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Shock And Awe From Turkey Which Hikes Overnight Rate By 4.25% To 12%, Blows Away Expectations

Tyler Durden's picture




 

The much anticipated Turkey Central Bank Decision is out and it is a stunner:

  • TURKEY'S CENTRAL BANK RAISES OVERNIGHT LENDING RATE TO 12.00% - this is the key rate, and it was at 7.75% until now, so an epic 4.25% increase, far greater than the 2.50% expected. 
  • TURKEY'S CENTRAL BANK RAISES BENCHMARK REPO RATE TO 10.00% - from 4.50%
  • TURKEY'S CENTRAL BANK RAISES OVERNIGHT BORROWING RATE TO 8.00% from 3.50%
  • TURKEY CENTRAL BANK SETS PRIMARY DEALER RATE AT 11.5% VS 6.75%
  • TURKEY CENTRAL BANK RAISES LATE LIQUIDITY WINDOW RATE TO 15%
     

The full release from the TCMB:

The Monetary Policy Committee (the Committee) has decided to adjust the short term interest rates as follows:

 

a) Overnight Interest Rates: Marginal Funding Rate is increased from 7.75 percent to 12 percent, borrowing rate from 3.5 percent to 8 percent, and the interest rate on borrowing facilities provided for primary dealers via repo transactions from 6.75 to 11.5 percent.

 

b) One-week repo rate is increased from 4.5 percent to 10 percent.

 

c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate is kept at 0 percent, lending rate is increased from 10.25 percent to 15 percent.

 

Recent domestic and external developments are having an adverse impact on risk perceptions, leading to a significant depreciation in the Turkish lira and a pronounced increase in the risk premium. The Central Bank will implement necessary measures at its disposal to contain the negative impact of these developments on inflation and macroeconomic stability. In this respect, the Committee decided to implement a strong monetary tightening and to simplify the operational framework. Accordingly, (i) one-week repo rate is increased from 4.5 percent to 10 percent; (ii) the Central Bank liquidity will be provided primarily from one-week repo rate instead of the marginal funding rate in the forthcoming period.

 

Tight monetary policy stance will be sustained until there is a significant improvement in the inflation outlook. Under this policy stance, inflation is expected to reach the 5 percent target by mid-2015.

 

It should be emphasized that any new data or information may lead the Committee to revise its stance.

 

The summary of the Monetary Policy Committee Meeting will be released within five working days.

This is what a shock and awe move is. And it better work. This is how the revised Turkish "corridor" looks as of this moment:

 

For now the TRY (as well as the USDJPY and thus, equity futures) is loving the move, plunging 500 pips against the dollar.

Here is the bottom line: a $10 billion taper (out of $85 billion) just caused Turkey to hike its rate by 4.25%. This is just the beginning.

In the meantime, we hope our Turkish readers don't suddenly need to take out a loan tomorrow morning. It may just be a tad more expensive.

 

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Tue, 01/28/2014 - 18:06 | 4377020 HedgeAccordingly
HedgeAccordingly's picture

repricing of assets!! –!!! http://hedge.ly/1aThzoP

Tue, 01/28/2014 - 18:09 | 4377026 aVileRat
aVileRat's picture

This is going to escalate quickly.

 

Tue, 01/28/2014 - 18:09 | 4377035 tawse57
tawse57's picture
We'll Be Lucky to Live Through It

http://www.youtube.com/watch?v=Emdzsz_XvfA

 

 

Tue, 01/28/2014 - 18:15 | 4377066 negative rates
negative rates's picture

That gold is for those turkeys!

Tue, 01/28/2014 - 18:34 | 4377123 camaro68ss
camaro68ss's picture

Its going to be so much fun watching this s*** blow up. Whats it going to be tomorrow, two bankers jump from the JPM building tomorrow, maybe three? I need to get more beer for this!

Tue, 01/28/2014 - 18:37 | 4377134 ACP
ACP's picture

Is the chairman Paul al-Volcker?

Tue, 01/28/2014 - 19:13 | 4377282 Occident Mortal
Occident Mortal's picture

Kerrunch...

When USD is at negative real rates to borrow, every currency is priced as the reserve currency as credit is originated in North America and working capital flows out of North America (offshoring).

But when USD is not free... There is only 1 reserve currency.

The tide is receding from emerging markets as the USD moves from negative real rates to neutral real rates.

Tue, 01/28/2014 - 20:02 | 4377473 kliguy38
kliguy38's picture

so will the bump last 2 days or 2 weeks

Tue, 01/28/2014 - 18:40 | 4377142 Urban Redneck
Urban Redneck's picture

If I'd known it was gonna be that type of rate hike- I'd have stuck my dick in the mash potatoes.

Tue, 01/28/2014 - 19:02 | 4377230 NotApplicable
NotApplicable's picture

That's a Greenspan quote, right? Cuz that's how I picture his whole career.

and no... that's NOT butter!

