Turkey Trauma and Now Omorosa?

OK - so last week - I said the while the mkt had been churning in a tight range - the fact that we had pierced 2840 and then 2850 was in fact bullish and that 2850 which had been resistance since March - was now support - allowing investors to take the indexes to up and thru 2872 - the 2018 high.  In fact, I said

“……My gut says that we will challenge 2872 before the week’s end…. because as we inch closer to it – the move will feed on itself – and the excitement will build until we reach that point of ‘no return’.”

Well - so much for that.  My gut was wrong because I was not expecting the ‘Turkish Trauma’ - in fact neither was the mkt nor global investors...this was one of those ‘out of left field’ type of events.... The ones that cause havoc in the short term but should not cause havoc in the longer term - or will it? 

You see - last Friday - Trump threatened to increase tariffs on Turkey, this coming as their economy is beginning to struggle highlighting the massive fiscal mismanagement by the current administration - then toss in investor angst and you have the perfect storm.   The Turkish Lira began to collapse and then the conversation started......

Look – Turkey’s economy was a star performer last year – growing at some 7.7%.....but this ‘growth’ was fueled by mismanagement and foreign currency debt - debt that Turkey cannot support....You see - Turkish Pres - Erdrogan has spent lots of money (money that is not his) on building new infrastructure projects  etc.....projects that support Erdrogan and assure his re-election.....but here is the problem - Turkey doesn’t have the reserves  to support this or now to rescue the economy....and Erdrogan’s mismanagement over the years has only exacerbated the situation. 

Look - Inflation is running at 16% while interest rates remain artificially low (Erdrogan wants to keep rates low to fuel growth)  - and both the fiscal and current accounts are now running with huge deficits......and this is a problem....(fiscal deficits result when the country’s spending exceeds revenues and the current account deficits happens when the country buys more goods and services than it sells).  Then toss in the fact that the country does not have the reserves to correct this issue and it becomes a national and possibly a global problem.   Talk of European financial ‘contagion’ begins to permeate the conversation......Who is ‘exposed’ to Turkey?  What banks stand to get whacked?  Could this become another ‘financial crisis’?  And so, it begins…. the FEAR factors

So since Friday - global mkts have responded to this headline by ‘selling off’ - ok - Let’s be fair - the S&P is off 1.3%, the Dow is down 1.8% and the Nasdaq has given up 1.2% - so nothing to get your panties in a bunch about….BUT the European mkts are a bit of a different story….they  stand to get whacked harder if Turkey spins out of control and are off a bit more…..Eurostoxx 50 is the index that represents the Eurozone – and this is off 2.8% in 3 days, the DAX has given up 2.3%, the CAC 40 has lost 2.2% and the UK FTSE is off 2%, Spain has given up 2.8% and the Italians?  Well they got hit hard – losing some 4.4% of their value as the fear of contagion spreads……and in a throwback to the financial crisis – Greece is taking it the hardest – they have lost 5.5% of their value in the last 72 hrs…..

And so it is headlines like this that are ‘unexpected’ which causes short term change in psychology…..and it wouldn’t have been that bad until Donny threatened to add fuel to the fire by raising tariffs! 

Now yesterday the Dow lost 125 pts, the S&P gave up 11 and the Nasdaq fell by 19 pts….ok – the headlines will have you believe that it is because of weaker oil and materials – ok - Yes – oil prices did decline a bit and are trying really hard to hold onto their 100 dma at $67.48 – which they did….so that is more of an excuse to try and rationalize weakness in the energy and materials sector – when the underlying angst is being caused by the geo-political issues surrounding Turkey – because remember – if Turkey finds itself in a desperate situation – then they can always turn to the Russians or the Chinese for help and that then creates a whole new dynamic in the balance of power….....Turkey is a member of NATO – they are an ally – so maybe someone in DC should remind Donny of the importance of relationships…..and he should work to help solve the situation vs. exacerbating it….but hey – That is another story…..

