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Tag: geopolitics

Szn 4, Ep 4: The Case for the Turkish Lira, With Dave Fishwick, M&G Investments

Published February 3, 2022

Dave Fishwick joins the podcast to make the argument for investing in the Turkish lira after it dropped half its value versus major currencies.

The appeal is not just the value but the carry, resulting in the equivalent of 30% to 40% annual interest income. To Fishwick and his team, the trade is not only contrarian but an example of the type of idiosyncratic idea that has no correlation to other parts of the portfolio.

The conversation is not limited to Turkey but expands to the U.S., China, and other emerging markets during the second half of the episode.

(This podcast was recorded in person at the iConnections conference in Miami. The acoustics were not ideal and there is some background noise as a result. Apologies for the inconvenience.)

Content Highlights

  • The macroeconomic policy experiment in Turkey, where the country’s central bank took the highly unorthodox step of combating a sovereign crisis by reducing interest rates. The Turkish lira went into freefall as a result (2:24);
  • The lira looks attractive on a real basis, but the real appeal comes in the so-called carry, an often-forgotten part of foreign exchange markets. How this works (3:29);
  • Some background on the strategy by the Central Bank of the Republic of Turkey, which is on the surface frightening. But therein lies the appeal (5:22);
  • Why buy the Turkish lira when the CBRT is cutting rates while the Fed is raising rates? (11:07);
  • If the CBRT succeeds with this experiment, could other emerging market countries follow its example? The strategy is not unprecedented… (13:15);
  • Background on the guest (16:19);
  • Fishwick’s view on current markets. The market has re-rated asset classes, despite upbeat economic news (18:43);
  • The present situation may appear bizarre, but it not without parallel. Why it’s hard to be bearish for the longer-term (21:48);
  • Other areas of the world that are interesting for investors, especially contrarians (24:11);
  • There are “some similarities” with what happened the last time the Fed entered on a sustained interest hiking campaign (2004 to 2007), but many differences. The key? Watch the inflation data, though the Fed’s record on engineering soft landings is poor (27:05).
MoreSzn 4, Ep 4: The Case for the Turkish Lira, With Dave Fishwick, M&G Investments
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Szn 4, Ep. 2: The Nascent Sino-U.S. Financial Cold War, with James Fok

Published January 18, 2022

James Fok joins the podcast to discuss his book ‘Financial Cold War: A View of Sino-US Relations from the Financial Markets’. In Fok’s view, the fates of China and the U.S. are highly intertwined, and neither country’s leaders want the conflict to escalate — but that could easily change.

Content Highlights

  • How the financial cold war is defined, some of the ways it is already impacting society and economics, and the risks of greater conflicts (3:06);
  • Is military conflict between the U.S. and China inevitable? (4:49);
  • The fates of the two countries are highly intertwined but the U.S. dollar and global monetary system have exacerbated imbalances (7:46);
  • Why the belief that the USD’s global role is good for the U.S. is a fallacy (11:02);
  • The world needs to become less USD-denominated if the financial Cold War is going to be resolved. There is precedence for this (18:00);
  • Background on the guest (30:00);
  • The state of China’s economy and where it’s headed (33:44);
  • China’s economic problems are clear for all to see, but the social implications are probably being significantly underestimated (36:49).
MoreSzn 4, Ep. 2: The Nascent Sino-U.S. Financial Cold War, with James Fok
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Szn 3, Episode 27: Forget Inflation — Deflationary Forces Are the More Vexing Issue

Published November 16, 2021

Content Highlights

  • The market is pricing in a series of interest rate hikes for the coming 24 months. But the Fed has backed off of a tightening schedule before (2:18);
  • Bonds have been selling off, but investors will find themselves on the wrong side of this trade when Fed backs off of tapering (4:07);

  • Inflation is a supply-side problem that the Fed doesn’t have control of. Markets are too fragile to handle rate hikes (5:06);The latest FOMC meeting where tapering was announced “was probably the most dovish taper you could come up with” (9:20);

  • Deflationary forces, starting with China, are a major issue the market is overlooking. This despite the best (non-publicized) efforts by the Chinese government (10:49);

  • It’s not just China though; demographics and debt are part of the longer-term trend toward deflation (19:19);

  • Background on the guest (22:33);

  • What about potential headwinds, from China or elsewhere? (24:58);

  • Unwinding Evergrande: Where is the exposure? (29:05);

  • How much longer can the Fed taper before their hand is forced to back off? (31:17);

  • What indicators should investors keep an eye on to monitor this situation? (34:35).

MoreSzn 3, Episode 27: Forget Inflation — Deflationary Forces Are the More Vexing Issue
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