Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Watson Ball and I'm Tracy Allowait. Tracy. It's
Speaker 1: uh great to both be back because the last two
Speaker 1: episodes we had to do it solo. It's been a
Speaker 1: long two weeks. It has been along two weeks. And
Speaker 1: in these last two weeks, while we sort of alternated
Speaker 1: who was on vacation, a very interesting and important eco
Speaker 1: market story has been bubbling up. Yeah, shall I go
Speaker 1: ahead and tell everyone what it is? You can you
Speaker 1: can do the big reveal. Thank you for anyone who
Speaker 1: hasn't been watching the markets at all. For the past
Speaker 1: couple of weeks, we've seen really a global sell off,
Speaker 1: but sparked by what's been going on in Turkey. Yeah. Absolutely,
Speaker 1: and Turkey one of these stories, the currency plunge there
Speaker 1: or the political situation there, that seems to be jumping
Speaker 1: out of the finance realm, by which I mean people
Speaker 1: who don't normally pay attention to emerging markets and currencies
Speaker 1: are sitting up and paying attention, and so I think
Speaker 1: that makes for an excellent topic for our podcast. Yeah,
Speaker 1: it's pretty hard to ignore when a country's currency falls
Speaker 1: by I think on a trade weighted basis. Uh, that's
Speaker 1: pretty amazing. And you've seen some really dramatic scenes in Turkey.
Speaker 1: For instance, we've seen tourists lining up outside of luxury
Speaker 1: handbag stores in order to buy those bags on the
Speaker 1: cheap before the stores actually have a chance to adjust
Speaker 1: their pricing. So clearly a lot going on, a lot
Speaker 1: of human interest in the story as well, and a
Speaker 1: lot of economic and financial interest, some people even drawing
Speaker 1: the parallel to the Asian financial crisis right and beyond
Speaker 1: just a vivid images, also some very interesting geopolitical stuff
Speaker 1: given Turkeys where it's it's geographically it's a NATO member,
Speaker 1: the antagonism between er Dowan and Trump part of it
Speaker 1: due to the holding of a US pastor so, just
Speaker 1: lots of interesting threads to pull on kind of a
Speaker 1: complex situation. And so because of that, I'm very excited
Speaker 1: about the guest we have on today who will explain
Speaker 1: it all to us. Yeah, our guest for today is
Speaker 1: an emerging markets veteran really and someone who has been warning,
Speaker 1: let's just say, about the situation in Turkey for some time.
Speaker 1: So it should be a really good discussion. Absolutely. So
Speaker 1: today we have the pleasure of talking to Paul McNamara.
Speaker 1: He's the investment director of Emerging Market Debt at GAM
Speaker 1: and a long time watcher of Turkey and other emerging markets.
Speaker 1: I can't think of a better guest, So Paul, thank
Speaker 1: you very much for coming up. Thanks very much. And Tracy,
Speaker 1: So Paul, before we dive into the situation specifically in
Speaker 1: Turkey and your perspective on it. Tracy and I have
Speaker 1: known you a long time people on Twitter. No, you're
Speaker 1: one of these sort of more outspoken and clear observers
Speaker 1: of emerging markets. But for those of you who aren't
Speaker 1: familiar with you, what is your background? How did you
Speaker 1: get into covering emerging market debt? Well, I kind of
Speaker 1: drifted into it, um. I spent a couple of years
Speaker 1: after university in Poland when that country was going through
Speaker 1: all its changes, the move over to capitalism, and kind
Speaker 1: of whetted my appetite, and then I managed to look
Speaker 1: into a job at what ultimately became GAM. I mean,
Speaker 1: the most memorable thing was I started the job in March,
Speaker 1: you know, and those huge pressure to buy something, and
Speaker 1: what I decided to buy was Indonesia, which promptly collapsed
Speaker 1: fell from two thousand, four hundred to seventeen thousand to
Speaker 1: the dollar. So we're going to have to ask you
Speaker 1: about all the people seeing parallels with what's happening in
Speaker 1: Turkey versus what happened in Asia. But before we do,
Speaker 1: whenever we talk about emerging market investing, the thing that
Speaker 1: always comes up is, oh, there's no such thing as
Speaker 1: emerging markets as a whole. That each country is special
