Not particularly stellar, but at least a double single

As loyal readers would know, I have made a habit of tracking how well-read my columns are. Today's repeats the pattern of the past few weeks by barely putting me in the top 10 late afternoon:

I casually checked my performance while having sushi with a friend (Yep, that's how sick I am! And after all, I have an inflated ego that, despite being continually deflated during the past weeks, just refuses to go away), and I was as high as number 8. Not bad, but a far cry from the continuous top threes of the last month. But at least, the comments seem to be flowing again:

As you can see, I made it to the most commented list after a long hiatus...

Roubini Post: Houses of BRIC and MIST

This post already appeared in Hurriyet Daily News this week; Roubini Global Economics Emerging Markets EconoMonitor is just republishing it, but I just wanted to cross-link for the readers who might have missed it the first time around...

There is also an large addendum over at the blog, which includes some additional points I couldn't fit into 600 words. And it turns out the timing of the article couldn't have been better: Jim O'Neill/Goldman Sachs Asset Management published today a strategy paper titled, "It is Time to... Re-define Emerging Markets", where they explain their thinking about the MIST. Since it just dropped to my mailbox, I have not had a chance to read it yet, but I'll do so soon and plan to do a blog post about it, which I will probably submit to RGE Economonitor as well.

Chart of the day

Compliments of Farooq Muzammal, Head of Foreign Exchange & Precious Metals @ MAREX Financial Limited, comes this chart...

Now, I am having trouble determining the direction of causality; I mean are these guys living with their parents because the economy is f---ed up, or is the economy f---ed up because they are living with their parents?:)

Weekly Hurriyet Column: Houses of BRIC and MIST

Below is  my Hurriyet Daily News & Economic Review column for this week, which you can also read at the Daily News website. As for the title, another cheesy movie reference- House of Sand and Fog- I am quite pleased with my find...

You might have already seen the addendum, which was posted late Sunday night, so I can jump straight to the column:

 
 

As your friendly neighborhood economist, I find it my duty to respond not only to all readers’ questions, but also to requests from fellow journalists as well. So when Simon Roughneen, a freelance journalist doing a piece on the Turkish economy for The Guardian, contacted me with three well thought out questions, I had to respond.

While I address his other questions over at my blog, Simon’s main question on the Goldman Sachs’ new acronym definitely deserves some thought. To quote him, Jim O’Neill, chairman of Goldman Sachs Asset Management and formerly the bank’s Chief Economist, recently characterized Turkey as one of the four ‘MIST’ countries, his latest sound bite to describe the next big players, after the BRICs, among the world’s “emerging economies,” as he sees it.

Simon would like to know what I think of this as well as “the pluses and minuses inherent to the Turkish economy that could underpin or undermine O’Neill’s idea”. Before I go on, I should applaud him for correctly grasping the Goldman proposal: The Financial Times, as well as many other newspapers and all the Turkish media, wrongly thought that Goldman was expanding the BRIC group.

As O’Neill explains in his latest research note, that is not the case: Brazil, Russia, India and China “are in a league of their own within the changing world and, while there are more countries that should be regarded as Growth Markets, there are none that can be regarded to be as strong as them.”

Although I am all for cheesy titles paying homage to movies in my columns, I hate acronyms that result in generalized groupings, as they tend to ignore the differences between these countries. For example, it is often ignored that China is bigger than the other the BRIs combined, and that the BRIC success story is largely a China story.

It is also important to consider the great vampire squid’s motivations: I have always wondered how much of the relative outperformance of the BRICs after the coinage of the term by O’Neill was due to Goldman’s marketing efforts rather than to these countries’ sound fundamentals. But BRICs have been underperforming other emerging markets since the crisis, so Goldman may be thinking it is now time for a new idea.

But leaving these technicalities aside, it is worth considering whether Turkey could be the next big thing. That would require us to look beyond the monthly data flow to longer-term considerations. There are indeed many things working in Turkey’s favor. For one thing, it is a large economy, which is a necessary condition for making it into O’Neill’s list. It has a young, although poorly educated, population, and it is a domestic consumer-led economy.

But Turkey’s largest weakness is in the area of reform. The government could not capitalize on the global crisis the same way it did on the 2001 domestic crisis to enact the reform agenda. On the contrary, the feeble attempts at reform stalled after the 2008 crisis. As a result, while the country has sound macroeconomic fundamentals thanks to the earlier reforms, there are serious fault lines in the microeconomic, institutional and structural landscape.

In this sense, I am surprised at the inexistence of a sound analysis of the new Turkish Commercial Code. My feeble attempts at cracking it have hinted that it is bringing a huge facelift to mergers & acquisitions and the workings of capital markets, two areas in need of reform. Without such changes geared toward facilitating ease of doing business, I find it hard to buy the Turkey story.

But then again, it might be wiser to take the word of Jim O’Neill as an economist: After all, he once attempted to buy Manchester United, whereas I can barely afford my Beşiktaş season pass.

* Emre Deliveli is a freelance consultant and columnist for the Hürriyet Daily News & Economic Review and Forbes as well as a contributor to Roubini Global Economics. Read his economics blog at http://emredeliveli.blogspot.com.

Addendum to Hurriyet column, Houses of BRIC and MIST

OK, I guess this is not a first: I have written an addendum before my Hurriyet column was published before. In fact, as I am writing these lines, there is just a minute to the publication if the column, and by the time I finish this email, it should be on the Hurriyet Daily News & Economic Review front page so that I will be able to hyperlink it.

Anyway, I would like to add one more point to the reasons behind my distaste for acronyms like BRIC and MIST. Not only do such acronyms imply that these economies are alike (which they are not), they also implicitly state that they are decoupled from the developed world. As John Auters of the Financial Times has argued recently, the crisis was an aberration. Leaving that exceptional episode aside, the assets of these countries continue to mimic those of developed countries. So from an investment point of view, argues Auters (and I tend to agree with him), you are not getting much in terms of diversification by investing in these countries. It is better to pick based on individual countries or sectors. For example, if you think oil prices will skyrocket, Russia is a better bet than Turkey, right?

I would also like to share Simon's other questions and my answers:

There has been a lot of talk among foreign policy wonks about Turkey apparently drifting “east” and away from decades-old alliances with the west – with the Iraq War, EU accession difficulties cited as deterrents from the Turkish side. Does the recent opening of the first Islamic investment fund signify something similar in economic terms?

