As I warned in October of 2018, Turkey was heading into Economic Turmoil. Now, it appears Turkey has officially entered a Recession. -Michael Douville
For Seven years Turkey has borrowed from Western Banks; European Banks like Deutsche Bank seem to be the favorites. However, JP Morgan has estimated that $179 Billion US or 25% of Turkish external debt will rollover between August of 2018 to July of 2019. Some $146 Billion in private debt. As shown by the chart below, the Turkish Lira has recovered some from the August 2018 conversion low of 6.95 Turkish Lira to the US Dollar, however, the repayment in Lira is significantly higher than what was originally borrowed. The Cyclical change in International Exchange Rates has drastically altered the Foreign Debt owed by Turkish Governmental Agencies and Private Corporations. If Turks borrowed $100 in 2014 with the exchange rate at 2 Lire to the US Dollar, they received 200 lira. Today, not only must they pay interest, they repay with drastically depreciated currency at 5.4 Lira to the US Dollar; instead of 200 lira, it is today over 540 lira. Almost 2.5 times the original amount! Loan Shark Territory!!
The drastic depreciation of Turkish currency has driven local inflation through the roof with skyrocketing prices for basic commodities like fuel for the family car, electricity to light the home and maintain modern life, food, medicine such as heart medication for elders, insulin, and hospital supplies. Not only have prices risen, but as the currency depreciates, the international suppliers are reluctant to extend credit limiting quantities. Not only can basics be expensive, they can be difficult to obtain. There is no end in sight.
As I warned in October of 2018, Turkey was heading into Economic Turmoil. Now, it appears Turkey has officially entered a Recession.
Repayment will be even more difficult as Business Conditions deteriorate.International Systemically Important Banks will be at risk for non-payment of Turkish Debt or delayed payment, and even possibly total default of loans made to Turkish entities. The Global Economy is intertwined; these may be early symptoms that will eventually spread. As Revenues decline, the solutions for repayment to worried Banks decline in tandem with the accounts receivable. Debt default may be a more and more plausible option; we will know shortly in the next few quarters.
Look for more and more Military Adventure in Economically Challenged nations as Governments seek to distract their population. Globally Systemic Banks are not prepared for an Economic Contagion of Sovereign defaults; well known but under-Capitalized Banks could fail. A Global Recession will lead to major Civil unrest; political institutions will be challenged. The US Dollar and US Financial Assets likely will rise as Capital flees to Safe Havens. Turmoil throughout the World will rise in both Developed and Un-developed nations. It is time to be careful, it is time to be cautious, it is time to be very conservative.
Raise cash, pay down debts, look to US short term Treasuries for safety of principal. Extra food, medicine, along with cash for 3 to 6 months of expenses might be prudent to have at home. Review Income Streams for credit downgrade vulnerabilities, review Tenant quality to protect Cash Flows, and prepare to purchase the opportunities that will surely arise.
Ezekiel 38-39 looms…
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