Speaker 1: in its own kind of way. So I guess just
Speaker 1: run us through what it means to actually be an
Speaker 1: emerging market investment director. I think there's there's a couple
Speaker 1: of things which distinguish a M from developed world. I mean,
Speaker 1: until recently, the politics, but I was supposed in the
Speaker 1: era of Trump and Brexit, we get wacky politics in
Speaker 1: both the M and d M. Two is that, you know,
Speaker 1: the institutions are not as strong. You know, a contract
Speaker 1: doesn't mean what a contract would necessarily mean in a
Speaker 1: developed country. There's a lot more reliance on trust, and
Speaker 1: there's a lot less trust in the system. And the
Speaker 1: other thing is and that that kind of spills over
Speaker 1: into how the economy's work. I mean, one thing you
Speaker 1: could say is that a developed country is one where
Speaker 1: interest rates go down when the country goes into trouble,
Speaker 1: and an emerging market is somewhere where they go up
Speaker 1: when it gets into trouble. So, just to your point
Speaker 1: about contracts and trust, if you own a stake in
Speaker 1: an oil company in the US or in the UK,
Speaker 1: you feel almost certain that under that, under all circumstances,
Speaker 1: that equity share or the debt you have will be honored,
Speaker 1: Whereas in many e M s you have to wonder
Speaker 1: when in a crisis a country could be nationalized or
Speaker 1: something happens, and you have to sort of factor that
Speaker 1: into your risk model absolutely. I mean, you know there's
Speaker 1: a range. There's places like Brazil where the system more
Speaker 1: or less works, but the banks will maybe cut themselves
Speaker 1: a sweetheart deal ahead of other creditors, you know. And
Speaker 1: in the other extent, there's somewhere like Russia where the
Speaker 1: where the government or people connect to the government might
Speaker 1: just outright expropriate what's a privately held company. And regards
Speaker 1: to what you said about in a downturn in the
Speaker 1: US or in a developed market, you do see people
Speaker 1: pile into save havens like government debt. In the M
Speaker 1: it's just the opposite. But what is that, why is
Speaker 1: there there sort of mechanistic difference. I think again it
Speaker 1: comes down to trust. I mean, it's you know, it's safe.
Speaker 1: Safe is a relative thing. The U S. Treasuries are
Speaker 1: the goal standard. And this is what we tend to
Speaker 1: find is that you know that when when Americans panic,
Speaker 1: they buy US government bonds, you know, that's their safe haven.
Speaker 1: But when Russians or people from most other countries panic,
Speaker 1: they also buy US government bonds, which means that they
Speaker 1: sell the local currency, you know, and in order to
Speaker 1: protect the currency, interest rates go up. So you know,
Speaker 1: on top of whatever crisis is causing people to panic,
Speaker 1: you also have you know, tighter monetary policy, which in
Speaker 1: most cases makes things worse. So I have one more
Speaker 1: emerging markets in general question before we move on to Turkey.
Speaker 1: But when you're investing in emerging markets, if you have
Speaker 1: that e M investment mandate, what do you actually choose
Speaker 1: to invest in and how much are you beholden to
Speaker 1: what the big benchmark indices say is emerging market So
Speaker 1: you know what JP Morgan says our emerging market bonds
Speaker 1: or what M. S c I says are emerging market equities. Yeah,
Speaker 1: there's really I think two ways of trying to make
Speaker 1: money in emerging markets. There's the one which is kind
Speaker 1: of the center of all our presentations, which is we
Speaker 1: take advantage of the progress stories we try and find.
Speaker 1: You know that first you had the first round of
Speaker 1: Asian tigers and then sort of the second round Thailand
Speaker 1: and so on, and you try and ride that progress
Speaker 1: up and that is part of it. But you know,
Speaker 1: the flip side is I think kind of what we're
Speaker 1: looking at Turkey now, which is you try and find
Speaker 1: something which is a disaster area but still cheap. What
Speaker 1: you tend to find is that the great returning stories
Speaker 1: in em tend to be to buy the disasters. So
Speaker 1: that's that's a thecent part of the job as well.