Tue, 01/28/2014 - 20:25 | 4377549 max2205
max2205's picture

If that happens here...bondholders get slaughtered. ....I'd be shocked

Tue, 01/28/2014 - 21:25 | 4377757 A Nanny Moose
A Nanny Moose's picture

Sour cream perhaps?

Wed, 01/29/2014 - 03:44 | 4378868 Urban Redneck
Urban Redneck's picture

The Beastie Boys sampled That Ain't My Finger

The metaphor is just as deep and twisted as the rabbit hole...

http://www.imdb.com/name/nm0603646/bio

Tue, 01/28/2014 - 20:12 | 4377510 therover
therover's picture

Classic...I knew what it was before I even watched it.

Tue, 01/28/2014 - 18:43 | 4377162 CrashisOptimistic
CrashisOptimistic's picture

This is why looking to things monetary as the engine of destruction is destined for failure. 

Things monetary can be changed by decree.

The engine of destruction is oil.  Transportion joules.  Those are immune to decree.

Tue, 01/28/2014 - 18:46 | 4377164 Grande Tetons
Grande Tetons's picture

2015

Geez, honey...you know they got this new Obama retirement plan at work...I can get 8 percent on my money with a T Bill...waddya think, hon. 


Tue, 01/28/2014 - 19:02 | 4377236 NotApplicable
NotApplicable's picture

All while saving 8 percent of your purchasing power.

Tue, 01/28/2014 - 18:54 | 4377196 Silver Garbage Man
Silver Garbage Man's picture

Question.Hey World, how did you go bankrupt?
Answer. Slowly, and then ALL A ONCE!

Tue, 01/28/2014 - 22:58 | 4378208 logicalman
logicalman's picture

That's the thing about exponential stuff....

Starts off real gentle for quite a while.....

Begins to look worrying......

Too late.....

WHAM.

It's the nature of the beast.

Tue, 01/28/2014 - 22:35 | 4378116 SAT 800
SAT 800's picture

"Tight monetary policy will be maintained until there's an improvement in inflationary outlook"--- The Beatings will continue until Morale improves.

Tue, 01/28/2014 - 18:31 | 4377113 SteveNYC
SteveNYC's picture

I feel this will be the end of the taper. It will either A) stop where it is and they'll continue to print $65Bn/month, or B) reverse by the summer. Many people on this site have discussed the Fed being boxed in. I guess its those annoying "unintended consequences"......

Tue, 01/28/2014 - 18:53 | 4377192 kaiserhoff
kaiserhoff's picture

I see your point, but do the owners of the Fed care about the third world?

More to the point, the Tylers are very solid on bonds, and they've been describing the collateral and quality problems, failures to deliver, busted repo deals etc.  The Fed is trying to drain liquidity WITHOUT RATES GOING NUTS.  I think Mr. Yellen's job just got a lot more difficult.

Tue, 01/28/2014 - 21:08 | 4377695 donsluck
donsluck's picture

The future of banking is in Africa. Asia must be sacraficed.

Tue, 01/28/2014 - 18:57 | 4377214 ElvisDog
ElvisDog's picture

I don't think the Fed gives a shit about the troubles of the EM economies except if it threatens their position. They're not tapering because want to or think it's the right thing to do. They're tapering because they have to.

Tue, 01/28/2014 - 19:57 | 4377452 SteveNYC
SteveNYC's picture

Good points, and I agree that they don't give a shit about EM economies. However, we forget that the large banks (US likely to a degree, but most certainly EU and EM) are stuffed with EM paper, and God knows what else. The Fed lets the EMs go, then so goes the banking system again via mark downs and defaults, and they have Bernanke Crisis II on their hands, only worse and with less "coping mechanisms".

The problem is, it is so interconnected that the moment one thing moves, 100 other things simultaneously shift. While they have to taper, it is like an alcoholic that has cirrhosis of the liver: they have to stop drinking, but sometimes, they simply can't despite their ill health. 

In regards to the treasury/collateral issue, would the Fed not simply shift strategy and alter the allocation of MBS purchases vs. treasuries, yet keep the aggregate the same? Either way, same end story right, different plot. Quality discussion, thanks.

Tue, 01/28/2014 - 20:01 | 4377471 kaiserhoff
kaiserhoff's picture

Interconnected? Yes.  Too many moving parts.

What's a few hundred trillion in derivatives among friends;)?

 

Tue, 01/28/2014 - 22:59 | 4378213 logicalman
logicalman's picture

Add to all of that the dangers of leverage.

Tue, 01/28/2014 - 19:21 | 4377324 Occident Mortal
Occident Mortal's picture

Nobody outside of Turkey gives a shit about Turkey.

This is the basis of all diplomatic relations around the world.

Every country ALWAYS puts their own interests first. Always.

Even the US/UK would never put the other first. And they're basically a single country that pretends to be separate just so they get 2 votes at the UN, IMF, BIS, world bank, etc.

