Turkish Lira Carnage Continues: "Prepare For The Messy Endgame"

Tyler Durden's picture

The Lira - officially the world's most volatile currency - has lost 11% of its value since the start of 2017 (down 8 of the last 9 days against the USD).

 

In fact, the lira headed for its biggest five-day loss since Lehman (Oct 2008) after a pledge by Turkey’s central bank to support the currency failed to convince investors.

 

As we noted previously, as Turkey deals with rising domestic instability (and Erdogan's push for total rule), the Lira has become the world's most unstable currency...

As we noted earlier, market focus has turned on the lira as a result of Turkey's large external borrowing requirement which makes its currency one of the most vulnerable currencies to tightening by the Fed.

Not helping matters is that Turkish residents have been flocking to the stability of hard currencies, the opposite of what President Recep Tayyip Erdogan has been urging. As the following Bloomberg chart shows, deposits in foreign exchange for individuals and companies excluding banks rose for a third week, signaling a lack of confidence in the lira. It’s the biggest loser among world currencies so far in 2017.

 

 

Additionally, Turkish economic growth has remained sluggish and inflation is rising, yet the central bank has been under pressure from President Tayyip Erdogan not to hike interest rates. A series of gun and bomb attacks have heightened security concerns. On Tuesday the Turkish parliament voted to press on with a debate about constitutional reform to strengthen the powers of President Tayyip Erdogan.

 

"Nobody wants to be the last one in there and everyone is running for the door. There are no signs from the authorities that they are taking it seriously," said Jakob Christensen, head of EM research at Danske Bank. Christensen said the risk of further attacks was undermining the tourist sector, which is vital for the economy and balance of payments.

Additionally, as Bloomberg's Mark Cudmore remarked, the long-running Turkish lira collapse is accelerating to an unsustainable rate. Prepare for the messy endgame.

The lira has depreciated by 6% in the past week, 13% in the past two months, almost 50% in the past four years. And that’s against the euro-dollar currency basket –- the fall is worse if measured in purely dollar terms.

 

President Erdogan may be discouraging the central bank from aggressively raising rates to defend the currency but circumstances will soon force its hand.

 

Turkey has a tremendous external debt problem. There’s nuanced debate about exactly how bad, but it’s hard to argue with S&P’s declaration that it has “one of the weakest external profiles” in emerging markets. Even according to the Turkish central bank’s own data, the corporate sector’s foreign-currency liabilities exceeded assets by a record $213 billion in September.

 

This means the stress is intensifying, rather than easing, as the currency plummets.

 

A hike of 200 basis points would probably be insufficient as FX and rates markets are already pricing in more than that. If they want to halt the slide for 2017, my suspicion is that they will ultimately be forced to do at least 300 basis points, even if that doesn’t come through all at once.

 

This, of course, will crimp growth and have other knock-on problems on the large debt market, which is why Erdogan is trying to resist any action. But the decision is being taken out of his hands.

 

He’s gone through this scenario before, in both 2006 and 2014, so he’s just going through the motions of denial.

 

The lira market now has mounting two-way risk and it will be a volatile trader’s market until sufficient hikes come through.

It's not just the currency that is in trouble though. The yield on the nation’s 10-year debt surged 45 basis points, and 5Y CDS just broke above 300bps. The monetary authority said yesterday that it is monitoring “excessive volatility” in the markets and pledged to tackle “unhealthy price formations inconsistent with economic fundamentals.”

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UnschooledAustrianEconomist's picture

I missed it, too. Nice to have it back.

Haus-Targaryen's picture

If only they had bought BTC yesterday, they would have been protected from this shock.  

 

Miss Informed's picture

Or bought "beanie babies" as a store of value to prop the currency up.

konputa's picture

We need the deer in head lights image right about now.

Sky flyer's picture

I haven't seen a good "since Lehman" article since last summer. What a welcome site indeed. If this inauguration doesn't go as planned, we will see a lot of since Lehman moments.

Kefeer's picture

Financial hell to pay for bucking the banking oligarchs and siding with Russia - go Turks!  Turks have played both sides of the political fence for years and now they are going to reap what they have sown.

Omen IV's picture

"as a result of Turkey's large external borrowing requirement"

if you are going to take on the establishment you need to be almost debt free... Putin's Russia is just that

 

he was prepared for the sanctions plus low oil prices simultaneously and has weathered the storm

Erodgan was cycling out of the US toxic relationship but he couldnt do it fast enough politically, militarily so the economics catch up when US destroys via soft sanctions such as staged false flags the wipe out of hard currency Tourism - a big number for Turkey especially with Germans

The Turks will survive with Trump cancelling the Obama currency attack and then go from there - long term they are better off with the Russians / Iranians and peace in the middle east and out of NATO  - with the US there will always be another turn of the screw sooner or later

 

no stability with US relations

Vardaman's picture

Opium, oil, car bombs, beheadings, child marriages, "dancing boys" and a tiny amount of hippie freako tourism is all that muzzworld produces.  Why shouldn't Turkey's currency crash?

