Turkey (Nudged Over the Cliff)
Doug Nolan
The Turkish lira sank 13.7% in chaotic Friday trading. The lira's 21.0% "worst week in 17 years" collapse pushed y-t-d losses to 41.1%. Turkish 10-year yields spiked to almost 21%, before retreating somewhat. After beginning the year at 155, Turkey sovereign credit default swaps (CDS) spiked 166 bps during Friday trading (up 199 bps for the week) to 437 bps (high since Feb. 2009).
EM Contagion Effects gained momentum this week. Friday trading saw the Argentine peso hit 3.8% and the South African rand sink 2.7%. For the week, the Argentine peso fell 6.6%, the South African rand 5.5%, the Brazilian real 4.0%, the Hungarian forint 2.2%, the Romanian leu 2.1%, the Polish zloty 2.2% and the Mexican peso 1.8%. On the (local) bond yield front, 10-year yields in Brazil jumped 66 bps, Russia 40 bps, Hungary 15 bps and South Africa 13 bps. As global "hot money" frets faltering liquidity and the next shoe to drop, Brazilian equities sank 5.9% (as Brazil sovereign CDS jumped 24 bps to 237 bps).
August 10 - Bloomberg (Lionel Laurent): "Turkish President Recep Tayyip Erdogan has been standing firm as investors dump his country's assets at an alarming pace, saying: 'They have got dollars, we have got our people, our right, our Allah.' European banks with substantial investments in Turkey will hope some of that divine providence rubs off on them, too, after sticking with a bet that has gotten more perilous over time."
Fears of contagion this week were not limited to the emerging markets. With significant exposure to Turkey, European bank stocks were slammed in Friday trading. Unicredit sank 4.7% and ING Groep fell 4.3%. The big German banks, Deutsche Bank and Commerzbank, dropped 4.1% and 3.5%. European Banks (STOXX600) fell 1.9% Friday.
August 10 - Financial Times (Claire Jones, Ayla Jean Yackley and Martin Arnold): "The eurozone's chief financial watchdog has become concerned about the exposure of some of the currency area's biggest lenders to Turkey - chiefly BBVA, UniCredit and BNP Paribas - in light of the lira's dramatic fall… According to cross-border banking statistics from the Bank for International Settlements, local lenders, including foreign-owned subsidiaries, have dollar claims worth $148bn, up from $36bn in 2006 and euro claims worth $110bn. Spanish banks are owed $83.3bn by Turkish borrowers, French banks are owed $38.4bn and Italian lenders $17bn in a mix of local and foreign currencies. Banks' Turkish subsidiaries tend to lend in local currency."
The above FT article was written prior to Friday's currency collapse. As Contagion gathers momentum at the "periphery," the "core" is indicating heightened vulnerability. European fragilities are again rising to the surface. Italy's MIB 35 stock index dropped 2.5% in Friday trading. Germany's DAX fell 2.0%.
Safe haven bund buying saw German 10-year yields fall six bps to 0.31%. Italian 10-year yields jumped 9 bps Friday to 2.98%, as the Italian to German 10-year yield spread widened 15 bps. For the week, this spread widened 16 to 268 bps, the widest since the May spike to 290 bps (which was the wide since 2013). Elsewhere in the European "periphery," Greek spreads (to bunds) widened 22 bps (to 387 bps) this week and Portuguese spreads widened nine bps (to 146 bps).
August 10 - Financial Times (Daniel Dombey): "Some analysts have long seen Turkey as a 'quantitative easing play' - a country that benefited from developed economies' huge asset purchase schemes. But as US and eurozone quantitative easing becomes history - at least for this economic cycle - the funds that Turkey needs are getting harder to come by. Those funds are far from negligible. An ABN Amro report on Thursday said investors were worried Turkey would not be able to finance its annual external financing requirement of about $218bn - which includes funds needed to maintain Turkish companies' foreign-denominated debt as well as the country's hefty current account deficit."