Tue, 01/28/2014 - 20:59 | 4377674 Offthebeach
Offthebeach's picture

Its more like countries exist for sheeple fairytales. The people running Turk money are Turks but in truth they are EU/Fed/BIS loyal true citizens. Turkey could vaporize and they will be taken well cared for. This crises is just a opportunity to further homogenize peculiar Turkish behaviors. Get them more in tune, in step, on the same team...

Tue, 01/28/2014 - 18:43 | 4377152 Silver Garbage Man
Silver Garbage Man's picture

If only there was a big public event in the near future we could drop a false flag on and launch massive worldwide QE then everything will be fine!!
Wait a second............

Tue, 01/28/2014 - 18:07 | 4377022 Frank -THE COIN -
Frank -THE COIN -'s picture

Now thats what i call a Thanksgiving !

Tue, 01/28/2014 - 18:25 | 4377098 Grande Tetons
Grande Tetons's picture

One day this may seem dovish. 

Tue, 01/28/2014 - 18:08 | 4377023 Dr. Engali
Dr. Engali's picture

Damn! That'll leave a mark!

Tue, 01/28/2014 - 18:24 | 4377093 teolawki
teolawki's picture

Yep. Of the skid mark variety.

Tue, 01/28/2014 - 18:08 | 4377024 Agent P
Agent P's picture

Double Shock Power! 

Tue, 01/28/2014 - 18:12 | 4377042 Grande Tetons
Grande Tetons's picture

Kyle Bass....you are welcome. 

Tue, 01/28/2014 - 19:02 | 4377237 Big Brother
Big Brother's picture

http://finance.yahoo.com/q?s=TRYJPY%3DX&ql=1

5.57% - Now that's what I'm takin' about!  Lever that shit up 50:1.

Tue, 01/28/2014 - 19:19 | 4377314 Grande Tetons
Grande Tetons's picture

Looks good for now....waiting to see how the carry trade reacts after Old Yellen/Benny the Bozo tomorrow. 

Tue, 01/28/2014 - 18:08 | 4377027 tawse57
tawse57's picture

OK, numpty question here - what, if any, global implications will this have? Or is this just going to be Turkey isolated?

Why - from a Turkish AND global perspective - must it work?

Tue, 01/28/2014 - 18:29 | 4377056 kaiserhoff
kaiserhoff's picture

If experience is a guide, it will,

 

A - stop the currency run, because the world is awash in hot money looking for a home, and

B - make life miserable for local borrowers, as they struggle to pay the higher rates.

Will it spread?  Is the Pope Catholic?

I don't know anything about the Turkish economy, but the first and most powerful effect of a rate shock, is usually to stop all real estate deals and mergers dead in their tracks.  The reason you would expect it to spread, is that it puts more pressure on all roughly equivalent, struggling currencies.  Their name is legion.

Tue, 01/28/2014 - 20:42 | 4377603 kaiserhoff
kaiserhoff's picture

Funny.  Why didn't I buy a boat load of those paperbacks?

Tue, 01/28/2014 - 18:45 | 4377132 LMAOLORI
LMAOLORI's picture

 

 

 

tawse57

You might find this interesting

 

Emerging markets forced to tighten by US and Chinese monetary superpowers

 

The global chain reaction resembles what happened in the East Asia crisis in 1997-1998 when domino effects swept the region

 

http://www.telegraph.co.uk/finance/financialcrisis/10603363/Emerging-mar...

Tue, 01/28/2014 - 19:03 | 4377242 NotApplicable
NotApplicable's picture

A.k.a. the "Not So Invisible Fist."

Tue, 01/28/2014 - 20:05 | 4377484 kaiserhoff
kaiserhoff's picture

Good call on the Asia thing.

Lots of similarities.  Too many boats lashed together.

Tue, 01/28/2014 - 18:10 | 4377032 Major Major Major
Major Major Major's picture

Gobble Gobble, Bitchez

Tue, 01/28/2014 - 18:14 | 4377058 Pumpkin
Pumpkin's picture

LoL!  That one hurt me.  Mean, but funny.

Tue, 01/28/2014 - 18:09 | 4377033 stant
stant's picture

didnt those sobs get the memo!! nothing before the next two speeches!

Tue, 01/28/2014 - 18:09 | 4377034 order66
order66's picture

Whacko moves from 3rd world central bank. That's about as bullish as it gets for ES.

Tue, 01/28/2014 - 18:11 | 4377041 tmosley
tmosley's picture

>Turkey

>Third world

...

Tue, 01/28/2014 - 18:09 | 4377036 kaiserhoff
kaiserhoff's picture

Take that, you heathen Yankee imperialist dogs!

Oh shit.  That could be us.

Sweden went to 22% once to stop a currency run.  This could get interesting.