"I would rather see it as part of efforts to make Turkey a regional finance hub: But as I wrote some time ago with a friend, there are huge institutional deficiencies we explained against that happening."

But I would like to add to my original answer that this is one of the most common questions I get from foreign journalists. I guess this Islamic investment thing has got much more attention abroad than at home.

From a ‘development’ and ‘equality’ viewpoint, what has been the impact of economic growth on living standards, wages, regional and class differences inside Turkey?

"This is a huge point: AKP's success at the polls should be (but it is often not) tied to their success at increasing the living standards of the lower classes. For some weird reason, you don't see it that well in standard inequality and poverty indices, but two economist friends managed to capture that in a research note. I refer to their work in a column. If you are interested, the blog version of that column has a hyperlink to the paper. As I explain there, that's also why addressing Turkey's current account deficit is no easy task."

Many thanks to Simon for the intriguing questions and motivating me to write on the MIST. And before I forget, the other members of the MIST are Indonesia, South Korea and Mexico. In fact, if you choose to refer to South Korea simply as Korea, the acronym becomes MIKT, which I like a lot more, as it reminds me of a certain Turkish word:)...

Roubini Post: Talking Turkey on the Crisis

This post already appeared in Hurriyet Daily News this week; Roubini Global Economics Emerging Markets EconoMonitor is just republishing it, but I just wanted to cross-link for the readers who might have missed it the first time around...

There is also an large addendum in the blog, which includes some additional points as well as a link to Ferhan's presentation. And if you are interested, Sumru Altug has put her comments on the IMF paper and Ferhan's presentation into a neat little ERF policy note- unfortunately, it is in Turkish...

Addendum to Hurriyet column, Talking Turkey on the crisis

As I mentioned when I posted the column to the blog, I have several additional points to make, so here we go:

First and foremost, Ferhan's presentation, which summarizes the paper I discussed in the column, has been put up to the ERF website. It is a really well-prepared presentation, so if you don't feel like reading 100 pages, definitely go over it.

Second, I exchanged several emails with ERF director Sumru Altug after the conference. It seems that there is no big difference between her "expectations" explanation and my "once bitten twice shy" or "crisis savvy" explanations. In fact, you might see my explanations as a subset of hers, as they could explain the sudden drop in expectations. Other than that, I feel Turkey was a bit more externally vulnerable at the time than she maintains, but that's about it. We both (and the IMF as well, I believe, although I don't think they say it explicitly) believe that the Turkish response was late and muted.

By the way, I don't really try to get to the bottom of this in the sense that I offer two competing explanations: It could be that consumers and businesses are extremely risk-averse when it comes to crises, or that they just know how to deal with crises. This is similar to Sumru Altug's point that agents could be adjusting their expectations rationally (crisis savvy) or irrationally (once bitten twice shy)- actually if you take the standard definition of rationality, once bitten twice shy guys could be rational as well...

Third, it has been brought to my attention that the IMF, in its latest Article IV published back in September, attributes the sharp output drop during the crisis to Turkey’s history of crises, which has made clamping down on spending an automatic response. This is more or less my point. They make this point in particular by looking at the historical volatility of Turkey’s GDP compared to Brazil's. I have no idea how I missed this, as I had read the Article IV, and not as Wood Allen had read War and Peace:)...

But I was nevertheless very pleased to learn that, as the Fund has probably used 90% analysis, 10% judgment to reach that conclusion, in contrast to my 90% judgment 10% analysis (but give me a break, I had half a day to read a 100-page paper and write the column, so I didn't really have all the time in the world). Anyway, if you are interested, here's the link for the report.

Last but not the least, I am totally convinced that despite all its apparent benefits, PowerPoint has profoundly changed the way we listen to speeches: Caner Bakir of Koc University commented on Lorenzo's presentation with a traditional old-school speech, i.e. without a PPT presentation. He made really interesting observations, most of which I only half understood, as I was having problems concentrating to his speech without a PPT presentation to look at! Call it what you like, but now I am sure that PPT has bastardized our conference-listening skills:)...

Reader Question on Credit Cards

Reader "Me" made the following comment to my latest Hurriyet Daily News & Economic Review column:

Greetings Emre Bey! Excellent article once you think about it a bit! I also wanted to know if you had read the credit card article in today's paper??? I just would be so interested in finding out what amount of carryover debt there is. And also how many defaults they are seeing. I still think this would be an excellent topic for you to take on. It might help a few families avoid the credit card crunch. Times are tough everywhere and there is no need for people to get caught up in the credit market if they are educated. Better hurry.

Here's a partial answer to her question, again using the maxim that a picture is worth more than a thousand words:

We have NPL info. as well, but for all loans; as far as I know, they are not differentiated for credit cards... BTW, as the legends say, these are for individuals, as that's what Me was asking. But we have the same data for corporates as well.

While there is a boom in both figures, I find particularly interesting the jump in past-due credit from late to 2008 to late 2009; the crisis effect is apparent there. I guess it hasn't passed tangent after all, contrary to what the PM often claims. But we already knew that, right?

One final disclaimer: Care is needed in interpreting these graphs: Drawing consumer credit for small amounts is very common in Turkey as well, so these figures should always be used together with loan data before jumping to conclusions about consumer patterns...

BTW, here's the article Me was referring to....

Guest Columnist: Suluman the Economist

As you might already know, I have a reader who loves to hate me, who I call my perennial spammer. She contends that I, among other things, have no economic analysis, so to please her, I am offering her a column of Suluman the Economist, who fell into my radar of late after his insightful analysis of Ozan Acar's paper on Turkish credit ratings, which I featured in my Daily News column a couple of weeks ago. This is the column I was mentioning yesterday; I thank reader ubg, who had made me aware of the article in the first place,  for providing the whole thing. But speaking of the perennial spammer, I am also wondering what she has to say after last night's victory against the lazes, as she was arguing a victory against weak Buca did not mean much....

BTW, I did not get permission from Taraf to use this article, so good luck to them if they decide to sue me for that:)- I am not being cynical; according to Turkish law, as I found out during the summer during my "market research" to start up an Econ./Fin. magazine, any published article can be used in full one day after it has been published (I was told this by several journalism professionals, but feel free to correct me nevertheless). So if you want to start jup a good Econ. magazine, all you'd have to do would be to hire a translator and get the Martin Wolf, Paul Krugman,etc... articles:) We obviously did not go down that route, but the magazine project is therefore still in its infancy:).....

