Listen, it is imperative that you understand something and that something is this: Turkish President, Kurd hunter extraordinaire and world-renowned rates strategist, Recep Tayyip Erdoğan, knows what he’s doing, ok?
Sure, there’s a lot of market speculation that maybe his theories about interest rates and FX and inflation are indicative of his generalized penchant for lunacy and yes, there are some folks out there who think it would be an absolutely terrible idea for him to go through with the promise he made last week when he told a shocked Bloomberg anchor that he’s going to basically name himself central bank head, but that’s all nonsense.
It’s just jealous foreigners trying to sow doubt and confusion and otherwise sully his sterling reputation.
Or worse, it’s evidence the firms that are out reporting on the lira’s ongoing collapse have, much like the U.S. courts system and the Justice Department, been “infiltrated by Gulenists.”
As far as I’m aware, I’m not a “Gulenist tool” like Preet Bharara, but for some reason, I just can’t help myself from rubbernecking as I figuratively drive by the smoldering wreckage of the lira.
And really, it’s not even accurate to call it “smoldering wreckage” because that would suggest the blaze has somehow died down and that the carnage is over. This is a raging dumpster fire and it spiraled even further out of control on Tuesday when the lira quickly pared an early gain to trade sharply lower to a fresh all-time low through 4.65. This chart gets funnier by the hour:
“Unfortunately, Turkey is in the midst of a true currency crisis and is losing the luxury of choice,” Bloomberg’s Mark Cudmore wrote overnight on Tuesday, adding that the currency’s capitulation is of course feeding through to inflation and “rapidly worsening Turkey’s external debt situation.”
“Brent crude is up 19% this month in lira terms [and] as a major energy importer, such a pace is unsustainable for the economy,” Cudmore adds.
Meanwhile, yields are soaring as the lira plunges. Here’s a snapshot of that situation:
So I don’t know, folks. This is looking pretty dire. It’s hard to get past Erdogan on the way to analyzing the underlying merits of an investment thesis, which is ironic, because he continues to insist that what you’re seeing in markets isn’t rational without mentioning that he’s the reason for the market’s irrational behavior.
Anyway, right now the situation is bad enough to where the yield on Turkey’s February 2034 bonds is higher than similar maturity dollar bonds issued by fucking Senegal and as Bloomberg reminds you, what you see in the second chart above means that “ten-year lira bonds offer higher yields than the bonds of Nigeria, Pakistan and Lebanon.”
All of that would appear to bode laughably ill for Turkey.
But then again, that’s just the kind of thing a scheming Gulenist would say…