Speaker 1: The indices are are a huge issue. There's a arrangement
Speaker 1: investors were we do bonds, so we're probably slightly more
Speaker 1: closely tied to benchmarks than our equity counterparts. But the
Speaker 1: fact that Turkey this year has fallen from ten percent
Speaker 1: of the Key Local Market Index to just three just
Speaker 1: because of the collapse in the lira and the collapse
Speaker 1: in the price of bonds, that's that does play a
Speaker 1: part in our thinking. Alright, So you talked about disaster areas,
Speaker 1: So I think we've got to get right into the
Speaker 1: situation in Turkey here for the people who don't really
Speaker 1: our finance people haven't really paid attention to this. Someone
Speaker 1: else you had a bar, what's going on in Turkey?
Speaker 1: Wire things shall bear? What do you answer to them?
Speaker 1: They're running out of dollars. The banks have borrowed a huge,
Speaker 1: huge amount of dollars. They've lent those dollars on to
Speaker 1: local companies who generally speaking aren't exporters, quite often their
Speaker 1: property and construction companies. So you've got people trying to
Speaker 1: use lira rental revenues on a you know, a shopping
Speaker 1: mall in a third tier town in Anatolia to repay
Speaker 1: dollar debt. And at the same time, they're importing a
Speaker 1: lot more than they export, even counting their tourism revenues
Speaker 1: as exports. And just to put the icing on the cake,
Speaker 1: they have the least adequate level of foreign exchange reserves
Speaker 1: of any major market. So really they need another source
Speaker 1: of dollars fast. The president thinks the population should chip
Speaker 1: in and convert their dollars into lira, but they don't
Speaker 1: seem terribly enthusiastic about that idea. I wonder why weird,
Speaker 1: isn't it. So this is something that comes up again
Speaker 1: and again in emerging markets, this idea of external and
Speaker 1: internal imbalances, which is kind of what you're talking about
Speaker 1: with the dollar borrowing. Why do emerging markets and why
Speaker 1: did Turkey specifically decide to borrow in a foreign currency
Speaker 1: because the interest rates are lower, I mean, you know,
Speaker 1: even at their lows to interest rates wherein double digits.
Speaker 1: You know, when you have a period of stability for
Speaker 1: the lera, the thinking typically comes, well, I can pay
Speaker 1: twelve from my lear alone, or I can pay two
Speaker 1: or three percent to borrow from a European bank, And
Speaker 1: so they go with the European banks, and against the
Speaker 1: background of que the European banks have just been very
Speaker 1: very keen to lend to the Turkish banks. Kind of
Speaker 1: marriage made in health, to be honest. So when it's
Speaker 1: going up, when when growth is happening and things are stable,
Speaker 1: it's a pretty great trade to borrow cheaply in dollars,
Speaker 1: build a new shopping mall or an apartment center, collect
Speaker 1: rent in lera, which in good times maybe appreciating, uh,
Speaker 1: you know, and then you pay back, you convert it back,
Speaker 1: pay off your dollar loans, you make money. This situation
Speaker 1: has been going on for a while, and it's not
Speaker 1: like any of these imbalances are new or suddenly just
Speaker 1: spring up on people. What catalyzes the downturn, there's a
Speaker 1: bunch of things. In the case of Turkey, it's really
Speaker 1: quite hard to say which is it. I mean, we've
Speaker 1: had a little bit of an economic slowdown, which sort
Speaker 1: of impinges on profits. It means that none performing loans
Speaker 1: are taking up a little bit. We've had general worries
Speaker 1: about credit globally. That's not helping either. And then you've
Speaker 1: just got the you know, the increasingly bizarre behavior of
Speaker 1: the politicians. There was a quote unquote coup in Turkey
Speaker 1: a couple of years ago that's been used as a
Speaker 1: pretext to really dismantled democracy. I think a big part
Speaker 1: of it, and something that we haven't heard enough about,
Speaker 1: is that there's capital flight that the political changes in
Speaker 1: Turkey have prompted. I think a lot of rich Turks
Speaker 1: to decide that their money is better off in London
Speaker 1: or Switzerland than it is in is stan Bull. But
Speaker 1: it's really a bunch of very negative things happening at
Speaker 1: the same time, and it's quite hard to point to
Speaker 1: one specific one which is more important than all the others. Right,
Speaker 1: But this gets to what you were saying earlier about
Speaker 1: what distinguishes emerging markets is that weakness in institutions, and
Speaker 1: it feels like in Turkey you kind of have that
Speaker 1: in spades now, right. You have the central Bank basically
Speaker 1: afraid to raise interest rates because it doesn't want to
Speaker 1: upset Ariduan or get on the wrong side of arid Wan.
