The closest analogy of what's going to happen to Lira is the crash of the Russian Ruble in 1998.
- Aug 17th 1998: 6.43
- Sept 8th 1998: 20.83
In three weeks the Ruble lost more than 2/3 of its value and the government had to default on sovereign debt.
That contagion caught the world's biggest hedge fund of that time, LTCM, on the wrong side of the trade. The fund was liquidated, The Fed had to be heavily involved in order to prevent the risk of market shutdown.
I have no doubt that the Lira will crash and the magnitude of the move will be similar to that of USDRUB in 1998.
It's important to understand that the Lira is not the cause, it's just a consequence of bigger things happening in the market. This time the root cause of the crash is the sell-off in Treasuries and the rush into the dollar created by it. Panic selling in Treasuries will ignite a mass exodus from debt and equity of every kind into the dollar, causing the latter to uptrend wildly and taking down every other currency except the Yen.
What's the best course of action for the next few months: if you are in Turkey and you have any Liras left, rush to the nearest exchange booth right now and buy some dollars. If you're elsewhere in other emerging markets, then buying dollar is equally good.
- Aug 17th 1998: 6.43
- Sept 8th 1998: 20.83
In three weeks the Ruble lost more than 2/3 of its value and the government had to default on sovereign debt.
That contagion caught the world's biggest hedge fund of that time, LTCM, on the wrong side of the trade. The fund was liquidated, The Fed had to be heavily involved in order to prevent the risk of market shutdown.
I have no doubt that the Lira will crash and the magnitude of the move will be similar to that of USDRUB in 1998.
It's important to understand that the Lira is not the cause, it's just a consequence of bigger things happening in the market. This time the root cause of the crash is the sell-off in Treasuries and the rush into the dollar created by it. Panic selling in Treasuries will ignite a mass exodus from debt and equity of every kind into the dollar, causing the latter to uptrend wildly and taking down every other currency except the Yen.
What's the best course of action for the next few months: if you are in Turkey and you have any Liras left, rush to the nearest exchange booth right now and buy some dollars. If you're elsewhere in other emerging markets, then buying dollar is equally good.
