President Erdoğan recalled his pro-markets ex-Wall Streeter Mehmet Şimşek as Finance Vizier and the head of MIT who negotiated his diplomatic rapprochement with Egypt, Israel, Saudi Arabia and the UAE as Foreign Minister but all hell has broken loose in the money markets of Istanbul as I write. The Turkish lira has plunged 7% this AM as state owned banks have stopped the dollar sales they were ordered to execute to defend the lira in the run up to the election. This is classic FX manipulation for political gain that Pakistani Fin Min Ishaq Daar perfected to such a degree that he was renamed Ishaq Dollar.
I had pointed out in a past post that the volatility on the Turkish lira had spiked up from 3 to 20%. This was clear evidence that the smart money in the FX market predicted a sharp plunge in the Turkish lira once Erdoğan won the election. The Turkish lira now trades at 23.10. This means it has fallen a ghastly 12% since Sultan Recep was girded with the sword of Osman at Erdine. Lest my outraged wannabe Turkiye compatriots from the Land of the Pure get outraged, this is just a silly joke from Ottoman history and Erdoğan actually swore his oath of office in Ankara.
State intervention in Turkish financial markets has been on a colossal scale and its political DNA has been a recurrent theme in Erdonomics since the dawn of AKP rule. I have done my best to caution my friends against Turkish risk assets of any kind, including property as it was obvious that the end game of Erdonomics was hyperinflation, a lira free fall, banking crisis and a sov debt debacle. Yet so many investors in the Gulf succumbed to the temptations of Turkish delights and now have bitter but not sweet tastes in their mouths. As my old maths teacher Punchy used to admonish me: wise men learn from others’ mistakes, normal men learn from their own mistakes and fools never learn.
My confidence in the post-election Turkish lira has also been hit by Goldman Sachs’s most recent strategy note which has slashed his fare value target from 22 to 28. Investment bank economists are usually perma-bulls – since they are a cost center while the deal makers have to win multi-million dollar Eurobond advisory and privatization mandates from Mount Olympus in Ankara where the only Zeus is Erdo. The rate of the lira’s plunge has escalated in the past. The smart money has bailed out while retail investors, who include Mrs. Wattanabe from Dai-Nippon has lost their shirts, skirts and kimonos. The panic is self-evident in the Turkish lira-yen FX charts.
I doubt if Erdoğan is ready to embrace Davos Man and Wall Street since he has demonized the interest rate lobby that secretly rules the world, a point first made by Tsar Nicky’s Okhrana in the Protocols of the Elders of Zion. So I doubt if Mehmet Bey will be given any freedom from his boss’s economic diktat. The central bank has burnt its reserves and Turkey desperately needs offshore capital, which is a mirage on the eve of a global recession.
Also published on Medium.