Speaker 1: You have Aridan's son in law now installed as I
Speaker 1: believe it's finance minister. How much has that played into
Speaker 1: sentiment towards Turkey both locally and internationally. I mean, I
Speaker 1: think the key thing has been the crackdown after the coup.
Speaker 1: It's not at all clear what did happen during the coup,
Speaker 1: but it's being used by the government both to persecute
Speaker 1: people they're not very fond of and also to do
Speaker 1: a certain amount of economic looting. On the side. You
Speaker 1: know that we've seen various businesses turned over to either
Speaker 1: the government or government collected parties, which just encourages people
Speaker 1: to move to move their money away. We've also had
Speaker 1: Obviously the row with the United States about the priest
Speaker 1: Andrew Branson, and obviously American Evangelica calls are an important
Speaker 1: votoblock in the in the US election year. It's when
Speaker 1: Turkey's luck ran out. It's sort of luck ran out
Speaker 1: in lots of different ways at the same time. Going
Speaker 1: back to the currency mismatches and imbalances, this gets too,
Speaker 1: I think kind of the nub of a very important
Speaker 1: thesis that people put forth that tightening of central banks
Speaker 1: in developed markets, particularly the FED and also maybe the
Speaker 1: ECB when they go into tightening cycle, is that that
Speaker 1: can kick off a pain and maybe sometimes crises for
Speaker 1: emerging markets because if businesses were premised on borrowing cheap
Speaker 1: dollars and dollars get less cheap than that hurts. How
Speaker 1: much of this is about central banks in your view,
Speaker 1: and how much is that just sort of used as
Speaker 1: a story. I think it's it's mostly story one microeconomic development,
Speaker 1: which I think is maybe a huge difference has been
Speaker 1: dollar strengths this year. I mean, that's the one thing
Speaker 1: that has put all the m arencies on the back foot,
Speaker 1: so that you know that while we've avoided a lot
Speaker 1: of damage by staying out of Turkey. We've you know,
Speaker 1: we've been smacked around from South Africa to Brazil. That
Speaker 1: part of it, I think, I think is genuine. In
Speaker 1: terms of the FED hiking cycle and weakness and treasuries,
Speaker 1: I think I think that's pretty much narrative. Emerging markets
Speaker 1: you can find their way into trouble in any circumstance,
Speaker 1: no matter how benign. And I think at the moment,
Speaker 1: global interest rates are still very low, credit conditions are
Speaker 1: still pretty loose. I mean, it's hard to say that
Speaker 1: this is you know, this isn't like the VULCA tightening,
Speaker 1: where you know, the US suddenly went went nuts and
Speaker 1: really crushed global liquidity. This is a pretty mild hiking cycle,
Speaker 1: and the e c B on the other and is
Speaker 1: hardly doing anything at all. So just to follow up
Speaker 1: on that point, Paul, I know you're saying that you
Speaker 1: think the notion that the US tightening monetary policy having
Speaker 1: a negative impact on em is overblown, at least in
Speaker 1: this instance. But if it wasn't, do you think that
Speaker 1: the FED would care at all about the impact that
Speaker 1: it's monetary policy has on the rest of the world.