Anyway, without, further delay, I present you Suluman the Economist. I highlighted in bold the parts I found relevant, but do read the whole thing. I again will not comment on it, but the leftist f3n3v-fan friend I mentioned yesterday has something to say: "O hiyari dovmek sonra dinlenip gene dovmek lazim."- "We should beat up that "hiyar" (does anyone want to take a shot at translating that?), rest a bit, and then beat him up again.... Now, I am wondering if this is a threat, and if Suluman the Economist filed an official complaint, whether I would have to reveal my friend's name.... OK, I am already drifting away, so here it goes:

---------------

Süleyman Yaşar/Taraf

İşadamları Başbakan Erdoğan'a niye karşı

Başbakan Tayyip Erdoğan “emeği sömürerek zengin oldum diyemezsiniz” dedi, işadamlarını sinirlendi.

Turgut Özal da “sermayemiz yok devlet bize yardım etsin” diyen işadamlarına “yalılarınızı, lüks arabalarınızı satın şirketinize sermaye olarak koyun” dediği için işadamlarını kızdırmıştı.

Çünkü Türkiye'de bazı işadamları zengin, şirketleri zayıftır. Şirketlerinin içini boşaltıp güçsüzleştirirler. Ve devlet yardımı beklerler. İşte bu nedenle Başbakan Erdoğan “neredeyse işçi ücretlerini de devlet ödesin diyecekler” diyerek işadamlarının tutumlarını yansıtıyor.

Başbakan Erdoğan niye haklı? Çünkü 2009 yılında işadamlarına 4,7 milyar lira tutarında vergi indirimi yapıldı. Ödeyecekleri sosyal güvenlik primlerinin yüzde 5'ini devlet üstlendi. Bu üstlenmenin maliyeti 2008'in eylül ayından beri her ay artıyor. İşte bu nedenle 2010 yılında sosyal güvenlik açığı için bütçeden 31,8 milyar lira transfer yapılacak.

Peki, bütün bu paralar devlet tarafından karşılanmasaydı kimin cebinden çıkacaktı? İşadamları, bu paraları, ödemek zorundaydılar. Kendilerine sağlanan kolaylıklara rağmen işadamları, “işçi alın, istihdamı arttırın” denince, bunun serbest piyasa ekonomisine aykırı olduğunu ileri sürüyorlar. Peki, aldığınız devlet yardımları serbest piyasa ekonomisine uygun mu? Değil. O halde serbest piyasa koşullarını ileri sürerek savunma yapamazsınız.

Gelelim bizim bazı işadamlarının serbest piyasacılığına... Statükocu işadamları serbest piyasadan ve rekabetten pek hoşlanmazlar. Hammaddeyi devletten alıp, ürettiklerini devlete satmak isterler. Teşviksiz iş yapmazlar. Yüksek gümrük duvarı isterler. İşte bu nedenle özelleştirmeye de karşı çıkmışlardı. Turgut Özal, “gelin, KİT'leri alın” dediğinde, banka sahibi işadamları “biz almayız” dediler.

Çünkü KİT'lere yüksek faizle kredi verip, KİT'lerden ucuz hammadde alıyorlardı. Böylece “kolay kazanç” sürüp gidiyordu. Özelleştirmeyle bu kolay kazancın kesileceğini gördüler ve karşı çıktılar. Hatta 28 Şubat 1997'de darbe nedenlerinden bir tanesi olarak, o dönemde, işbaşında bulunan hükümetin “KİT finansman havuzu kuracağım.

Artık KİT'ler yüksek faizle bankalardan borçlanmayacak” tezini ileri sürmesine bağlanabilir. Çünkü statükocu sermaye, KİT'ler kredi kullanmayınca, yüksek faiz kazancından mahrum kalacaktı. İşte bu nedenle laiklik gösterileri adı altında, 28 Şubat darbesinin ardından bazı işadamları önemli tutarlarda haksız kazanç elde ettiler.

Peki, işadamları sağcı olarak bilinen Erdoğan ve Özal'la niye çatışıyorlar? Çünkü Erdoğan ve Özal, Müslüman değerlere sahip oldukları için emeğin sömürüsüne karşı çıkıyorlar. Böylece Erdoğan ve Özal emeğin sömürüsü konusunda kapitalistlerle çelişiyor. Aynı zamanda Özal ve Erdoğan kamu ekonomisi politikalarında solcu politika tasarımına sahip iki lider. Çünkü Özal da Erdoğan da kamu harcamalarını “düşük gelir gruplarına ağırlık vererek” yönlendiriyorlar.

Özal'ın “orta direk” yaklaşımıyla pek çok dar gelirliyi konut sahibi yapması gelir dağılımını “dar gelirliler lehine” değiştirmişti. Erdoğan ise “sağlık” hizmetlerinde bir devrim yaparak dar gelirlileri büyük bir yükten kurtardı. Etkin ve ucuz verilen sağlık hizmeti, düşük gelir grupları üzerinde önemli miktarda “ilave gelir etkisi” yarattı. Böylece dar gelirlilerin refahında küçümsenmeyecek bir artış ortaya çıktı. Dolayısıyla Özal ve Erdoğan, kamu ekonomisinde, düşük gelir gruplarına yapılan harcamanın payını arttırarak zenginler lehine çalışan bütçe dengelerini altüst ettiler.

İlk defa Erdoğan döneminde bütçe harcamaları içerisinde “eğitim” harcamalarının payı “savunma” harcamalarının payını geçti. Böylece eğitimde fırsat eşitliğini sağlamaya yönelik önemli bir adım atıldı. İşte, geçmişte Özal döneminde olduğu gibi şimdi Başbakan Erdoğan'ın son günlerde “bazı işadamlarıyla” çatışmasının altında yatan nedenler kısaca böyle açıklanabilir.

Again Suluman the Economist

We are hearing new exploits of Suluman the Economist by the day: Reader ubg notes, in a comment to my follow-up to the travails of Suluman the Economist, that while writing at Taraf, Suluman the Economist claimed that businessmen were in conflict with Ozal and more recently with Erdogan because both leaders were, as pious Muslims, against the exploitation of labor by capital!!! Ubg provides the link, but you cannot read the whole article, as Taraf requires a subscription for that. If you have one, I would appreciate if you could email or post as a comment to the blog the whole article.

I have no comment to add to that; I am simply left speechless! Besides, I need to invite my oxymoronic leftist f3n3v-fan friend to vote for AKP in the elections; he was saying he would vote for CHP at lunch today! I need to save the poor guy from an apparent mistake, which he would not have made in the first place had he been reading Suluman the Economist regularly:)....

