POITOU, FRANCE – We led off yesterday with the Turkey story…

…and Friday’s tweet from Donald J. Trump:

I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!

Even for Trump, the tweet is shocking.

Rarely have we seen confusion, misunderstanding, and claptrap so densely packed.

Pins and Bubbles

As far as we know, no president – on his own say-so – has ever targeted imports based on the currency markets.

First, because he lacks the authority to do so – he can only impose tariffs to protect national security.

Second, because it makes no sense. The whole idea behind the trade war was that U.S. exporters were being treated unfairly. No one accuses Turkey of intentionally sabotaging its own currency to gain a trade advantage.

An alternative hypothesis is that the Trump team is merely responding to Turkey’s refusal to release U.S. pastor Andrew Brunson. But that explanation is even more outlandish.

Why would the U.S. president have an opinion on the conduct of the Turkish justice system? And why – even if he thought the Turks were treating Brunson roughly – would the remedy involve forcing American consumers and producers to pay more for Turkish metal products?

But pins and bubbles have to get together somehow, somewhere, sometime.

As near as we can make out, the two are aiming for each other – in Anatolia. The U.S. president is merely helping them to get together.

Out of Nowhere

Let us begin with an update from The New York Times:

[Turkey’s] economy has been weakening. At the same time, Turkey’s authoritarian president, Recep Tayyip Erdoğan, has been seizing greater control over the country’s economic policy. He appointed his son-in-law as finance minister. He has made a series of pronouncements that undercut the independence of the country’s central bank, railing against the prospect of high interest rates.

Lower interest rates tend to stoke growth – as well as inflation. And Turkey is already dealing with inflation running near an annual rate of 16 percent.

Foreign investors are scared. They have been pulling money out of the country. In practice, that means that they sell lira and buy dollars or other currencies. The result is that the value of the lira has plunged. And that has the potential to upend the Turkish economy and financial system.

Who would have thought that Turkey, a country that most patriots regard as a sh*thole, would bring down the entire bubble system?

It wouldn’t have occurred to us, either. But the bubble is big. The pin is little. Often, it comes “out of nowhere.” Then, when you finally notice, you realize that it was there all along.

And it is not an isolated, fluky kind of pin.

Instead, there’s a whole cluster of them, all protruding out of the same cushion. And that cushion is marked: Cheap Money.

Bubble System

Total world debt is around $250 trillion. But world GDP is only about $90 trillion. Typically, an economy can only carry debt equal to about 150% of GDP.

By that measure, the world has about $115 trillion too much debt – spread all over the planet. Inevitably, one of the debtors is bound to blow up.

But let us give more of the backstory… to put this contretemps into a deeper context:

On July 16, 2016, while Turkish president Recep Erdoğan was on vacation in Marmara, a group of military officers decided to launch a coup d’état.

But organizing and carrying out a military operation – even with “buy-ins” from everyone… and in broad daylight – isn’t easy.

At night, clandestinely, when you don’t know who you can trust and who you can’t, it becomes very difficult to pull off.

Nor had the people been properly prepared. A coup must be done swiftly.

The plotters must quickly seize control of the police, army, and media.

Then, by 6 a.m., they must be ready to announce that they are in full control of the government and are restoring the honor and dignity of the homeland… blah… blah…

Bungled Operation

And so it was that the operation was bungled. Helicopters carried assassins to kill the Turkish president at his vacation spot.

But by then, he had already been tipped off and was on his way back to the capital. And on the streets, the masses – broadly supported by loyalists in the military – were already gaining the upper hand.

Even before the sun rose over the Hagia Sophia in Constantinople, plotters were on a helicopter headed to exile in Greece. And instead of hearing the announcement of a fait accompli from the rebels, the Turks heard the voice of Erdoğan himself, promising to get even.

And the person he was most eager to get even with was Fethullah Gülen of Saylorsburg, Pennsylvania. Gülen is a Turkish preacher and founder of a political movement in Turkey. It’s estimated that there might be six million Turks who follow “Gülenism.”

Erdoğan accused Gülen of organizing the coup attempt. The Turkish government asked the U.S. to extradite him back to Istanbul to stand trial. He remains in Pennsylvania.

Meanwhile, the aforementioned Andrew Brunson has been held in Turkey for nearly two years on similar sedition charges. The U.S. has tried to get him released.

Both countries drag their feet – which is part of the reason “our relations with Turkey are not good at this time.”

And in both countries, the chief executives grow bolder, more powerful, more demanding, and more capable of really making a mess of things.


We put our ear to the track… wondering when this train will derail. For Turkey is not the only country that has a debt problem.

On Monday, in an effort to break the fall of its peso, Argentina increased its key lending rate to 45%, the highest in the world. Then, this morning, it says it will spend $500 million to support the peso.

Both countries were victims of the world’s cheap-money regime. They could borrow more than they should have. And now, with key central banks tightening up, yields rising in the U.S., and their own currencies falling, they are having a very hard time paying it back.

In Turkey’s case, investors are worried… fleeing the lira for fear of being trapped in a burning hotel.

They know that President Erdoğan could block the exits. As a conservative Muslim, he is against interest rates of any sort. And as a strongman leader, like our own “low interest” guy in the White House, he aims to keep the cash flowing.

And so, the bigger picture comes into view. It has nothing to do with unfair trade by Turkey… and everything to do with an unfair money system, created and directed by the United States of America.

