Educating Erdoğan

The current crisis in Turkey has been a long time coming.  A little over two years ago [see: Turkey Sinks to New Lows], we discussed how Recep Erdoğan’s heavy-handedness would come back to haunt Turkey.

This latest action, however, will turn the markets on Erdogan.  With no one to bully, hold accountable or throw into jail until he gets his way, this will cost him dearly.  Unfortunately, it will be the citizens of Turkey who ultimately pay the price.

True to his colors, Erdoğan is now threatening to fine and/or jail those who speak the truth about Turkey’s untenable currency situation.  The Capital Markets Board in Ankara released the following:

“Those who report misleading, wrong and false stories on listed companies, banks and other financial entities that could impact investor decisions could be fined or sentenced to two to five years of imprisonment.”

At this point, the entire financial world is wondering whether Erdoğan will see the light or go down swinging, taking the Turkish economy with him. And, can the spillover effects be contained?  Many have pointed out that the Turkish lira is more systemically important than was the Thai baht.

Things are looking dire for the lira.

And, as we discussed last week, the euro has not been immune – finally breaking down from its rising channel.

Whether actually exposed or simply guilty by association, Deutsche Bank (my favorite canary in the coal mine) continues to suffer.  After reaching our upside target two weeks ago, it’s racing toward our next downside target.

While a timely recovery in USDJPY and reversal in VIX have futures back to flat, it remains to be seen whether the damage will spread.

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