Macro Dragon: Watch Turkey Hiking Rates + Misconceptions in Wealth Generation

Macro Dragon: Watch Turkey Hiking Rates + Misconceptions in Wealth Generation by Michael McKenna
Macro Dragon = Cross-Asset Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.
(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)

Macro Dragon: Watch Turkey Hiking Rates + Misconceptions in Wealth Generation 

Top of Mind…

Turkey CB Rate Decision: 1900 SGT / 1200 CET, 15.00%e 10.25%p

  • We covered this on the Dragon’s take of this wk – as a rehash, big girl moves from Erdogan, Turkish Lira & Turkish Assets last wk. Big Girl Moves. USDTRY on spot alone moved -10% & the TUR etf in the USD lifted +22% on proper volume (c. +100% the 52wkly volume avg).

  • Long & short of it, Erdogan seem finally set on unwinding the self-inflected train crash that he orchestrated last year that has seen the country aggressively cut rates, blow through over USD100bn of reserves & cause massive depreciation in the Lira. The delta in both central bank governor last wk, as well as resignation of “The Damat” (Erdogan’s Son-in-law, widely touted as numero duo in the country) from the finance minister post he had taken last year.

  • Basically we are seeing a reversion to the mean of all this self-inflected smoke & mirrors policy, yet today is the real mark to market on this. The central bank is meeting & the market expects them to hike by at least 475bp to 15.00% from 10.25%. An in-line hike, should overall show that the politics & move from last wk is at least off to a good start.

  • A bigger hike than 475bp (a real possibility in KVP’s view) would again ignite bullish sentiment on the unwind of the self-inflicted mess. The Dragon’s thesis is whether its in-line to beat, it brightens to spotlight on emerging markets & their respective markets.

  • So this has the potential to be a pretty strong catalyst for continue EM assets to rerate, as they have been significant lags outside of North Asia & Mexico – in particular, Braaaaaaaaaaaaaazil & Mother Russia (so think BRL & RUB, with respective assets). This could also take us without question to new lows on the broader dollar index (BBDXY), which does not have the arguable 2-4 support points on the DXY. Again from a total returns basis, the RUB & BRL are the worst performers. They are likely be among the best over the next 3-6-12months.

  • A hike under 475 would not go well & we could potentially see a ripple of unwinding in some EM FX & naturally TRY & TRY related assets – worth noting there has been a lot of dispersion in EM Assets, rightly or wrong & yes… EM tends to be lumped into one bucket… yet many of the pieces are not like the others, whilst others are.

  • A cut?! Would be %#^!ing devastating… Lets just leave it that… Tiny delta, yet like everyone seeking to be world class in their craft, we must calibrate all pathways.

  • In checking in with our Regional Head of Global Sales trading, the always calm & collective Mahesh, shows that currently the carry on being short USDTRY on a one month time-frame gives one an annualised rate of c. 15%. Worth noting its whippy & no doubt, there is some baked in expectations in these forwards.

  • For now the technicals looking super bullish for USDTRY to continue lower hard & the US EQ etf TUR (& local Tur EQ indexes) to break higher.

  • Hate or Love Erdogan, KVP would not be short the Turkish Lira or Turkish equities.

Misconceptions in Finance & Wealth Generation:

  • Girl, oh girl – don’t even know where to stary here. This will be a continuing series… so many & note, also uncovering them from my own thinking & frameworks.

  • The key underlying point here is, look to operate from principles & frameworks, whilst cutting out the fluffy sound bites & ‘tactics’. The whole buy low, sell high, buy high, sell higher… are just useless by themselves….

  • First stary with what the real objective is here: wealth preservation, growth or income – or as is generally the case, a skew of two or three of these. I.e. Little Aly & Amari’s Trust Fund vs Grandpa’s Pension, should not have the same allocations.

  • Sounds obvious?! Yet 99.9% people don’t even think why they are trading or investing… “to make money”… ok… so here’s $100K… no, oh not enough… ok… here’s $1m… Point is one needs to start with their capital & decide what the objectives are first & foremost, based on those objectives what risk are they willing to tolerate to achieve those objectives.

  • If you have $10M in total wealth & you are putting $9m in BITCOIN, $1m into XLE, yet have cashflows needs of $500K a year… you have already constructed a self-inflicted train crash, all else being equal. And this is not just the portfolio pnl, but more importantly mental pnl.