Internalizing the flexible exchange rate regime

Ozan Gaziturk, economist at Sekerbank (and the Fernandes of my gang) makes the following keen observations:

The relationship between the exchange rate basket (50% EURTRY, 50% USDTRY) and inflation broke down in April, 2008:

Similarly, the relationship between the exchange rate (USDTRY) and consumer confidence has been broken since the end of that same year:

These are well-known by Turkey economists, but I really liked how Ozan put this all together: He notes that dedollarization is only part of the answer to "why". The main reason is that Turks have internalized the flexible exchange rate regime: Turks do not use the exchange rate for pricing forming their confidence of the economy. But they still trade USD and EUR!

Ozan notes that this internalization was unavoidable, as the exchange rate creeping up did not result in a crisis, but also underlines the oil price shock of April 2008 and the tomato prices later, i.e. supply shocks, as the breaking points in the relationship between inflation and the exchange rate. 

While I would agree with him, I would also highlight the role of the output gap, which decreased the exchange rate pass-through considerably in the crisis and its aftermath.

Yesterday's conference

I couldn't keep my semi-live blogging promise yesterday, but I will probably write about the conference in my Hurriyet column in the next two weeks. In the meantime, let me give you some spoilers:

Loukas Tsoukalis seemed extremely knowledgeable. Francesco Paolo Mongelli gave really good insights, although I had a tough time hearing him, and Aykut Kibritcioglu had an extensive presentation. Finally, ex-Central Bank Governor Sureyya Serdengecti gave very interesting insights on the relationship between economics and politics, in addition to criticizing the fiscal stance after 2006 and refusing to answer a question on current Turkish monetary policy on grounds that this wasn't the time and place to do that- but he did say that he could give an extensive interview to a newspaper (attention journalists!!!) and asked everyone to read what the Bank is writing, listen to what it is saying carefully. This last point seemed very proper, as the lady asking the question said that "she understood that the CBT was raising reserve requirements to curb capital flows":)....

And it was amazing how much the points made by different panelists seemed so similar, even for the ones who had not heard each other. Here are a couple of bullet points:

• European policymakers know what the problem is as well as the solutions. But the crisis is not being solved because doing so involves certain costly decisions. So it is a political decision.
• Turkey during 1994 and 2001 crises offers important lessons to EU policymakers- such as: Central Bankers should not assume government will put fiscal books in order; one successful auction does not mean the crisis is over...

And BTW, Yavuz Canevi, ex-CBT Governor, who was the moderator for the afternoon session, looks a lot like Gene Hackman...

Another dismal performance

Only made it to number 8 (as in 8tas) this time around:

 If I go at this rate, my ego will be invisible soon:)

Semi-Liveblogging (hopefully) tomorrow

I got invited to a conference tomorrow at around 5pm today by the Economic Development Foundation (don't be deceived by the name, they don't have much to do with econ. or development)... I don't think it is very smart to send invitations out to a conference at the end of the workday the day before the conference and expect an RSVP, but I did manage to email back the RSVP while driving on Baghdad (the street, not the town, and please don't try emailing while driving), and the program is very interesting.

For those of you not verse in Turkish, the conference is about the future of the euro and includes quite a few! Turkish Central Bank presidents (I counted three) as well as Turkish and international academics. Anyway, I plan to do a semi-live blog from the conference, meaning that I will wait until the lunch break for doing my post on the first session and the end of the conference for my second post.

By the way, although it says "to be confirmed" (I have no idea what they have to confirm a few hours before the conference), CBT President Durmus Yilmaz is to make the opening remarks, so I will tweet if he has anything interesting to say, such as "I wanna break Erdem's nose for convincing the MPC to cut the rates and secure his governorship even though I had clearly signaled towards a no cut in the past two weeks":):):) I am obviously joking; I have no idea about the internal workings of the MPC...

Improving my Vocab: HBB

My perennial spammer is back with another great comment on my knowledge of football:

Your insights to Turkish football are even better than those on movies; which, as we have already established, are incomparably better than your so-called "ramblings on economics". But allow me to tell you that as an ardent GS supporter, I couldn't really give a toss about your "Black Eagles". This said, to appreciate their overwhelming victory over Bucaspor does of course (?) necesitate the sort of expertise on everything under the sun, which only a few lucky "HBB"s like yourself are fortunate enough to possess.
Congratulations once again!
Your perennial spammer.

Now, we know another reason why my perennial spammer loves to hate me: If her team's new acquisitions are Yekta, Zapata and Stacu (or something like that) and mine Almeida, Fernandes, Simao, she is sure to hate me:) As for her comment on the merits of a victory against Bucaspor, I am asking her to wait until the Laz game Wednesday night, as I had noted in the original post as well- I could have waited to write this comment until after the Laz game, but I am that confident!:)

Anyway, the most interesting part of her comments was that I had no idea what HBB meant. An email to a couple of friends resolved the issue: HBB stands for "her boku bilen", literally translated as "knowing every shit", i.e. meaning smart-ass, wise-ass, cocksure or something like that... A friend wanted to illuminate me further by giving me some examples from the columnist world: Like herbokolog hincal uluc, alles-wieser deniz gokce... Now, now, now... We are not amused, for being likened to Hincal Uluc and Deniz Gokce, except that I would have love to be deft with my fists (or head) as Deniz (although I have not heard of any action from him other than to his ex-wife, except for him raiding the university with a friend once to beat up, literally, a fellow academic who was badmouthing about him and trying to get him kicked out of the university and answering the department head trying to convince him out of it by saying "you can't do that" with "don't tell me you can't do that- say you won't do that) or with my c--k as Hincal (or at least pretending to be, but I am sure he is getting some action, if not only because of signaling theory or herding).

Joking aside, I never claim I am an HBB, just that I know Turkish macro. I have admitted my lack of knowledge several times, most notably on commodities and trading technicalities of late. But nevertheless, although I said the exact opposite above, I am quite amused with all this: My perennial spammer does have a sharp wit, I have to give her that, although I continue to claim that she does not have any clue on what economic analysis is...

