Failure in diagnosis and treatment

Economist Ali Ağaoğlu and journalist Hakan Güldağ talked about the sustainability of current financial conditions at Chance Talks this week. The duo emphasized the need for liquidity and the importance of access to credit. Ağaoğlu commented, “We are not in a time of peace for targeted loans.” Güldağ and Ağaoğlu also discussed the dollar and commodity prices, which continue to appreciate globally. Ağaoğlu, who predicts that the dollar index will gradually reach 120 levels, said that the Fed pressure will continue for at least 6 more months. Guldag: The issue of how long we can continue with the current conditions is very important. What I mean by the current conditions is; high inflation, increasing risk premium, interruption in credit supply, debt problem and concerns about payments… Is this a sustainable environment and let’s start our conversation within the framework of possible risks that await us… Ağaoğlu: As I mentioned before, there was something in the speech of all 34 council presidents at the TOBB consultation meeting; “You have a cost-effective loan, give it to us.” I would expect that; “The reason why our working capital has risen so much is inflation, which you have difficulty controlling. How are you going to bring this inflation down so that our working capital needs will decrease.” No such question came. Once the word of trust did not pass, once the word CDS did not pass. At the point reached today, we are in a very clear impasse. Today, we are taking measures that squeeze TL loans to such an extent that they threaten the payment system. Guldag: Speaking of precaution, new regulations continue to come in order to prevent export credits from going into foreign currency. This week, another implementation order was sent from the Central Bank to the banks regarding the establishment of securities. Ağaoğlu: There are so many obstacles to getting a loan. Credit billing requirement has also been introduced. Well, a purchase or loan that I have made before has come due today. I planned this so that I would normally get a loan from the bank, I cannot get this loan. Well, I will not be able to pay this, what will the party who expects this money from me do when I cannot pay? He will also face the same problem. We mixed two things; diagnosis and treatment. I say this as the person who gave 7200 interest in the 2001 crisis. The reason for the crisis that day was that the diagnosis in November was wrong, and the diagnosis in February was also wrong. When the diagnosis was wrong, the treatment was wrong, and we went into a crisis. There is a similar situation today, there is a breakdown in diagnosis and treatment. Liquidity was needed today, not KGF. You do the targeted credit in peacetime as much as possible, we are not quite in peacetime right now. The answer to the sustainability question will continue until the election. The most important issue in front of sustainability should be not to cause congestion in payment systems. Guldag: It will not be a very comfortable process until the election. We clearly see that the economy is starting to slow down. It seems that this will become even more obvious. However, in this process, there is a possibility that there will be difficulties in the debt-credit issues of the companies with each other. I think it needs a precaution. What companies really need right now is to stand up and not be out of breath to continue their work. Because when you are out of breath, that is, when cash flow problems arise, this is something that can knock down even the strongest body in 2-3 minutes. There seems to be a need for some financial products that will ensure the continuity of our companies. Ağaoğlu: By the way, I would like to thank our producers from Kahramanmaraş for the panel. There are problems, but the road continues. Some of the companies I’ve seen have also managed to manage finances correctly. They are trying to do this work on their own. Guldag: We will start to see a slowdown in inflation in November due to the base effect. Do you think the decrease in inflation will cause a relief in the credit market? Ağaoğlu: Let’s say that inflation is expected to be 50 percent in 2023. We’re talking about 50 percent over 80 percent. When you become 50 percent to 10 percent that day, you will still pay 40 negative real interest rates. The policy followed by the Central Bank will have very serious consequences in the financial system. In my opinion, we are giving the world a great experiment. I hope the literature will use it correctly so that no one else will suffer this torture after us. Unfortunately, that inflation will not decrease because we have lowered the interest rate. Due to the base effect, yes, but 50 over 80, as I said, it does not seem possible to provide any convenience regarding access to finance. Guldag: In my opinion, one of the closest dangers at the moment is foreign exchange liquidity, which is the subject of the economy management’s focus. I cannot say that a currency crisis cannot occur. Because we cannot provide enough foreign currency inflow. Yes, Russia seems to give us some relief, but it may not be enough. Ağaoğlu: The money coming from the Russians will relieve us on the one hand, and on the other, it will make us feel dizzy. Here’s the MIR system, we had to leave. These and similar sanctions are possible. There is a logic error behind your trying to control the currency so much. We understand this as a stock problem at the moment. We think it is an acute, one-time problem. It’s not a stock problem we’re experiencing, it’s a flow problem. We need to solve this problem. Otherwise, if the money came from the Russians, this will be settled, will the money come from Dubai, will it be settled, will we make a swap? A question came to me recently; What would happen if 50 billion dollars came? Let’s say it drops to $15. In two weeks she’ll be 19. But if you put forward a program that will have an impact of 500 billion dollars with a 50 billion dollar resource in a way that will convince the whole world, and if you take the steps one after the other without making mistakes, 50 billion dollars will return you as 5 trillion dollars of work. Speaking of sanctions, let me tell you the advantageous side. Currently, Turkey has a great advantage over Europe in terms of energy. As long as we ensure our supply security, we are in a position to sell serious goods to Europe. Next year, the industrial production side in Europe may shift to Turkey. Guldag: Indeed, this period has brought a number of opportunities to Turkey. Of course, in order to use the opportunities, you have to have those opportunities. Turkey has a serious production power and a set of possibilities in about 60 sectors with what it has built on these lands so far. We have the opportunity to take advantage of it. Maybe it is necessary to adapt this quickly with the new technologies revealed by the new industrial revolution. There are also studies in that direction, but we have to go a long way. The production dynamics of the country are extremely robust. Until 2035, the window of opportunity seems open in front of us in terms of the young population. Opportunity is like that. You know, there is an accident of prayer, but an accident of opportunity does not. When you find it, you should definitely evaluate it, and those who do not like us have such a famous saying about it, which they have been saying since the last period of the Ottoman Empire; “Turks never miss an opportunity to miss an opportunity,” he said. Despite everything, despite the difficulties, our manpower trained on the lands of this country has a potential that can take us forward, I hope that the issue of turning that potential into kinetic energy is our problem and we will overcome it.