Turkey is the poster child for systems that have for a decade luxuriated in abundant cheap global liquidity. Once again, dysfunctional global finance furnished plentiful rope for economies to hang themselves. A spectacular Turkish borrowing binge fueled a formidable Bubble. A spending boom, ongoing low savings and persistent Current Account Deficits (surpassing 6% this year) have been for years financed with cheap international (chiefly dollar) finance. Turkish corporations have more than doubled foreign-denominated borrowings since the crisis to over $200 billion, approaching 50% of GDP.
Turkey now faces funding requirements (current acct deficit and maturing debt) of over $200 billion over the next year in the face of an acute "hot money" exodus. It's untenable. The situation has evolved into a full-fledged crisis of confidence, which typically foreshadows the violent end to a country's existing financial and economic structure.
In ways, Turkey's crisis resembles previous bursting EM Bubble episodes: too much cheap international "hot money" financing an unsound boom, replete with excessive spending and malinvestment. The protracted nature of Turkey's Bubble ensured deep structural maladjustment. Today, the Turkish "economic miracle," as many before it, is exposed in harsh terms. The reversal of speculative flows has illuminating latent fragilities and an unsound currency. The banking system and scores of corporate borrowers of dollar-denominated debt are at the brink of insolvency. Suddenly, the whole Bubble is coming crashing down. Similar scenarios recurred in absolute dismal fashion throughout the nineties.
August 10 - Xinhua (China's official state-run press agency): "Turkish President Recep Tayyip Erdogan urged on Friday his nation to change all savings in U.S. dollar and gold into Turkish lira. [The] Dollar will not block our way. Let's respond them with our national currency,' Erdogan said in his address to crowds… 'Change your dollars and gold under the mattress to the local currency,' he added. The Turkish president described the campaign as a "national struggle" in response to 'those who declared economic war' against Turkey. Meanwhile, Erdogan ascribed the current 'economic problems' to 'artificial financial instability waves' stoked by foreign actors, rather than structural issues involving employment or the banking system. He also blamed foreign meddling in Turkey's economy because of 'some bilateral disagreements,' hinting at the tension between Turkey and the United States."
I fear Erdogan's pinpointing sinister foreign forces behind Turkey's problems will garner adherent elsewhere - with measures from the U.S. administration stoking conspiracy suspicions. Calls for Turks to sell dollars and gold to support the lira recalls South Korean citizens donating their gold to help the government stabilize the Korean won (and service an IMF loan) back in 1997/98. We'll see if Turkey's population can match the extraordinary patriotism demonstrated by the South Koreans - and if they do, whether it will even matter.
Typically, market expectations would have Turkey immediately commencing negotiations with the IMF (didn't take Argentina long). Yet these are neither normal times nor is Recep Erdogan a typical head of state. In this age of the strongman leader, bowing to the demands of an institution domiciled in Washington (while backing down to Trump) may be unacceptable in Ankara and throughout Turkey.
From the FT (Ayla Jean Yackley and Demetri Sevastopulo): "Mr Erdogan urged Turks to stand firm and defend their currency. 'If there is anyone who has dollars, euros or gold under the pillow, he should go and convert this at the bank,' Mr Erdogan said. He also held talks by telephone with Russian president Vladimir Putin to discuss economic and commercial ties."
Putin will lend a sympathetic ear. For some time now, the strongman Russian president has assailed U.S. dominance over global financial and economic institutions and arrangements. Putin's outrage was surely further elevated this week with the imposition of additional U.S. sanctions.
August 10 - Politico (Emily Goldberg): "Russian Prime Minister Dmitry Medvedev warned Friday that his nation could retaliate against the United States' newly issued economic sanctions, saying it would consider any action against its banks an act of economic war. 'I would not like to comment on talks about future sanctions, but I can say one thing: If some ban on banks' operations or on their use of one or another currency follows, it would be possible to clearly call it a declaration of economic war… And it would be necessary, it would be needed to react to this war economically, politically, or, if needed, by other means. And our American friends need to understand this…'"
The Russian ruble declined 1.4% Friday and was down 6.4% for the week (down 14.8% y-t-d). Russian 10-year (ruble) yields increased eight bps Friday and surged 40 bps for the week to the high since December 2016. Russian dollar-denominated yields jumped 32 bps this week to multi-year highs (5.14%). Moscow must be feeling under assault - and increasingly bereft of patience.