Tue, 01/28/2014 - 18:10 | 4377040 Max Damage
Max Damage's picture

SO when do all the debts blow up because noone can afford the repayments anymore in Turkey? What a mess

Tue, 01/28/2014 - 18:20 | 4377087 negative rates
negative rates's picture

In theory all the money goes to Turkey in search of yield, then other country's must raise rates in order to get the returns back in safe hands. Should the snow ball get large enough it would simply roll over the locals as they drove across the street.

Tue, 01/28/2014 - 18:58 | 4377198 CrashisOptimistic
CrashisOptimistic's picture

Maybe.  It's all bullshit.  Here is all that matters.

 

Turkey domestic oil production -- zero

Turkey domestic oil consumption -- about 650K barrels per day

Multiply that times Brent pricing.  That's what's leaving the country each day.  This maneuver to boost the currency makes the oil cheaper.

Tue, 01/28/2014 - 19:15 | 4377280 Ham-bone
Ham-bone's picture

but suddenly most of the economic activities for which the oil is needed are no longer feasible as loans rollover to double financing costs...chicken and egg policy...Turkey's economy about to be shocked into submission and quickly Turkey's gonna get very fiery and Erdogan tossed out...

Tue, 01/28/2014 - 18:38 | 4377133 Matt
Matt's picture

Wouldn't these new rates only directly affect new loans? If you borrowed money at the old rates, unless you went with a floating rate, it should stay the same for the term?

Tue, 01/28/2014 - 19:20 | 4377322 Ham-bone
Ham-bone's picture

business and institutions and and and take out interest only short term to mid term loans...this will affect business tomorrow.

Tue, 01/28/2014 - 19:22 | 4377331 kaiserhoff
kaiserhoff's picture

Thanks Ham.

Pretty much what I expected.

Tue, 01/28/2014 - 19:28 | 4377352 Ham-bone
Ham-bone's picture

could be a lot of derivative action around this???

Tue, 01/28/2014 - 19:46 | 4377406 kaiserhoff
kaiserhoff's picture

Duetsche Bank, Soc Gen, AIG?

Round up the usual suspects.   Tee Hee.

Tue, 01/28/2014 - 19:19 | 4377323 kaiserhoff
kaiserhoff's picture

Good question.  It's been years since I did bank auditing, but most business loans then were callable at the banks discretion, within 30 days at the most.  IE, they were like very short term ARMS.  Not true of SBA loans.

Anyone know the current practice?  Bueller?

Tue, 01/28/2014 - 19:12 | 4377274 macroeconomist
macroeconomist's picture

I wrote this in another comment before, I am copying and pasting fyi:

--------------

They are so useless at the Central Bank that after the crisis in 2008, they came up with a genius idea called "reserve option mechanism" as a non-conventional monetary policy, which means that banks can keep required reserves partially as foreign exchange. While this was justified on the basis of "providing stability to the Turkish Lira" (since banks would not have to convert carry trade foreign exchange to liras and back to yen/euros/dollars), it also removed the exchange rate risk significantly, and totally broke the link between policy rate (which stands at 4.5%), bond rates (+10%) and the carry-trade funded credit expansion (consumer credits at 1%, mortgages at 2%). So the policy rate is more or less useless now, credit creation has gone off the roof and household debts are above pre-2008 US levels, current account is at -7%, and export sectors have either become importers of the same good, or are very heavily dependent on imports of intermediate goods as I said above, reducing the effectiveness of depreciation on improving the trade balance.

 

----------

 

So the effect of this will not be big on neither the repayments of debt in Turkey, nor new credit creation. It will only lead to an increase in carry trade, and lead to a revaluation of the lira, nothing else. (Unless they do something about the reserve option mechanism, which they will not since they do not understand that deposits do not create loans, but it is loans that create deposits.)

Tue, 01/28/2014 - 20:45 | 4377501 kaiserhoff
kaiserhoff's picture

Fascinating, thanks.

It takes a while to parse that, but why is the Lira under so much pressure?  Pure trade balance?

Not that I understand the mechanism, but there is no free lunch.

Looks like local business is insulated, but someone has a negative rate spread now of maybe five to eight percent..., plus the credit risk?  Jesus H Christ.  Bleeding out fast.

Tue, 01/28/2014 - 21:31 | 4377773 macroeconomist
macroeconomist's picture

It's the trade balance, political instability, the latest corruption scandal, tapering whispers and an incompetent central bank combined I guess..

This was coming for years, noone knew when it would hit, but with over 50% real appreciation of the currency, 65% of the stock market owned by foreign investors, and a whopping 150billion$ short term debt to be serviced in the following 24 months, this is no surprise.

Tue, 01/28/2014 - 18:13 | 4377047 jubber
jubber's picture

...and if by Magic all European, US shorts exterminated once again after hours and Dow 16000 regained

Tue, 01/28/2014 - 20:25 | 4377554 BeanusCountus
BeanusCountus's picture

Strange, for sure. Not sure how all of this flows through the system. But here I see a country that does the right thing. Finally. Turkey people will be hurt. And the countries that continue to do the WRONG thing, i.e. cover things up with "promises" to cover this or that, are benefitting from Turkey's recognition of its bad ways. Any help on how this works would be appreciated.