Speaker 1: Absolutely not. I mean that you know, The FED has
Speaker 1: always been very clear in the past. I remember that
Speaker 1: it was last raised. I think in Argentina was going
Speaker 1: down the tubes in two thousand and one, you know,
Speaker 1: and the Feds very clear. It's the old thing. You know,
Speaker 1: it's our currency, but your problem. The FED is not
Speaker 1: interested in what happens in the rest of the world
Speaker 1: except to the degree to which the rest of the
Speaker 1: world affects the US, which means that you've got a
Speaker 1: super strong dollar maybe affecting trade. That makes a difference
Speaker 1: at the margins. But you know, the Fed's not going
Speaker 1: to rescue anyone here, Paul, what is the data that
Speaker 1: you look at? I mean, in some sometimes you get
Speaker 1: these crazies that are kind of simple. Maybe it's a
Speaker 1: sovereign debt crisis and the country is the government debt.
Speaker 1: Maybe they're running out of money. But obviously it's not
Speaker 1: nearly as simple when it's about banks and private sector
Speaker 1: borrowing and the reserve data. What are the data a
Speaker 1: point that you look at as a fund manager to
Speaker 1: sort of gauge the health and vulnerabilities of a given country.
Speaker 1: In Turkey, it's very clear. All we're looking at is
Speaker 1: the rollover rate. You know, that. I think the Turkish
Speaker 1: banks have about seventy billion dollars of loans coming to
Speaker 1: this year, and so they need to borrow seventy billion
Speaker 1: plus to keep that going. So we use the the
Speaker 1: syndicated loan search function on the Bloomberg terminal. That's the
Speaker 1: the single most important data we look at. We appreciate
Speaker 1: the plug that justifies today's entire episode. So I mean,
Speaker 1: on that note, Turkey facing this wall of debt that's well,
Speaker 1: that will need to be rolled over in some way.
Speaker 1: What are the chances that international investors step up to
Speaker 1: actually do that. I say the chances are a lot
Speaker 1: lower now. I mean, I think the thing that really
Speaker 1: the really sent things spiraling on Friday was the report
Speaker 1: in the Financial Times that the ECB is concerned about
Speaker 1: the level of European banks exposure to Turkey. I mean,
Speaker 1: in particular b b v A, which owns one of
Speaker 1: the biggest private banks in Turkey. I think b NP
Speaker 1: are involved as well. The thing that has I think
Speaker 1: been frustrating for us, given that we've been quite negative
Speaker 1: on Turkey for a long time, is that the people
Speaker 1: who make these syndicated loans were quite happy to keep
Speaker 1: rolling them over. I think what's really going to change
Speaker 1: now is when it's embarrassing for a bank CEO in
Speaker 1: Europe to explain how much exposure they have to Turkey,
Speaker 1: and they they're going to try and take steps to
Speaker 1: roll that back. And we're beginning to see signs of that.
Speaker 1: Even you know that the prime brokers are looking to
Speaker 1: reduce the amount of lear exposure they have on the
Speaker 1: on the prime broking books. So it does begin it's
Speaker 1: beginning to look as if European banks are beginning to
Speaker 1: wind this in a little bit. So then what does
Speaker 1: recovery or stemming the bleeding or stubboring the crisis look like.
Speaker 1: Because one of the things that I think has been
Speaker 1: interesting about watching Turkey is a certain I was going
Speaker 1: to say unwillingness to adopt the sort of traditional crisis
Speaker 1: fighting measures you often see, But it's not just an unwillingness,
Speaker 1: it's a very aggressive antagonism towards those we don't see,
Speaker 1: those massive emergency raid hikes and the sort of typical
Speaker 1: things you would see in the playbook. Given what we
Speaker 1: know about the er Douan administration and what they've said
Speaker 1: about economic policy, what could a crisis fighting measure look
Speaker 1: like like, what is the endgame here? Well, I mean,
Speaker 1: Turkey's problem is a shortage of dollars, and you know,
Speaker 1: and and to be fair to it, and you know,
Speaker 1: they've hiked quite aggressively. That hasn't helped. The Argentinees have
Speaker 1: hiked even more aggressively and it's not done them any
Speaker 1: good at all. If Turkey needs more dollars, there's really
Speaker 1: two places that can come from. Number one is the
Speaker 1: I m F and and our base cases that we
Speaker 1: get an IMF program, which unfortunately that's a big loss
Speaker 1: of faith and that's quite different call to sell politically.