To have the strongmen of Turkey and Russia speaking the same language ("economic war") in the midst of currency and market turmoil is noteworthy, to say the least. A three-way conference call with China's president Xi would be only fitting. Might as well bring in the Iranians and others.
Donald J. Trump - 5:47 AM - 10 Aug 2018: "I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!"
Those are fighting words. Teetering at the edge, a presidential tweet nudges Turkey over the cliff. I cringed. Leaders around the world surely recoiled. Does President Trump appreciate the consequences and ramifications of a destabilizing currency crisis in a world of lurking financial, economic and geopolitical fragilities? Our President is tough, enthralled with disruption and clearly sending a message. But does he appreciate the extent to which he is playing with fire?
The world order is fraying before our eyes - and, for many, the impulse is to revel. Careful what you wish for. I'll assume recent events push forward the move to develop financial and economic institutions outside of the U.S. sphere of influence. In recent years, Putin has surely been preaching to his comrade Xi Jinping that the U.S. is a hostile and untrustworthy rival. At least publicly, Beijing had remained non-aligned, content to foster a non-adversarial relationship with the U.S. Much has changed. The world is now on a trajectory that will shatter pretenses - the façade is being unmasked.
Bloomberg Friday headline: "Trump Embraces Market Pain With Little Concern for Contagion."
The dollar index gained 1.2% this week to a 13-month high. With Turkey now in full-fledged crisis, the unfolding EM de-risking/de-leveraging dynamic attained important momentum this week. Meanwhile, the U.S. vs. China trade war further escalated. President Trump admitted that playing hardball is "my thing." The Chinese invoked the "American trade blackmail"; "waving the stick of hegemony everywhere"; "playing double-faced tactics" and "mobster mentality" (to name only a few). Perhaps heightened global market instability will have the Trump administration backing down from their hardline approach with China. I seriously doubt that the U.S.'s unilateral actions in dealing with Turkey, Russia and Iran will inspire a softening in Beijing's resolve.
Turkey, a nation of 80 million, is a long-time U.S. ally and NATO member. The U.S. Air Force has significant operations at the Incirlik Air Base, and Turkey was a staging ground for major U.S. military operations including the two gulf wars and, more recently, in Syria. I see the unfolding financial, economic and geopolitical crisis in Turkey as an ominous development for a region sliding into an intractable geopolitical maelstrom.
Despite Friday's decline, the S&P500 ended the week a little more than 1% below all-time highs. With Treasuries enjoying safe haven demand - and visions of jittery Fed officials glued to Bloomberg screens, longing to conclude rate hikes - there's still little worrying the bulls. But the global backdrop is now in a state of transformation - and not for the better. And on various fronts this became increasingly apparent this week.
When I began posting the CBB almost twenty years ago, my focus was on "money" and Credit and the U.S. boom. I didn't anticipate geopolitical developments would some day play a role in my analysis. But I also never contemplated a global Bubble of today's dimensions and characteristics.
I never imagined how an explosion of government debt and central bank Credit would be used so recklessly to inflate intertwined Bubbles spanning the globe. Never did I contemplate how this new age global "system" - already highly unstable two decades ago - would be nurtured, backstopped and resuscitated into today's monstrosity. I never could have envisioned how the U.S. would run huge Current Account Deficits for another 20 years and still maintain such command over a dollar-based global financial apparatus. Who would have believed a global financial arms race was even possible - amidst such escalating animosity and hostility?
This is a strange period. It's strange here at home - in society, in politics and in the markets. It is strange globally. The unprecedented nature of what we see at home, abroad and in the markets provides a lot of leeway with interpretation and analysis. Somehow, there's a dominant contingent that believes the U.S. is on the right course - that the economic boom will accelerate, markets will, as they always do, continue to rise. The future is bright, all the polarization and social angst notwithstanding. Markets offer unassailable confirmation.
It would be great if the optimists were right. But this was a week that corroborated a much darker interpretation of developments. A decade of unrelenting easy "money" and booming finance has masked a metastasis of festering issues - financial, economic, social and geopolitical.
And we're now only a more general bursting of the global financial Bubble away from having to simultaneously face a bevy of very serious issues. As they tend to do, developments can seem to move at glacial pace - and then, rather suddenly, they can be more akin to lava.
