Turkish Lira: A Recipe for Disaster?

Published on
September 11th, 2020
38 minutes

Turkish Lira: A Recipe for Disaster?

The Interview ·
Featuring Michael Nicoletos and John Floyd

Published on: September 11th, 2020 • Duration: 38 minutes

Michael Nicoletos, CIO and co-founder of Appletree Capital, is joined by John Floyd, head of macro strategies at Record Currency Management, to analyze the mounting pressures on the Turkish Lira as well as other emerging market (EM) currencies. Floyd breaks down his bearish thesis on the Turkish Lira (TRY), citing Turkey's deeply negative real rates, dwindling FX reserves, and a banking sector deeply indebted to foreign creditors on a dollar- or euro-denominated basis. Floyd and Nicoletos then discuss the knock-on effects of a Turkish Lira collapse as so many European banks (especially Spanish ones) are heavily exposed to Turkey. Lastly, Floyd shares with Nicoletos the various trades to express this view. Filmed on September 9, 2020. For John Floyd's report, click here: https://rvtv.io/3bMJSMN



  • ML
    Mehdi L.
    16 September 2020 @ 03:28
    would love to hear the a similar point of view on Brazil's BRL
    • jf
      john f.
      23 October 2020 @ 01:54
      See the piece just posted on Brazil, might be of help, great question.
  • DT
    Douglas T.
    5 October 2020 @ 13:39
    This was a really great interview; a very intellectual pursuit that is super enjoyable. There was a thesis, a good discussion on points for and a dialectic for counterpoints (well done by the host), there was how to express the trade, hedging the downside, time horizon, and a premortem that offered items to watch out for. I used to think trading was a game for "Liar's Poker" type individuals. Now I have come to see it as a great intellectual pursuit. I loved this. Keep 'em coming.
  • MW
    McChicken W.
    11 September 2020 @ 12:11
    Turkey ( Erdogan ) is a smart experienced Politician he's in the middle and plays everybody. EU the "Syrian Refugee flow into EU" / USA and Nato Military position / China Agriculture / Russia Military and Agriculture. His downfall may become if he cannot provide a decent living for "his people"
    • DT
      David T.
      11 September 2020 @ 23:44
      :) :) :))) Will see how smart he and Putler are.
    • MW
      McChicken W.
      16 September 2020 @ 13:16
      ....And of course, the Downfall can certainly be Erdogan's massive US$ loans from Turkish Banks, that now probably are at a +500% increase as the Lira has been sinking like a rock
  • TS
    Theodoros S.
    13 September 2020 @ 09:35
    Just one thought. If the DOLLAR sustains and gets appreciated rapidly, then a cheap EURO would not be good for EUROPEAN companies whom 60% of them export their products and services. In that aspect shorting Europe I believe is wrong.
    • AT
      Adelina T.
      15 September 2020 @ 09:22
      A weaker EURO should be especially good for the export focused countries in northern Europe, having their costs in EURO but sell outside Europe in USD. Tourism could of course also benefit but with covid that will take quite some time yet. This will in turn accentuate the north-south differences and challenges.
  • Nv
    Nick v.
    14 September 2020 @ 08:34
    Good summary of the conventional market view
  • JG
    Job G.
    13 September 2020 @ 02:40
    Botox right vs botox wrong. Just can't unsee it now.
  • DT
    David T.
    11 September 2020 @ 23:42
    Turkey is an authoritarian dictatorship of the crazy out of hand reckless imperator. Only dumb ****** investors would invest in Turkey. Erdogan is unpredictable Turkey.
  • DS
    David S.
    11 September 2020 @ 17:57
    Mr. Nicoletos does a great job at asking the right questions and setting the context in the interview. It is interesting when Mr. Floyd complements Mr. Nicoletos for absolutely asking the right questions but fails to answer them. From the transcript: “JOHN FLOYD: I think, Michael, those are all the absolute right questions. I would turn it slightly differently and in some ways, view this as an opportunity, a window of opportunity for Turkey to come out on top here.” When is Turkey going to come out on top? This comment and several non sequiturs confused me during the interview. I am sure that Mr. Floyd is not confused and wish him success on his trade. DLS
    • jf
      john f.
      11 September 2020 @ 21:19
      DLS that is a very fair critique and was an attempt on my part to be politically sensitive while drawing a contrast to countries like Italy that are in a currency straight jacket and can not pull that lever. While at the same time recognizing the very large output gaps created by the demand destruction that will mask some of the inflationary pass through of FX depreciation.
  • JR
    Jacob R.
    11 September 2020 @ 07:55
    Please could you comment on the specifics of the call spread? Is the option on UUP ETF or DX futures or something else?
    • jf
      john f.
      11 September 2020 @ 13:46
      A good part of the overall theme is taking stock of the macro landscape and evolving narrative and knowing where to play good defense. In terms of offense and specifically call spreads the 3m-6m time period focused on long US dollar exposure allows time for the trade to develop and maximizes the utilization of market pricing on the volatility curve at the moment. But, the key opportunities move well beyond the US dollar and extend to European banks, front ends of global yield curves, credit default swaps, and relative sovereign yield spreads in places like Spain, Italy, and France compared to Germany and the US.
    • JK
      John K.
      11 September 2020 @ 16:05
      Great question I was wondering the same because it’s hard to get try/usd exposure