World’s Largest Hedge Fund In Trouble? Bridgewater Pure Alpha Loses Over 10% In Two Weeks

In the days after the August 24 ETFlash crash, the world’s “risk parity” funds had a near-death experience when as a result of the furious disconnect between stocks, Treasurys and most other asset classes, the underlying correlation models failed, leading to dramatic declines for such giant funds as Bridgewater’s $70 billion “All Weather” fund.

For now risk parity may be faring ok, but something else appears to have snapped at the world’s largest hedge fund, or rather its more older “Pure Alpha” fund, which employs a traditional hedge fund strategy that actively bets on the direction of various securities, including stocks, bonds, commodities and currencies, by predicting macroeconomic trends. The fund, which manages over $80 billion, has returned 12.8 percent since inception in 1991 and had a 4.7% return in 2015 offsetting the 7% drop in the All Weather fund.

The problem is that Ray Dalio’s stock picking, perhaps distracted by media coverage of the ongoing insider fight at the top, first reported by the WSJ on February 5, has not been doing too well as of late.

As the following monthly report shows, as of January 31, Pure Alpha fund was up a tidy 0.8%. Hardly bad in the current market environment.

 

It is what happened since then that is disturbing, because according to sources, the fund lost over 5% in the subsequent week ending February 5 when it was suddenly down 4.6% YTD, and was down slightly more than 5% in the next week, pushing its total YTD loss to -10.0% as of February 12. This means that in just 2 weeks, the fund which prides its lack of volatility and its Sharpe ratio, suffered a multiple-sigma volatility event, one which has seen it lose over 10%.

With the fund’s AUM around $81 billion, it means Pure Alpha has lost over $8 billion through the middle of February, and is on deck for one of its worst months in recent history.

While we don’t know if it is directly related, the sudden hit to Bridgewater performance may be linked to the unexpected blow up across the market neutral hedge fund space, which as we showed yesterday have suffered a dramatic hit to performance, one comparable to the market volatility in the aftermath of the Lehman failure and the August 2007 quant crash.

 

It may also explain the dramatic dislocation between the strongest and weakest momo stocks, which incidentally first materialized just as Pure Alpha started suffering this substantial underperformance.

We look forward to the next weekly update shortly, at which point we hope to report if Pure Alpha managed to regain some of the dramatic losses suffered at the beginning of the month, or if the losses have inexplicably continued and are the cause for the ongoing market-neutral freak out. If it is the latter, we expect Bridgewater’s “Pain Button” app to have hit a record of “Angry”, “Frustrated” and “Sad” hits in the month of February.


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The Four Horsemen Of Economic Apocalypse Are Here

Submitted by Constantin Gurdgiev via True Economics blog,

Recent media and analysts coverage of the global economy, especially that of the advanced economies has focused on the rising degree of uncertainty surrounding growth prospects for 2016 and 2017. Much of the analysis is shlock, tending to repeat like a metronome the cliches of risk of ’monetary policy errors’ (aka: central banks, read the Fed, raising rates to fast and too high), or ‘emerging markets rot’ (aka: slowing growth in China), or ‘energy sector drag’ (aka: too little new investment into oil).

However, the real four horsemen of the economic apocalypse are simply too big of the themes for the media to grasp. And, unlike ‘would be’ uncertainties that are yet to materialise, these four horsemen have arrived and are loudly banging on the castle of advanced economies gates.

The four horsemen of growth apocalypse are:

  1. Supply side secular stagnation (technology-driven productivity growth and total factor productivity growth flattening out);
  2. Demand side secular stagnation (demographically driven slump in global demand for ‘stuff’) (note I covered both extensively, but here is a post summing the two: http://ift.tt/1Ra2823)
  3. Debt overhang (the legacy of boom, bust and post-bust adjustments, again covered extensively on this blog)
  4. Financial fragility (see http://ift.tt/1RFmqDo)

In this world, sub-zero interest rates don’t work, fiscal policies don’t work and neither supply, nor demand-side economics hold any serious answers. Evidence? Central bankers are now fully impotent to drive growth, despite having swallowed all monetary viagra they can handle. Meanwhile, Government are staring at debt piles so big and bond markets so touchy, any serious upward revision in yields can spell disaster for some of the largest economies in the world. More evidence? See this: http://ift.tt/1Ra25n3.