Speaker 1: The other one would be that Turkey tries to sign
Speaker 1: up some of their international allies, places like Russia or
Speaker 1: China or Qatar and kind of get kind of substitute
Speaker 1: I MF substitute for an IMF package source of dollars
Speaker 1: out of those countries, which are very significant reserved. But
Speaker 1: as far as we can tell, those countries are may
Speaker 1: be slightly less enthusiastic about that than the Turks are.
Speaker 1: We said earlier that you are, of course an emerging
Speaker 1: market investing veteran. Is there anything that surprises you about
Speaker 1: the Turkey situation. Is there anything highly unusual compared to
Speaker 1: other em crises in history? Not really. I mean, I
Speaker 1: think the big surprise for us was that it went
Speaker 1: on so long. I mean, you know, we've been bleeding
Speaker 1: money for you know, for months before this began. This
Speaker 1: began to work for us. It's a very patient world
Speaker 1: at the moment, you know, with very low interest rates,
Speaker 1: you know, and banks were willing to take you unsuitable
Speaker 1: risks for of four and a half five percent yields
Speaker 1: that maybe they wouldn't have been in another environment, but
Speaker 1: otherwise it's you know, you've got the nutty kind of
Speaker 1: semi dictator. You've got obscure activities and state banks. You've
Speaker 1: got the president's son in law has made finance minister.
Speaker 1: You've got an unsustainable property boom. I mean, you're really
Speaker 1: ticking an awful lot of standard boxes that we've been
Speaker 1: seeing all the way back to say Thailand. So I
Speaker 1: think if there's one word that's on a lot of
Speaker 1: people's minds these days with regards to Turkey and what
Speaker 1: it means for markets, it's the word contagion. And everyone's
Speaker 1: trying to figure out whether Turkey and again to use
Speaker 1: a word that you hear lad is an idiosyncratic case,
Speaker 1: where as you say it's just about the quote nutty
Speaker 1: dictator and so forth, or whether it says something about
Speaker 1: other vulnerable emerging markets like South Africa, like Brazil. How
Speaker 1: do you think about this question? I mean, generally we'd
Speaker 1: looked at something something like this happens, we try and find, well,
Speaker 1: what other markets have the same problem, especially that blend
Speaker 1: of a lot of private sector debt, a big current
Speaker 1: count deficit, and inadequate effects reserves. And really I mean
Speaker 1: Argentina kind of takes two out of three, but otherwise
Speaker 1: the rest of EM you know, it has problems with growth,
Speaker 1: they have problems with exports, but they don't have this
Speaker 1: kind of debt pile up. They don't have this financing
Speaker 1: problem that Turkey has. So EM is having a very
Speaker 1: rough patch at the moment. But we think that's got
Speaker 1: a lot more to do with just the strength of
Speaker 1: the US dollar, because e M currencies always do badly
Speaker 1: when the dollar is strong. We don't think Turkey specifically.
Speaker 1: I mean, you know, Venezuela has been blowing up for years.
Speaker 1: We've seen Ukraine default contagion doesn't look like it's it's
Speaker 1: a major thing at the moment. We did see a
Speaker 1: little bit of weakness in the South African rand, for instance,
Speaker 1: once the Turkey situation started really deteriorating, So some people
Speaker 1: were pointing it at that as a sign of contagion.
