‘The Economist’ wrote a controversial article with the aforementioned title on July 19th, 2008. At the time, prospects for Turkey’s ruling AKP party were under fire, and Prime Minister Erdogan had plenty of back pedaling to do. Anti-secularism would have spelled the death of his bid for European Union acceptance.

This week the Constitutional Court rejected the proposed ban of Erdogan and his political party. Instead, they fined him for “anti-secular” behavior, and the stocks in Istanbul celebrated big time.

On Friday, the Turkish stock market flashed a very positive divergence versus weakness across equities, globally. Turkey’s ISE National 100 Index closed up +1.9% on the day, taking its ramp up 10,000 feet from the thralls of potential political disaster on July 1st where the market was trading at 33,208,-29% lower!

I’ve attached the roller coaster 3 year chart of Turkey as it tells many stories within the “it’s global this time” stock market narrative. On October 15, 2007, at the peak of global equity euphoria the ISE Index closed at a nosebleed height of 58,231.The levered long community saw no tail risk to Ataturk’s long standing secular Republic coming under geo-political fire – why would they? Did they even know what it meant?

Obviously, there were winners and losers coming out of those October 2007 highs. Turkish stocks ended up losing -43% of their value from that peak to the July 2008 trough. Ouch.

I model all country level stock index performance daily (globally) as it often issues me clues as to where tail risk lies. I am in the camp that the global economy is an increasingly interconnected and complex system of factors that need to be respected before they are fully understood.

Understanding Turkey’s domestic arm wrestle between their dominant Islamic faith and secular aspirations to be accepted into the European Union is a fascinating one as it pertains to global geo-political tail risk. It may not be a widely known statistic on Wall Street that there are approximately 1 billion Muslims in a world of 6 billion people. But that certainly doesn’t mean that the reality of these numbers cease to exist.

It is global this time, indeed. America’s grip on “leading” the world is loosening, and we need to pay attention to all of the critical factors underlying where the world is headed next. Turkish politics have the Europeans on their toes – the “Caliph” of Istanbul’s return would wake American’s up in a hurry too.

  • The ISE National 110 Index
(Chart courtesy of


Boyd Gaming announced this morning that it has postponed construction of Echelon, suspended its dividend, and approved a $100m buyback plan. This is the first time in awhile we’ve seen a smart redeployment of capital by a gaming company. MGM with CityCenter is in a seemingly similar situation except for a few important and complicating differences.

1. CityCenter is further along in terms of construction

2. Dubai World is a 50% partner and probably doesn’t want its billions in capital sitting in a dormant project

3. CityCenter has contracts for what it expects to be $2.7bn in residential sales within CityCenter. Millions of dollars of deposits have been received and would have to be refunded. Echelon does not contain a residential component.

This is a smart move by BYD and helps the supply situation a bit. However, let’s not get too excited about MGM following a similar path.

LIZ: Pluses and Minuses To End the Week

On the plus side, Liz Claiborne is covertly leaking details of its redesigned logo/image under the direction of Isaac Mizrahi. This is coming just in time. The latest internet promotional campaign is for 80% of its summer assortment (leftovers). And I thought the 50% at this time last year was a lot.
  • Does this change my mind on the 1-2 year call? No. In fact, with the sales in department stores having stabilized relative to this time last year (See my 7/30 post), my sense is that LIZ is using on-line clearance channels to a greater extent than funding markdowns on the product to retailers.
  • Nonetheless, anything that is 80% off in retail is nothing short of pathetic. Mizrahi has his job cut out for him. The good news is that the brand has sunken so low that if he hits a fashion trend – even if by accident – then it’s a big potential margin event.
New Liz Logo by Isaac Mizrahi

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

The Chapter 11 Map

Goody’s Boscov’s, Mervyn’s, Steve & Barry’s and Shoe Pavilion. Not exactly shopping meccas for a Wall Streeter. If you want to know the footprint of each chain, check out the enclosed map.


On their Q3 conference call, BYD just issued Q3 EPS and EBITDA guidance of $0.18-23 and $110-123 million. EPS guidance includes the elimination of $0.07 in capitalized interest from postponing Echelon. While below formal expectations, the guidance is not that bad given the environment. I'm still focused on the capital redeployment announcent which was a welcome move and long overdue.

How Long Can MCD Buck the Trend?

Starbucks stated earlier this week that it is experiencing a slow down in the U.K. market, which resulted in a slight traffic decline. CEO Howard Schultz said there are signs in the U.K. that remind him of what happened in the U.S. in the beginning of 2008 and “those signs kind of bode downward in terms of consumer spending.”

Today, Bloomberg reported that according to the Experian Group Ltd., British consumers made fewer visits to retail outlets in July, the third consecutive fall, as fears of an economic decline and rising energy and household bills deterred shoppers. Retail visits fell 2.6% from a year earlier and Experian forecasts sales volumes in the next 12 months will be ``the slowest period since the early 1990s.”
  • McDonald’s management said on its recent 2Q08 earnings call that “even in spite of declining consumer confidence in the U.K., our sales, our guest counts, and our margins continued to grow in the second quarter and were a strong overall contributor to our overall results.”
  • It is important to remember that MCD stated on its 4Q07 conference call back in January that “historically though McDonald's has not been as affected by a slowdown in consumer spending as other retailers because of our everyday affordability.” Although MCD’s U.S. comparable sales have held up relative to other restaurant companies after flattening in December and then turning slightly negative in March, its margins have suffered significantly (down every quarter since 1Q07). MCD’s U.S. margins have been hurt as more of its customers use the Dollar Menu. In 2Q, U.S same-store sales were up 3.4% with guest counts accounting for 75% of the growth. Pricing was up 4%, which implies negative mix or some trading down. MCD’s U.S business has been impacted by the economy and signs of a weakened economy in the U.K. will inevitably emerge in MCD’s Europe results as the U.K., France and Germany account for two-thirds of MCD’s operating income in Europe.

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