A Coup, Terrorists and Inflation, Yet Investors Rush to Turkey

Central banks are encouraging indiscriminate risk taking.

The central banks would do well to take a course in fire prevention and conservation techniques.

Forest fires serve a purpose in nature, increasing biodiversity and the regeneration of plant food.

But in the early 20th century, people started employing fire suppression techniques that allowed debris to build up in the forests over time.

The increase in debris eventually led to the spread of highly destructive crown fires which spread quickly from their original source, changed directions unexpectedly, and jumped across natural fire breaks.

These catastrophic and ruinous fires served no ecological benefit, nor could they be readily controlled.

It took 6 decades of disastrous fires for experts to realize natural and prescribed controlled fires served a purpose in reducing a fire's fuel, regenerated the land and benefitted ecology.

Central bankers have not learned the role of market and economic cycles in clearing out the accumulation of risk to prevent far more destructive cyclical crashes.

They are using financial suppression strategies that have the side effect of leading investors to take vastly increased market risk to chase yield.

Fiscal policy can mitigate the impact of creative destruction and address structural issues that impede growth.

Central bankers are spiking the punch bowl and encouraging bad behavior, seemingly unaware of their own role in creating a precarious asset bubble.

Perhaps people have forgotten the words spoken by Mr.Greenspan in past"market exuberance". O% to negative interest rates have created a big bubble again & its burst is bound to happen. O% rate was last card Japan,US & many nations have used ya in line to use it. If the agents for markets pendulum sitting in government are so positive & sure about its strength economically,why not dare to raise a quarter point since first time they did so?

We are living again in 'unprecedented' times - the low rate environment is unlike anything we've seen in our lifetimes. As a result, investors are scouring the globe for yield, taking on unsustainable risk. Why are central banks keeping rates so low, which is disincentivizing people from saving. They are dealing with the consequences of many years of imbalances that built up over decades - including the massive unwinding of quantitative easing and bond buying. The markets are very distorted - there are no positives for this market, only the unknown. We could be headed for the worst financial crisis in history as there are currently no solutions for maintaining growth and paying off sovereign debts, which are now in the tens of trillions of dollars...last time I looked, it was $57 trillion dollars. Doomsday awaits if we don't take action.

"Investors drawn to volatile markets despite risk"

Consider you are in charge of California's pension fund

CalPERS, the Californian state pension fund, has underperformed its targeted 7.5% return over the past 3, 5 or 10 years.

The low to zero interest rate policy of the Fed has made investments into safe vehicles impossible.

What do you do ?

A more accurate headline would be

"Investors forced into to volatile markets despite risk"

Turkey is the pipeline route for the most strategic corridor in the world. To the north and east of Turkey are the former Soviet Union Stan Republics. They collectively hold the largest deposits of natural gas in the world and a sizable amount of oil. But they are landlocked and so the only way to export this product is via pipeline to coastal countries.

This is also why the US is trying to overthrow the Assad government. Syria is the second most viable route for pipelines and has claims to huge natural gas deposits off its Mediterranean coast. The Israeli's share this claim and would undoubtably have greater leverage if Assad was replaced by an American puppet. The US wants Syria as a client state to push their strategic aim to control resources in the region. But so does Turkey and Russia is happy with the stays quo simply because an Assad government would deny Turkey this strategic advantage.

The distant point of this picture is China. As China expands the Silk Road trade route west, it seeks to get access to the gas reserves of the Stans countries and pipelines pointing east. And what is the most likely route? Through Afghanistan and Pakistan to the Indian ocean. And why has the US pivot included revving up military presence in the South China sea? Because that's China's shipping route for all this nature gas and oil.

While the media is talking about terrorism and democracy, the real issues are being played out along these geopolitical lines.

When you know that Turkish stocks and bonds are still down double digits since the coup, you start to realize this myopic reporting is omitting facts you ought to be told. The same holds for Brazil. Markets don't linger on widely known news that is over; they discount it and move on. This is less about a chase for yield and more about how markets fundamentally work.