Ilmarinen's picture

Erdogan tried to play NATO vs Russia, the refugees vs the EU, ISIS vs Syria, Kurds vs ISIS.  NATO may be in for a serious shake up,  USA+RUS=<3 very soon, 'fugees won't be a credible bargaining chip when many EU nations get real gov'ts this year (not to mention that the EU's days are numbered), Syria is unwinnable for Turkey now, ISIS et al are pissed at their "friend" Turkey's double dealing, and the Kurds emerged from all of this significantly empowered.

Like with Obama, when you've got a leader who consistently loses the best hope is to hard reject the last guy and rebrand with someone new. However, "On Tuesday the Turkish parliament voted to press on with a debate about constitutional reform to strengthen the powers of President Tayyip Erdogan", so it seems they need to suffer more losses before their lesson will be learned.

lucitanian's picture

Don't you get it yet? It's their business not yours or the oligarchics' that you have chosen to enslave you and your thinking.

It's their parliament, their president, and their foreign relations.

Perhaps Maduro and Erdogan feel the same. If the US cannot change your system the way they want it in your country by backing a coup, or assassinations, or whatever, then they and their friends will rig the currency and screw your economics. It's not that difficult to drive the market, as the wise guy bankers have proved. Was the coup backed by the CIA? Were the terrorist attacks strategic false flags? Have the economic conditions (import / export) significantly changed to justify the pressure on the Lira?

Is it a conspiracy? Of course it is.

Ilmarinen's picture

Don't get me wrong, I'm not blaming Erdo for trying.  I think it's reasonable to assume he's made these big gambles to try to improve the position of himself and his country.  I merely point out that he lost his bets and prospects for his people are now worse, not better.  Erdogan, who has shown himself to be duplicitous to all, will find it hard to find new allies, and is thus a liability to the Turkish people. 

This is the change in economic conditions - no outsiders trust his gov't anymore, and rather than distance themselves from him, his people are opting to increase his influence.  Trust is the foundation of all relationships, including economic ones.

You presume too much when commenting upon who is holding my strings, and you mistake blowback from doubling dealing (it's crazy to think you can safely double-cross people like ISIS) for something much more complicated.

Dave the jew's picture

punishment for failed Syrian coup!! Gold backed lira the only way forward !!

Miss Informed's picture

No nation on earth is going to back paper money with gold, unless it's at $50,000 an ounce after some kind of apocalypse.

wholy1's picture

Ah, Turkey - captured and [being] trampled by an eVILE dispicable "turkey".

JohnGaltUk's picture

I predict defaults

Proaurum's picture

Ah yes, save your money in hard currencies, then watch aghast as the Turkish government enacts their version of the infamous corralito

MarketWizard's picture

Chickens coming home to roost

GGuy's picture

Gallinaceous birds coming soon to Turkey?

DieselChadron's picture

confirmation Erdogan has switched teams?

Offthebeach's picture

Gideon Gomo, Gideon Gomo, call on courtesy phone....

Maestro Maestro's picture

My Turkish friends,

Do what Turks do best and destroy the megalomaniac plans of the American, European and anti-Semite Jewish bankers again.
The solution is to bring gold back into the public monetary realm. This is how you do it WITHOUT actually risking your gold reserves in the process:

1) Declare publicly that the Turkish monetary base is backed by gold. This way, you thrust into the consciousness of the populations of the world the fact that gold is money of the best kind, unlike paper/fiat money, WITHOUT actually risking your gold reserves by de jure making the Turkish Lira convertible to gold. Fiat money is a psychological construct: turn the psychology against it by plainly and publicly stating that pure fiat money is essentially an intrinsically worthless item.

2) Ask for immediate and unconditional repatriation of your 400 tons of gold supposedly held for you by the Bank of England, if I recall correctly. The Brits most likely sold it and they don't have it anymore, so that gold is lost to you anyway. Turn your stolen gold into a financial weapon of mass destruction thrust deep into the collective heart of the Western bankers who are attacking the Turkish Lira and thereby the Turkish state. Put the Western bankers' theft and fraud committed against the Turkish nation, on the public record thus expose the bankers and the Western governments that they control (the EU being the most obvious) as the filthy criminals that they truly are.

3) Kick the Americans out of the Incirlik airbase to weaken the Americans' grip on your nation and also to remove the risk of a Russian nuclear strike against Turkey by distancing yourselves from NATO.

Go Erdogan.

They give you no choice. You either win or you lose.
To win, you must FIGHT. I showed you how to do it without losing a drop of Turkish blood.

Fuck the Americans.

USA=ISIS

heddahenrik's picture

Well said, but I don't agree on some points:

1) There is no attack on the Lira from "Western bankers". If they did such things, they would soon be out of capital. The Lira is sold by computer algorithms who together are much better at multidimentional trading than is humanly possible. The Lira is falling both becaue stupid policies of Erdogan and the government, and because of stupid attacks on Turkey from Gulf-states and Western Powers. And the horrible weather doesn't help either.Turkey will be hit hard by climate change and more earth quakes when we're heading into a solar minimum.

