Lessons from Turkey


If you ever need a refresher in how interconnected the global economy is, then take a trip outside the U.S. and if possible, travel to one of the “hot” emerging economies. I was fortunate enough to spend two weeks traveling throughout Turkey (thankfully far from the terrible bombings in Ankara, but more on that later). I arrived in Istanbul just days after the disappointing September jobs report was released and was trying to forget about it, but one of our guides asked me, “What’s going on with the U.S. economy? We thought the Fed was going to raise interest rates and now it’s not?” I can’t be out of the country for three days, without talking about Janet Yellen and the power of the central bank! The Turkish economy, like many other emerging markets, has seen its currency plummet by 25 percent against the US dollar this year (good news for me as a traveler, bad news for me as an emerging market investor), as the Fed hinted that it would increase interest rates. Foreign citizens have been preparing for the Fed shoe to drop, hoping that this time around would not be as painful as past periods like 1981-82, 1994, and 1997-98, when emerging-market companies exploited low U.S. interest rates to borrow heavily in dollars and then when rates increased, had a tough time repaying those debts. Additionally, all of the money that previously had flowed into these countries reversed course and headed back to the U.S. as dollar denominated assets increased in value.

Meanwhile, the dollar’s ascent was rudely interrupted after the Fed decided to hold off. As I explained to the Turkish guide, the slowdown in global growth -- especially in China -- combined with tame prices, is likely to keep the central bank on the sidelines at least until December and maybe into next year. (In a country where inflation was just reported at a 7.9 percent annualized rate, the concept of deflation was a distant one.)

Traveling around Turkey also allowed me to see first-hand the dramatic economic growth, which has been taking place in various emerging markets. Sure, there could be a slowdown in China, Brazil, Russia and even in Turkey, but these are places where a breather would probably be a good for the long term prospects of the local economies.

And while being in a country during a violent event like the bombings in Ankara is not pleasant, it was also a good reminder that despite economic progress, dysfunctional and/or unstable political systems can impede economic success. As one man told me, “This is a terrible national tragedy, but it also makes it harder for the world to think of Turkey as an attractive place to do business and to travel.” And investors would be wise to recognize that geopolitical risk is one that is easy to absorb when things are peaceful, but can easily arise at any time.

One of the great benefits of international travel is the ability to immerse oneself in a culture, its people and for me, to continually learn about the local economy. Still, I am always grateful to return to the U.S., where I appreciate all that we have. Yes, the economy is slowing down a bit and the recovery has not been kind to all; and indeed, corporate earnings could be under pressure this quarter and the stock market has been wobbly; and of course, our political season will make you nuts. But compared with the rest of the world, the U.S. maintains an innovative spirit and general optimism, which should allow it to continue to thrive.

MARKETS: Finally, a two-week vacation and the stock market went UP! Week one was better than week two, but in the absence of any big economic reports this week, corporate earnings will likely dominate market action.

  • DJIA: 17,216 up 0.8% on week, down 3.4% YTD
  • S&P 500: 2,033 up 0.9% on week, down 1.2% YTD
  • NASDAQ: 4,886 up 1.2% on week, up 3.2% YTD
  • Russell 2000: 1162, down 0.3% on week, down 3.5% YTD
  • 10-Year Treasury yield: 2.03%
  • December Crude: $47.72, down 4.8% on week
  • December Gold: $1,183.10, up 2.4% on week
  • AAA Nat'l avg. for gallon of reg. gas: $2.27 (from $2.32 wk ago, $3.14 a year ago)


Mon 10/19:

Morgan Stanley, IBM

10:00 Housing Market Index

Tues 10/20:

8:30 Housing Starts

Weds 10/21:

American Express, General Motors, Coca-Cola, Boeing

Thurs 10/22:

AT&T, McDonald’s, Amazon, Microsoft, Caterpillar, 3M

10:00 Existing Home Sales

Fri 10/23:

Procter and Gamble