Speaker 1: When contagion happens, is it about people doing that fundamental
Speaker 1: analysis that you just explained and looking for parallels with
Speaker 1: the Turkey situation, or is it about people having portfolios
Speaker 1: of correlated emerging market assets that they now have to
Speaker 1: do something with. There's an element of both, But I
Speaker 1: mean we you know, we haven't had time to see
Speaker 1: significant withdrawals from EM funds, so I don't think it's
Speaker 1: that what's triggering. I mean, the South African rand is
Speaker 1: always a high vall currency. Also, I think there's something
Speaker 1: of a fat finger trade in Asia, which we saw
Speaker 1: much bigger move than we normally expect. I mean, South
Speaker 1: Africa goes all over the place. It rallied nearly fifteen
Speaker 1: percent earlier this year on some fairly minor political changes. Yeah,
Speaker 1: I would have to concede that there is clearly an
Speaker 1: element of this, you know, I mean especially kind of
Speaker 1: macro hedge funds. Well, what other EM currency can we
Speaker 1: short But for the moment, I think we don't see
Speaker 1: a lot of contagion and we don't expect to. But
Speaker 1: as I said, we've been wrong before, Paul. I mean
Speaker 1: you mentioned the South African rand, you know, moving by
Speaker 1: fiftcent is emerging market investing just inheritently, let's say, more
Speaker 1: entertaining or more dramatic than developed market investing. Oh yeah,
Speaker 1: I mean, I do remember when the Swiss frank revalued
Speaker 1: a couple of years ago, and you know, everybody was,
Speaker 1: everybody on the on the d m end of our
Speaker 1: floor was jumping around. But you know what is the
Speaker 1: sort of thing that we see every few months. It's
Speaker 1: definitely more entertaining. It's probably harder on the nerves though. Well,
Speaker 1: you said something earlier in the conversation that I thought
Speaker 1: was interesting when you said that you try to look
Speaker 1: for this point where bankers start to feel embarrassed about
Speaker 1: the idea of extending further loans into Turkey, or they
Speaker 1: can't justify it, or they don't want to be associated
Speaker 1: with it. In the world of investing, how much does
Speaker 1: that fair dire into decisions and opportunities where maybe the
Speaker 1: best opportunity has come about because just nobody wants to
Speaker 1: say they have exposure to ex country, even if the
Speaker 1: fundamentals may start to be turning around. I think it's
Speaker 1: massively important. I mean, it does tend to happen nearer
Speaker 1: the end of a crash than the beginning. But you
Speaker 1: know what you'd call kind of career risk, or you know,
Speaker 1: when you get to the point where the chief investment
Speaker 1: officer has seen something in the ft about Turkey, you
Speaker 1: know that it that it begins to reach out that
Speaker 1: I do think it's not that we can't justify losing money.
Speaker 1: We can't justify losing money in Turkey when everybody knows
Speaker 1: Turkey is terrible. And that tends to be quite close
Speaker 1: to the turning point because people are When people stop
Speaker 1: looking at the economics, things overshoot and value opens up.
Speaker 1: But it's usually better to be a little bit late
Speaker 1: to that process than a little bit early. You also
Speaker 1: mentioned earlier about the idea that some of the biggest
Speaker 1: gains from em investing can come when you're buying you know,
Speaker 1: the deep wreckage that finally gets cheap. So I'm not
Speaker 1: saying we're very yet, but in a situation like Turkey,
Speaker 1: as an investor or maybe going back to Asia after
Speaker 1: crisis or after the taper, tantrent, whatever it is, what
Speaker 1: do you look for to say, Okay, this is what
Speaker 1: true wreckage looks like. This is what blood in the
Speaker 1: street actually looks like. It's usually just the sign of
Speaker 1: a sign of extreme distress and having a decent grasp
Speaker 1: and what we think the fundamentals of the problem were.
Speaker 1: So I mean, if you go back to say two
Speaker 1: thousand and fourteen on Russia, it was you know, there
Speaker 1: was a little noise about Ukraine, but it was mostly
Speaker 1: about the oil price. Once the oil price turned, you
Speaker 1: buy the ruble in Turkey. As I said, I think
Speaker 1: it's the dollar shortage. I think an I MF package
Speaker 1: would be the time to buy Turkey. Well, on that note,
Speaker 1: I think there's a good place to stop. So we'll
Speaker 1: see how this crisis progresses and if there is a
Speaker 1: I m F package at some point. Paul mcnamaric, so great,
Speaker 1: you get your perspective. Always loved talking to you, and
Speaker 1: thanks for finally coming on the odd lot of Thanks
Speaker 1: very much for having me on. Just trivy so Joe,
Speaker 1: I thought Paul was really the perfect guest to come
Speaker 1: on and talk about emerging markets and the situation in
Speaker 1: Turkey and what he was saying about the point at
Speaker 1: which it really really becomes disaster when international investors have
Speaker 1: to start explaining to their bosses why they invested in
Speaker 1: a country that has these kind of problems. That that
Speaker 1: seems spot onto me. Yeah, I love Paul's explanation, and
Speaker 1: I have to admit, you know, my first question name
Speaker 1: about Turkey was like, explain it to someone who's kind
Speaker 1: of doesn't pay attention and maybe you're explaining it to
Speaker 1: someone in a bar. But I have to admit that
Speaker 1: was actually kind of for my sake because as much
Speaker 1: as as much as I purport to pay attention to
Speaker 1: this stuff or talk about this stuff, I still find
Speaker 1: the mechanics of a lot of these things, particularly the
Speaker 1: sort of currency imbalances and the role of the banks
Speaker 1: and the rollover it's not easy stuff to wrap my
Speaker 1: head around. But I like, I feel like Paul is
Speaker 1: really good at the crystal clear explanations of this stuff.
