YouSaid · the spoken record

Paul Mcnamara

lines on the record: 27
first: 2022-01-17
most recent: 2022-01-17
sittings or episodes: 1
sources: podcast

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“Yeah, I mean, this is going to sound like a terribly predictable answer. But, you know, as long as the Fed remains hawkish, and I think three hikes this year, I mean, might not be hawkish by Volcker standards, but it's still seen as a hawkish. That's a difficult environment for EM and it's a difficult environment for anybody who's only where a stronger dollar is a problem. The ideal thing would be a big Basically, almost always is that tends to be a strong dollar environment and that tends to be a difficult environment for EM to prosper in. But I think, you know, number one, the Fed and number two, growth, even in the developed world, but outside the US are what we're most focused on.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“Stabilizing. And at the moment, with still half the deposit base in Lira, as long as the Lira is this volatile, I don't think volatility will continue to be self-sustaining. It's not about valuations. You need some way or other to get to a level where the country moves to a sustainable footing, where inflation stops rising, the currency stabilizes and so on.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“One that I'm wrong that inflation peaks, starts to drift down, that President Erdogan can do a victory lap. And while I'm looking for a new job, it can be just that things start getting better by themselves. It could be at the other extreme that they have to close the banks or ration depositors or convert dollar deposits into Lira, none of which I'm saying is particularly likely. I'm just kind of presenting very, very extreme cases of what could happen. I don't think this sort of crash scenario is likely at all. But what we do need to see is something like the Lira.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, inflection points tend to be much more about what's going on than valuations. I mean, there is no absolute level for a dollar owed by Turkey. At the moment, the external debt is trading close enough to par that makes no difference. But there's no feeling that a dollar debt price of 30 cents and the dollar a Turkish lira rate that's 40% below long-term trend, there's no absolute level of valuation that on its own constitutes a buy. And you can see this, for example, in the really extreme cases, places like Lebanon or Venezuela or Argentina. And I absolutely am not saying that Turkey's in the same class as those countries, but you can't rely on valuation alone to make the case to buy. We do need to find a situation where we think that the term... Turkish situation is sustainable. That could be any, you know, it could be”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“They can't just rely on external factors to bail them out. They need to get the policy mix more right than it's been so far. Opinions vary. I know that your previous interviewee was much more positive on the new savings plan than I am. But it's going to require policymaker inaction even in the most benevolent scenario if they keep doing what they're doing, they will be able to have a crisis.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, specifically for Turkey, a calmer coronavirus situation is terribly important because a tourist season is incredibly important to their balance of payments. So, you know, if this summer looks like 2021 or better, that's very positive for Turkey. If it looks like 2020, then really that's seriously problematic for Turkey. I mean, in terms of the global forces, Turkey is unusual in terms of relying on external energy for essentially all its energy needs. So that very high oil price, the very high gas prices, those are a big negative. But I think Turkey's inflation in the mid-30s is a point where”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“Improved valuations even without. But the other thing that we think is probably more of a medium-term variable and will drive other things is domestic credit growth because it's not just a question of what's the level of interest rates. It's also the quantity of new credit. And Turkey's problems, certainly since the global financial crisis, have always coincided with growth in domestic lending. But it doesn't really matter if it's liras or dollars, is that lending picks up activity picks up that creates demand for imports. It also creates leakage into dollars and it tends to weaken the currency. So what we need to see, I think, above all is monetary discipline, not just in terms of the actual level of interest rates, both the policy rate and effective rates. It's very hard to see how a level of credit growth compared to the”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, two things. One is just what happens to Lira by itself because obviously we saw this massive sort of, I think, something like a 30% intraday move. Now, the interesting thing or the relevant thing to us is at the time people were saying, well, everybody's clearly buying into this idea, it's going to work, but it's, you know, it subsequently turned out that there was very, very heavy intervention by the Turkish Central Bank, even while the speech was taking place and presumably timed in order to coincide.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, the argument is if you compare it to an insurance contract, I mean, the way the conventional insurance is, you know, you reinsure your car. If somebody sets fire to your car, we'll give you the money. But what these guys are saying or what the Turkish authorities are effectively saying is if we insure your car, we will make it much less likely that your car catches fire. But if your car catches fire, then we'll set fire to your house as well. Is that the consequences of a big dollar spiral become worse through the existence of these insurance contracts, of these financial products? They might make a crisis less likely, but if a crisis does happen, it's going to be much worse because the sovereign balance sheet is contaminated as well. And you're printing Lear at the very worst time to be printing more Lira.