Anyone Worried About the Lira Dragging EVERYTHING Else Down?

Anyone watching the lira? It was bad enough prior to Friday, and then Trump hit the tweets with more tariffs for Turkey. This was all just going to blow over it looked like until they had another meeting late last week and things went very wrong. But the lira is dragging global markets down across the board. 

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Apparently, Turkey’s currency crisis is creating the preconditions for a good buying opportunity in the U.S. stock market. That’s because the world’s central banks will almost certainly make sure that there is plenty of liquidity to keep Turkey’s crisis from spreading too far. And, inevitably, much of that liquidity will make its way into the equity markets.

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1 hour ago, dowmike said:

Anyone watching the lira? It was bad enough prior to Friday, and then Trump hit the tweets with more tariffs for Turkey. This was all just going to blow over it looked like until they had another meeting late last week and things went very wrong. But the lira is dragging global markets down across the board. 

I humbly admit I am baffled by this connection. Media reported the lira is dragging down lots of stuff, including oil prices. I fail to see the economic progression of how this is possible.

 

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(edited)

21 minutes ago, Rodent said:

I humbly admit I am baffled by this connection. Media reported the lira is dragging down lots of stuff, including oil prices. I fail to see the economic progression of how this is possible.

The progression is clear there were 3 European banks exposed and unhedged with significant loans to Turkey, today its 4 or 5. Currently exposure is low and all containable but then they would say that wouldn't they.the fact the number of banks has increased in a day or so is worrying. If it spreads to the EU there is a lot of issues just under the surface of a few banks there that might pop up and from there there maybe a threat to the ECB after that it could get very messy. All a bit extreme just now but that is the link. Gut feeling is that it's manageable but perhaps all facts are not in the open. After the last banking crisis I trust no utterances from any bank.

Summary of a few views...

https://www.bloomberg.com/news/articles/2018-08-13/these-are-the-five-european-banks-in-focus-on-lira-street-wrap

Edited by jaycee
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10 hours ago, Rodent said:

I humbly admit I am baffled by this connection. Media reported the lira is dragging down lots of stuff, including oil prices. I fail to see the economic progression of how this is possible.

 

I have just read an interesting article showing that the $ strength is the reason for contagion as emerging markets rely on $ denominated loans, Turkey is just the canary in the coal mine it would appear in this repect hence the fear of contagion to South Africa, India, Argentina and Indonesia in particualr. The connection can be seen by emerging markets lack of appetite for gold which is what I was researching when I found this.

https://www.ft.com/content/d6f68dc0-9ed3-11e8-85da-eeb7a9ce36e4

If you have no subscription to the FT then google 'Why gold tells us this EM crisis is all about the dollar'

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It looks like Turkey may eventually default, possibly to the the tune of USD $500 billion or so.  That's not a hole that can be easily covered by banks or business.  I don't see any upside to Turkey circling the drain and then going down the tubes.

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11 hours ago, Rodent said:

I humbly admit I am baffled by this connection. Media reported the lira is dragging down lots of stuff, including oil prices. I fail to see the economic progression of how this is possible.

 

Unrelated to oil, which in on course due to its own factors.

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30 minutes ago, Tom Kirkman said:

It looks like Turkey may eventually default, possibly to the the tune of USD $500 billion or so.  That's not a hole that can be easily covered by banks or business.  I don't see any upside to Turkey circling the drain and then going down the tubes.

And there, my friend, is the relation to the global markets.  Who already has/had Turkey's debt are about 5-6 international banks, as jaycee touched on already.  The solvency of those banks are being questioned if Turkey defaults.  Central bank's ability to cover the losses is also being looked at, and I'd wager it ain't pretty.  Also, the strength of the dollar, again as jaycee touched on, is creating conditions that worry many central banks and markets around the world.  The worldwide financial markets are very much tied together, and those pesky derivatives are even more of a problem than they were in 2007/8/9.  Derivative tie-ins are dangerous and in many cases unknown, until something sets them off and then look out below.  The markets know this and they are waiting for the trigger.  I couldn't believe that until very recently, a week ago I think, the headlines were full of "invest in emerging markets, all is peachy!".  Utter outright lies by Wall Street.

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1 hour ago, Tom Kirkman said:

It looks like Turkey may eventually default, possibly to the the tune of USD $500 billion or so.  That's not a hole that can be easily covered by banks or business.  I don't see any upside to Turkey circling the drain and then going down the tubes.

You know, I may have neglected to mention that another thing about the Turkey reaction in world markets is simply that Turkey is one of those rare intersections in the world where sooo many things become strangely interconnected, on a good day, let alone during crises.  The Kirkuk–Ceyhan Oil Pipeline (so maybe oil moves are affected to some degree), geographical location, geopolitical location, religions, local politics, regional politics, NATO membership (and so international politics) and on and on.  A canary in a cave?  Could well be, now that I think about it.

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I'm fairly sure the ECB will be bailing out Turkey.

Bend over EU taxpayers - Mario is requesting payment.

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