Another day, another currency hits a record low against the US Dollar. The Turkish Lira has collapsed in recent weeks since Erdogan rampaged against the 'independence' of the Central Bank and extended losses today after the economy minister said the government should discuss changing central bank regulations. Nihat Zeybekci said the Central Bank of Turkey’s independence should be conditional on the body taking “national interest” into account. Turkey continues to dump gold at record rates (money laundering to Iran via Switzerland?) and social unrest is on the rise (despite new laws to clamp down on protests) as the US consulate faces bomb threats. The Lira keeps tumbling... As Bernd Berg, the director of emerging-markets strategy at Societe Generale SA in London, said: "The lira is now poised to tumble much further amid the political turbulences and questions about the independence of the central bank." "The escalation of political risks is a major concern." Simon Quijano-Evans, a strategist at Commerzbank AG in London, said: “An unnecessary blurred central bank picture will do nothing but aggravate the situation and lead to FX uncertainty." And add to that the poltical and social unrest occurring in the country, including bomb threats at the US consulate: Turkish police arrested a suspect outside the US consulate in Istanbul on Friday, after he claimed to have a bomb and threatened to carry out an attack. The person had parked his vehicle in front of the consulate in the mid-morning and police had cordoned off the entire area during the incident. "A suspect was apprehended by local authorities and the vehicle was removed without incident," the consulate said on its Twitter feed. The person may be suffering from mental illness, the Dogan news agency reported. In 2013, the US embassy in Ankara was attacked by a suicide bomber who killed a Turkish security guard. * * * And Turkey continues to dump gold (as we have detailed in the past): Turkey’s rocketing gold exports helped narrow the trade deficit to its lowest level since 2010. ... The surge in gold sales limited the annual drop in exports to 0.6 percent while imports fell by 13.7 percent to $16.6 billion. Switzerland was the top destination for exports of the precious metal, accounting for sales worth $982 million. Turkey has in the past seen occasional spikes in the metal’s exports and the January jump in shipments will prove to be a temporary phenomenon, according to Deniz Cicek, an economist at Finansbank in Istanbul. “Gold lies behind the pleasant surprise in January,” Oyak Bank chief economist Mehmet Besimoglu said by phone. “Exports would have fallen significantly if it wasn’t for gold.” * * * As SocGen previously warned, The honeymoon is over Turkey was supposed to be the big trade of the year. After all, it did look particularly good at some point, with the sharp decline in inflation and the collapse in oil prices. Somehow, Turkey had become the new darling of global emerging markets (GEM). Fast forward a month or two and this is now all over. So what happened? Essentially, a big policy error on the part of the central bank in the context of serious political pressures. The emergency meeting saga caused tremendous damage to the credibility of the policy framework and to investor confidence. I am in the US visiting investors right now, and nobody is bullish on Turkey any more. Last time I was there, everybody was. If I had been in the governor’s shoes, I would have stayed quiet and continued easing normally at each scheduled meetings. Nothing wrong with that, and in fact, Mr. Market was going to love it. I would also have looked up the definition of “emergency” in the dictionary. The TRY selling off by 2% each day, causing serious stress in the local financial market? An emergency. Inflation declining a bit faster than usual, helped by fortunate external factors? Not an emergency. Overall, this was a highly disappointing experience and now the CBRT has moved to my list of “fading” central banks from that of the “following” ones. What I mean by that is I want to position for policy backtracking in Turkey at this point, given the heightened risk of policy volatility. Our 1s5s curve steepener has been struggling quite a bit, as it was a bullish trade on market-friendly policy easing. We just elected to close it at flat PnL. Meanwhile, I believe that positioning is still heavy on the Turkish bullish side, even if sentiment has sharply deteriorated, which represents a major technical risk. * * * * * * And the once golden boy trade of the year has now become a never-ending nightmare.