As I have posited repeatedly and expounded in more detail last week, the global Bubble has been pierced at the "periphery." I also believe the backdrop is now conducive to contagion at the "periphery" (finally) gravitating toward the "core." The Turkey-induced risk aversion that erupted this week in European equities (bank shares!) is an important escalation in "Periphery to Core Crisis Dynamics." "Risk off" is gaining a firm foothold, and global financial conditions now tighten by the week. Market pundits expect cooler heads in Ankara and Washington to prevail over the weekend. If not, it could intensify what was already a particularly long and hot summer.
NOSTALGIA HAS STOLEN THE FUTURE / THE FINANCIAL TIMES OP EDITORIAL
Nostalgia has stolen the future
In the US, UK and France voters seek solace in old, imagined certainties
Philip Stephens
I remember when elections were won by leaders selling visions of the future: Harold Wilson’s white heat of technology, Ronald Reagan’s morning in America or Tony Blair’s New Britain. In the new democratic disorder nostalgia has replaced optimism as a ruling emotion. Populists recognise the power of adjusted memory. America’s Donald Trump, British Brexiters, Europe’s new nationalists — they all inhabit a rose-tinted past.
Nostalgia’s force lies in a human instinct to screen out the bad while recalling the good. The tendency, I have learnt, becomes more pronounced with advancing years. Hard times become fond moments of shared endeavour and community. With the passage of years, the terrible threat of thermonuclear war can seem like the benign guardian of a stable and peaceful international system. Materially deprived we may have been, but there was something spiritually special about being spared the instant gratification of the digital age.
Baby boomers are prime offenders. My most vivid childhood memories are of a world safe for six and seven-year-olds to roam free all day, without an adult in sight, in the urban forest of London’s Richmond Park. Jam sandwiches were feasts. We managed without bottled water. I have to dig deeper into the recesses of memory to recall asking my (Irish) mother about the sign in the window of a seaside boarding house: “No Blacks, No Irish.” The reply — “Oh, pay no attention, they are silly people” — probably hid serious hurt.
The 1960s — the swinging sixties — began in Britain with a lecture about morals from a cabinet minister. Homosexuality, Lord Hailsham declared, was an “abnormality” inflicted on young boys by paedophiles. It was “contagious, incurable and self-perpetuating”. Decent sexual behaviour involved only “the complementary physical organs of male and female” — and then exclusively for the purpose of procreation.Today’s nostalgia has become an engine of nationalism. It thrives on the economic and cultural insecurities thrown up by globalisation.
Chicken Tikka Masala now counts as a favourite national dish. Yet Britain’s first curry restaurants attracted bitter local protest. They were “smelly”. How could you be sure the lamb was, well, lamb? Nostalgia draws a veil over such prejudice. Blue-collar workers, mostly male and white, were dignified by secure, well paid jobs in the coal mines, steel, or shipbuilding. Easy to forget the grisly fate of the uncles on my father’s side who died prematurely from the miners’ lung disease pneumoconiosis.
Today’s nostalgia has become an engine of nationalism. It thrives on the economic and cultural insecurities thrown up by globalisation. We look backwards for a safe identity. No one has been so adroit as Mr Trump in exploiting these emotions. When the US president promises to make America great again, he underlines the “again”. Coal miners head a hierarchy of blue collar heroes embracing metal bashers, auto workers and truck drivers. They are all white. The president’s promise is to take them back — another favourite word — to the glory days of the 1950s.
The Brexiters played similar tunes during the referendum campaign on Britain leaving the EU. Theirs was the exceptionalism of English nationalism. The arguments could have been cut and pasted from the Empire loyalists who made sure Britain was unrepresented at the EU’s founding Messina Conference. The clarion call in 2016 was as it had been in 1955 — the illusion of a resurgent “global Britain”.
In the former East Germany, the anti-migrant populists of Alternative for Germany sell a still more fanciful reimagining of the past. Ostalgie holds that the communist German Democratic Republic has been libelled. Yes, it may have been repressive, with low living standards, but it offered security, steady employment, and order. The Stasi would not have opened Germany’s borders to Muslim refugees.
