U.S. Sanctions Whack Russia's Rouble, Turkey's Lira Free-Falls

Alarm bells were ringing on Thursday as harsh new U.S. sanctions drove drove down Russia’s rouble Turkey’s lira plunged as worries mounted that Ankara was sliding towards a full-blown economic crisis.A rally in Chinese stocks had helped Asia offset the latest escalation in the Sino-U.S. trade war overnight after Beijing matched the latest U.S. sanctions, but too much was going on nearby for Europe to remain unscathed. Wall Street futures pointed to a steady start to New York trading but that was deceptive. The main fireworks were in the currency markets. The Russian rouble sank after Washington said it would impose fresh sanctions because it had determined that Moscow had used a nerve agent against a former Russian agent and his daughter in Britain, something the Kremlin denies. The lira touched a record low of 5.44 against the dollar, weakening some 2.5 percent from Wednesday’s close. There was widespread selling in the country’s bond markets and Istanbul stocks dropped 1 percent too.

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Time for the world to switch to gold or RMB

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... and USD after Chinese introduce 25 % tariffs?

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I believe this Turkish lira reaching record low is only temporary... If I remember well  same thing happened to Russia in 2014 during Crimea annexation.. However Russia's ruble got back and maintained steady rates since then.

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IMF bailout is mandatory for Turkey at this point... Maybe, it's only chance for them. 

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Worked so well " IMF loan, rate rises, spending cuts", firesale of  assets: Good old seventies and eighties in South America, nineties  Russia and Yugoslavia, Millennium Western Europe with Greece and now Turkey.  I don't care for Erdogan's regime

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"Turkey's lira free-falls"  - Sound better -  "Erdogan's regime free falls" 

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Quote

 

Buzzfeed recently had an article in which they reveal how Henry Kissinger has been lobbying Trump and Jared Kushner about cooperating with Russia to box in China.

The idea is to pull of the reverse of what Nixon accomplished in the 1970s, patching up relations with Red China to exert more pressure on the more powerful USSR.

Certainly a practical businessman such as Trump, who has no truck with ideologizing foreign policy, would be able to see the sense in this from the point of view of American national interests, and I suspect this may forms part of the calculus for his chummy relations with Putin. Ostensibly chummy, anyway. After all, this is what he had to say about Gorbachev in a 1990 interview with Playboy:

I predict he will be overthrown, because he has shown extraordinary weakness. Suddenly, for the first time ever, there are coal-miner strikes and brush fires everywhere–which will all ultimately lead to a violent revolution. Yet Gorbachev is getting credit for being a wonderful leader–and we should continue giving him credit, because he’s destroying the Soviet Union.

But although this is certainly a good approach from the American perspective, there are several intractable problems that make these dreams stillborn from the set-go.

First, the time to do that was in 1998, when Russians were still Americanophiles. Perhaps 2008 at the very latest. But Russians have had a deeply negative view of the US (and vice versa) since 2014. Public opinion might not count for much in Russia, especially as pertains foreign policy, but it’s not an entirely negligible consideration.

Second, it might have a chance if they were dealing with Russian liberals, who are slavishly pro-Western and willing to make unilateral concessions to improve relations, even (or especially) if it comes at Russia’s expense. It also helps that most Russian liberals are Sinophobes, which is a startling similarity they have with the siloviks. The siloviks, inured from business and technological trends, parochial, largely Internet illiterate, still live in the world of the 1970s where China is a Third World dump and unworthy of serious attention – as of 2013, there was a grand total of one analystworking on the Chinese military in the GRU – and quite a few of them are closet Westernists who resent Putin for banning from from foreign travel and making it more difficult for them to maintain villas and bank accounts in the West.

But Putin and the people around him at least don’t think in those terms – to their credit, they are at least “patriotic corruptionists,” not “comprador corruptionists.”

They realize that Russians would be stupid to hitch their wagons to the US, which is agreement-incapable and traditionally hostile to Russia, and is getting overtaken by China on metric after metric every single year anyway.

Almost all of the threats that China does pose to Russia are either complete myths or at least very much exaggerated, as I have often pointed out.

As I wrote back in 2009, China does not pose a demographic threat to the Russian Far East. The vast majority of Chinese in Russia are shuttle traders; virtually zero of them are going to be settling a foreign wilderness as part of some bizarre conspiracy redolent of late 19th century Yellow Peril propaganda to demographically steal Siberia from under the noses of the Russians. This is all the more true today, when urban Chinese salaries are now higher than Russian ones.