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, one of the reasons you want to hold or you're willing to hold Lira is that you can freely convert it into dollars at any time. If we get to the point where you have a dollar Lira spiral that is threatening, that is moving the way it was in December, the last thing you want to be doing is printing huge amounts of Lira and giving those to people who treasure Dollar Lira stability because then they'll just rush out and then when the time comes, they'll buy dollars and make the spiral worse.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, yeah, I mean, you can't beat the Fed in dollars. You can't beat the ECB in euros. But, I mean, what the Turks are saying is that they're effectively underwriting a dollar debt. I mean, whether or not they say they're paying it in Lira doesn't really matter. It means that they're underwriting a dollar debt and the central bank of Turkey cannot print dollars”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“The Turkish government can afford to pay for moves of that magnitude. I mean, the idea of making a guarantee and therefore it never happens to be used is obviously quite attractive, but you have to have some sort of logic that if the guarantee does have to be used, it's not going to make everybody's credit worse. And then you just have the banks contaminating what is still a pretty clean government balance sheet.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“It's been for the last couple of years, it's still going to cost you somewhere close to 5% of the amount. So this is the government writing a very, very valuable put option for free. And that's, you know, we saw something. I mean, the counter argument, and I wouldn't, you know, I'm not making an exact comparison, but the logic is quite similar to, for example, the Irish government deciding to guarantee its banks in 2008 on the basis that if people believe the government stands behind the banks, they won't pull their money out of the banks, and therefore the banks won't need protecting and it's effectively a free option, a free bit of underwriting. I mean, what happened in Ireland is, of course, that the”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“It looks kind of incoherent. I mean, there's an attempt to change people's expectations and thus create a kind of a virtuous circle that people will move their money out of dollars into Lyra, stabilize the banking system, and it will all work fine. And if you could just somehow spontaneously make people start shifting their money out of dollars into Lyra, creating a bid for Lira, stabilize the currency, bring inflation down, you could see how this would work. The trouble is that this is, and I think your previous interview made the same point, that this is the government writing effectively put options on the lira. Now, if you write an at the money put option on the Lira right now, it's going to cost you about 11% of the sum insured. Even if kind of Lira volatility or implied volatility goes down to the lowest level.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“Are what about 120, 130 billion dollars never mind net, that they've been running these big swap books with the domestic banks, which distort the usefulness for the figures that under the previous, well, a couple of finance ministers ago, Mr. Al-Bayraq, the state banks were de facto intervening to keep the Lira stable. It's this incoherent mismatch of ideas based on the idea that things are only really going wrong from Turkey in Turkey because of foreigners, especially people like me, and not because they have a policy set up that is designed to produce inflation.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, I think it's an attitude of the government kind of wants to have its cake and eat it, that they want low inflation, but they also want high growth, they want financial conditions, which are good for the good for it, well, especially the property sector, but for rich people generally, and a reluctance to recognize that there are trade-offs in economics. I mean, specifically the idea that the best way to reduce inflation is to cut interest rates, you know, which has been repeated and actually loud amplified as we went through December, it just adds to the volatility. And it's the same thing that they've intervened very heavily. We think that the intervention since the last couple of weeks of November was ticking up towards $20 billion. And gross reserves.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“When people who'd taken mortgages in Swiss francs in particular, but in foreign currencies, the volatility between foreign currencies and local currencies makes both borrowers and lenders want to prefer domestic currency, not on the grounds of wanting a directional move that looks after them, but just on the grounds of certainty that you will not, you know, even in somewhere like Poland or Hungary, you can comfortably get a move in Eurozloti or Euro foreign of five, six, seven percent. And people don't want that uncertainty. So, I mean, the natural preference is for people to use as their unit of count the domestic currency. And you need Turkish level disruption to chase people out of domestic currency.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, it's extremely simple macro stability. I mean, obviously, inflation coming down and staying down. I mean, it looked as if Turkey was well on this course. I mean, actually, the best part of a decade ago now when they got inflation well down and persistently into single digits, then you start to see the currency stabilize. You see real appreciation. It's not just a question of inflation. You need to have the banking sector seen as safe. You need to see government debt seen as effectively risk-free locally. But in a words, to stability, if domestic institutions are stable, if domestic macro variables are stable, then people don't want the uncertainty of owning a foreign currency because then owning foreign currency becomes a two-way risk. You get the domestic currency appreciating. And then it's the holders of foreign currency who get hit very hard. I mean, a particularly good example is what happened in Poland and Hungary from the other side.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a lot of other stuff at work. I mean, as a very, very loose rule of thumb, the estimate of the pass-through, you know, say is very, very roughly about a quarter or somewhere between a quarter and a fifth. So if you get a 10% rise in inflation, sorry, a 10% drop in the lira, then that'll probably add somewhere between 2 and 2.5% to inflation. So it's part of it, but the factors which are at work everywhere else in the world, which is a huge buildup of cash balances, both at firms and at individual and household levels, people being pushed out of the economy and then suddenly kind of coming back, bottlenecks, big rise in oil prices because all energy, effectively all Turkey's energy needs are imported.