In this week’s edition
- 1 TLDR post – where we quickly simplify the “too long” arduous stories that you “didn’t read”
- 3 latest articles from the Capitalmind research desk
- 5 conversations from the slack community
- 5 interesting reads from across the internet
- A special discount offer at the end
Before we start, here’s wishing you a very happy new year from the Capitalmind Team🌟💫✨
Lira is falling but Erdogan’s Ego isn’t 🤦♂️
Turkish Lira is falling like a rock. It had lost -44% in the last year & down by -80% since 2015, against USD. The country’s inflation is rocketing. Official data suggests that inflation is around 20%. In reality, it can be even 40%. The buying power is going down drastically. What is happening in Turkey? Is it heading for hyperinflation? Let’s try to look into it.
How did it all begin?
Recep Erdogan, the current President of Turkey, was first elected in 2003. During the same time, Turkey’s economy started to go rapidly. By 2017, Turkey had become the 17th biggest economy in the world, with a GDP of $852 Billion (translating into 1.05% of the world’s GDP). Most of this growth was financed by external debt. At the end of 2017, the gross foreign-currency-denominated debt of Turkey stood at $453.2 Billion. That is around 53% of GDP.
However, things started to tumble in 2017. The United States of America, a close ally of Turkey, started to distance itself from Turkey. Tariffs were imposed on Steel & Aluminum imports. Amidst these geopolitical tensions, Lira started to fall against the Dollar. Inflation was inching higher. Turkey struggled to pay its foreign debt.
The Erdoganomics
Economics 101 says that when a currency is devaluing & inflation is rising in the country, central banks usually raise the interest rates. This makes borrowing expensive & discourages spending. Less consumption will reduce demand for the assets, eventually bringing down inflation. Raising interest rates also increases demand for the currency, as it encourages people to save more.
However, Erdogan doesn’t agree with this theory. He believes that raising interest rates increases inflation. The reason for his unconventional belief is unknown. Since 2019, he sacked three central bank governors who tried to fix the problem. He just doesn’t want interest rates to go higher.
What lies ahead?
Erdogan is facing heat both domestically & internationally for his stubbornness in economic policies. Turkey is going for an election in June 2023. Unless he changes his stance, Lira may continue to slide further down till 2023, where there is some ray of hope for the people of Turkey.
Capitalmind Research 💡
- Concerns on asset quality are not new to RBL bank. So, what is happening at the bank? Is RBL Bank safe? Should depositors be worried? (Short answer: No). Why is RBL Bank’s share price going down? What should investors do? (Short answer: It depends). Read – Is RBL Bank safe?
- [Premium] How do you reconcile the need to protect against sharp drawdowns while participating in the rise? Is it even possible? Over the past four years, we’ve been tracking and talking about the NIFTY No-downside Strategy. This post lays out how this strategy has done in the past and what it looks like for 2022. Read – 3% Alpha on a No Downside Strategy for 2021 and the 2022 Gameplan
- While the year 2022 comes to an end we summarise the best of what we analyzed and wrote about in 2021: what worked and also what didn’t work. Read – The Best of Capitalmind in 2021
[Premium] School of Slack 😎
Putting together the best conversations from our slack community
- Will IDFC First Bank end up in the same place as RBL or Yes Bank? Krishna Appala shares his views. [link]
- Uncle Theta trade updates. [Wednesday trade] [Thursday trade]
- Deepak Shenoy shares his views on new SEBI rules for IPO. [link]
- The 10y bond yield has touched 6.5%. Is it rising inflation or merely illiquidity? [link]
- Should you move from pure midcap and small-cap funds to a flexicap or large+midcap funds to reduce volatility? [link]
Links we Like✨
In this section, we bring you curated articles from across the internet that we found interesting. Today’s links are curated exclusively from our slack community:
- Everyone is writing the Old Banks off. But are Neo Banks ready to pick up the mantle? And, If Old Banks are Pink Elephants, can Neo Banks fly?
- There’s little correlation between stock prices and earnings. Increasing it seems there isn’t any. Here’s an article from CFA institute making a case for Earnings Don’t Matter Much for Stock Returns
- Have you ever wondered about incredibly wealthy people who have a shit-ton of money that they couldn’t possibly spend it all in their lifetime, yet they still want more? Read on as the author wonders When is Enough Money, Enough?
- Do you know about Charlie Munger’s first rule of compounding? Read – The First Rule of Compounding
- Financial markets are far more complicated than catching a frisbee, but we often seem resistant to adopting simple approaches. Read – Why Investors Should Consider a Simple Approach to Complex Markets
That’s all, folks. Have a great first weekend of the year!
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