Nor is China going to try to militarily seize Siberian Lebensraum, least of all in the nuclear age. It is cute how so many alamists seem to forget about MAD when it comes to Russia-Chinese relations. I suppose the urge to see the two main threats to Western hegemony destroy each other is too much. In any case, China’s vector of advance is maritime and points to the south and east (Taiwan, the South China Sea, the Strait of Malacca). Russia is its strategic rear. This is America’s problem (even if mostly because it chooses to make this it’s problem), not Russia’s problem. I.e. something that the brighter and more cynical neocons realize, as I suppose John Bolton must have recently done.

China does economically overshadow Russia in Central Asia, but given geography and relative economic size, this has always been inevitable (hopefully it can also eventually start taking more Central Asian Gastarbeiters). As I have pointed out, Russia has little except access to its labor market and its weird Victory cult to offer the Central Asians, anyway – whereas the US has its cultural influence, Turkey has an ethnic draw, the Islamic ummah has a spiritual draw, and China has offer more economic incentives. Consequently, the diminution of Russian influence in Central Asia is in any case inevitable.

Otherwise, the draw of China to Russia itself has increased greatly, due to its increasing financial firepower (its nominal GDP is due to overtake the Eurozone this year) and rapidly increasing technological sophistication (even as Russia itself continues to stagnate). These are important considerations in the post-2014 reality in which relations with the West are strained, and the main hope of improvement lies either in Russia’s capitulation, or the coming of right-wing populist movements to power in the West.

In reality, it is quite possible a Russia that swallows Kissinger’s bait will be one that can be bullied by the United States with even more impunity.

Finally, it is on some level fortunate that the Blue Checkmark crazies and Russiagate truthers themselves in any case make any such gambit politically impossible for the United States (and so removing even the temptation of at least having to consider it). They genuinely believe that symbolic concessions such as inviting Putin back to the G8 or dropping some minor sanctions are a “giveaway” to Putin and adequate reward for Russia torpedoing its relations with China for the sake of American interests… hopefully they continue with their delusions.

 

 

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(edited)

Five years ago, the lira was trading at 50 cents to the US Dollar.  Today, it is at 18 cents, so figure it has fallen to one-third of its value in five years.  It will likely sink to 14 cents, and then if it goes to 13 cents the Turkish banking system is finito

Five years ago, at the 50-cent level, Turkey was attractive for European manufacturers to start setting up assembly operations there.  So big inter-city bus plants were built, and (relatively) cheap Turkish labor was set to work, building heavy buses for Europe.  Obviously, if the currency goes down by a factor of three since then, there should be a huge incentive for others to rush in.  But that has not happened, and is unlikely to happen.  I postulate the reason is that the increasingly authoritarian (and ideologically right-wing Muslim thinking)) of Erdogan is driving away investment.  Today, investment can head for Western Ukraine, or Poland, or Romania, and have a stable political climate and low wages costs.  So who needs the headaches of Turkey - and the portent of violent turmoil that is clamoring at the gates?  

This is going to end badly.  With a rapidly unraveling currency, the big lift you would get from fresh investments and new construction is not arriving, and the earnings in depreciated lira make it impossible to import goods and services in any quantity, so the population gets less for more work - the impoverishment of the workers.  If Erdogan starts printing lira - and I predict he will - then you are on the road to yet another Venezuela.  Can the IMF or anybody else stop that?  Probably not. 

Edited by Jan van Eck
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1 hour ago, Jan van Eck said:

I postulate the reason is that the increasingly authoritarian (and ideologically right-wing Muslim thinking)) of Erdogan is driving away investment.

Erdogan gave up on the EU when they would not let him join because of his lax following of human rights laws. Since then he has started focusing on the Islamic Middle East and Russia as his main partners, I like the way he caught Putin’s attention by shooting down a Russian fighter. Turkey is strategic to Russia due to gas pipelines, if Turkey is an ally a southern gas route to Europe avoiding Russia is impossible. We are at an inflection point he now needs help from those he has been courting if it does not come then he may well go down the Venezuelan path.

