 Okay, hello and welcome it's Tuesday 23rd of November and I'm joined by Eddie to talk about the Turkish lira and that's because it's getting hammered. Again, it's not particularly a new development as we'll show you in a graphic in a moment it's been a multi year thing but it's really started to kick off today. The lira nosedive nearly 10% in fact after Erdoğan defended recent sharp rate cuts remember last week we had the central bank cut its policy rate by 100 basis points to 15%. But even that, then is a huge goal between what inflation is tracking and in Turkey at the moment it's nearly 20%. So, Eddie was what's going on first before we get into what comes next. I'm very disappointed you didn't introduce me as Eddie's George Donment. As for the audience, I am half Turkish so I feel like I'm in a unique position to comment on this story. But yeah, it's not looking good in all seriousness for the lira it's incomplete freefall it's lost about 40% of its value this year plunged as much as 10% today. The lira dollar kind of FX pair is now breached the symbolic 12 lira so $1 is now worth 12 lira. As you can see from the chart that Anthony showing is really been on a pretty pretty steep decline ever since the kind of taper tantrum in 2013. Erdoğan basically announcing himself executive president which means essentially, he's kind of put in ask in the sense of his prime minister and president and he can basically rewrite the rules whenever he likes to, and you can see just where and where the mouse is. Erdoğan has very much declared himself the enemy of interest rates. So, if you're studying economics, if you're not studying economics, I think the first thing you learn, even a level economics or micro economics 101. is when an economy is, you know, firing, or there's high inflation, one of the tools that central banks can use is to raise interest rates to take some heat off the economy, you know, to try and get inflation under control. It's just called the economy down. Erdoğan has the complete opposite view, and it's labeled by a lot of commentators as unorthodox, you know, many may have a stronger word than that, in the sense of being just completely ridiculous because, you know, cutting interest rates in the face of inflation is the right way to trigger a currency crisis and this is pretty much what we're seeing now. So, he triggered the sell off and what's causing this kind of recent, you know, you know, Lyra devaluation essentially is he's defended his kind of continued rate cuts amidst this double digit inflation. So, inflation in Turkey is nearly 20%. Okay, so we've obviously had some pretty hot inflation readings coming out of America and the Fed, and in England as well in the UK, and in Europe as well, but inflation in Turkey is, you know, nearly 20%, and interest rates are about 16-17%. So, Erdoğan's basically labeled this latest move an economic war of independence and, you know, regardless of all these investors and analysts and many kind of, I'm sure, political figures as well. You know, rejecting the calls saying, look, what are you doing? Why are you doing this? And it's causing a huge amount of damage to the Turkish economy. And of course, just like all inflation, it disproportionately affects, you know, the most economically vulnerable. This is the really sad thing about inflation and what you see is, you know, all these minimum wage workers, all the, you know, average people in Turkey, you know, not just average people, but they get paid in Lyra, right? Those are minimum wages are having their basically local currency and their wages being cut 10% almost a day. And as you know, you know, the more wealthy in society own assets, whereas those are less kind of economically, you know, successful, if you like, or more economically vulnerable, generally don't own assets. And this is what causes this massive wealth inequality. So it's very much going on. Yeah, so, so I mean, at the moment then, with what's happened right now is we just had Powell reappointed and the market, you've seen quite a significant move in yields and the dollar in a strengthening sense. And the perception there I guess in summary being that it Powell reflects continuity in regards to just pursuing now this tightening of policy going forward on its predetermined kind of path if anything the Fed are turning more hawkish. So, is this is the problem being exacerbated specifically now that's come that's causing this like 10% daily move. I think, just, I guess for the audience when you're trading an FX pair you're trading to economies, essentially right so what was is referring to here is fed chair Powell, you know, turning more hawkish and you've got kind of Fed speakers coming out and saying we're going to accelerate our tapering schedule, maybe have a rate hike lift off in kind of June. We've got many investment banks now like JP Morgan etc calling for more aggressive rate hikes into next year. So that's a kind of dollar story, which is absolutely to answer point exacerbating this move but it's very much also predominantly a Lyra story in the sense of Ed won is cutting inflation, sorry cutting inflation, cutting interest rates in in light of inflation. So this is putting even more negative pressure on the layer and the layer was really being kept artificially high because when interest rates are 1617%. It's a great place to put your money right, you know, if you're if you're holding the kind of effects kind of rate constant. Yeah, it's, it's very much a Turkish store story at the moment but it's being exacerbated by the dollar, but the most worrying thing is with all EM countries currencies economies, they are heavily indebted. Okay, so what this means is they borrow a lot of money to finance their their economies and usually this is in the form of dollar denominated debt or Euro denominated debt. So when you have dollar strength, but local currency weakness. This has a really massively negative impact on, you know, the debts and interest at these corporations, the governments, you know anyone who's financing their projects have to