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A few days back the Turkish newspaper Hurriyet published the article "Direct investment of 1.2 billion dollars a month" where it indicates that in January or this year there was an international capital inflow to Turkey of $ 707 million USD.

This is nothing interesting by itself; what is interesting is the segmentation of this investment:

Financial 59%

Manufacturing 39%

Energy 5%

In other words, about $ 411 million USD entered Turkey in one month alone which are directed towards financial "enterprises". Over one year this number will accumulate to roughly $ 5000 million USD or 5 billion. Consider these statistics:

  • Financial investment in Turkey almost doubles Manufacturing investment.
  • Raw financial investment in Turkey represents about 0.65% of the GDP.

The question that jumps to mind is why?

Why would any international organization spend these incredible amounts of money investing in Turkey, which is a country with a fairly well developed financial and banking industry? Turkey is by no means a banana republic. Turkey's GDP ranks 17th in the world; not a shabby number. Turkey is one of the few countries that are excellent candidates to become economic powers over the next 50 or so years. Then why?

We know that Turkey is by no means a financial center of the world, such as New York or London. So this cannot be the answer.

Turkey's economy, although robust, is in the same miserable conditions as any other average EU country. So there is no reason for Turkey to need those financial resources for manufacturing purposes.

Turkey is neither in the cutting edge of science nor technology and it is not involved in any rapid industrialization program such as China (although Turkey does have minor equivalent programs).

Then why?

Would it be the real estate market?

The Turkish real estate market was impacted by the 2008 debacle, but less severely and it has mostly recovered ever since. The Turkish real estate market is mostly private (very little if any government intervention). The Turkish real estate mortgage interest rates are ridiculously high (11 to 15%) partially due to inflation, which means that succulent profits are to be made. Turkey's real estate down payment is typically in the 25% range and not too many people take mortgages.

Now consider this.

You are an international bank flushed with USD (or EUR or JPY) thanks to the QE1, QE2, QE3 and all the other bail–outs and "technical" actions that the Fed, the EU and Japanese Central Banks took. You have "excess" reserves (i.e. too much money sitting in your vaults) that are generating maybe 0.5% per year in interests. Meanwhile, the inflation is in the order of 1%. Result? You are losing about 0.5% per year and you are not making any money from investments.

Suddenly, Turkey's real estate market begins to look succulent. Here you have a place with ultra-high mortgage rates, where people routinely put 25% as down payment and no government intervention to spoil the party!

Hummm… what to do… what to do?

We know! Shift the money to Turkey!

Result?

Look forward to Turkey's real estate bubble continue to inflate at an accelerated.

But why do you care about this? You probably do not live in Turkey, so what?

The "what" follows.

Most people believe that international finance does not matter. This is so because they can only feel local economic conditions. Unfortunately, local economic conditions are the direct result of international finance governmental screw-ups; or more precisely, large Central Bank screw-ups.

How do we link one with the other?

Simple, the Institute of International Finance in its Research Note of October 2013 published an interesting graph showing the fluctuations of capital inflows over time in Emerging Markets (of which Turkey is a member). Unfortunately, we can't show you graph since we don't have the copyright, but we have made the report available for download below (if you are interested).

What is interesting about this inflow graph in relation to the Turkish real estate graph is the fact that as the world slowly recovered from the 2008 debacle and the Central Banks begun to pump money into private banks, inflows of capital to EM nations begun to grow in lockstep!

Humm… we smell a rat.

2008: crash. Money is tight. Inflows drop like a stone.

2009: banking rescue operations. Money is plentiful. Inflows ascend like helium balloons.

What this correlation means is that as Central Banks pump money to save their private banks; these banks turn around and dump excess cash into other markets creating bubbles where none existed before. In other words, the entire world is a gigantic bubble courtesy of the Fed, the EU and Japanese Central Banks!

What this means is that the price of everything that you buy nowadays is influenced by the Fed, the EU and Japanese Central Banks regardless of where you live!

Money that is being created out of thin air by these three Central Banks is affecting the world over and this will have dire consequences.

This money is creating bubbles everywhere and not just in the real estate market. What this means is that the next big one will be horrific. As soon as one of those three Central Banks makes a mistake, the chain reaction will be swift and world–wide. There will be no hiding place. All countries, all markets will be affected.

We started this article stating that financial gambling is alive and well in Turkey. Which is true, but this is not all the truth. Finance gambling is alive and well everywhere in the world!

We posted several articles about Central Banks (among them Central Banks Must Go) for a reason. You must become aware of the damage that all Central Banks are making to your financial wellbeing, irrespective of where you live. This is not a theoretical presupposition, this is not a game. This is as real as it get. Your very life is at stake.

The next big one is coming, whether you like it or not, courtesy of the largest Central Banks. When it happens, remember, we told you so.

You can now pass on this information to your loved ones, or not. Your choice.

Note: please see the Glossary if you are unfamiliar with certain words.

 

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