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It would seem that as usual borders do not stop bank runs. Spanish, Italian and French banks have exposure to Turkey's banking sector. Currently they are all making the right noises about being covered but I have never heard a bank say otherwise even when almost bankrupt, in fact especially when they are almost bankrupt!. This could force a banking crisis in Europe and from there it will spread. Bit early yet to predict armagedon but it is going to cost the EU that I am sure.

https://www.ft.com/content/51311230-9be7-11e8-9702-5946bae86e6d

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From one of my favorite financial wags:

Currency Crisis in Turkey: Erdogan Calls on Citizens to Sell Dollars and Buy Lira Amidst Collapse in Currency

This has become a big deal, seemingly overnight. Let’s not over analyze it or delve into hyperbole and simply observe facts. The Turkish Lira is cratering and crashing in Wagnerian Opera fashion, off by 13% for the day on news that Erdogan is telling citizens to sell dollars and take the gold from under their mattresses and buy Lira. The f*ck.

“Change the euros, the dollars and the gold that you are keeping beneath your pillows into lira at our banks. This is a domestic and national struggle,” Erdogan said, according to an Associated Press translation.
 

Erdogan calls on citizens to sell dollars, take gold from under mattresses, and buy rapidly depreciating Lira. Give this man an &sshat Award.
 
The result is the Turkish stock market crashing by 4.5% and sharply lower European markets — with Italy leading the fray down by 2.3%. It’s worth noting, Russian markets are down 2.6%

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Grab something to hold on to folks.  2008 2.0+ ?  I submit that yesterday's drop in U.S. markets had very little to do with Turkey: it was window dressing at best, used as an excuse or reason, but not really.  In America, if the FAANGs +Tesla continue to attract scrutiny, and they can thank FB and Tesla for that, it would seem to follow that they will face a correction to put their values back where the should be (way down).  Today's headline:

Microsoft MSFT CEO Satya Nadella just sold almost one-third of his common shares in the software company as the stock trades near a record price.

That sale, coming at this time, does not instill confidence no matter how they want to spin it.  Again, IF a major drop in the FAANGs +Tesla happens, it will send the S&P500 down overall.  The Dow at the same time, or next?  Banking and real estate next?  Dominoes.  Now, I certainly don't know if this is the start of a slide into a 2008-esque abyss, but if it is anything like that, well, everyone should at least be positioning their assets for protection.  If nothing else, park cash in U.S. Treasury Securities.  

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14 minutes ago, Dan Warnick said:

Again, IF a major drop in the FAANGs +Tesla happens, it will send the S&P500 down overall.  

FAANGs are going down, hard.  Please note my comment a couple weeks ago. 

Yes, Elon (not just his Tesla, but more importantly Elon's Space X) is going down too, hard.

https://community.oilprice.com/topic/3024-oil-wti-6930-headed-for-80-in-august/?page=2&tab=comments#comment-18591

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15 minutes ago, Qanoil said:

FAANGs are going down, hard.  Please note my comment a couple weeks ago. 

Yes, Elon (not just his Tesla, but more importantly Elon's Space X) is going down too, hard.

https://community.oilprice.com/topic/3024-oil-wti-6930-headed-for-80-in-august/?page=2&tab=comments#comment-18591

FB down to its realistic value of, what, $50?  The whole market is way overvalued, so I think the next 2 years are going to be brutal.  Not for me, but traditional investors and people with no idea how their retirement money is invested (Admit it, it's true.  Only watching the balance.) are going to be hit hard, again.  Do not trust any broker or banker with YOUR money.  Use your brains, just like you do with everything else in your life, and act accordingly.  Key word: ACT.  You don't have to follow any short sale saviour, although it might be a good idea to looking into it, but use your brains.  What does it hurt to pull your money out of the mess and wait a while, watch what really happens to the markets over the next 6-12 months, and then we'll all be able to figure out what to do again.  Of course, I could be wrong.

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This is one of the most conservative articles I can find about the level of derivatives in 2018 vs 2008:

https://www.ft.com/content/201bce0c-289b-11e8-b27e-cc62a39d57a0

If you read that article, yes, it does say that there were $157tn (yes, Trillion) of derivatives out there at the end of last year.  Total value of exposures at 5 of the biggest lenders up 12% over past decade.  Most other references you can find online put that number at various places, from this article (lowest) at $157tn all the way up to $850tn and even one or two that puts that actual value over $1 Quadrillion.  It behooves everyone to pay attention, and put a bit more time into current financial awareness and planning.