Hungary’s authoritarian prime minister Viktor Orban stirs the embers of nationalism by lionising his country’s fascist wartime leader Miklos Horthy. The far-right Swedish Democrats, now promising a return to the closed, homogenous Sweden of the 1960s, have roots in that country’s Nazi movement. All the while, security is being re-described as ethnic cohesion.
Nostalgia has always had its place in politics. Respect for tradition is at the heart of Burkean conservatism. The deep irony about the now mythologised postwar decades, however, is that these were times when citizens looked unambiguously to the future. Technological advance was seen as progress, liberalism promised emancipation. The age of Sputnik, colour television and The Beatles was all about shedding the past. Its confidence flowed from the embrace of modernity. The emotions were progressive, welcoming of new technology and newcomers alike.
And now? A fascinating report by the London-based think-tank Demos observes that recent elections in France and Germany, as well as the British referendum, show the “pervasive extent” to which language that plays up the status, security and simplicity of the past has infiltrated political culture. People who have lost faith in the future are seeking solace in old, imagined, certainties.
The lesson for mainstream politicians should be evident. The nationalists will always win when the argument is framed by nostalgia. Progressive politics need a message about the future powerful enough to reclaim the voters’ collective gaze. They could make a start by explaining how to ensure our children are better off than their parents.
SPECTACULAR GOLD COT REPORT: PREPARE FOR A HUGE SIX MONTHS / DOLLAR COLLAPSE
Spectacular Gold COT Report: Prepare For A Huge Six Months
Since January, gold futures speculators have been trending from extremely bullish to scared short. And in the week ending last Tuesday (the most recent data available) they appeared to capitulate, adding a massive number of short positions while marginally cutting their longs.
They’re now about as close to neutral as they’ve ever been. Based on the history of the past decade this is hugely bullish, since speculators tend to be wrong when they’re fully convinced they’re right.

For the commercials – the banks and fabricators who take the other side of speculators’ positions — it’s a mirror image: They’ve been getting less and less short for several months and in the past week took a giant step towards neutral, something that is also historically very bullish.
Here’s the same data in graphical form, with the speculators represented by the silver bars and the commercials by the red. Convergence at the middle is both highly unusual and highly bullish for gold.

Silver is better than gold
If gold is set to pop, what about silver? Again, if history is any guide gold popping means silver rocketing. The reasons for this are fairly simple. Silver is a surprisingly rare and extremely cheap.
Whereas gold is mostly money, which means we save it after we mine it (nearly all the gold ever mined is sitting in vaults and jewelry boxes around the world), silver is both a monetary and an industrial metal. And what’s used for circuit boards, solar panels and the like tends to disappear rather than being recycled. So a big part of each year’s mine production is lost forever. As a result, available stockpiles of silver have been shrinking for decades.
Despite this fact, silver has gotten extremely cheap relative to gold lately. About ten times as much silver as gold is mined each year, but today it takes 78 ounces of silver to buy an ounce of gold. That means when the next bull market gets going silver won’t just rise along with gold, it will retrace a big part of the gold/silver ratio between 80 and 10. That means it will rise twice as much in percentage terms as gold.

And the junior miners are better than the metals
Mining stocks are naturally more volatile than their underlying metals because, as they like to say, they’re “leveraged to the price of the metals.” The junior miners, meanwhile, are hyper-leveraged because of their small size and lack of institutional following, which means if you buy them at the wrong time they fall by 90%. But buy them at the right time and gains of 1000% are common.
And there’s more. Even if the whole COT thing turns out to be a dud and precious metals just sit there for another few years, the juniors might still outperform. As the next chart illustrates, big gold discoveries just aren’t coming any more, which means the big miners can’t find enough new reserves to replace what they’re using up.

As commodities analyst Marin Katusa notes, “Simply, gold miners are running out of gold and they need to replenish their reserves. They’ll do this by looking for gold in the markets. They’ll go on a buying binge to take out junior gold miners with proven reserves.”
So either way the best juniors will be great investments, soaring in long, beautiful arcs on the backs of gold and silver or in quick spikes when an industry giant buys them out for a nice premium.
