Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
Believe me, this question is not academic. I'm trying to decide whether to sign a dollar-denominated rental contract or a Turkish-lira denominated one. I'm stuck with the currency I choose. What factors would you advise me to consider when trying to figure out which way to bet? Yes, yes, I know I'm the Turkey expert. I'm just wondering if there are angles I might be overlooking.
Here's some background. Exporters here think the currency is overvalued. They're begging the prime minister to take action. But I suspect the government won't let the lira fall, because the whole economic house of cards might come crashing down on them if they do. They need to keep that hot money coming in, and they're really not thinking long-term.
Moreover, the government really takes pride in the strong lira. If there's any lesson I've learned from living here, it is never to underestimate the role of Turkish pride--it will override common sense more than you'd ever imagine.
I suppose this is as good a time as any to make a confession. I'm not actually secretly controlling the world's currency markets out of my Batcave. I just made a few lucky calls and took the credit. Getting this one right will have real consequences for me, so if you can think of anything I might be overlooking, now's the time to tell me. I'm definitely not too proud to listen.
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Aug '10
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
Appeal to your landlord's international knowledge of things, change the contract to swiss francs and ask for his account number in Bern for direct deposit , that will get him thinking ?
And how do you get paid, is there an option for currency choices ? Bernanke has your back.
Jul '10
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
Sorry, Claire, the people who might have some idea are out there betting bazillions in the global currency casino.
You might want to give George Soros a ring....
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
flownover: Appeal to your landlord's international knowledge of things, change the contract to swiss francs and ask for his account number in Bern for direct deposit , that will get him thinking ?
And how do you get paid, is there an option for currency choices ? Bernanke has your back. · Nov 11 at 7:31am
Oh, yes, important point to add--I'm paid in US dollars. Occasionally in GBP. But we're assuming my income is in dollars.
Sep '10
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
All the people in the media who comment on markets in general but especially currencies have time horizons that are typically a few days or weeks at the most and of course they change their minds without regard to their next TV appearance. In general its best to have the obligation denominated in the same currency as the income to eliminate currency risk. That said, the best short term commentators on currency in the media, in my opinion, are Dennis Gartman and Marc Chandler.
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
If paid in dollars I would likewise peg my major expenses in dollars--seems safer than betting on relative shifts in currency valuations.
That said, while the US dollar is being "quantitatively eased," setting expenses in dollars seems sensible as a standalone strategy, provided you can get paid in a stronger currency.
Aug '10
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
Claire Berlinski, Ed.
flownover: Appeal to your landlord's international knowledge of things, change the contract to swiss francs and ask for his account number in Bern for direct deposit , that will get him thinking ?
And how do you get paid, is there an option for currency choices ? Bernanke has your back. · Nov 11 at 7:31am
Oh, yes, important point to add--I'm paid in US dollars. Occasionally in GBP. But we're assuming my income is in dollars. · Nov 11 at 7:36am
As George Savage said " seems sensible as a standalone strategy"... A wise man in New York recently said "The rent's too high !".
Or as someone else said, apples to apples. Adjust what you charge, not what you pay. Deduct for the rodenticide your cats accomplish.
Edited on Nov 11, 2010 at 8:34amJun '10
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
The general rule is keep the "good" currency as a store of value and spend the "bad" currency as fast as possible. So, if you expect the lira to devalue sign your lease in lira. Always, and I do mean always, save the good and spend bad money. The rule in economics is that the good currency drives out the bad, meaning that people hoard the strong currency and spend the bad.
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
Well, sure. But the question is whether the lira will devalue.
And I guess if I really had a foolproof method for figuring out the answer to questions like that, I'd never have to worry about money again.
Jun '10
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
The next question then is, what do you expect will happen to the US$ relative to the Turkish Lira? If you are looking for certainty, Claire, don't get into the prediction game. In all other circumstances you're playing on the balance of probabilities. Here are some clues, where have interest rates been going in Turkey? Up or Down? If up look to currency devaluation as the market is predicting inflation. What has the black market been doing? Is there a premium being paid on the black market for one currency or another denominated in lira? How is the dollar and the lira maintaining value against the Euro? Given recent activity by the Fed, you can expect with reasonable probability that the US$ will devalue, i.e. you will be able to buy fewer lira with your $. The question then becomes. when and by how much?
Jun '10
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
During a period of volatility, when you cannot predict the value of either currency, Lira or US$. Look to a neutral stable third currency as a store of value. The Euro may just be that currency over the next couple to three years. Remember the game is not so much getting the best deal on your rent, although the two issues are related, but maintaining your store of value (for most people this means savings). Still, what you are doing is playing the odds based on your prediction of the future. Now, you're not looking to predict everything that may happen because you can't. So what your starting point should be is to ask yourself where you think interest rates (central bank rate or inter-bank lending) are going to be 1 or 2 years out. A quarter in advance is usually easy to project, a half-year more difficult, and a full year is more than likely only an educated guess. But these projections will give you a foundation on which to base your "educated guess" about matters economic.
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
Thank you, Cas! Excellent advice. For what it's worth, I've just discovered that Turkish rental law has an interesting provision: a tenant who cannot pay his rent owing to a wild currency fluctuation may call upon an independent state inspector to re-value the rent. There is an entire, dedicated department of the bureaucracy devoted to rent-revaluations in the aftermath of currency crashes. I am certain this procedure would be so painful that I should do anything in my power to avoid it, but it's interesting to know that this division of the bureaucracy exists at all. It's just so Turkish.
Sep '10
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
Political stability and stable currency go hand in hand. Many conservatives long for a gold standard but when the value is set by the marketplace...I remember a conversation with a friend in the '80s who had just returned from a trip to the Soviet Union. We concluded that Philip Morris was now the de facto Central Bank of the USSR because a carton of marlboros was a far more effective medium of exchange than the ruble.
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
Back when I lived in Turkey in the 1980s, the answer would have been obvious: Opt for the Turkish lira. Inflation was a substitute for taxation. Today, Ben Bernanke is engineering inflation in the United States -- so who knows?
Here is another way to think about this. When a ruling part in Turkey is beginning to lose its mojo (I witnessed this with the Anavatan Partesi), they resort to patronage in an attempt to sustain themselves in power, and patronage is the obverse side of the coin otherwise known as inflation. So think of this as a question of political risk.
Oct '10
Re: Currency Speculation: I Need Expert Advice, Because I'm About to Go for the Gusto
"I'm not actually secretly controlling the world's currency markets out of my Batcave."
In your case, isn't it more like "Catcave?"
And I'm learning a fair amount about international money reading this thread. Thanks, Cas!