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“Disruptive factor to something that becomes a real problem that makes taking economic decisions even with a horizon of a few months really very difficult. The key problem is not, oh, you know, interest rates are here rather than there. It's that inflation is very, very high and the government either doesn't have a clue or doesn't care.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“To put money into a foreign economy or that domestics will always prefer to hold foreign currency if real interest rates get too low. But in the specific situation we have here where inflation is, well, I mean, even before the latest round of nightmarish numbers, inflation was already very high. And have this perception that any sort of orthodox policy or not even or even an unorthodox policy which had some kind of logic behind it, you know, that there was no possibility of anything like that? That's what kind of creating its own kind of spiral because we saw the big drop in the lira and the result of that is that the latest CPI that was announced was 36% year on year, including 13.5% in one month. And the PPI is 80%. I mean, this is inflation ticking up from sort of nuisance and, you know, Miners”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“That happens when they just manage to maintain macroeconomic stability. I mean, the one thing we haven't mentioned yet is inflation, but the current... Crash or whatever you want to call it is primarily about inflation. I mean, nobody really cares that much. There's no suggestion if you look globally that foreign investors demand a certain level of real interest rates generally.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“It's fairly clear that the high level of dollarization creates more volatility. It makes any bad policy decision, any big external change, you know, be it a spike in the oil price or something like that. It will generate more volatility in a highly dollarized economy like Turkey. But dollarization is by no means unique to Turkey that we've seen. I mean, most of the economies of Central Europe were to a significant degree, maybe not to the same degree as Turkey, you know, oriented to first the Deutschmark and later the Euro. There was a huge role for foreign debt in the Asian financial crisis going back a bit further. A lot of Latin America still has a significant role of dollar for dollarization. But, you know, an awful lot of countries across the emerging world have managed to reduce the level of dollarization in their economies.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, I think the very substantial role for foreign currency, and especially the US dollar, is definitely something that makes Turkey much more vulnerable. But in Turkey, it's got a very, very strong and, well, not always vibrant real estate sector, you know, for a couple of years. I mean, before COVID, the share of real estate construction was ticking up towards the level we saw before the euro crisis in places like Spain. And if you're borrowing dollars without a natural source of dollars, then the very big role of the dollar in the economy is going to create volatility in itself because it does mean that when the dollar strengthens, instead of making people look, oh, the dollar is expensive, I won't buy some now, it's I desperately need these dollars. And if it moves even more, I'm going to be even further underwater. So I think the big role of the dollar, not just on the deposit side, but also on the debt side is very important there.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“Prone to this boom bust cycle. It's a country where the external deficit dips on a regular basis into deficit, into very substantial deficit. It's got much, much lower level of foreign exchange reserves than pretty much any of the other big EMs except maybe South Africa. So it has fewer natural safeguards. I mean, I think the history of the volatility makes the consequences of policy experiments more serious. But primarily the recent huge bout of volatility was a political choice by the government.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, I think it's really interesting because it's kind of unusual to have a crisis which is largely voluntary. It's not like you have to do some sort of thought experiment that what would be the counterfactual if Turkey had higher interest rates because we know that before President Erdogan sacked Mr. Akbal, the previous head of the central bank, we had much higher interest rates and we had a lira that had been appreciating solidly for a couple of months. So in terms of the trigger for this particular situation, it's entirely, I think, on the shoulders of the government that they decided that they were going to sort of play games, I think is maybe a little bit casual, but they decided that, you know, that they could conduct a complete experiment in monetary policy. I mean, I think there are longer-term reasons why Turkey has been particularly”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source
“It's something that tends to be particularly true of countries which have a habit of getting themselves into trouble. Turkey isn't remotely in as much trouble as Argentina, but the mindset there is the same, is that if you know a country is prone to 15, 20% or more corrections in the currency to overnight huge rises in interest rates or big drops in bond prices, you tend to be to react much faster. And this goes as much for people with a bit of money in the bank. Do they switch their money from Liras to dollars or back again or take their money out of the bank? You know, when you get this much volatility, it kind of creates its own volatility because people feel the need to react much faster and just that willingness to react more quickly kind of creates sort of enhances the volatility. So you get into this kind of volatility.”
2022-01-17 · Odd Lots · Paul Mcnamara on the Problem With Turkey, and the Attempt To Save the Lira · IDENTIFIED FROM THE TRANSCRIPT · source