  • Mental PnL > Portfolio PnL

  • Because a positive Mental PnL balance has the most valuable thing possible in this business, the ability to consistently make money. And that’s the true mark of an exceptional trader who has climbed to the top of her craft after years of earning strips. She has that unshakable mentality that she can print money overtime.

  • Everyone focuses on returns, the outcomes. Booooooooooooo! Its about process, framework & the individual running money. You can always find someone with stellar numbers or someone with bad numbers – its are they consistently making money & not losing a lot of money when the market regimes changes. And if you think there are bonafide great traders out there than never have losses, then KVP has 10 bridges for the price of 2 that he is willing to sell you.

  • Its never about the losses or the wins as in ratio or numbers of one or the other. It’s the magnitude if the wins, vs. the magnitude of loses.

  • Process is everything. Money Management, Trade Construction & Management are the juice in process. The ideas are sexy, but they are not the skew in the 20/80 principle.

  • Diversification with an asset class = diworsefication. Granted this is for those generating wealth & not necessarily looking to preserve it – or part of it. Yet true diversification is found across asset classes, as well as investment time frames as well as allocating capital to best of breed managers in their respective fields & strategies (Macro, VC, Property, etc).

  • Even if you can do everything, you almost certainly cannot do everything at a world class lvl. The biggest talent in investing, is actually not in one being an actual good investor or trader, its the nose for finding talent that is good. Talent with skin in the game & proven track record, as well as always individuals where integrity & humility comes first.

  • Should be no surprise that the Macro Dragon skew is also one of concentration – a la Viking Hedge Fund, who can sometimes have 50% of their equity picks in their top 10 names. Concentration sharpens the bar of conviction & separates the gold nuggets from the dog poop. Seriously why would you invest in a manager that has 100 equity positions – everything else being equal, may as well pick up the S&P etf, unless she/he can consistently demonstrate an outperformance outside of the markets beta move, after fees.

  • Last point. Picking exceptional managers/talent… This one really gets to me. So there is a lot of tick the boxes that people go through when allocating to hedge funds, without really taking a step back & thinking, “Wait, why is this even here?”. And yes, KVP gets it… some of this were fool proof the process… yet if you exceptional at your craft of find talent, whats their to fool proof. Exceptional talent that can show they can consistently compound wealth, is RARE. Super RARE.

  • The industry is mostly littered with folks who were right place, right time & folks who market very well (i.e. Value has underperformed for well over a decade, yet these folks are sitting with hundreds of billions & are followed like Oracle. Yeah, more like Oracles of marketing & having the privilege to underperform on your assets whilst taking 2 & 20) .

  • So when you come across an exceptional manager, why would you follow a rule such as, “I cannot allocate more than 10% of your overall capital, despite the liquidity & zero lock-up”. Like seriously, that’s like saying, look through these 100 partners that you will only be able to allocate 10% of your time with for the rest of your life… that like a least dirty shirt framework, when one can be more concentrated on 5 clean shirts – its literally a framework that works against the whole premise of allocating to exceptional talent & thereby almost guarantees you (along with the masses) subpar returns.

Dragon’s Plate…

  • In case you missed it previouslybeen super well received, thx for feedback, sharing  & support on this project folks the first in a string of exclusive Dragon Interviews series with exceptional professionals with skin-in-the-game, across different strategies, asset-classes & backgrounds.

  • We kicked off with Singapore Based, AVM Global Opportunity, run by the talented & always exceptional Ashvin Murthy. Who in KVP’s view is world class in his approach, process & even more importantly trade construction & money management. Point being, if the process is pristine & consistent, the returns will take care of themselves overtime.  

  • The timing of the interview is uncanny as it was at the cusp of the last US presidential elections that AVM was launched. It’s worth noting since the interview, the fund has also been nominated for the Singapore’s Best Hedge Fund of 2020, given its consecutive five straight positive months at the start of this volatile year.

Please click here for interview link.

You can follow & learn more about AVM here.


Start-to-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Idea.

This is the way 


Topics: Macro AUD JPY CHF EUR GBP NZD Bonds Gold USDTRY USDNOK EURNOK USDMXN FX Technical Usdrub Bitcoin