Update on TSLA – apparently ‘Lonnie” is now saying that he thought the Saudi’s were stepping up to the table – saying that the sovereign wealth fund has approached him numerous times over the past 2 yrs to help take TSLA private – so after yet another meeting at the end of July when the managing director supposedly ‘strongly expressed his support for funding a transaction’  – he ‘assumed’ that they were ready to pull the trigger on this idea – So, he felt comfortable announcing it….the problem is – the Saudi’s have not come to his defense, they have not affirmed any of this, and this still leaves a host of unanswered questions swirling about….leaving Lonnie to solicit the advice of investment bank - Goldman Sachs, investment firm of Silver Lake and the law firms (plural) of Wachtell, Lipton, Rosen & Katz AND Munger, Tolles & Olson.  Now the only firm to say anything was Silver Lake and they made it clear that while they were helping Musky explore the process of going private they weren’t being paid…… (So, they are working pro-bono on this possible massive transaction?  REALLY?)     The others - as expected – have not comment.

And Donny has a new nemesis – do you remember Omorosa?  Oh, boy – she’s got the goods on him and the WH…her book – out today – claims to expose the goods on Donny and staff….she made secret recordings of meetings within the walls of the WH and the ‘situation room’  - all a big NO, NO and she hit the media circuit yesterday touting all of this ahead of the release of her ‘tell all’ book….and now word has it that Mueller wants to take her to dinner…..and the plot thickens….And we thought that the Italians were the laughing stock with Silvio Berlusconi at that helm!

OIL prices plunged yesterday but have managed to hold the line and trade up a bit today after the Saudi’s said that they cut their output in July by some 200k barrels/day.  This as exports from Iran all but stopped as we imposed harsh sanctions on the Iranian oil industry.  But remember – NON-OPEC producers (think US) are increasing production making it more difficult for the Saudi’s to maintain control….…. Look for oil to try and stabilize right here at the 100 dma of $67.21 – if not then the next stop could be the June lows of $64/barrel.

Gold – which has been under pressure – continues to be under pressure – as technical breaks cause more selling which then causes ‘stop loss’ selling and all of this caused Gold to break $1200/oz and trade down to $1191….before bargain hunters swooped in…..This morning gold is up $3 at $1202 but with rates expected to rise and the dollar expected to continue to strengthen – expect gold to remain under a bit of pressure.  If she breaks $1200/oz again – then look for her test the lows of December 2016 – at $1,150/oz.   

Overnight – we saw a bounce in the Turkish Lira after the Turkish Central Bank pledged to do whatever it takes to save the Turks….
In Europe – Eurozone GDP and the German ZEW Survey both beat expectations (positive) and the rhetoric out of Turkey is helping to calm fears…. FTSE +0.09%, CAC 40 +0.29%, DAX +0.32%, EURSTOXX + 0.37%, SPAIN +0.18% and ITALY +0.36%.  

US Futures are showing triple digit gains for the Dow and solid double digit gains for the S&P as investors shrug off any real fear of Turkey contagion…..2825 on the S&P is an area that should offer some support and appears as if it has – BUT if the Turkish Lira  should start to fall again to new lows, then expect the contagion concerns to raise their ugly head again and spill over into EU markets and ultimately weigh on US shares, but if this morning’s bounce holds, US stocks should rebound right back to 2850. 
 

Take Good Care

KP

Onion, Mushroom, Pancetta & Black Truffle Oil Pizza 

So as summer winds down - you must try your hand at making pizza on the grill.... using a pizza stone. 

For this pizza you need:  Pizza sauce* see below, Chopped pancetta, sliced onions, sliced mushrooms, s&p, olive oil, shredded Mozzarella and black truffle oil.  

**Pizza sauce - easy to make - you need:
1 can chopped tomatoes or kitchen ready crushed tomatoes.... Not puree., 3 garlic cloves chopped, maybe 3/4 tsp dried oregano, fresh chopped basil - like 3/4 cup, s&p and olive oil.  

In a large pan or bowl - mix the pizza sauce ingredients together - and set aside.  This should sit for about an hour or so - just to give it time to blend the flavors...do not cook.  

Next - in a frying pan - add a swirl of oil and then the pancetta - cook until crispy, now add the sliced mushrooms - cook until browned and the water has disappeared.  Season with s&p and set aside.  

Now light the grill and place the stone on the grill and let it heat up slowly......

Now make the pizza - spread the dough out on a floured wooden pizza board.  Add the sauce and spread around - leaving a nice edge.  Now spread cheese all over the pizza and add the pancetta, onions and mushrooms.  Place on the pizza stone and cook for about 8 mins.... check bottom to make sure it is not burning.  When cooked...remove and drizzle the black truffle oil on top and serve.
 

  
Buon Appetito.