Tue, 01/28/2014 - 18:14 | 4377054 czarangelus
czarangelus's picture

Turkey is not Uganda.

Tue, 01/28/2014 - 18:35 | 4377120 kaiserhoff
kaiserhoff's picture

and Uganda is not Haiti, 

  but would you want to vacation there;)

Tue, 01/28/2014 - 18:15 | 4377060 Max Damage
Max Damage's picture

When a country does what Turkey just had to do, you know there are major problems. What a mess out there

 

Tue, 01/28/2014 - 18:16 | 4377064 Iam Yue2
Iam Yue2's picture

Those poor Brits who failed to get the Summer holiday money at the lows.

Tue, 01/28/2014 - 18:16 | 4377070 jubber
jubber's picture

and thank God for that S&P 1800 regained...what a farce

Tue, 01/28/2014 - 18:20 | 4377086 ifishivote
ifishivote's picture

This is exactly why equity markets will never slowly decline. When its finally over, markets will crash in a 1 day event.

Tue, 01/28/2014 - 18:39 | 4377138 Matt
Matt's picture

That's what the circuit breakers are for. The crash can be drawn out if you just keep halting markets. Not sure the benefit, though.

Tue, 01/28/2014 - 18:19 | 4377088 Satan
Satan's picture

That's gonna leave skid marks in the toilet...

Tue, 01/28/2014 - 18:25 | 4377095 jcamargo
jcamargo's picture

Wow, this is epic. Ok Argentina, now it's your turn...

Tue, 01/28/2014 - 18:26 | 4377096 jcamargo
jcamargo's picture

Wow, this is epic. Ok Argentina, now it's your turn...

Tue, 01/28/2014 - 18:28 | 4377099 teolawki
teolawki's picture

Wow! Those boys don't fuck around do they.

Tue, 01/28/2014 - 18:28 | 4377101 One And Only
One And Only's picture

Chaos. 

NO ONE knows what the fuck is going on at this point PERIOD

Tue, 01/28/2014 - 22:02 | 4377917 dellievan
dellievan's picture

Chaos -

 

 It's the other white meat !


Tue, 01/28/2014 - 18:29 | 4377105 homiegot
homiegot's picture

More cranberry sauce, please.

Tue, 01/28/2014 - 18:30 | 4377107 Blagio
Blagio's picture

We could only be so lucky... 10% savings rate would be grand!

Tue, 01/28/2014 - 18:53 | 4377199 The Old Man
The Old Man's picture

And mortgage rates at 15%, where the banks could really loosen up the credit and make some real money!

Tue, 01/28/2014 - 19:24 | 4377342 macroeconomist
macroeconomist's picture

There is no mortgages at 15%, see my post above. This is a small open economy where credit creation is funded through carry trade. There is no (strong) link between the policy rate and credit-mortgage rates due to reserve option mechanism system the Cb adopted after the crisis.

Tue, 01/28/2014 - 21:32 | 4377781 The Old Man
The Old Man's picture

My apologies. 

Tue, 01/28/2014 - 18:29 | 4377108 chump666
chump666's picture

Capital controls, all EMs will do this now to stem outflows and currency sell offs

 

Tue, 01/28/2014 - 18:30 | 4377112 The Shootist
The Shootist's picture

They going full Volcker?

Tue, 01/28/2014 - 18:32 | 4377115 One And Only
One And Only's picture

Hey EVEYRONE!!!!!!!

BITCOIN IS TOOOOO VOLATILE.....DON'T BUY IT IT'S TOO VOLATILE

 

Tue, 01/28/2014 - 18:41 | 4377150 Thought criminal
Thought criminal's picture

But I like a good rollercoaster ride...

Tue, 01/28/2014 - 19:00 | 4377224 Pareto
Pareto's picture

+1 love that sarcasim.  he he heeee

Tue, 01/28/2014 - 18:32 | 4377116 Cannon Fodder
Cannon Fodder's picture

Sorry, but for us regular sheeple out here, could someone explain the last line?

"Here is the bottom line: a $10 billion taper (out of $85 billion) just caused Turkey to hike its rate by 4.25%. This is just the beginning."

In laymens terms, what is the connection between the $10billion taper and Turkey?

Thanks

Tue, 01/28/2014 - 18:40 | 4377145 falak pema
falak pema's picture

the link is that the currency wars are cornerinng the DCs with weak money, huge expenditures and over hot economies, now finding the ground disappearing under their feet as the hot money runs away from their banks...Whence the interest hike to seduce it back. 

The taper is the indication that WS assets will be less sustainable UNLESS ZIRP continues. But if the DC up the interest ante to encourage money flowing into their hot economies it makes the interest arb game more complicated.

The fight between oligarchs now becomes more intense. 