Weekly Hurriyet Column: Talking Turkey on the crisis

Below is  my Hurriyet Daily News & Economic Review column for this week, which you can also read at the Daily News website. As for the title, another cheesy one, but not a movie reference

As I was trying to summarize two presentations, both about a 100-page paper, as well as my comments, in about 600 words, I again failed to make all the points I wanted to make. Therefore, I will have an extensive addendum, but it will probably have to wait until Wednesday if I can not get it before I go to bed tonight. But let me entertain you with a photo of my buddy Ferhan from the presentation for the moment:

Yep, it was a good idea that I did not go the presentation with my Besiktas Jersey, as I was planning to- there was a game the same night. But I still looked well underdressed in my Oxford shirt and jeans. Well, what can you do?- I am just a tactless journalist:) BTW, I did mention that he is my buddy in the unedited version of the column and did mention him by his first name to emphasize that fact. But the editors at the Daily News have edited them. They do have a point: It kind of looks unprofessional, especially as I was referring to Sumru Altug formally by her last name. But I would still have wanted to disclose that he is a good friend. Not that there is any instance of conflict of interest in my column, but still...

Enough chit-chat already; on to the column:
 
 

The International Monetary Fund, or IMF, was in town on Friday as part of its own 360° World Tour, thanks to Koç University’s Economic Research Forum, or ERF, and the Turkish Industry and Business Association, or TÜSİAD.

Ferhan Salman and Lorenzo Giorgianni have been globetrotting for the past several months, presenting the Fund’s new mandate as well as a recent IMF paper titled “How Did Emerging Markets Cope In The Crisis?” Salman’s presentation with the same title summarizes that paper’s findings on the impact of, recovery from and policy response to the crisis.

Although emerging markets, or EMs, have been affected from the crisis less than other countries, there is quite a bit of variation among EMs themselves. Using the Fund’s proprietary vulnerability index, the paper groups together EMs with high, medium and low vulnerability at the onset of the crisis in August 2007.

Not only the stock markets of EMs with low vulnerability fell less during the crisis, these countries’ real sectors were also less affected. Compared to the more vulnerable group, they were hit later, and their GDPs contracted less as a result of the crisis.

However, there is a bit of chicken or the egg problem going on here: EMs with stronger fundamentals (the low vulnerability group) were also able to carry out a stronger policy response. EMs with more room for fiscal or monetary accommodation made full use of that liberty to dampen the impact of the crisis.

Sumru Altuğ of ERF and Koç University, during her discussion of the paper after Salman’s presentation, went one step further by noting that those EMs with low vulnerability were precisely the ones that were able to enact institutional and structural reforms following deep crises.

She also questioned whether the findings could explain Turkey’s record contraction of 12 percent (peak to trough), underlining that Turkey would not emerge as vulnerable from the Fund’s methodology. The IMF does not reveal individual country indices, as it would amount to shouting “Fire!” in a crowded movie theater.

But we know that external vulnerability has a 45 percent weight in the overall index, and that two items, ratio of reserves to short term debt & current account deficit and current account deficit as share of GDP together make up half of the external vulnerability sub-index. As I argued before, the Turkish economy does not look strong on these indicators, so I doubt the Fund’s model would deem Turkey with low vulnerability in 2007.

Besides, as Altuğ notes as well, Turkey was late to respond to the crisis. The Central Bank started its great easing cycle in November 2008, and the fiscal measures were enacted during the first of half of 2009, when some countries were already starting to emerge from the crisis. But the Fund would argue that the Turkish response was muted precisely because of the country’s vulnerabilities.

Altuğ, on the other hand, argues in a recent paper that the main reason behind Turkey’s record contraction is the collapse in expectations, which started after the 2007 general elections and accelerated with the global crisis. As a result, private consumption and especially investment expenditures collapsed.

I would opt for a similar explanation after acknowledging the role of Turkey’s vulnerabilities and late and insufficient government response: Turkish businessmen and consumers have experienced painful crises, so it would make sense for them to cut back on consumption and investment, rationally or irrationally, at the slightest sign of a crisis.

This “once bitten, twice shy” or “crisis savvy” approach could also explain other interesting phenomena of the Turkish economy, such as sticky dollarization. It definitely deserves more thought.

Emre Deliveli is a freelance consultant and columnist for Hürriyet Daily News & Economic Review and Forbes as well as a contributor to Roubini Global Economics. Read his economics blog at http://emredeliveli.blogspot.com.

Suluman the Economist: Episode II

I went over the travails of Suluman the Economist in the addendum to last week's Hurriyet column. Although I discovered him only recently while playing with Sabah's Ipad application, he seems to have established quite a fame, as noted by reader Tahsin in a comment to the addendum:

I remember him saying that Turkey ,in fact,had a positive growth in 2009(in nominal terms).he even said that national income increased in Turkey in 2009.Ekonomiturk calls him "amigo yazar suleyman". if anyone wants to read things funny about him, have a look

I thank Tahsin, whose link I transformed into a hyperlink, and an anonymous poster from earlier, who may be Tahsin as well, for pointing out the earlier achievements of Suluman the Economist. I also thank the bloggers at Ekonomiturk for providing me with good old entertainment.

It also seems that my spider senses were right: Suluman the Economist does indeed seem to have a problem with TEPAV: First, he comes out labeling TEPAV as the crisis lobby and accusing Ozan Acar, the author of the paper I discuss in last week's column, as using unsubstantiated data to prevent Turkey from getting a ratings upgrade. By the way, he is doing this after the weak December budget turnout, using the yearly figures while opting to stay silent on last month's figures. Then, he makes use of Tunisia by asking what TEPAV, the think-tank trying to prevent Turkey from getting a ratings upgrade, would say about the fact that Tunisia is rated above Turkey. Finally, he attacks TEPAV again in today's column by openly suggesting that it is employing bureaucrats in the high interest-low exchange rate lobby.All of this is in the couple of weeks following his highly intellectual analysis of Ozan's paper.

I will not waste my time to discuss the latest budget data or to explain that there is no high interest-low exchange rate lobby in Turkey. Nor will I try to ask him again to separate his personal feelings from his columns by inviting him down the ethics highway. I am just pulling back my meyhane invitation, as I don't think I would be able to last a couple of hours with him, even with plenty of raki. But the sad thing is that he seems to be quite popular; each of his columns gets several "likes" in Facebook- his masterpiece on the budget has managed over 50! Am I jealous? Absolutely! But I cannot help but say "Cry, the beloved country", as I had noted a couple of times, although in slightly different contexts (or maybe not, now that I think about it)...

