KEN GRANT: Merch Guy: An Appreciation

Ken discusses the Turkish turmoil and its backlash across markets, from JPYEUR to Swiss deposit rates to ... corn

Merch Guy: An Appreciation

August 12, 2018

Merch Guy, Merch Guy, please sell me a shirt,

And if you’re a Merch Girl, at least let me flirt,

I wrote you this song, because you’re my friend,

Without any chords, so this is the end,

Can we please give some to Merch Guy? How ‘bout it kids? He travels from town to town with the band, sets up his table, and, of course, tries to move the Merch. It’s often a thankless job, and one that I don’t think I could perform myself – mostly out of a phobia I have involving a guy and his girlfriend walking up to my stand, buying matching tees from the latest tour, and immediately putting them on over the long-sleeved tops in which they arrived. In fact, so horrified am I at the prospect, that I’m not even sure how I managed to bang a description of this outrage out on my keyboard.

There is one other aspect of the Merch game that we should recognize, nay, celebrate, specifically, the settled reality that the less popular the band, the cooler the Merch guy is likely to be. Conversely, the gig is not without its occupational hazards. Consider, for instance, the episode when Led Zeppelin’s beast of a manager, Peter (no relation) Grant, had to beat the stuffing out of a couple of Merch guys who he suspected of selling unauthorized Zep Merch in the lobby of a 1973 show.

However, irrespective of one’s viewpoint on the whole Merch thing, one cannot but feel for the Merch Guys in Istanbul (and if you doubt there are Merch Guys in Istanbul, then it’s pretty clear that you’ve never been to Istanbul, a town which may be the Merch capital of the galaxy[1]). Their already beleaguered international biz took a major pounding on Friday, when, in the wake of (you guessed it) a Trump Turkey Tariff Tweet, their native currency got crushed to the tune of 20%. And the carnage wasn’t limited to financial conditions within the borders of that ancient, troubled land. Equity markets around the globe sold off in sympathy, and even our beloved lead-month Corn contract got pasted by over 3%. The news, however, was better in selected other asset classes. The USD touched its highest level in more than a year, and our dead Prez didn’t even claim the prize for top dog major currency – a title which for the moment belongs to the Japanese Yen. This, in part is evidenced by its dramatic rally against the EUR:

The global interest rate complex was the beneficiary of considerable inflows, and here, as could only be expected, those inscrutable Swiss took home the honors. Lenders to the Swiss National Bank must now again pay 10 basis points per year for the privilege of placing their money in such capable hands.

In light of the foregoing, and as we try, with mixed success to undertake our August boot-down: so hard-earned and so necessary to energize us for what promises to be a raucous last trimester of ’18, the questions are: a) should we care; and b) if so, why?

I’m inclined to answer path-dependent query by stating: a) yes; and b) for a number of reasons. For one thing, during a bad patch I vaguely remember from a decade or so ago, the savvy amongst us paid particularly close attention to JPYEUR, believing that the higher this currency pair climbed, the more risk-averse an attitude investors were embracing. Maybe the same can be said about the present day. To the extent that this is the case, it may just be owing to the sense that with each passing day, 45 is adding to a strategy that amounts to weaponization of the international trade complex. For all that I (or, for that matter, anyone else) knows, the strategy may work. But let me ask you: how aggressive do you wish to be in your portfolios while the saga unfolds?

But like it or not, I must return to Turkey, albeit briefly. Its GDP ranking cracks the Top 20, but it is falling, and is barely 5% of that of the U.S. It sports a respectable debt to GDP ratio in the 40s, but nearly half of these borrowings are dollar-denominated. And the lion’s share is owed to European banks. As has been the case with every currency crisis since mankind was still sporting tails, a significant currency devaluation increases the magnitude of the associated liabilities, and often renders it nigh-impossible for the obligors to make good.

So I suspect that if the current FX paradigms continue on their existing paths, we’re not far off from staring in the face of yet another round of bailouts. And here’s what you need to bear in mind in this respect. Every bailout you care to examine – from Mexico in 1994 to the U.S. bulge bracket in 2008, to Greece in the early part of this decade, is designed, first and foremost, to benefit the lending institutions themselves. Seldom, political rhetoric notwithstanding, does the general public get any help at all. And in this case, I suspect that as such nobody particularly cares of the hardships that may fall upon Merch guys from Ankara to Antalya, but you can rest easy that the global puppet masters will move heaven and earth to rescue the balance sheets of banks from Santander to Soc Gen to (of course) Deutsche Bank.

I’m not gonna lie: I find all of this mind-numbingly wearying. But that’s not gonna stop any of this nonsense. And, as a result, the risks cut both ways. An extended ratcheting up of the trade battles is likely to take bigger bites out of valuations as they unfold. On the other hand (and as I suspect is entirely plausible), if the big dogs in Washington start rolling out optically pleasing trade deals over the next several weeks, then we could be looking at a pretty serious melt-up.

I think it wise to keep it tight for the time being, but as for the Merch guys, I reckon that they’ll just have to take what’s coming to them. Most of them anyway. As part of the week’s festivities, the Russian Ruble took a major pounding as well. But believe me, Russian Merch guys know how to take care of themselves. And, in closing, my best risk management advice is that you avoid at all costs the testing of this hypothesis on your own.

TIMSHEL

[1] Full Disclosure: I myself have never been to Istanbul.

Comments