Is Turkey “City Zero” in Global Contagion
Last year Turkey’s lira crisis quickly morphed into a Euro-zone crisis as Italian bond yields blew higher and the euro quickly reversed off a major Q1 high near $1.25.
It nearly sparked a global emerging market meltdown and subsequent melt-up in the dollar.
This week President Erdogan of Turkey banned international short-selling of the Turkish lira in response to the Federal Reserve’s complete reversal of monetary policy from its last rate hike in December.
The markets responded to the Fed with a swift and deepening of the U.S. yield curve inversion. Dollar illiquidity is unfolding right in front of our eyes.
Turkish credit spreads, CDS rates and Turkey’s foreign exchange reserves all put under massive pressure. Unprecedented moves in were seen as the need for dollars has seized up the short end of the U.S. paper market.
Martin Armstrong talked about this yesterday:
The government [Turkey] simply trapped investors and refuses to allow transactions out of the Turkish lira. Turkey’s stand-off with investors has unnerved traders globally, pushing the world ever closer to a major FINANCIAL PANIC come this May 2019.
There is a major liquidity crisis brewing that could pop in May 2019.
Martin’s timing models all point to May as a major turning point. And the most obvious thing occurring in May is the European Parliamentary elections which should see Euroskeptics take between 30% and 35% of seats, depending on whether Britain stands for EU elections or not.
That depends on Parliament and the EU agreeing to a longer extension of Brexit in the next two weeks.
Parliament has created “Schroedinger’s Brexit,” neither alive nor dead but definitely bottled up in a box no one dares open. And they want to keep it that way for as long as possible. Their hope is outlasting Leavers into accepting staying in the gods-forsaken fiscal and political black hole that is the European Union.
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