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6 hours ago, Dan Warnick said:

FB down to its realistic value of, what, $50?  The whole market is way overvalued, so I think the next 2 years are going to be brutal.  Not for me, but traditional investors and people with no idea how their retirement money is invested (Admit it, it's true.  Only watching the balance.) are going to be hit hard, again.  Do not trust any broker or banker with YOUR money.  Use your brains, just like you do with everything else in your life, and act accordingly.  Key word: ACT.  You don't have to follow any short sale saviour, although it might be a good idea to looking into it, but use your brains.  What does it hurt to pull your money out of the mess and wait a while, watch what really happens to the markets over the next 6-12 months, and then we'll all be able to figure out what to do again.  Of course, I could be wrong.

Dan, for those of us who aren’t real investment saavy but do have retirements building, where is the safe place to take our investments?

TXPower

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https://www.treasurydirect.gov/tdhome.htm

The safest place in the world right now to preserve your wealth and earn decent interest that, for the 30 year instruments I believe, is at @ 5% right now.  I also believe that is better than the return of the S&P 500 over the last several years.  There are a number of tools to utilize in a downturn, even a major correction as well, but you need to monitor such tools at least daily to make sure they are moving in the right direction.  I am no expert and for the upcoming (in my opinion) major correction I am following the advice of a bear market adviser.  I will say this: get a detailed accounting of your retirement investments and see where they are positioned and what they are made up of.  This may be harder to get than you think, but insist and get it.  If it is full of junk, emerging market 50, 75 & 100 year bonds and derivatives, I would say you need to cash it in and turn it in to cash.  Pay the taxes on it, get your money back under your own control and put it in U.S. Treasuries at least, and move on.  You will have to pay taxes eventually no matter what and the tax rate is probably the most favorable right now, and should only get worse in the future.

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Facebook is a $90-$100 stock by 2020, says pro

cnbc-logo-338x87-jpg_094614.jpg
CNBC VideosAugust 10, 2018
 
Lower and sooner than that, I'd say.

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58 minutes ago, Dan Warnick said:

https://www.treasurydirect.gov/tdhome.htm

The safest place in the world right now to preserve your wealth and earn decent interest that, for the 30 year instruments I believe, is at @ 5% right now.  I also believe that is better than the return of the S&P 500 over the last several years.  There are a number of tools to utilize in a downturn, even a major correction as well, but you need to monitor such tools at least daily to make sure they are moving in the right direction.  I am no expert and for the upcoming (in my opinion) major correction I am following the advice of a bear market adviser.  I will say this: get a detailed accounting of your retirement investments and see where they are positioned and what they are made up of.  This may be harder to get than you think, but insist and get it.  If it is full of junk, emerging market 50, 75 & 100 year bonds and derivatives, I would say you need to cash it in and turn it in to cash.  Pay the taxes on it, get your money back under your own control and put it in U.S. Treasuries at least, and move on.  You will have to pay taxes eventually no matter what and the tax rate is probably the most favorable right now, and should only get worse in the future.

Thanks very much Dan.  I did what you suggest above 2.5 years ago on advice but 6 months ago felt like I was missing out and went back in.  Perhaps I was early.

TXPower

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12 hours ago, TXPower said:

Thanks very much Dan.  I did what you suggest above 2.5 years ago on advice but 6 months ago felt like I was missing out and went back in.  Perhaps I was early.

TXPower

Yes, the bears without evidence have been calling the crash for years.  The difference now, in my opinion, is that the evidence is now abundant.

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(edited)

15 hours ago, TXPower said:

 

Lira Collapses As Erdogan Tells Turks: They Have ‘Their Dollars,’ We Have ‘Our God’

Maybe the headline should be ....'as Erdogan Tells Turks: They Have 'Their Dollar,' We Have ME'

Edited by Dan Warnick

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Just now, Dan Warnick said:

Lira Collapses As Erdogan Tells Turks: They Have ‘Their Dollars,’ We Have ‘Our God’

It must be comforting to know your leader is talking to gxd about things, not to mention that your gxd is limiting his/her/its time to the matters inside your borders.  Just being sarcastic, folks.  Nothing here, move along.  :)

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On 8/9/2018 at 7:47 PM, damirUSBiH said:

Time for the world to switch to gold or RMB

I would argue that the balancing forces of the market + capitalism + democracy will almost always be more fair than market + capitalism + Socialism with Chinese Characteristics.  If you think world currencies and markets are manipulated now, envision a world where The Standing Committee of the Central Political Bureau of the Communist Party of China is in control.

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If Saudi stop oil trade in Dollars, US will be at back foot

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