But the break I've been predicting for a decade is now on. Thanks Tayyip.
Ostensibly it is about an imprisoned priest, but it is really about much more than that.
In any event, the lira has crashed and the peasants are fearful. Allahu Akbar!, and adios Turkey.
https://www.bloombergquint.com/politics ... gs.OJjK0HA
(Bloomberg) -- Turkish President Recep Tayyip Erdogan is showing no signs of backing down in a standoff with the U.S. that rattled markets. As investors worry about Turkey sliding toward a full-blown financial crisis, the big question now is how far the pain may spread.
“I call out to those in the United States. It is a shame. You are trading a strategic NATO ally for a pastor,” Erdogan said Saturday during a rally in the Black Sea port of Ordu, referring to the U.S. decision to sanction Turkey for its imprisonment of an American priest. “You cannot tame our people with threats.”
While the trigger for the stunning debacle was new U.S. sanctions on Turkey, many investors say the $900 billion economy was already headed toward a cliff. Years of a growth-at-all-costs policy bias have left its companies saddled with hundreds of billions of dollars in foreign debt, runaway inflation and one of the world’s largest current-account deficits.
The knock-on was instant. With the turmoil in Turkey fueling contagion fears, investors shunned riskier assets and sought safety in developed nations’ bonds. Treasuries and bunds rallied. South Africa’s rand, the Argentine peso and global stocks fell. The euro sank as much as 1.2 percent to the weakest in a year against the U.S. dollar amid concern about European exposure to Turkish banks.
Interest rates are a “tool of exploitation,” Erdogan said in a second speech on Saturday in Rize. “We are aware that the issue is not the dollar, euro, gold ... These are the bullets, cannon balls, missiles of the war started against us.”
Investors worry that Erdogan is standing in the way of interest-rate hikes needed to stabilize the currency and some are now saying that only extreme measures could bring Turkey back from the abyss. Previously taboo topics like an international bailout or the imposition of capital controls are now being discussed in Turkish and international financial circles.
There were signs of alarm among Turkish citizens. Visits to three different bank branches in Istanbul on Friday indicated that requests for foreign-currency withdrawals had increased. It’s not unusual for branches not to have enough foreign exchange on hand for large withdrawals, and tellers at the branches said they were awaiting cash to be delivered from headquarters to meet demand.
If they were intended to calm markets, speeches on Friday by President Erdogan and another by his son-in-law, the newly appointed economic czar, had the opposite effect. Erdogan was defiant about resisting what he calls a financial attack and requested that citizens exchange their dollars and euros for liras instead. Berat Albayrak, the minister, gave a presentation largely devoid of figures or specifics.
“Those who assume they can bring us to our knees through economic manipulations don’t know our nation at all,” Erdogan said in Gumushane near the Black Sea, where he was breaking ground for a new roadway. He said Turkey could achieve record economic growth in 2018, “despite all the attacks staged against our country through foreign exchange rates."
In the wake of the U.S. doubling tariffs on Turkish steel and aluminum on Friday, Erdogan wrote a New York Times op-ed cataloging his grievances and threatening to walk away from their decades-old alliance. "Failure to reverse this trend of unilateralism and disrespect will require us to start looking for new friends and allies," he wrote.
Ibrahim Kalin, Erdogan’s spokesman, tweeted on Saturday that the U.S. is “facing the risk of completely losing Turkey."
The financial turmoil is showing signs of spilling over into the rest of the economy. Turkey’s private companies have borrowed heavily in foreign currencies and now sit on a pile of debt equivalent to about 40 percent of yearly economic output. Over the past year, several of the nation’s largest and most respected conglomerates have requested restructurings of billions of dollars in foreign debt, and more are sure to follow.
“Seems like a complete crash, so they need to act now,” said Morten Lund, a strategist at Nordea Bank AB in Copenhagen. “The lira will keep falling if they don’t hike rates.”
An aggressive rate hike by the central bank, on the order of 1,000 basis points, would be a “good start,” according to Paul Greer, a money manager at Fidelity International in London.
On the U.S. side, Trump tweeted his analysis of the situation after new tariffs on steel and aluminum were announced: "Our relations with Turkey are not good at this time!"