Finally, loyal readers know that I can not do without linking everything (or anything) to football. Besides, my perennial spammer left a comment today saying that my football insights were even better than my movie ones. So, in order not to disappoint her, I should add that all this reminds me of the rows between legendary! TV commentator Erman Toroglu and legendary footballer Sergen Yalcin. Erman, who was a rookie in the TV world at the time, used to tie everything to Sergen. For example, when Hagi's age was mentioned, he would say "They talk about Hagi's age, but I wonder how much Sergen will be able to run when he is at Hagi's age?". I think the hatred came from Sergen's mockery of Toroglu once by saying "There is this dude who has been criticizing me. I have no idea if he is a TV star or ex-referee, so his comments do not mean much to me". So, now I am wondering: TEPAV, what have you guys done to hurt poor Suluman the Economist?:)

Really Great Day (and tomorrow's column)

I am too tired to finish this post, so will probably post it on Sunday, but had an amazing day yesterday:

In the morning, I attended two presentations by IMF economists, compliments of Koc University's Economic Research Forum. The first presentation, by my buddy Ferhan Salman of the IMF's Strategy, Policy and Review Department, discusses a recent IMF paper on how emerging markets coped with the crisis. Then, Lorenzo Giorgianni of the same department (and of Turkey desk fame) went over the Fund's new mandate in the brave new world. Out of these presentations emerged tomorrow's Hurriyet column, where I will be going over Ferhan's presentation (and the accompanying paper) as well mine and Sumru Altug's (discussant of the paper- Koc University professor and ERF director) takes on it.

And then at night, I attended the season opener at Inonu, where my beloved Black Eagles, re-energized with the new acquisitions, demolished Bucaspor 5-1. It is true that the opponent was not very powerful, and that the real test will be against the Lazes on Wednesday, but still I was quite happy with the level of play. It seems that it starts to make a difference when you have at least 4-5 high-caliber attacking midfielders & forwards. Not only they play in better harmony with each other, it is virtually impossible for the opponent to guard against all of them. I think that is a key difference from the team from the first half. BTW, my perennial spammer had found my movie insights much better than my economic ones- I am wondering how she'll feel about my football (that's soccer for you, yanks) ones:)

And by the way, I met one of my few loyal readers in between the conference and the game...

Roubini Post: The Turkish Rating Wars: Episode II

This post already appeared in Hurriyet Daily News this week; Roubini Global Economics Emerging Markets EconoMonitor is just republishing it, but I just wanted to cross-link for the readers who might have missed it the first time around...

There is also an large addendum in the blog, which includes some serious stuff as well as some humor.

The Sore Loser Monetary Policy Watch, Before the MPC

When I discussed the Central Bank of Turkey's new policy mix back in December, I had noted that I found it confuzzling, as it contained many inherent inconsistencies, as I outlined in detail in a Roubini special...

As a recent FT piece notes, with Turkish assets having underperformed since then, with the exception bonds, which were bound to rally, the magic seems to have worked. But still, the CBT would know all these inconsistencies in their framework much better than me. So why did they go ahead anyway?

Maybe, they wanted to create some confusion on purpose:)[semi-winkish]. I had argued back in October that some uncertainty in monetary policy would be good in the current brave new world. But if that is indeed the purpose, I wonder if they have gone too far: I am not sure if talking so much about one of the country's biggest risk areas, the current account deficit, is beneficial. OK, you are signaling you care, but you are putting the CAD right on the investors' radar!

Speaking of the CBT and the current account deficit, I read that in a speech in Vienna yesterday, CBT Governor Durmus Yilmaz noted that the credit demand and accompanying surge in imports from the rate cut would could outweigh the benefits of a higher exchange rate on exports... I don't know if he really said that, but if he did, all I have left to add is: Good morning in Uskudar!

Addendum to latest Hurriyet column

As promised, here's my addendum for Monday's Hurriyet column.  I will group my points in three main categories: Additional comments on the paper, my comments to a  critique of the paper, and my take from the email conversation with my usual gang:

Additional comments on the paper:

Whenever I write about a paper, I do my best to talk with the author(s), and having known and worked with Ozan during my TEPAV days enabled me to track him down quite quickly. Anyway, first of all, I asked him why he concentrated on specific variables. Ozan's response is that he did not want to come up with a model that explains Turkey's ratings; that's more or less what the Citi paper tries to do. Instead, he tries to show that Turkey's investment grade upgrade is not as in the bag as everyone assumes: The indicators that most people use in favor of Turkey's case, such as primary balance and debt to GDP, are not correlated with ratings. On the other hand, Turkey looks quite weak in other indicators that seem to matter to ratings a lot, such as real exchange rate & GDP volatility and interest expenses to tax revenues.

I also had some question marks on Ozan's methodology. To establish a relationship, he does a simple linear regression, controlling for GDP per capita, which proxies for "everything else". I would have opted for a standard ratings regression like the Citi paper. Ozan told me that he did that as well and obtained similar results. He decided to leave those out and go for the simple regression to make the paper accessible to a wider audience.

Suluman the Economist

A certain Suluman who writes in the daily Sabah had a harsh critique of Ozan's paper a few days before my piece.When she first started criticizing me, my perennial spammer revealed she was not very pleased with my "miscellaneous interventions on the daily press". Since then, I have moved those interventions to Twitter, as it mush easier to intervene there. But old habits die hard:

Suluman first notes that CRAs care about the primary balance, not interest expenditures. But as I explained above, Ozan shows that common belief is not true at all. If Suluman had criticized Ozan's empirical methodology, it'd have been OK with me. But to criticize one of the main findings of the paper with the explanation "it's not that way" does not seem like valid criticism to me. Or maybe, he just read the paper the same way Woody Allen had read War and Peace - or War, what is it good for?, as some know it:)....

Suluman then goes on to boldly state that the paper claimsmTurkey's current account deficit stems from government balances. There is no such claim in the paper, just that current account is a sovereign risk. I attribute Suluman's mistake to bad command of English, Turkish or Economics, possibly a combination of at least two of these factors.

I would not have voiced these criticisms, if only Suluman had not concluded his thought-provoking piece (for the lack of thought in it) by accusing TEPAV of trying to affect expectations by spreading false opinions on the Turkish economy (sort of like the "scaring foreign investor away with orders from Dogan headquarters" accusation I often get from my international columns). I could vouch for the invalidity for this statement from personal experience: During my stint at TEPAV, I was not even once asked by anyone to argue a specific opinion in a paper. The director there used to read our papers to make sure we were not using language that could put the institute or its mother TOBB (Business Chambers Association) in a tight spot, but I don't remember being censured, either- just displeased because it would take the director several weeks to get back to us with a short paper).