Speaker 1: Oh absolutely, And I mean to your credit, not that
Speaker 1: I'm making excuses for you, but there's a lot going
Speaker 1: on and it's still happening. So Paul was mentioning this
Speaker 1: notion that some of the prime brokers, you know, these
Speaker 1: are the big financial institutions that provide services to hedge
Speaker 1: funds and other investors that actually allow them to trade.
Speaker 1: When they start retreating from providing you know, liquidity and
Speaker 1: financing for Turkish trades, it has the potential to be
Speaker 1: a self fulfilling sort of downward spiral. Yeah, there really
Speaker 1: are a lot of moving parts to all of these
Speaker 1: Chris Ease, and I think Turkey is a particularly confusing one.
Speaker 1: The other interesting thing I think that maybe people don't
Speaker 1: appreciate is they might look at Turkey and they see
Speaker 1: rapid growth, and they see all these apartments going up,
Speaker 1: and like, oh, this is a country developing. This is
Speaker 1: a country that's becoming richer. And what they don't appreciate
Speaker 1: is that the process of becoming richer comes at the
Speaker 1: expense of these financial imbalances, which really makes sort of
Speaker 1: the conventional approach to looking at a country I think,
Speaker 1: very difficult for the average person. Yeah, it's one of
Speaker 1: those things where you can kind of keep borrowing as
Speaker 1: long as you have the economic growth narrative to support
Speaker 1: that borrowing. But again, it it gets back to the bankers,
Speaker 1: Like if you can no longer go to those lenders
Speaker 1: and say, oh, look how fast we're growing, give us
Speaker 1: more money than the whole house of cards kind of
Speaker 1: starts to fall apart. Absolutely, Well, the Turkey story is
Speaker 1: definitely I don't think it's going to be over for
Speaker 1: some time. I don't know, maybe like in a month
Speaker 1: or two, we should have a Paul back again and
Speaker 1: sort of get an update because I need that. I
Speaker 1: think we'd have a lot more to talk about. To
Speaker 1: be honest, I don't see the Turkish headlines and new
Speaker 1: Slow going away anytime soon. Yeah. I don't think Stue either.
Speaker 1: Al Right, should we wrap it up there with that?
Speaker 1: With that pessimistic thought, yeah, let's do it. Enough talking Turkey. Sorry,
Speaker 1: this has been another episode of the Odd Lots podcast.
Speaker 1: I'm Joe Wisenthal uh and I'm Tracy Alloway. You can
Speaker 1: follow me on Twitter at Tracy Alloway. Oh, and you
Speaker 1: can follow me on Twitter at the Stalwart. And you
Speaker 1: should follow our guest Paul McNamara on Twitter. He really
Speaker 1: is one of the best people on Twitter, and that
Speaker 1: is no exaggeration because he really knows his stuff and
Speaker 1: he's very forthright in a way a lot of investors aren't.
Speaker 1: His handle is m Underscore Paul McNamara and follow our
Speaker 1: producer tofur Foreheads Twitter at for hiss T, as well
Speaker 1: as the Bloomberg head of podcast, Francesco Levie at Francesco Today.
Speaker 1: Thanks for listening.