This is another of the W.O.O.D. series of semi-regular
Weekly Occasional Open Discussions.
(i.e. if I forget and skip one, no big)
Immediate prior one here:
and remains open for threads running there
(at least until the ‘several month’ auto-close of comments on stale threads).
Canonical list of old ones here:
So use “Tips” for “Oooh, look at the interesting ponder thing!”
and “W.O.O.D” for “Did you see what just happened?! What did you think about it?”
What’s Going On?
Facebook, YouTube (Google), Apple, Spotify, and more have gone on a Lefty Jihad against Conservatives. It is continuing even as conservative voices find other places to be. Since conservatives make up about 1/2 of the population based on voting patterns, I suspect it is a very bad idea to piss off 1/2 your customer base.
Google / Alphabet is large enough and pernicious enough with ad revenue that it will take a long time to show any impact from YouTube declines. FaceBook however is a one trick pony. I’m sure it isn’t related / important but…
That’s a loss of one year of gains almost overnight, and conversion of a strong uptrend into a downtrend. Some companies never recover from that kind of thing.
There are plenty of alternatives as we discussed here:
Kilauea volcano is taking a break from erupting. Nothing much new there, but at any minute that could change.
The Mueller Witch Hunt continues to go nowhere, but that doesn’t stop the show. It does slowly expose the depths of depravity and hate among the conspirators on the Left in the FBI and DOJ. Strzok got fired, so one more down. I think it ill take another 7 years to get the swamp cleaned up enough to notice.
Repeating from last posting is the rain issue: Massive rain and floods along the American East Coast.
Climate Paranoids are trying to keep the Ponzi afloat, but without American Cash are finding it difficult.
Then there’s the Turkish Lira. In a hard core free fall down about 15% in one day, 18% in two, 38% in 4 months. That’s gonna leave a mark… The ECB fears “contagion” (as they are going to lose bad in any tariff war with the USA and a “bad deal” or “no deal” BREXIT will stuff them more than Britain (as Germany is THE big exporter to Britain and the EU has a big trade surplus to lose); I’d be worried about contagion too. But likely not to the same countries as the ECB is worried about.
ECB Fears Contagion from Turkish Lira Collapse, Bank Stocks Plunge
Posted on August 11, 2018 by Yves Smith
Yves here. Apparently some Fed insiders have been arguing for more measured rate increases due to the fact that hot money exiting risking emerging economies could put them in a world of hurt, witness that Argentina and Pakistan have gone tin cup in hand to the IMF. But Turkey sits in a critically important location, and Trump’s tariffs have had the effect of kicking the country down the stairs. Turkey has already been Russia and the Chinese have meaningful stakes in the country.
On the banking front, the EU implemented the very badly flawed Bank Recovery and Resolution Directive, IIRC in early 2017. It’s a blueprint for creating bank runs. First, there’s no EU level deposit guarantee, and national deposit guarantees are supposed to get to be better funded, but now pretty much none are adequate. Second, it requires bail-ins, meaning creditors take a hit rather than taxpayers. That in theory might be a nice idea but banks are far too opaque for creditor to make intelligent decisions about them. so they can’t effectively discipline management.
In fact, CoCo bonds, one of the instruments designed to help ease conversion of debt to equity looks to have decreased rather than increased financial stability. From Bloomberg in March:
Now even the ECB is beginning to fret about the potential impact the plummeting Turkish Lira may have on Eurozone banks that are heavily exposed to Turkey’s economy via large amounts in loans — much of it in euros — through banks they acquired in Turkey. Given the plunge in the lira, companies have trouble servicing their euro loans and are beginning to default. And loans in local currency are plunging in value along with the currency. This is how the currency crisis in Turkey, which is turning into a debt crisis, could set off contagion effects among banks in France, Spain and Italy — a risk we have been exposing for two years.
The ECB is concerned that Turkish borrowers might not be hedged against the lira’s weakness and begin to default on foreign currency loans, which account for a staggering 40% of the Turkish banking sector’s assets, the FT reported. Turkey leads all other major emerging markets on total foreign-currency-denominated debt (including public debt), which hit nearly 70% of GDP last year (up from 39% in 2009).
Banks in Spain, France and Italy have estimated exposure to Turkey’s banking sector of around €135 billion. Spanish lenders alone reportedly are owed just over €80 billion by Turkish borrowers in a mix of local and foreign currencies. French and Italian banks are respectively due just under €40 billion and €18 billion.
Turkey is also funding some of the “Rebels” in Syria so that’s on the rocks, and then they wanted to buy a bunch of Russian military gear and that will be much harder.
Looks like that whole “Dictator in charge” thing with purges and arrests isn’t working out all the well for them.
In other news, the USA Economy is thriving and employment has risen to the point where hiring managers are finding they may have to actually offer better salaries and be less picky about hiring. Blacks, Hispanics, Asians, and even White Males (last on the Politically Correct Preference Quota List) are finding jobs at record rates. Hoist a glass of cheer to that!