Submitted by Taps Coogan on the 13th of August 2018 to The Sounding Line.
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ACG Analytics analyst Larry McDonald and CNBC’s Rick Santelli recently discussed the emerging financial crisis in Turkey and its growing implications for global markets.
How the collapse of Turkey’s lira affects international markets from CNBC.
Larry McDonald:
“Both the Fed and the ECB have kept interest rates low and easy money for so so long that a country like Turkey has been able to accumulate $250 billion of Dollar and Euro denominated debt. So every 1% move lower in the Lira is like a 5 billion Lira interest coverage problem. In other words, when you have that much dollar denominated debt, it’s lights out. Literally, there is no way that the country can come out of this.”
Rick Santelli:
“I am not sure Turkey can get out of it either. But is that what we are all worried about? No. I think what we are all really worried about is how it affects the big markets, specifically the US market, and I think Larry is absolutely correct. The unintended consequences of bad policy lasting too long from the world’s central banks… it’s going to magnify every credit crack like a powerful microscope and I don’t see anyway around that. But in the bigger picture it doesn’t really feel like ’98 to me. It doesn’t feel like any of those markets to me because back then we wouldn’t have had the luxury to discuss how this crisis would turn out because it was happening in the immediacy of the moment… What does it mean next…? The category I would be worried about most is capital deployment. Emerging markets looked great for all the reasons Larry said, but the tide is turning and bad governance, bad politics in these countries also figures in. But it you were an investor the first thing you do is buy Treasuries, buy Bunds. The second thing you would do is take that cash out and deploy it in solid equity markets. I think this is going to end up being a positive for the US markets, though probably not immediately…”
There is more to the interview so enjoy it above.
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