The world is awash in cash, has been for a long time. The article seems to refer to hot money chasing yield. The risk for the average person is that one has to be able to flee at least as fast as the hot money when the tide turns, or be left holding the proverbial bag.

The critical number is the spread between return and inflation. If you're buying Turkish bonds yielding 9% but the inflation or devaluation of the currency is 8.7%, that's a yield of only 0.3%. Is the added risk really worth it? The answer is yes if you are the broker because you make money both buying and selling for your clients.

While business acumen allows a little risk taking the greed always leads to the ruinous recklessness.

Holding Treasury bonds should provide potentially good returns as rates eventually head to zero and below in the U.S. It's only a matter of time until that happens. In the meantime, the Fed might raise rates again for awhile, but they can't go much higher or they would crash the economy. As rates decline, even going below zero, the Treasury yield rises. Negative rates will be good for those who buy and hold bonds while rates are still above zero.

Don't forget something: political stability. Now that the dictator is going to stay in power, there are not going to be sudden changes in the direction of the country ( like Russia and Putin ). Where else do you want your money? Try England and one day they decide to get out of the UE. Or the US if Mr Trump becomes president: change all deals and rules with the markets: then I doubt Wall Street will be happy with it.

With interest rates essentially zero, where is money to go? Any meaningful "safe haven" does not exist. One is left with some stocks and their miniscue dividends, junk bonds, and simply risky stocks in the hope of a capital return , (which by the way is taxed at a lower rate than dividends).

The key paragraph is the 10th paragraph, which explains the effect low-interest rates are having on pension funds and others. That's also the reason, not demand, that so many high-priced apartments and boutique hotels are getting built in US and the world. It will probably end with a thud and bailout.

This is interesting. More later.

Must be nice to have a lot of money.

Meanwhile, I sock away my pennies and nickels into index funds that gain a few percentage points here and there one week, while tumbling down and losing a bunch of value the next week.

Gee, I can't wait for retirement. I wonder if I'll ever be able to afford to stop working long enough to live to see it...

Must be the same brains as behind the surge in Trump donations

Yet another example of the rich getting richer no matter what.
The neoliberal speculation and finance-led growth doctrine has proven to be both socially and economically unstable and is marked by regular boom and bust cycles.
Now that our political and financial "leaders" have wrecked the social framework “In places like Europe, the U.K. and the U.S.," they are forced to look into other places where "you have risks, but at least you are getting paid for it.”

These people are always around when there is a chance to make a quick buck regardless of the impact that their policies have on the social fabric of a society and the first ones to bolt, hide their money in Panama, the Cook or Cayman Islands and leave the rest of us to deal with consequences of their continued scorched earth policy of another cycle gone bust.

Thanks, guys, and make sure to give some more money to Hillary to keep this winning strategy (for you) going.

Investors are not rushing to Turkey "in spite of" the coup, terrorists and inflation they are rushing in BECAUSE of them. Hedge fund money masters love chaos for everyone else. They'll go in and "invest" at highly inflated interest rates and wait for things to crash then demand "their" money - which is actually Turkish taxpayer's money - and take over government agencies as payment so they can strip the assets and throw the bones back to the Turks. A few Turkish officials will get very rich in the process and Fortune 500 will tout the "BIG winners." It should simply be illegal - it's plain, simple theft.

There is little financial risk in investing in Turkey any more than anywhere else. It has an expanding industrial and intellectual sectors wherein the economic interests are powerful.

I don't know if I can say the same about Brazil. The same low risk should apply but rampant corruption is the sword hovering overhead.

Yet again, the markets are right.

Which means they weren't wrong when they severely jumped the other way.

They're just never wrong. Amazing!

Being right means often being wrong. Kind of like love?

Capitalism is about making money.

And Turkey's corrupt, anti-democratic Erdogan is for sale.

FINALLY, someone noticed that terrorist attacks and a coup and STILL the Turkish economy is beating the issues in the UK, where the currency really did drop like a rock and the banks still offer .000001%! Turkey will remain a strong and important economy and should be treated as such, but alas, it's a Muslim country, so the west will continue to look down it's nose at it. Pity.