Welcome to this Sunday evening’s edition of Macro Markets where we filter the global financial noise to deliver you the intel that matters and what matters this week is moving crowds like a reggaeton super star.
J Balvin is the king of reggaeton, selling millions of albums, and selling out concert stadiums wherever he goes. The young super star, however, is nothing compared to 66 year old Jereome Powell who moves the entire global market with a few words on future short term interest rates.To show just how much markets love J Powell consider this; in less than a week markets have added $1.2 trillion in new negative yielding debt. There’s been an increase of $7.2 trillion in negative yielding debt just since September of last year. Thinks about that. No seriously go back and reread those last few lines and think about negative yielding debt which is like financial anti-gravity — it goes against the laws of financial physics. Governments have lost their moral compass, if they ever had one to begin with, and are conducting a robbery in broad daylight.
While competition is fierce its likely no one has figured out how to conduct a robbery in broad daylight like the Swiss. The Swiss government has become so gangster that it does not matter how long you are willing to lend them money they will not return it all back to you. Imagine giving someone a loan and being told upfront that you will not get any interest and that at the end of the loan you’ll receive back less than the principal you lent. That’s gangster and that is the current situation in Switzerland where nearly all of the Swiss yield curve is negative.
Speaking of gangsters, President Erdogan and his cronies have often been considered gangsters in Turkey for doing as they please with resources that are owned by the public and setting economic policies that suit their personal interests rather than their citizens. In a blow to Erdogan’s core power today Ekrem Imamoglu successfully won by a large margin the mayor’s election. The results signal the Turkish people’s dissatisfaction with Erdogan’s mismanagement of the economy. As yields everywhere else around the world are ultra-low, and in many places like Switzerland negative, we believe this will give a welcome boost to the Turkish lira which still offers a positive nominal yield. In the chart below we examine the USDTRY (inverted red line) vs the MSCI Emerging Market Index (blue line). Long term we think there are structural issues that will dramatically weaken Turkey’s currency but with J Powell tempted to lower rates into negative territory like his buddies at the ECB and SNB we may see emerging markets get a large short term boost of capital flows thus giving the lira a further bounce.
Like Making Money?
Of course you do. Then don’t give it to gangsters that won’t give it all back and make sure you have someone looking over it, even on Sunday nights. Consider opening an account with us and we’ll make sure you can relax and enjoy the next J Balvin concert instead of worrying about J Powell.