pay right. If your interest rates, or the rates on on that, or the currency depreciate, you may have a double interest payment or triple interest payment. So the heavily indebtedness of the economies all over kind of the EM space with this dollar strength story. It's not looking good and I think what we need to watch now is, is this an idiosyncratic Turkish story, or is this going to then spill over into other EM currency so the layer is very much the worst performing currency in EM this year. But what if this continues with that dollar strength then you know we need to watch those other kind of South African rands and Hungarian currencies and things like that. So at the moment then for other one, I'm going to take a leap of faith to say he's fairly stubborn. So let's say the currency keeps weakening. Is it a fair assumption to say he's unlikely to reverse I mean he defended his, his general tactical approach about cutting rates yesterday was already weakening anyway. So what's going forward is this just will the central bank of Turkey do you think look to under his command, help to offset some of the selling but surely that in itself is a, it's a means to nowhere, because there's only limited capacity to do that right. So his ideas are interest rates of the enemy, essentially, high interest rates that is. So, just to give it a bit of context. The new governor, Kaviolu, is the fourth governor since 2019. Okay, so he's the president, President Ed one has fired the last three central bank governors, one of them being his son in law, because they've essentially opposed interest rate cuts. So, I don't think, and it's pretty, you know, the consensus is that he's not going to change path on this and his whole kind of story is that this is going to support exports, you know, we could currency helps exports and this is going to get the engine firing, but it's really looking quite worrying because he's very, very unlikely to change, change course. I think when the lira gets to a level like this but who knows, you know how far it can go. There will likely be some, you know, risk appetite seeking investors that are looking at these Turkish assets that are quality right or, you know, looking for Turkish assets that are quality and stepping in with the strong dollar, strong euro and investors may be looking at some things that they had on their shopping list to kind of, you know, sweep in and get some get some discounted things but in terms of a central bank stance, at least in the short term, it's very, very unlikely. You know, the opposition leader of the Social Democrats has actually said that Edwan is a national security issue. And two years ago, where we had the coup in 2016 and then we had the recent elections, I think it was about two or three years ago. And what was interesting about that is the major cities in Turkey, Ismael, Istanbul, Merisin, Ankara, all essentially did not vote for Edwan. It's very much that kind of, you know, make Turkey great again stimulate the kind of troops of those that are outside the major cities that can obviously see his unorthodox style is not, you know, productive for the economy. He would they were the ones that voted for him. So the feeling inside Turkey, I guess, is that if there was an election now, you know, he could be in danger, and he's actually served two terms already, which means that he should kind of give it over but of course he's the President and the Prime Minister, and he can rewrite the laws. Yeah, exactly that last point, we'll just rewrite whatever constitution like says and I'll just roll forever but the other thing just to finish then was about, you mentioned about people coming in looking at these assets in Turkey at these depreciated levels, but it said surely there's just too much, there's too much like interest within that area you mentioned like Spanish banks European banks for casualties of 2018 for that over exposure to say foreign currency loans to Turkey, but you mentioned about a Spanish bank looking the interest into one of the larger Turkish banks, surely these European lenders cannot allow Turkey to fail and I know they don't have the end power to be able to intervene in such a forceful way but you would have thought then that this crisis is not one without an end, you know it can't completely implode, or could it I guess. Yeah, I mean look there's a there's a lot of what we're speaking about off camera there's a lot of you know interconnectedness as there is through globalization and the way kind of investment works now is there's a lot of lesser European banks that got suffered a lot from their kind of Lyra and Turkish asset exposure if you like so BBVA which is the biggest Spanish bank was looking to buy guarantee bank which is a Turkish bank already owns 50% it was looking to buy the other 50% that it couldn't own, but of course this is going to be closely watched for sure, from a, I guess a European Central Bank perspective, looking at, does this now spill over into not just an em risk, but actually, you know from for domestic ECB countries, you know, is there any kind of potential warning signs from their prior knowledge of Lyra or Turkish asset exposure. So it's definitely one to watch I definitely do not have the answers, and it will definitely, you know, it will play out over the next kind of days and weeks. But as you can see the trend is clearly for the Lyra at least, down down down and it has been, you know, for the last five years but I think, you know, one of the key points that we just discussed is with the Fed now turning hawkish or more hawkish more aggressive in terms of tapering and interest rate rates, you know, and the rest of the, the em world looking to actually hike rates rather than cut rates, you know what what does this mean now for those that have dollar denominated exposure, and in terms of leverage and from corporates and, and a government perspective. Cool. All right, we'll wrap it there. Thank you very much Eddie and I'll catch you next time. You should say good assurance. Bye bye in Turkish. See you later. Thank you.