Turkey owes nearly half a trillion dollars in foreign debt. As the lira goes down, the dollar goes up, making it harder to pay.

Most likely, Erdoğan will impose capital controls, which will be deeply upsetting to the entire global financial system.

Lenders will panic, realizing that their collateral – locked behind walls erected by a strongman leader – may be worthless. And the trust on which the whole bubble financial system depends will vanish.

The moneymen will look to the East… to India… and rush to fetch back their funds.

They will look West, too… to Greece and Italy… and wonder about their investments there.

And finally, they will look to New York… and see another bulge in the great bubble: U.S. stocks, particularly the high-flying techs. “Weren’t they bid up by the same cheap money?” they will ask themselves.

And then… the whole shebang may come crashing down.





By Joe Withrow, Head of Research, Bonner & Partners

U.S. stocks have diverged from the rest of the world’s equity markets…

That’s the story of today’s chart, which maps the SPDR S&P 500 ETF (SPY) and the FTSE All-World ex-US ETF (VEU) from August 2017 through today.

SPY is a widely held ETF designed to track the results of the S&P 500. VEU is an ETF that tracks 2,714 stocks in 46 countries – all outside the United States.


As you can see, U.S. stocks and global stocks moved together from August 2017 through May of this year. At that point, U.S. stocks moved higher while global stocks traded lower.

As a result, SPY has gained 14% over the past 12 months… while VEU has fallen nearly 2%.

But as Bill wrote in today’s Diary, trouble in the financial system often starts at the fringes – in Turkey, for example. From there, it can work its way inward, towards America and U.S. stocks.

– Joe Withrow

P.S. We need to correct an error made in yesterday’s Market Insight. In it, we said that the MSCI Emerging Markets Index plunged 17% from its January peak, while the S&P 500 gained 14% during that time. That should read: The S&P 500 has only fallen 1.4% during that time.


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And read also…

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In the mailbag, it’s dear readers’ favorite topic: Donald John Trump

No one is a particular fan of President Trump… even, I am sure, his family. However, at election time, the choice was obvious. Our society would probably not have withstood four or eight years of Hillary. She and [her husband] Bill would have sold off our country, state by state. So we have what we have, and it is what it is. Trump, for the most part, knows what needs to be done. It is just that his methods, at times, are not the best.

Trade is a good example. I would not have opened the game by slapping on tariffs. I would have sat down with each of our trading partners and very sincerely and calmly explained to them the tremendous advantages they would gain by making our deal with them more even and more fair.

China is totally different from the EU or Canada. If China wants to cut its import of protein by half, it will do it in the bat of an eye. If a million or two of its people starve in the process, it would just consider that “collateral damage.” The picture painted to all trade partners must first demonstrate to them the benefits they would receive.

– Bob S.

As a lifelong “conservative” on the libertarian side of the spectrum, I would like to ask all you Trump-lovin’ letter writers: What is conservative about him? With the exception of some very good Supreme Court appointments, he is anything but conservative. Trillion-dollar deficits… trade barriers and lack of “free” trade… embracing the continuing “policeman to the world” role…

Good grief, where have all the real conservatives gone? Certainly not those who have counted Bill in Satan’s camp. Wake up! While Trump has both good and bad policies, he certainly isn’t the next best thing to the Second Coming.

– David D.

You are obviously on the negative side in the Trump saga, but you haven’t written much about the power of perception. To most of those who support the president, perception is reality. Everyone supporting President Trump certainly wants things to get better. And if the perception is better than reality, so be it.

– Norm I.

I voted for him; I support him, and I don’t apologize for or regret that decision. In fact, it was really an easy decision to make, considering who he was running against. I know you don’t like him, and sometimes I get aggravated by all of the slamming you direct towards him. I don’t, however, let it ruin my day, because I realize that it’s just part of your shtick. You’re a professional pot-stirrer. But that’s alright; that’s what makes you so entertaining to read.

– Bud R.

I have been reading your newsletters for years. I agree with you – America is in really bad shape due to wars, deficit spending, and 400% money supply increases by the feds, etc.

However, unless you make a comparative analysis of Presidents Clinton to Obama with Trump’s 18-month presidency, it is hard to take your current analysis of Trump’s economy as gospel. Please make the effort to cover all parameters that you have used in these articles for each president. Only then will I and other people get the detailed pictures. Until such time as you do this, Trump supporters will club you with CNN and CNBC as another “fake news” source. So take this challenge to really prove your point.

– Jay K.

Hi Bill. Say, is that target on your back so full of holes that we just can’t see it anymore? Many times when we stand alone on the street corner, watching the mob on the other side, we get shot at. Hang in there, you’re doing a great job!

The news states that Russia, China, and some EU countries are all dumping our bonds because of the tariff war. Who is buying them? I don’t see anyone admitting that they are loading up on our worthless government debt. The Fed is talking about quantitative easing, but are they actually continuing to buy to stabilize the market? Remember the old saying, “Follow the money.”

– Steve B.


Is this Trump’s promised infrastructure plan?

The president ran on a promise to deliver a massive infrastructure build. Now, leaked White House documents suggest the administration just made a very unconventional move.

It was hardly reported on, but this one step could jumpstart a multitrillion-dollar infrastructure buildout… and secure America’s economic dominance for decades. Full story here.