You don't have to believe me since having worked there, I may not be objective. But anyone who knows the circumstances of my departure from there (and its aftermath) would not dare to question my objectivity regarding this matter. And that's where my advice to Suluman the Economist comes in: It seems that you have some issues with TEPAV. So do I, or at least I used to, until God made its peace with me during the summer:) If you want to get it off your chest, drop me a line and I will invite to this great meyhane in Kurtulus. But don't mix your personal feelings with your columns...

Conversation with my gang

I also had an email conversation thread with my usual gang (two ex-traders, one economist and me) on Monday. We ended up exchanging 27 emails. Here are some good points that came up:

• It is tough for Turkey to get a ratings upgrade in the current quantitative models of the CRAs because of factors like debt service to FX reserves ratios and current account deficit to GDP. But nevertheless, perceptions are working in the country's favor, as they are running quite ahead of the reality of the Turkish economy of late.
• We agree that it is the relative standings that matter; after all long term obligation ratings are opinions of the relative credit risk of fixed income obligation with an original maturity of one year or more, as Moody's notes. But we also agree that it is how peers are doing that matter. In that sense, Mexico, Russia, South Africa, and Brazil's performance may be more important that The Usual Suspects' woes.
•  A common argument is to note that Turkey was rated higher before the 1994 crisis than today, which does not make sense. While there is some truth to this argument, the peer relativity idea is useful here: Turkey's peers were also doing very poorly at the time, with Chindia not in the picture yet.
• We also entertained the idea that ratings are not all that important any more. For example, many funds who would not consider taking on Turkey a few years ago now cannot live without us.
• The ex-traders also talked about some technical shit, some of which was beyond me: For example, Turkey's CDS and cash spreads are tight because of technical reasons- to give one, the country's external sovereign debt is relatively very low. Or that repo technicality entered the emerging markets world with Turkey's 11 7/8 2030 sovereign issue- although I have yet to figure what repo technicality is and how it figures in all this:)...
  

By the way, if you are wondering, what my gang looks like:

If it were up to me, I would let the abi trader be Q7, as he always talks about technical shit I don't understand well, i.e. he is a technical player (sorry for the direct translation from Turkish). I would have the other trader be Almeida, as he is quite large as well. I would have the economist be Fernandes, as he is a gorev adami. And that leaves me with Simao. Not only I love his style of play, his jersey number is also the license plate of my ancestral hometown...

Ego deflated for sure

Speaking of the perennial spammer, I got a further hit in the Daily News top 10 rankings yesterday:

As you can see, I barely made it to the list with yesterday's column:(- so it is now official: Not only the ego has deflated, it is now deflated, as in a deflated state, as well:)

Soooooo Happy

My perennial spammer loves my stuff for a change. Here's what she wrote as a comment to yesterday's post on CBT's expectations survey:

Sincere CONGRATULATIONS!
I must admit that your insights into the movie world are far superior to your ramblings on economics!
Your perennial spammer...

As I noted in my response to her, it is great to hear that she likes my stuff for a change, even though it is not economics:) But given that everything in this world is relative, and knowing what she feels about my "ramblings on economics", that should not have been very difficult:)...

But I must admit she does have a good sense of humor, at least for once:):):) At least, she managed to make me laugh with that comment:)...

Another idea I am entertaining: The Usual Suspects

So I am not the only one with the cheesy movie references in the economics & finance world after all: I have been seeing a lot references to the European peripheral countries with sovereign debt problems as The Usual Suspects in the last few weeks. Here's how I would assign the countries, making use of shameless stereotyping based on their appearances:

But the zillion dollar question that many are avoiding is who Roger "Verbal" Kint is. In retrospect, this amounts to asking who Keyser Soze is. You might argue there is no Keyser Soze, but you know about the devil's greatest trick...

I would argue that Keyse Soze does exist, and he is Germany. Just like Keyser, with record growth, he is the least likely suspect, but I would argue Germany is the real reason of the intra-European imbalances that bankrupted Club Med (Ireland is a bit more complicated).

I am planning on doing a column on that, either for the Daily News or Forbes, for whom I have not written for a long time, but if I don't, I will do a post explaining my reasoning in detail. In the meantime, note that my identification is not so far away from Keyser's supposed roots...

Expectations versus Reality

One of my favorite movies in the great movie year of 2009 was 500 Days of Summer, and my favorite scene in the movie is the Expectations versus Reality scene (the Turkish subtitles are not intentional; it is the only copy I found after a Google search)- I love the cinematography, and the Regina Spektor song fits the scene really well.

Anyway, I recently sort of lived the economics version of that scene when I looked at the latest CBT bi-weekly expectations survey:

The first thing you notice is how "adaptive" inflation expectations are. After the low December inflation, end-year and 12-month ahead inflation expectations plunged. Even the 24-month ahead figure was affected. That's why I advise not to make too much of sudden movements in inflation expectations.

The second thing noticed was the inconsistency between growth and current account expectations for this year. I am OK with the 2011 growth forecast for this year, which is consistent with my outlook as well. But there is no way the current account deficit would be USD 46bn at that growth rate- unless you are making some weird assumptions on the exchange rate. Or to put it differently, if the current account is to be USD 46bn in 2011, growth would have to be much less. Moreover, for the CAD figure to be realized, imports would have to growth about 70% or so less than exports (or exports 40% faster than imports)!

That's why a simple excel sheet that links the different accounts of the macroeconomy and ensures consistency goes a long way for good forecasts- that's what I was doing when I was doing my own projections. It is true that these are averages of forecasts, so they don't have to be 100% consistent. But even if the averages are so different, there must be something fishy going on...

BTW, when I said exports and imports were the most important part of the current account a couple of hours ago, this is exactly what I meant:)

Coming back to movies, I looked at the top 250 IMDB movies by year and found out that they are far from being evenly distributed; there are indeed great movie years, like 1998, 1999, 2009- and mediocre ones, like last year. But that's for another post....

Weekly Hurriyet Column: The Rating Wars: Episode II

Below is  my Hurriyet Daily News & Economic Review column for this week, which you can also read at the Daily News website. As for the title, after a one-week hiatus, it is the return of the cheesy movie-reference title:)

Coming to more serious matters, I again could not say all I wanted to say due to the strict 3700-character limit. Besides, I would like to respond to a certain Suluman who wrote an opinionated column (maybe, that's what op-ed stands for after all) about Ozan's piece. In addition, I had another very interesting chat with my usual gang, at the end of which I was confuzzled by all the trader details. But I would like to incorporate those comments as well, but after I understand what "repo technicality" is. So as soon as I find some time to call up the trader buddy in the gang and jot down all this, you will see a very detailed addendum to the column (probably tomorrow, as it is already 19.30, my stomach is ringing bells (Turkish idiom), and I have to pick up my brother and his wife later on).