So sum up, gold is looking great, silver is better than gold, and the junior miners are potentially life-changing. Assuming anyone is still paying attention.
STRESS TESTING CHINA´S SYSTEM REFORM / PROJECT SYNDICATE
Stress Testing China’s System Reform
Andrew Sheng , Xiao Geng
HONG KONG – The historian Wang Gungwu recently observed that, whereas the West thinks in terms of ideologies, China has long thought in terms of systems. In today’s age of rapid and profound change – characterized, in particular, by a fundamental shift in America’s attitude toward the rest of the world – China’s system reform approach is being put to the test.
Under President Donald Trump, the United States seems to have abandoned its seven-decade-old commitment to the rules-based multilateral order, embracing bilateral deal-making instead, guided by an “America First” agenda. This includes a willingness to make just about any excuse for unilateral action, such as large trade tariffs, against other countries, in order to please domestic constituencies.
This approach adds a new layer of uncertainty to any negotiation, not least because the Trump administration’s decision to change the global rules of the game is not particularly promising for the US itself. After all, US-owned companies, which have long extracted the most value from global supply chains, will be the biggest casualties of a trade conflict.
Moreover, as the US has discovered during its long history as the world’s biggest market, consumption and soft power go hand in hand. Yet, today, the US faces severe constraints when it comes to stimulating domestic consumption, rooted in factors like massive inequality, fiscal and debt constraints, political polarization, and the imperative to normalize monetary policy.
For China, the situation is also challenging, not least because the West now regards virtually all of its domestic policies as geostrategic machinations. But China’s leaders do have the tools to overcome the obstacles ahead. The most important tool is precisely the systemic mindset that has shaped decision-making for millennia, protecting the country’s complex economic, social, and political arrangements from internal corrosion and external threats.
Consider the reforms undertaken since 2012. At the Communist Party of China’s 18th National Congress, China’s leaders recognized that the demographic dividend was fading, owing to population aging, and that the “opening up” dividend (arising from increased external trade and investment) was losing value as well.
Addressing this challenge required giving the market a more decisive role in resource allocation. After all, according to neoliberal ideology, all other things being equal, the market would naturally optimize economic processes. All the state had to do was ensure that those other things were indeed equal. This demanded, first, the eradication of systemic corruption and, second, structural reforms to address social imbalances that threatened stability and growth.
So President Xi Jinping launched an anti-corruption campaign, and the government invested in areas like infrastructure, research and development, technological education and re-skilling, and the social safety net. Such reforms were intended to protect China’s own systemic stability, while contributing to the growth of the entire global system.
Unfortunately, China’s efforts are now increasingly being characterized as “mercantilist” and “predatory,” providing an excuse for punitive measures, like Trump’s tariffs. These new external pressures prompted China to adjust its reform momentum in order to reduce its economy’s vulnerability to disruptions in the supply of critical technology, resources, and finance.
But China’s adjustment faces a dilemma. A slowdown in reforms may negatively influence the economy and escalate the lose-lose trade war. To withstand the current stress test, China may instead need to accelerate its reforms to reduce internal imbalances, increase consumption, and contribute to global demand and stability.
This means eliminating excess capacity, closing down polluting industries, and addressing the large volume of non-performing loans – all while continuing the fight against corruption. It also means tapping the massive consumption potential of China’s internal market, which includes the world’s largest and highest-saving middle class.
Critically, because the external trade challenge affects the coastal areas more than the inland areas, structural adjustment policies need to be tailored to accommodate different local conditions. Contrary to the dictates of neoliberal ideology, a one-size-fits-all “best practice” approach cannot bring better results than localized “best fit” policies.
This is confirmed by history: globally, the best-performing economies, like the US, Hong Kong, Singapore, and many Scandinavian economies, have been those that adapted universal principles to develop policies that reflect national, regional, and local conditions. This is also true of China during its reform era, where development has been driven largely by local-level policy innovation and gradual adaptation to global standards and rules.
Chinese provinces and cities have been empowered to experiment with diverse approaches to development and to adjust bureaucratic structures and government interventions to address local and global market conditions. Competition among fast-growing cities tapping their own comparative advantages – for example, those of Hong Kong and the Greater Bay Area, including Shenzhen, Zhuhai, Guangzhou, Foshan, and Dongguan – has generated system-wide resources in capital stock, income flow, know-how and institutional innovation, which were used to address legacy problems in the less dynamic regions.
