The latest brick in the wall of worry comes from Turkey, where the presidential elections were disrupted by a statement from the military on Friday evening and mass demonstrations on the streets of Istanbul over the weekend.
The situation presents an odd cocktail of gripes: while the average Turk on the street agrees with the military about the importance of maintaining a secular government, no one particularly wants to see the generals get involved with determining the outcome of democratic elections. Regardless, the market outcome has been predictable- gaps lower in the Turkish equity, bond, and currency markets, followed by almost immediate dip-buying from investors eager to purchase riskey assets "on sale."
The complacency implicit in the dip buying is particularly telling given the horrible seasonality of EM assets in May. And if Iceland could trigger an EM meltdown last year, why not Turkey, a much bigger market, this year?
That the Dow has risen in 19 out of 21 days for the first time since 1929 underscores both the favourability of the recent market environment and the potential danger posed by a deterioration of conditions. Not that Macro Man is forecasting a 1929, 1987, or even a February 27 outcome for equities; however, it continues to seem prudent to maitain a relatively defensive posture and have plenty of room to add risk on dips.
Macro Man has to shake his head, though. His sale of SPM7 calls has to date been undone by what is literally a once-in-a-lifetime straightline rally in equities.