I'm talking about the Turkish currency crisis and its impact on our own markets.
First, I want to set some ground rules. Remember, I divide the world between the systemic risk, meaning something that could really undermine our nation's economy to produce something as drastic as the Great Recession. And then there's financial risk where you are going to get some impact on our markets from an exogenous event like the potential collapse of the Turkish lire. That's what causing the weakness both today and Friday and it can be totally justified.
Now I am not someone who is out to scare you about Turkey. Far from it. In fact, I am one of the few people left in the firmament who actually traded Turkey during a different crisis, the 1993 fiasco where Turkey devalued its currency 40% in one month and had to bring in the International Monetary Fund to stay afloat. I actually describe owning the Turkish Whirlpool and the Turkish Bank of America in Confessions of A Street Addict and how devastating the emerging markets were. I was beating the drum to anyone who would listen that this was a crisis of immense proportions.
But it wasn't. It was just a crisis, after a bit, to anyone who owned Turkish securities.
That's exactly what will happen here, in my opinion.
However, before Turkey runs its course we have to have the usual sturm and drang where people want to go on record telling us that, look out, even though the top ten Turkish stocks added together do not reach the size of Johnson & Johnson (JNJ) , contagion knows no real bounds.
You can't ignore it because we had a Thai contagion that led to an Asian financial crisis in 1997 and a ruble contagion that actually helped take down a giant hedge fund, Long-Term Capital Management, which in turn created large losses for banks that lent to that firm.
Could Turkey be one of those? Or will it prove to be one more buying opportunity like any of the four major Greek tragedies, or three Italian jobs or two Spanish sicknesses or one Cyprus calamity, all of which proved to be phenomenal buying opportunities.
You know where I come down. It's going to be the latter. But you have to let it happen first, in the same way you have to let each trade or tariff tweet work their way through equities to create losses to those who bought high and sold low.
Now, why is there contagion to begin with? Because there are always some banks with little risk controls that are willing to lend to Turkey, chiefly in dollars, so when the dollar goes higher as a flight to safety, Turkey and its entities can't pay them back. That, in turn, causes worries about bank runs which then causes weakness in our financials which then creates, in a Rube Goldberg sort of way weakness all over the place.
That's what happened Friday and there could be no firewall so to speak because the VIX was so low, meaning there was so little fear that Turkey caught people unawares.
Today, stupidly, the market opened up, which then brought out the sellers who didn't get a chance to get out on Friday and they took advantage of the lift to hit the bids so to speak, and run for the hills.
I look at this exercise entirely differently. I always say that you should wait until you get an exogenous reason that stocks come down and you should pounce. The problem, of course, is that when it happens there are always so many people who try to scare you with historical analogies -- the more frightening ones -- that you are too freaked out to take advantage of them.
And what should you buy? I always say never outthink these things. Do not buy anything that can possibly be related to Turkey, at least at first. That means you have to stay away from our banks, not just because bears will say they are interrelated with Turkey but because contagion breeds a stronger dollar which the means lower interest rates which then mean numbers coming down for the banks. Tech can be a tad uncertain, too, because of the other T's, tariffs and trade. It isn't like Turkey obliterates those concerns. In some ways it intensifies them. Hence the weakness in the industrials that rivals the financials.
So what works? I gave you my list earlier but I neglected to mention the two most obvious names: Alphabet (GOOGL) and Amazon (AMZN) . To me Alphabet is taking share from Facebook (FB) when it comes to advertising and it will soon be monetizing Waymo, it's autonomous driving business. Amazon is all about retail, web services and advertising, a trifecta I will have more on later in the show.
Otherwise stick with the earlier list. It's holding up quite well, and it's just where you want to be.