We now have huge distortions occuring in the FX markets; as Turkey is a budding new market and does not want to be categorised like Greece. 

Ask yourself how the FX trades will react to such huge interest canyons appearing out of nowhere.

 

Tue, 01/28/2014 - 18:48 | 4377149 CvlDobd
CvlDobd's picture

It made the dollar appear to be on course for slower dilution and not as risky of an asset. Well safer than some EM currencies like the lira and not as heavily printed. So the $10 billion cut created demand for dollars and stemmed demand for EM currencies. The less demand for EM currencies causes the value to drop.

 

Of course I say all that tongue in cheek as I can't fathom how anyone thinks of the dollar as a safe haven. It all seems so stupid at this point but whatever. Someone is still playing as if the game matters.

Tue, 01/28/2014 - 18:55 | 4377203 falak pema
falak pema's picture

to the world its reserve; its oil/commodity money and its major 66% safe haven of wealth.

You BET the game matters as long as its reserve.

The FED is the PRIME mover of currency wars to protect $ denominated debt/WS assets. Even tho its at the expense of its own middle /lower classes.

Tue, 01/28/2014 - 19:30 | 4377357 CvlDobd
CvlDobd's picture

Yeah. I was getting at the sham the system is these days.

Tue, 01/28/2014 - 18:49 | 4377175 mayhem_korner
mayhem_korner's picture

 

 

Central banks in general, and the Fed in particular, is the buyer of last resort on all "assets" (securities).  The world has gotten used to the constant bid being under all those "assets," particularly the US Treasuries.  Take away $10B and the marginal funds abandon the dirtier dirty shirt in favor of the US Treasury (cleanest dirty shirt).  Which is why T yields have actually been dropping in recent weeks.

So the "taper" forces investors to fill in the void because it's better than holding on to the third-world risk assets (both suck in the long run).  The taper thus re-calibrates investment preferences - the ugliest are discarded for the less ugly.  It's like sobering up.

Bottom line is that folks in the third world - Argentina, Turkey, Ukraine, etc. - are trying to cash out of their native holdings - and currencies - and move those funds to something less ugly.  That impetus is causing a run on those currencies - primarily people trying to convert to USD or UST.  If they don't actually have funds to convert, they'll borrow money to do so.  The rate hikes are designed to penalize people for borrowing, just as the capital controls in Arg are intended to prevent people from converting Argentinian currency to USD.  Same objective - to keep the currency in the banks before they are paws up.

Drain the most popular punch bowl at a party - just a little - and watch how a line forms around it.  Same thing here.

Tue, 01/28/2014 - 18:33 | 4377117 falak pema
falak pema's picture

Imagine if Brazil, Indonesia, Thailand and India followed suit to Turkey it would break the camel's back of DC growth.
The big chill and no more thrills for hot money trying to find havens other than dystopian first world...

Not good for fiat pump of CB plays.

Tue, 01/28/2014 - 18:49 | 4377172 tawse57
tawse57's picture

OK, you have mentioned it twice - what does DV stand for? Um, and WS?

Tue, 01/28/2014 - 19:52 | 4377431 juangrande
juangrande's picture

developing vountries and wall street

Tue, 01/28/2014 - 18:33 | 4377118 Fix It Again Timmy
Fix It Again Timmy's picture

Yippee Ki Yay... That's putt'n the pedal to da metal, fer sur......

Tue, 01/28/2014 - 18:35 | 4377119 1000924014093
1000924014093's picture

How does anyone know this is due to the US taper?

Tue, 01/28/2014 - 18:35 | 4377121 RaceToTheBottom
RaceToTheBottom's picture

Bullish Turkish rugs

Tue, 01/28/2014 - 18:35 | 4377127 kchrisc
kchrisc's picture

My "swandar" is going off like mad.

Tue, 01/28/2014 - 18:39 | 4377139 czarangelus
czarangelus's picture

Seriously though, I'm not sure. As ZHers we should be cheering this right? It means Turkey's coming to its senses and taking the punchbowl from the bankers?

Tue, 01/28/2014 - 18:43 | 4377156 CvlDobd
CvlDobd's picture

Hard to cheer anything these days. Everyone is so screwed by world governments and central banks. Any time one of them makes a move, some innocent party is going to get crushed.

Tue, 01/28/2014 - 18:39 | 4377141 Thought criminal
Thought criminal's picture

How is tigtening the monetary policy in Turkey bulllish for the global market to create such a reaction (AUD/JPY for example)? Some things still elude me even after all those years...

Tue, 01/28/2014 - 19:42 | 4377202 Thought criminal
Thought criminal's picture

If the turkish market goes down tomorrow cause of this and drags the rest of the Europe down too, I'm gonna have a really good laugh.

Tue, 01/28/2014 - 18:40 | 4377143 Goldilocks
Goldilocks's picture

Plop plop phyzz phyzz oh what a relief it is...