2) It doesn't matter how true it is that Turkey is attacked by foreign forces, it has to restructure the state just as much as Atatürk did. Take power from the central state and give it to local communities that can rule themselves. This is how countries like Switzerland, Andorra and countless of fiercly independent regions have been protecting their peace and prosperity for thousands of years. Which is impossible for any leader to ackomplish.

3) The elites are running to gold, nationalism and religion now. That is sort of an improvement, but it isn't the future. Gold is costly money to use, and instead we're moving towards bonds, real estate, stocks, commodity futures and so on that will preserve value BETTER THAN GOLD. We might see central banks promising that their currency will be better than gold, or totally new financial products, maybe blockchain based, that are also built on this BETTER THAN GOLD concept. So when you own that currency, your money is not (only) lying in a valt, but works as a solar panel, finances infrastructure and other pretty risk free things. And this will be protected by algos - not trust in some humans. Unlike gold which is worth much less if humans don't want it in valts.

 

Maestro Maestro's picture

You are lying and misleading your readers because:

1. Algorithms are only tools used by the bankers to manipulate and distort markets. Algorithms are not independent entities who have minds of their own. Algorithms do not make decisions. They only buy and sell what the bankers want them to. Algorithms=bankers.

2. Unlike what your insidious claim says, The big banks that own and control central banks, like JP Morgan, Citibank, Deutsche Bank, and Goldman Sachs, cannot go bankrupt unless they wanted to. They can print money ad infinitum for themselves via the central banks like the Fed that they own and control, or through shell games resorting to front banks that they own located in the offshore money havens like the Bahamas and the Caymans.

3. You want the bankers to have the unearned privilege to print money out of thin air and acquire our goods and services with said (fraudulent fiat) money essentially for FREE while we normal people have to actually WORK for that worthless crap you call money.

Filth.

OliverAnd's picture

Remember Ghaddafi when he tried to pull a similar stunt with backing his currency with gold?  You will remember Erdogan the same way.

To Hell In A Handbasket's picture

Come on guys, can't you see the pattern here? Turkey has turned his back slightly on Uncle Scam, so it must be made an example of. Attacks on its currency is only the first play. It's the same old pattern over and fucking over again. Our Syria plans are almost up in smoke and Turkey's detente with Russia and our failed coup against Erdogan, has left the USSA on the outside looking in. Expect more terrorist attacks against Turkey, as well as a volatile stock exchange and more Lira currency movement, despite the fundamentals of the Turkish economy being more sound than most of Europe.

Publicus's picture

When will they learn, the only way to support your currency is to have the central bank short it.

ipso_facto's picture

'Declare publicly that the Turkish monetary base is backed by gold.'  

Of course Turkey needs verifiably large gold reserves to do this.

chubbar's picture

Well, they should just make up what they think they would need for backing and put it out there that they have it. The US doesn't have the gold it says it has, clinton made sure of that, so what if they don't have it? By the time that the world gets around to demanding verification they can have a deal with russia to borrow gold or whatever works. In the meanwhile, their currency stabilizes and the world starts working out details on gold backed currencies which throws a hugh monkeywrench in the US' plans to rule the world.

Maestro Maestro's picture

The Turks should demand to get their 400 tons of gold back from England. If the British refuse to deliver, the Turks should put it on the public record that the City of London stole their gold which is definitive proof that Western powers are thiefs.

Turn Western treachery and fraud into a golden backing for the Lira (and other emerging-world currencies) by sublimating said treachery into a weapon to bring down the dollar and the euro.

Guess what goes up when those go down.

Maestro Maestro's picture

By the way, why are you not asking the Americans or the French, German, and English governments and central banks to verify by independently auditing their gold holdings?

Why the presumption that the West is not lying about its gold holdings when they continually refuse to show their gold?

They already sold all their gold, the Americans and the Europeans.

Miss Informed's picture

We did ask, but they told us to fuck off.

angry_dad's picture
angry_dad (not verified) Jan 11, 2017 10:22 AM

Once again we see history repeating itself.

 In the 1930's while the usa was in the depths of depression, the UK and France were busily collapsing another country's currency under the guise of a treaty.

FDR warned them about this activity and told them to stop.

One day, a charasmatic leader emerged in that country who decided to take revenge on the bank manipulators.

The rest is history.

Looks like the EU banksters will have to get another gangnam style taste of retribution.

They never learn.

 

 

heddahenrik's picture

Yes, but they are failing. Currencies and everything financial are now controlled by computer algos, and CIA can't even do a coup in Turkey or start a war with Russia (not for a lack of trying, and yesterday there were even more attacks from Ukraine).

The wise elite is fleeing to gold, nationalism and religion. But what use is that when we can replace these people with computers that work 24/7 to distribute resources for optimal prosperity much better and without demanding private jets or ritual sacrifices?

Satan's picture

Putin has yet to extract his pound of flesh out of Erdogan...you don't shoot a Russian jet out the sky and walk away scott free...