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Transcript

Vested Interest · Letter to America

• 0:01
  SPEAKER_00: We're more excited about the latest arrival in our neck of the Belgrade Forest than we should be.
• 0:06
  SPEAKER_00: A month or so ago, McDonald's opened, down the road.
• 0:10
  SPEAKER_00: Its arrival is a bit of a sensation, and it's not like there aren't other fast food joints.
• 0:15
  SPEAKER_00: I think it's because it's a freestanding restaurant that feels like it was transplanted directly from the equivalent neighborhood in America.
• 0:22
  SPEAKER_00: Except, of course, that the equivalent neighborhood in the US would probably try to prohibit a big brand restaurant from opening down the road, with its signage, parking, drive-thru, and delivery service.
• 0:35
  SPEAKER_00: Well, we're hooked.
• 0:38
  SPEAKER_00: From Big Mac Meals to McFlurry's, we're there once a week.
• 0:42
  SPEAKER_00: At least.
• 0:43
  SPEAKER_00: I haven't tasted a better McDonald's hamburger since I ate at the Arch at McDonald's headquarters in Oakbrook when I worked on the account at Leo Burnett.
• 0:51
  SPEAKER_00: It's not really cheap either.
• 0:53
  SPEAKER_00: Mimi and I usually can't get out of there for less than$20 to$25.
• 0:58
  SPEAKER_00: That got me thinking about the Big Mac index that was developed by the Economist to try to demonstrate purchasing power differences in different countries by using a standardized product that's sold in many places and yet at different prices, like the Big Mac.
• 1:14
  SPEAKER_00: The Economist has been using the burger this way since 1986, and while the index and burger stayed recognizably the same over the decades since, many of the currencies and countries it compares have radically changed.
• 1:29
  SPEAKER_00: When the 2026 40th anniversary edition of the Big Mac Index came out in July, a benchmark Big Mac in America was$6.22.
• 1:40
  SPEAKER_00: And here, in Turkey, it was$325 Liras, or in other words,$6.91, 11.1% higher.
• 1:51
  SPEAKER_00: From this measure, one can argue that the lira is overvalued by that amount compared to the US dollar, or so the Big Mac index would argue.
• 2:01
  SPEAKER_00: Prices are further complicated by domestic inflation, changing import prices, and currency depreciation.
• 2:08
  SPEAKER_00: For example, when we arrived in Istanbul in February of 2020, a dollar bought about six liras, and a Big Mac cost around 13 lira from the most recent index published a month earlier.
• 2:21
  SPEAKER_00: Since then, the Turkish Big Mac went from roughly 61% cheaper than the American Big Mac in early 2020 to 11.1% more expensive in July of 2026.
• 2:35
  SPEAKER_00: Of course, this year has been particularly interesting, with a war with Iran taking oil prices over$100 a barrel and increasing the price of everything that uses petroleum, from fertilizer to shipping.
• 2:48
  SPEAKER_00: By July, when the latest index was published, a dollar cost eight times as much in Liras as it did when we arrived, and a Big Mac cost 25 times as much.
• 3:01
  SPEAKER_00: No wonder McDonald's is opening in fancy neighborhoods in Istanbul.
• 3:05
  SPEAKER_00: On Tuesday, the yield on a 10-year U.S.
• 3:08
  SPEAKER_00: Treasury note rose to 5.04%.
• 3:12
  SPEAKER_00: So the market is demanding a return of just over 5% a year to hold America's promise of repayment in 10 years, the highest rate since 2007 before the global financial crisis.
• 3:25
  SPEAKER_00: This paper is a benchmark for borrowing throughout the economy and influences mortgages and business borrowing costs like the 30-year American mortgage.
• 3:33
  SPEAKER_00: The latest confirmed Freddie Mac weekly reading before the Fed meeting yesterday was 6.76%.
• 3:41
  SPEAKER_00: Today it has risen to 6.95%.