Alka-Seltzer TV Commercial
www.youtube.com/watch?v=bxjb2UJZ-5I (0:30)

Tue, 01/28/2014 - 18:41 | 4377146 q99x2
q99x2's picture

How can a third world country like the US cause something like this. Was Greenspan, Bernanke and Yellen trying to tke over the world.

Tue, 01/28/2014 - 18:44 | 4377161 timehill
timehill's picture

Easy money is good for the stock market.

Tight money is good for the stock market.

I really donlt get it. 

This move should be sending sudders at the FED.

 

Imagine paying our interest debt at 5, 6, 7, 8, 9, or 10%?????????????????

Tue, 01/28/2014 - 19:01 | 4377233 LawsofPhysics
LawsofPhysics's picture

Indeed, but on the other hand, imagine getting 10% or more on your savings.

Just saying.  If the Fed really wanted inflation they would let anyone stuff money in a bank for 150% interest.

Then you would see some inflation bitches.

Tue, 01/28/2014 - 19:34 | 4377369 exi1ed0ne
exi1ed0ne's picture

But that would be the wrong kind of inflation.  Can't let the peasants buy their freedom, can we?

Tue, 01/28/2014 - 18:47 | 4377167 tired_of_manipu...
tired_of_manipulation's picture

And here I thought it was QE, low interest rates, and easy money that was driving the market.  Who would have thought raising rates would also lead to a rally?  MOAR Taper Please.  Dow to 20K. At least for tonight.  Tomorrow may be another story entirely.  In retrospect it was entirely predictable that it would be those countries that can't print without hyper-inflation which would be the epicenter of the next crisis.  

Tue, 01/28/2014 - 18:56 | 4377213 mayhem_korner
mayhem_korner's picture

 

 

The Fed has succeeded in exporting rising interest rates.  That's what happens when the world thinks your vomitus is preferable to their own.  They throw their currency over the side in favor of the USD.

Tue, 01/28/2014 - 18:46 | 4377169 Atomizer
Atomizer's picture

Nothing to see here.. move along children . /sarc

Capitan Yellon! We have a incoming deflationary spiral at 2:00. 

 

Tue, 01/28/2014 - 18:49 | 4377174 DavrosoftheDaleks
DavrosoftheDaleks's picture

Anyother FOREX trader notice how they'll pay you to either short OR buy the USD/TRY?  I've never seen that in my life.  Now that's a carry trade!

Tue, 01/28/2014 - 19:04 | 4377244 dwayne elizando
dwayne elizando's picture

So you're offered an instant premium to bet against the lira? If that's true then I'd suggest we're attacking turkey financially!

Tue, 01/28/2014 - 18:51 | 4377179 arby63
arby63's picture

Now just a matter of formalities. No way this shit doesn't sail left and right. How could it not?

Seriously, what is going on? The Central Fuckwads cannot overcome all of this shit!

Tue, 01/28/2014 - 18:52 | 4377181 deerhunter
deerhunter's picture

You take a Turkey, dip it in Greece and you won't be Hungary any more!! Forgive me I had to. That was my introduction to European Geography in 7 th grade in 1967 by Mr Quist. God rest his soul!!!!

Tue, 01/28/2014 - 18:53 | 4377191 SpanishGoop
SpanishGoop's picture

For sure now, we must have Turkey in the EU.

 

Tue, 01/28/2014 - 22:48 | 4378172 SAT 800
SAT 800's picture

Just what I was thinking; this proves they're perfectly qualified. Nutty as fruitcakes.

Tue, 01/28/2014 - 18:59 | 4377210 MsCreant
MsCreant's picture

Money is running around like a turkey with its head cut off. If they cannot contain the panick, its really on, ain't it?

Tue, 01/28/2014 - 19:34 | 4377373 Miffed Microbio...
Miffed Microbiologist's picture

I've been present when that happens. Let me tell you a lot of innocent people near the crazed bird get blooded.

Miffed;-)

Tue, 01/28/2014 - 22:46 | 4378167 SAT 800
SAT 800's picture

LOL. Turkey running around with its money cut off?

Tue, 01/28/2014 - 18:59 | 4377219 LawsofPhysics
LawsofPhysics's picture

Wait what?  The turks get 12% on their savings while american savers continue to have their savings stolen? So same as it ever was.

Tue, 01/28/2014 - 19:25 | 4377328 Toronto Kid
Toronto Kid's picture

Or the inflation rate in Turkey has just gone up ...

Only reason you hike interest rates 4% overnight is because you must lure a few investors back into Turkey.

Any way you look at things, an overnight interest rate hike of 4% is not a positive sign.

That SocGen's response is so affirmatively positive is a huge negative.

Wed, 01/29/2014 - 10:38 | 4379506 edotabin
edotabin's picture

This will hit their lower classes as well.

