One of the most famous lines in the history of finance was allegedly said by Baron Rothschild during a wildly successful speculation during the Napoleonic Wars: “The time to buy is when there’s blood in the streets.”
Looking at Turkey, I believe we’re getting very close to that “blood in the streets” moment. In case you haven’t been following the news, Turkish Prime Minister Recep Erdogan, who has begun to look more and more like a thug in the past year for the methods he’s used to deal with civil dissent, was forced to fire half of his cabinet due to a corruption scandal that has melded into something of a constitutional crisis. In order to obstruct the investigation, he reorganized the police force and has introduced a bill that would give his government control over the courts — a coup in all but name.
There has been sporadic violence in Turkey over the past month, and foreign investors — which Turkey depends on to fund its large current account deficit — are getting antsy. And not surprisingly, Turkish stocks have taken a nosedive.
We’re not quite to the “blood in the streets” point in Turkey, but we’re awfully close. Turkish stocks trade for just 8 times earnings, according to the Financial Times. But buying at this stage is tantamount to trying to catch a falling knife.
Before this crisis ends, one of two things will likely happen: Erdogans’s government will fall, which would resolve the crisis, or Erdogan assume quasi-dictatorial power, in which case the crisis will deepen.
So for now, I’m putting the iShares MSCI Turkey ETF (TUR) on the watch list, but I’m not recommending you buy. Wait for TUR to washout and start a new uptrend. There is no perfect indicator to track this, but the 50-day moving average should be fine for our purposes. If TUR crosses above its 50-day moving average, take an initial position and continue to add to the position as TUR rises. I believe TUR could double from current levels while being relatively inexpensive, but we don’t want to jump into this trade too early.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Check out his new premium service, Macro Trend Investor, which includes a free copy of his e-book, The New Megatrend Investor: The Ultimate Buy-and-Hold Strategy That Will Make You Rich.