh pressing demand.

In education for example, rate of admission of Nigerian students in the UK have dropped by 46% year on year cos cost has moved fron say N10m per semester just this last December to N44m per semester today. Less than six months after and if they are not trying to replicate another Einstelient in your child, you must then take a practical decsions.

What this means is that schools like Wigwe University are well positioned to receive the expected deluge of returnee scholars .

Same with health, facilities like Evercare, Lagooon hospitals, Duchess are well positioned to take advantage of the reversal

Another human factor that will drive the tipping point faster will be Nationalism, it will get to a point where everybody – Government, business, speculators and international multilateral organisations will say – OK, this doesn’t make sense anymore

You know why, we have the population, we have the 60% informal sector that serves as a bulwark against elitist driven hyper inflation. Once we sort out security and agriculture, the foundations of the economy although shaken will take us back despite Government

So guys don’t worry, it’s a turbulence and we would soon clear it.. Let’s don’t lose our heads all we need to do is honker down and brave it.

Do not save money at this time. Your Savings account is the worst thing for you as it doesn’t make sense at this point. buy Treasury Bills, buy real estate on the mainland – still has some leg room, spend on your children’s education locally, keep cash, take up positions and do transactions but no matter what Don’t save I beg you.

It will be well; it will soon be over Nigeria is bigger than all of us.

Thanks

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