(Istanbul)

Following a diplomatic spat with the US that has thrust Turkey into an economic tailspin, the country is entering full-blown crisis mode. Turkey’s Lira is down more than 35% this year and fell another 5% overnight. Bond yields are soaring alongside the losses, with the country’s ten-year yielding over 20%, a move exacerbated by Istanbul’s large budget deficit. The crisis is going so badly that the EU is seeking to limit the Eurozone’s banks from exposure to Turkey’s meltdown. BBVA, UniCredit, and BNP Paribas have the most exposure to Turkey.

FINSUM: There is no end in sight to the selloff. The big hope is that Turkey is supposed to unveil a new economic model today that will show how it plans to cut debt and shrink its budget deficit. That would be a start.

(New York)

There seems to be some serious incredulity over whether Elon Musk’s tweet about taking the company private will ever come to pass. And with good reason, as it would take around a $100 bn of private capital to do so—no small feat for a money-losing company. However, Barron’s says it may actually happen. The company’s board is moving to lay out a strategic plan for how to pursue the privatization. CNBC further comments that “Tesla's board will likely develop a special committee of a smaller number of independent directors to review the buyout details”. Tesla’s share price fell 5% yesterday, apparently on doubts the plan would go ahead.

FINSUM: This is the kind of coup that someone like Musk could likely pull off. We also think it is a smart strategic play. However, given how challenging the undertaking is, we are leaning towards it not happening.

(New York)

ESG is growing steadily in the asset management community. More and more capital is being to committed to green bonds and other sustainable investments. Yet, as anyone who pays close attention will know, the definition of “green” or “sustainable”, is poorly defined. Academics have not helped, as their research—a big part of the movement—has somewhat muddled the power of the brand. Now, however, finance is demanding more research from academics, and both are aiming to work together more closely to deliver a better ESG product.

FINSUM: We can speak from experience in saying that when you get down to actual company selection according to ESG factors, it becomes very difficult to make any informed choices because of how little core data there is on which to make a decision.

(New York)

The market finally had a down day yesterday (with the exception of the Nasdaq) after a good recovery. That said, many are worried about the market’s breadth, as most of the gains this year have come from just the six FAANG stocks. However, Barron’s notes that “just three sectors out of 11 are up more than the S&P 500 this year—that would be tech, discretionary, and health care—seven sectors have stronger breadth readings than the S&P 500, and all except energy have more than half their stocks trading above their 50-day moving average”.

FINSUM: Market breadth seems to have improved considerably over the last month, and generally speaking, the fundamentals underlying the market look healthier.

(Washington)

This has been a week of divergent views on bonds. Earlier this week we ran a story arguing that there would be no bear market in Treasuries. It was a solid argument. However, now there is a contention out there that ten-years, specifically, might struggle. The reason why is that demand at auction has been falling for the bonds just at a time when the US needs to issue more and more to cover its deficit. In addition to excess supply, the other big issue seems to be that short-term Treasuries are yielding so much relative to ten-years, that there is little incentive to buy them.

FINSUM: In one sense this is bad, but in another good. The downside is that holders of ten-years (which are a huge component of fixed income indexes) will be hurt as yields rise. But on the positive side, this is exactly the kind of force that keeps the yield curve from inverting as longer-term yields rise alongside shorter-term ones.