Turkey Is Toast 2019

Back in 2015 I wrote Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?

If socionomic theory has some validity and technical analysis has some validity, then one can presumably spot potential geopolitical shifts by looking at major assets such as currencies and national stock markets. iShares MSCI Turkey (TUR) gives exposure to both Turkey and by extension, the Turkish lira. Back in 2015, TUR sported a major head-and-shoulders pattern indicating a target in the single digits from its then current price of $37 per share. Geopolitical and domestic political events deteriorated. President Erdogan has been turning the country into an Islamic state and Islamic states tend to underperform economically. Secular Turkey was a Middle East standout because of its economic success without oil. Islamic Turkey? Maybe yes, but the risks were and are increasing. Erdogan also consolidated power. Tensions with Greece escalated. Tensions with NATO escalated. Tensions with Russia escalated. President Trump, ISIS, possible detente with Russia (din't happen), NATO reform, nationalism rising in Europe, it all pointed and most still points in a negative direction for Turkey.

Turkey would bottom in 2016 and then rally withe emerging markets into the January 2018 global top. It then went on to lose more than 50 percent into a July 2018 low. That uptrend is broken and as of pre-market trading today, TUR is back below the descending support line that stretches back to 2010.

ZH: Turkey On Verge Of Collapse As Overnight Swaps Hit 700%, CDS Soar

It also means that Turkey is doing its best to burn bridges with all foreign investors, both bulls and bears, which for a country that for the past decade has been entirely reliant on outside capital inflows, could spell a death sentence.

Meanwhile, unable to express their negative views on the economy via the currency - for now - Turkey bears have found a different way of betting on a Turkish economy implosion, namely Credit Default Swap, which soared to 454bps on Tuesday, a 40bps spike, and the highest since last summer's crisis.

Of course, Eedogan's vendetta against the shorts, and the elimination of virtually all liquidity just to force an FX squeeze, means that the broader economic slowdown and raging inflation, which is the true reason behind Turkey's simmering crisis, is about to get much worse. Meanwhile, with local banks burning through reserves to defend the currency on the front-end, and with shorts no longer present, it is only a matter of time before the currency collapses once more, only this time driven not by a flood of shorts but as longs capitulate ahead of what increasingly looks like another Turkish crisis.

Prior Turkey posts here.