• 3:44
  SPEAKER_00: The 12 voting members of the Fed met and voted unanimously to raise the rate by 25 basis points to 3.75 to 4%.
• 3:55
  SPEAKER_00: That's the first increase in more than three years.
• 3:58
  SPEAKER_00: The Fed said inflation remained elevated and that the move was intended to support a quote, timelier return to an inflation target of 2%.
• 4:07
  SPEAKER_00: Policymakers anticipate at least one more hike before the end of the year.
• 4:12
  SPEAKER_00: Trump had demanded an interest rate of 1% or lower in light of his belief that America is the best credit in the world by far.
• 4:21
  SPEAKER_00: All caps.
• 4:22
  SPEAKER_00: The root of the word credit is credere, Latin for to believe, to trust, and yet the Fed and the chair he appointed went the opposite direction.
• 4:34
  SPEAKER_00: But who gets to put a price on money?
• 4:37
  SPEAKER_00: As Trump put it during the tariff bond market turmoil, when people get a little yippy, then the bond market can make people a little queasy too.
• 4:46
  SPEAKER_00: Interest rates vary around the world as always.
• 4:50
  SPEAKER_00: Canada is still at two and a quarter, euro area is up to two and a half, US now at 3.75 to 4, and Turkey is holding at 37.
• 5:00
  SPEAKER_00: All quote interest rates, but they embody radically different inflation histories, currencies, and pretty different views of the future value of their money.
• 5:10
  SPEAKER_00: Everybody has a vested interest.
• 5:13
  SPEAKER_00: Borrowers want lower rates, savers and lenders want higher.
• 5:17
  SPEAKER_00: Governments want growth without inflation, and central bankers would probably settle for boring and predictable.
• 5:24
  SPEAKER_00: Their mandate is to keep expectations grounded, even if that means making everyone unhappy for a while, while the bond market keeps the score.
• 5:34
  SPEAKER_00: America carries about$40 trillion in gross U.S.
• 5:38
  SPEAKER_00: federal debt.
• 5:39
  SPEAKER_00: $32 trillion is held by the public.
• 5:42
  SPEAKER_00: So in a twist that makes our relationship with sovereign debt a peculiar paradox, every treasury that America calls debt is something someone else calls an asset.
• 5:54
  SPEAKER_00: Whether a pension fund, bank, investor, or foreign reserve manager, the destinies of our lenders are tied up with us by faith in our trustworthiness.
• 6:04
  SPEAKER_00: The dollar remains the dominant reserve currency, accounting for roughly 57% of FX reserves.
• 6:12
  SPEAKER_00: That said, gold is once again playing its role as a hedge against inflation from under mattresses to sovereign wealth funds.
• 6:20
  SPEAKER_00: It has no borrower, issuer, or maturity date.
• 6:24
  SPEAKER_00: It pays no interest.
• 6:26
  SPEAKER_00: It does not promise anything beyond heft, a bit of malleability, and a certain shine.
• 6:33
  SPEAKER_00: But by the end of last year, gold accounted for about 27% of global official reserves by market value, versus 22% for U.S.
• 6:42
  SPEAKER_00: treasuries, driven in large part by price appreciation.
• 6:46
  SPEAKER_00: In fact, the movement of gold isn't just metaphorical.
• 6:50
  SPEAKER_00: The Dutch central bank announced this month that it had relocated about 86 tons of gold from its North American holdings to London.
• 6:59
  SPEAKER_00: Or as Mark Carney, the Canadian Prime Minister, who happens to be a former governor of two central banks, puts it, we have the most precious commodity, which is trust.
• 7:11
  SPEAKER_00: It's lunchtime.
• 7:13
  SPEAKER_00: For some reason, a Big Mac meal sounds really appealing about now.
• 7:17
  SPEAKER_00: Today, by the way, a Big Mac is 410 lira.
• 7:20
  SPEAKER_00: The meal, 490.
• 7:23
  SPEAKER_00: This is Handalin from Istanbul.