You all remember this one:
Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
All the king’s horses and all the king’s men
Couldn’t put Humpty together again.[2]
The United States stock market and world economy are today’s versions of Humpty, and the punditry and the media are beside themselves with worry over when these precariously perched eggs will fall, creating another worldwide financial mess a la 2008/2009. The latest obsession is that Turkey will be the culprit that gives our golden eggs the push to obliteration.
Fun Facts About Turkey
At current writing the Turkish economy represents about 1% of global GDP (about 855 billion USD). Turkish government debt totals $240 billion. This is about 28% of their gross national product. Interestingly US GDP stands at about $20 trillion, and our national debt is estimated to end fiscal 2019 at $21.48 trillion, or 115% of our GDP. This used to be a problem for us. I’m not sure why it has gone so, so far to the back burner,
On the commercial side of the equation, Turkish corporate debt stands at about $246 Billion. Combined corporate and sovereign debt is just about $500 billion. If this all went into default (and there is really no way that this happens) it would still be a very manageable loss for the financial system … nowhere near the magnitude of the 2008 meltdown.
But what about CONTAGION?
Contagion is a favorite word the media uses when brewing up a crisis in your mind. Yes, there could be other countries that could be swept up in the current frenzy over Turkey’s finances. This, too, would not be the end of the world. Since this run in stocks began over 9 years ago (the S&P 500 has almost quadrupled) there have been multiple potential contagion stories — Greece (2 or 3 times), the PIIGS (Portugal, Ireland, Italy, Greece and Spain) and Cyprus. CNBC even takes this into account in the headline for an August 13, post– ‘What happens in Turkey won’t stay in Turkey’: Why this debt crisis could be different. They just won’t let this story go. Here is another post from this AM — “Charts of past currency crises show Turkey may have a lot more pain to face.”
Lest I seem to be bashing CNBC exclusively, here’s a shout out to the New York Times and an article they published in a prominent spot 8/11. This is a real beauty! “Turkey’s Financial Crises Surprises Many, Except This Analyst” by Landon Thomas, Jr. Tim Lee is the analyst and he’s been predicting the eminent demise of Turkey since 2011. Thanks Tim and Landon for your timely call. You’ve both been great value-adds.
Could this Turkish episode break the egg that our “Humpty Dumpty” resides in? Sure. We are due for some kind of corrective action. However, unlike Humpty Dumpty, 200+ years of market history would indicate that the doomsayers will be proven wrong again and that we will be able to put this egg back together again.
Enough already about Turkey!
What’s your take?
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compared to situation that faced Greece in its economic crisis Turkey does not seem as bad . Greece was forced into austerity and survived . Turkey leadership does not have the same shared currency issue as Greece so devaluating is good for them in the long run