Even Though Thanksgiving Is over Three Months Away - Turkey Is in Trouble

For those of you not familiar with the escalating tensions in Turkey, this short article is for you.  Turkey is a prime example of what happens when emerging economies overextend their balance sheets, and unfortunately, this Turkey cannot fit any more stuffing.  The country's current account deficit is larger than many other emerging countries.  When countries have large current account deficits, other countries must fund this deficit by investing in that country, something the U.S. has been willing to do over the years.  But with geopolitical risks looming in the background, the U.S. and other countries may be reluctant to fund this deficit and Turkey's problem is poised to extend past Thanksgiving. 

Turkey has mismanaged its resources since the financial crisis.

U.S. remains a key investor for Turkish debt and equities

U.S. relations with Turkey had been wobbly going into the year.  Then, the situation escalated when Turkey refused to release the American evangelical pastor detained in 2016, on charge of attempting to overthrow Turkey's president Recep Erdogan.  President Erdogan's desire to promulgate his opinion of Trump has only made things worse.  This contentious behavior is not what you would expect from a president, especially not one running a country that is on the brink of a financial collapse. 

This year, the dollar is up over 80% against the Turkish Lira. stoking inflation fears in Turkey and panic about the country's stock market and those banks with exposure to Turkish loans. 

Turkey's cost of borrowing has skyrocketed as their currency tumbles

With all the media focusing on Turkey, investors are worried about what country is next.  This has sparked a contagion selloff in emerging markets and currencies. 

As contagion risks loom, other emerging currencies have begun to sell off.

For the layman to understand how this country has been managed, think of this. Berat Albayrak, Erdogan's son-in-law was appointed as the Minister of Finance and Treasury in April of this year.  Also, President Erdogan is running the Central Bank of Turkey.  To illustrate how ludicrous these actions are, this would be the equivalent of Trump firing Steven Mnuchin and Jerome Powell, while he assumes control of our central bank and puts Jared Kushner in charge of the Treasury.  A scary thought....