Tue, 01/28/2014 - 19:10 | 4377272 BudFox2012
BudFox2012's picture

Damn it, I just refinanced my variable-rate mortage on my penthouse in Instanbul to buy 100,000 Kayne West coins crypto currency.  What luck...

Tue, 01/28/2014 - 19:13 | 4377292 chump666
chump666's picture

From wires:

"David Scutt, a Sydney-based currency trader at Arab Bank. Markets will be watching to see if the move stabilizes the TRY longer term, he says, as if "there's no further action the central bank can take, we will likely have a nasty scenario across EM currencies."

EM countries are mostly creditors, they start issuing capital controls, you'll see yields on USTs start to increase.  Got nothing to do with booming EMs, they are blowing out.  Obama better issue his IRS Treasury/war bond master-plan real quick.

Well done FED! You lunatics have set off the beginning of the end.

Tue, 01/28/2014 - 19:21 | 4377300 earleflorida
earleflorida's picture

Strange how geopolitics can flip-flop in a moments time?

 Remembering back when Paul Volcker was hand-picked by Jimmy Carter to be Fed Chairman. Carter had fucked-up on a litany of foreign and domestic affairs, but in todays status quo political universe it's no big deal?

Here are the facts, as Carters assails Volcker... his hand-picked Chairman of the FRB'system dooming his reelection bid (which in the months before he was leading in the polls) by raising interest rates three (3%) percentage points-- a unprecedented and highly unorthodox move, in the weeks before the 1980 election!?!

Carter lost to Reagan...

Erdogan reelction bid for whatever... (?)

Tue, 01/28/2014 - 19:58 | 4377450 ThirdCoastSurfer
ThirdCoastSurfer's picture

You raise the rate to thwart inflation. Turkey was in trouble because they were making a fortune from illegal trade with Iran and awash in the misplaced allocations of "tapering". With the sanctions against trade lifted, if they hold, Turkey may regret such an aggressive move as conventional wisdom states that it takes 6 months for these moves to take effect. 

Tue, 01/28/2014 - 20:14 | 4377513 Wolf in the Wilds
Wolf in the Wilds's picture

What the Turkish central bank has just done is exactly what the Bank of Thailand did in 1997 to no avail.  It doesn't change the underlying economic issues of Turkey.  If anything, this rate hike will result in a massive squeeze on local businesses and lead to hot money outflows out of the equity markets.  At the same time, it doesn't change the heavy reliance of Turkey on mineral fuels and the current account deficit that this structurally leads to.  The result will be inevitable.  

The run on Turkey's foreign currency reserves will not stop.  Quite likely, after the shorts have covered, we will see the second and much more painful leg down. And if the currency tanks, so will all the corporates and government who have borrowed so heavily over the last five years in the Euro and US$ market.

Such is the fate of central banks and politicians who never learn from lessons from the past.

Tue, 01/28/2014 - 22:50 | 4378179 SAT 800
SAT 800's picture

it's true; they never learn; this will be at least as useful as India "outlawing" Gold. So clever !

Tue, 01/28/2014 - 20:22 | 4377537 walküre
walküre's picture

Total bullshit move

Turkish rates weren't cheap to begin with. How many Hedgies were betting against the TNY and other currencies, shorted the crap out of this and are now going to jump off buildings. With no return on anything, that trade was juicy.

Bankers eating bankers. Bon appetite.

Bankers it's what's for dinner!

Tue, 01/28/2014 - 20:38 | 4377595 tawse57
tawse57's picture

I suspect people will now be fearing a Cyprus style 20% 'theft' of savings?

Tue, 01/28/2014 - 22:58 | 4378211 FilthyPhil37
FilthyPhil37's picture

The office-wide, morning update email today highlighted a story about some regulator saying that supervisers should try to eliminate the "first-mover advantage" received by the first person to run from rising rates in the money markets. How oddly fitting.

Tue, 01/28/2014 - 23:08 | 4378235 logicalman
logicalman's picture

I'm having a moment of clarity here.....

I'm on the wrong fucking planet!!!

How does all this banking bullshit not just go 'poof' in a puff of smoke?

Maybe it's because a puff of smoke is real, as opposed to the 'money' in the banking system.

I think I'll just have another rum.

Tue, 01/28/2014 - 23:35 | 4378351 Bryan
Bryan's picture

They just need to print more money.  It'll all be OK in the end.

Wed, 01/29/2014 - 04:40 | 4378919 Paracelsus
Paracelsus's picture

Very,very unusual that gold hasn't hiked on all this bad news,Argentina,Ukraine,and now Turkey.Venezuela getting their physical back is looking like a very smart move.

I think the 500 ton elephant in the room is still Japan.Oddly enough they also need to import all their energy just like Turkey does.(And they both have a serious earthquake problem as well).

Wed, 01/29/2014 - 06:19 | 4378990 eucalyptus
eucalyptus's picture

how the fuck do you all trade fx in this type of environment we've been in for the last 3 years? any given night, you could wake up the next morning with your neck snapped.

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