Fed pressure will take at least another 6 months

Guldag: We see that the rise in the dollar index continues, especially after the Fed’s latest messages. As a result, it also affects the exchange rates of other countries… I will also ask about your expectations for the commodity front. Ağaoğlu: The dollar index has risen tremendously since March, from 106 to 113. There’s a chance it could go to 120. But it is unlikely that this will happen in one breath. It was a great compliment to the dollar, and this compliment leaves its place to calm down after a while. I see a possibility of a decrease in Euro/Dollar parity until 92.50. There will be a recovery after that, but the Euro is in trouble in the medium and long term. I’m waiting for the American 10-years to make a move to 5’s at 3.75’s right now. My personal prediction is that Fed pressure will continue for the next 6 to 9 months, commodity prices will remain under pressure. The exception will be oil, copper and other commodities will follow a 6-9 month printed or horizontal course. There is no possibility of going down much in cotton, there is such a risk in the steel index, but I expect that there will not be great decreases like in 2018 and 2020.

The decline may continue

Guldag: How would you interpret the gold and silver movement? Ağaoğlu: I and even our entire school were wrong about gold. How can gold not rise when inflation is so high and there is a war going on? Just as cryptos rose during the rising inflation period, people thought that they could protect themselves against inflation in crypto. As I think the Fed’s high interest policy will take longer than what is spoken in the markets, there is a high probability of a pullback in gold and silver. There is a possibility of retracement to the level of 1,500-1,520 under ounce. There may be ups and downs. But after this level, it stops because the global production cost of gold is about 765-795 at the moment. I think that the probability of gold going down further will decrease in ounce terms due to more production and related cuts. But at the moment, the interest pressure on it continues and since this continues on the crypto side, at least the decrease in the bottom seems to be a little more relatively limited.