Enough chit-chat already; on to the column:

As the venerable Yoda would say, begun again the rating wars have.

Recent research by Ozan Acar, prepared during his stint as a guest researcher at the Brookings Institution, discusses why Turkey is still rated below investment grade by the credit rating agencies, or CRAs, and whether an upgrade is on the cards.

The standard argument is that markets, as gauged by Turkey’s credit default swap, or CDS, spreads, have already been priced in an upgrade and that the CRAs, whose ineptitude was proven during the European sovereign-debt crises, are simply trailing behind.

Irrespective of problems with the CDS’ which I outlined during the first rating wars, a simple graph of CDS spreads against ratings shows the fragility of this argument: while there is a negative relationship between the two, there are many countries bundled at the 100-150 basis-points range, with some sitting below and others sitting above investment grade.

But those in favor of Turkey receiving an upgrade argue that the country’s fiscal position is sound. After all, its primary balance and debt as shares of gross domestic product, or GDP, look quite strong. However, Ozan shows there is no relationship – after controlling GDP per capita – between these factors and sovereign ratings.

When you think about it, this conclusion actually makes sense. A country’s GDP is different from a company’s revenues or an individual’s income, in the sense that the government has no mandate over all of the country’s GDP to honor its financial obligations.

On the other hand, countries with a lower ratio of interest expenditures to tax revenues enjoy better ratings. Such countries have more resources not only for their financial obligations but also for public services such as education and health, boosting their potential growth.

Unfortunately, despite significant improvement during the last decade, Turkey’s interest payments are still relatively high. Informality and tax evasion ensure that not only the tax base is low, but also that tax revenues are extremely procyclical. Add in a fiscal rule suspiciously swept under the carpet less than a year before the elections and suddenly Turkey’s fiscal position does not look so strong.

Moreover, notwithstanding progress made after the 2001 crisis, one quarter of public debt is still external or linked to foreign currency, making it vulnerable to sharp currency moves. Ozan also finds a negative relationship between real exchange-rate volatility and ratings before concluding that he is not very optimistic about a ratings upgrade.

In other recent research, Citi economists used a statistical model to determine Turkey’s chance of an upgrade. Their framework, which uses the current account deficit, inflation, GDP per capita, public debt to GDP and political stability as determinants of ratings, sees the probability of Turkey becoming investment grade at around 50 percent now and as high as 66 percent in the next two years.

Both papers concentrate on just a few of the many factors taken into consideration by the CRAs. Standard & Poor’s, or S&P, divides its ratings framework into nine categories, each with several different sections, so a definitive empirical study is no easy task.

Although I believe there is a good chance Turkey will become investment grade sometime this year on, if nothing else, the perception of its relatively successful economic performance, monetary policy – one of S&P’s main categories – might be the deal-breaker. If the Central Bank’s unconventional policy mix, which has left many confuzzled, actually works, then Turkey may see investment grade even before summer.

If not, investment grade – which we are sure to get before Fenerbahçe wins the F.A. Cup – will be the least of our worries…

Emre Deliveli is a freelance consultant and columnist for the Hürriyet Daily News & Economic Review and Forbes, as well as a contributor to Roubini Global Economics. Read his economics blog at http://emredeliveli.blogspot.com.

Why the current account deficit?

Here is my answer to the second reader question, as part of the reader appreciation weekend. But let me remind you the question first:

Can you tell me why people are so focused on the current account deficit figure? If the underlying worry is the potential destabilising effects of hot money and short term borrowing then why doesnt' everyone simply focus on metrics that track those figures? Is it because CAD is a more readily available/computable figure or is it because of some other reasons drive why CAD is so important to focus on? Any comments/insight you got on this would be highly appreciated.

Now, compared to the previous question, this is something I know one or two things about. I will address the question in three steps, going from the general to more detailed:

First, I understand the reader's point. If you care about the CAD because of financing concerns, why not concentrate on these financing concerns rather than the CAD. This makes sense, but you'd still need something to gauge the financing with. Say, if Turkey attracted USD 10bn of portfolio flows during the past year, is this too little and too large? Compared to what? That's why you also need the CAD. In fact, that's why we call the both of them (and reserve accumulation, which is the difference between the two) the Balance of Payments, or BOP. And of course not all items under the CAD headline number are created equally. For example, if I am forecasting the CAD, I would spend much more time with exports and imports; it is pretty straightforward the to project the only other major item under the current account, tourism revenues, and the other items are way too small to make a difference.

But these are only accounting identities. If you want to go beyond mere accounting, you have to know how the different sectors of the economy work. For example, a great deal of the banks' short term borrowing, or well short-term capital flows in general, is related to the banking sector's lira liquidity gap. Since covering the liquidity gap just by borrowing abroad and selling FX would bring in a currency mismatch (besides, BRSA, the banking regulator, has open-position limits), it makes sense for the banks to access the hot money parked in the money market via swap operations and then extend it via credit. BTW, that's why the CBT is so fixated on credit growth and and making the country less attractive to short-term capital flows: If no capital flows, no swaps that end up as credit. If no credit, no surging imports. If no surging imports, no ballooning CAD. Yep, it is as simple as that...

Or if you want to know the reasons behind the current account gap, you would have to know about the country's private savings gap. My hands are starting to hurt, so just read the column, but the main point is that controlling the CAD is no easy task...

A couple of sentences on commodities

As I mentioned earlier, a reader asked me my take on commodities.

Starting with the very important disclaimer that my knowledge of global developments is limited to what I read (in contrast to my Turkey pieces, which depend my own analysis as much as what I read), mainly in the Financial Times and some of the blogs I follow, I would say that the current commodities run is as much based on the forces of demand and supply as a result of market sentiment & animal spirits. 

This is especially true for food, where some key crops seem to be shaped by what's going on in the US. Therefore, there is good reason to believe that the commodities run is more than a short spell and could be with us even when the global easy money conditions are over.

The same can be said of oil as well. But one thing I find puzzling and difficult to fit into this picture is the Baltic Dry Index, which is not following commodity prices...

But I know that I have readers who know about these matters more than I do, so any comments, on commodities or the BDI, would be more than welcome...