The State of the Markets:
A new worry about contagion, rising inflation, political risks, geopolitical issues, concerns about peak growth (especially in semiconductor-land) and, of course, the trade war all combined to create a weak ending to what had been, up to that point, a pretty good week. But given the overbought state of the market, the low volatility levels, and the propensity for the major indices to stair-step higher between intermittent bouts of selling lately, we shouldn't have been too surprised that the bears wound up having at least one day in the sun on Friday.
Although there is a laundry list of reasons for our furry friends to come out of hibernation every once in a while, the situation in Turkey appears to be center stage at the moment. Here's the deal in a nutshell. The Turkish lira is diving (the currency fell 14% alone on Friday and hit a record low against the U.S. dollar) for a variety of reasons, including spiking inflation, a political spat with the U.S. (which includes tough talk and a ramp up in sanctions) and the fact that Turkey's central bank has done nothing to support the country's currency.
Why do we care, you ask? After all, the currency situation in Turkey isn't new and Apple (AAPL), Microsoft (MSFT), Facebook (FB) and Google (GOOGL) probably don't derive much of their revenues from selling stuff to Turkey.
We care (well, to the tune of a couple hundred Dow points, anyway) because, in short, the weakness in Turkey's currency is fueling rampant inflation and making it more expensive for the country to repay its debts. Debts which, it shouldn't surprise you to learn, are (a) owed to foreign institutions, (b) denominated in foreign currencies ...