In this age of complex and dynamic change, China needs to sustain the systemic but localized approach that has enabled its unprecedented growth and development, and that means continuing to promote constant adaptation at the national, provincial, and municipal levels. The one proven systemic response to development challenges has been to allow internal competition across regions and enterprises to boost external competitiveness. That will remain true, no matter how unpredictable US policy becomes.
Andrew Sheng, Distinguished Fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance, is a former chairman of the Hong Kong Securities and Futures Commission, and is currently an adjunct professor at Tsinghua University in Beijing. His latest book is From Asian to Global Financial Crisis.
Xiao Geng, President of the Hong Kong Institution for International Finance, is a professor at Peking University HSBC Business School.
Belarus and Russia: An Integration Project Stalled
In the end, it's a matter of sovereignty
Summary
Since gaining independence from the Soviet Union in 1991, Belarus has been one of Moscow’s closest allies. The country is a critical part of the buffer between Russia and the rest of Europe. With Russia to its east, EU and NATO members to its west, Ukraine and the Black Sea to its south and the Baltic states to its north, it’s in a strategically valuable position. Moscow needs to keep Belarus squarely within its sphere of influence, and Minsk has for the most part obliged.
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I CALLED A CURRENCY COLLAPSE / SEEKING ALPHA
I Called A Currency Collapse
by: The Heisenberg
- I have warned about this explicitly for months and what happened this week is "Exhibit A" in why it's important to understand the intersection of geopolitics and markets.
- This episode is one for the history books, so I think it's important for me to go through it for my readers on this platform.
- This is a comprehensive take with all the usual trenchant analysis and every chart you need to understand it.
You are a dark cloud on a sunny day.
May Santa leave you an extra lump of coal in your stocking.
In case you were under the impression that Erdogan is going to be inclined to moderating his stance on interest rates (which, in his bizarre version of economics, cause inflation if they're too high) he is going out of his way to ratchet up the rhetoric and disabuse you of that idea on a daily basis. "If my people say continue on this path in the elections, I say I will emerge with victory in the fight against this curse of interest rates", he said in Ankara on Friday.
You’re reminded that he is saying that amid an acute run on the currency that’s seen the lira make fresh all-time low after fresh all-time low over the past couple of months. It is insane that he would continue to parrot his "I'm the enemy of interest rates" line when the currency is in free fall, especially considering the iron grip he has over the country's institutions (i.e., the central bank isn't really independent).
Do you know what Erdogan did this week? He went on Bloomberg TV and all but confirmed that once next month's election is out of the way, he's going to effectively commandeer monetary policy. You can watch that interview for yourself here, but suffice to say it pushed the beleaguered lira to a fresh all-time low and confirmed everyone's worst fears about what's going to happen once he officially consolidates power.
Yeah, I could be wrong, but I don’t think this is going to be sufficient.
To say that’s debatable would be an understatement and much like Kuroda’s “very powerful” easing has failed to engineer a sustainable rise in Japanese inflation, one imagines CBT’s “powerful” tightening will fail to arrest double-digit inflation in Turkey.
Market Super ‘Impressed’ With Rate Hike From Turkey As Everyone Temporarily Forgets Who Is Really In Charge Over There
This is absolutely not what we hoped for. Markets were awaiting the cabinet appointed and the signal is clear: it is not market-friendly, but rather Erdogan-friendly.
For traders and, perhaps more importantly, for asset managers, this is just further evidence that Turkish assets are anything but attractive following last month’s election.
While EM fund managers will claim to understand all of this, it still feels like there’s a generalized unwillingness to accept the reality of this situation.
Accepting idiosyncratic, country-specific risk is part and parcel of investing in emerging markets, but this has gone well beyond that. This is Erdogan–specific risk and he has shown time and again that betting on him to abruptly step out of character and demonstrate some semblance of rationality is fool’s errand.
- the extradition of Gulen
- the return of jailed banker Mehmet Hakan Atilla
- lenient treatment of Halkbank
Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
Paulo Coelho

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