To give you a flavour: consider the ‘stronger’ economic fortress of the U.S. where the Congressional Budget Office latest forecast is that the budget deficit will rise from 2.5 percent of GDP in 2015 to 3.7 percent by 2020. None of this deficit expansion will result in any substantive stimulus to the economy or to the U.S. capital stocks. Why? Because most of the projected budget deficit increases will be consumed by increased costs of servicing the U.S. federal debt. Debt servicing costs are expected to rise from 1.3 percent of GDP in 2015 to 2.3 percent in 2020. Key drivers to the upside: increasing debt levels (debt overhang), interest rate hikes (monetary policy), and lower remittances from the Federal Reserve to the U.S. Treasury (lower re-circulation of ‘profits and fees’). Actual discretionary spending that is approved through the U.S. Congress votes, excluding spending on the entitlement programs (Medicaid, Medicare and Social Security) will go down, from 6.5 percent of GDP in 2015 to 5.7 percent of GDP by 2020.

Boom! Debt overhang is a bitch, even if Paul Krugman thinks it is just a cuddly puppy…

Recently, one hedgie described the charade as follows: ”I like to use the analogy that the economic patient is riddled with cancer — central banks are applying a defibrillator, but there's only so much electricity the patient can take before it becomes a burnt-out corpse.” Pretty apt.

My favourite researcher on the matter of financial stability, Claudio Borio of BIS agrees. In a recent speech (http://ift.tt/1o9kUgT) he summed up the “symptoms of the malaise: the “ugly three”” in his parlance:

  • Debt too high
  • Productivity growth too low
  • Policy room for manoeuvre too limited

 

Source: Borio (2016)

The fabled deleveraging that apparently has achieved so much is not dramatic even in the sector where it was on-going: non-financial economy, for advanced economies, and is actually a leveraging-up in the emerging markets:
 

Source: Borio (2016)

And these debt dynamics are doing nothing for corporate profitability:
 

Source: Borio (2016)

Worse, what the above chart does not show is what the effect on corporate profitability will interest rates reversions have (remember: there are two risks sitting here – risk 1 relating to central banks raising rates, risk 2 relating to banks – currently under severe pressure – raising retail margins).

Boris supplies a handy chart of how bad things are with productivity growth too:
 

Source: Borio (2016)

The above are part-legacy of the Global Financial Crisis. Boris specifies: Financial Crises tend to last much longer than business cycles, and “cause major and long-lasting damage to the real economy”. Loss in output sustained in Financial Crises are not transitory, but permanent and include “long-lasting damage to productivity growth”. Now, remember the idiot squad of politicians who kept droning on about ‘negative equity’ not mattering as long as people don’t move… well, as I kept saying: it does. Asset busts are hugely painful to repair. Boris: “Historically there is only a weak link between deflation and output growth” despite everyone running like headless chickens with ‘deflation’s upon us’ meme. But, there is a “much stronger link with asset price declines (equity and esp property)”, despite the aforementioned exhortations to the contrary amongst many politicos. And worse: there are “damaging interplay of debt with property price declines”. Which is to say that debt by itself is bad enough. Debt written against dodo property values is much worse. Hello, negative equity zombies.

But the whole idea about ‘restarting the economy’ using new credit boost is bonkers:

 

Source: Borio (2016)

Because, as that hedgie said above, the corpse can’t take much of monetary zapping anymore.

Hence time to wake up and smell the roses. Borio puts that straight into his last bullet point of his last slide:
 

Source: Borio (2016)

Alas, we have nothing to rely upon to replace that debt fuelled growth model either.

Knock… knock… “Who’s there?” “The four horsemen?” “The four horsemen of what?” “Of debt apocalypse, dumbos!”


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China Unleashes A Debt Tsunami: Creates $1 Trillion In Debt In First Two Months Of 2016

One of the more stunning economic updates this week was China’s unprecedented surge in Chinese loan creation, when as reported earlier this week, China unveiled a whopping CNY3.42 trillion in Total Social Financing, its broadest debt aggregate, an amount greater than half a trillion dollars, of which CNY2.51 trillion was in new bank loans.

 

The reason for the surge was largely the result of frontloading loans, as well as lending to government projects in the first year of 13th Five Year Plan, which helped to boost loan growth. Many economists had expected loans to slow sharply in February as lending to government projects wound down.

However, it turns out this was just the start of China’s latest policy, which is really just a return to its old policy of flooding the economy with debt: as Market News reports expectations that “January’s surprisingly strong new loan growth would prove temporary may have been premature as bank officials in a number of Chinese cities say February new loans look to be just as strong, even with a week-long holiday in the middle of the month.”

According to MNI, new loans so far in February were similar to the levels during the same days of January. The total so far in February is seen at around CNY2 trillion already.

MarketNews adds that this was achieved despite fewer working days in February because of the lunar New Year holiday, suggesting even more loans were churned out every working day.

It also means that if the TSF components rose at a comparable rate as in January, then the total increase in aggregate Chinese debt is on pace to surpass CNY6.5 trillion, or $1 trillion in new debt created in 2 months! This is roughly how much outside money the Fed added to the US economy during one full year of QE3.

The surge was surprising. As MNI reports, the strong January numbers had been expected to moderate for a number of reasons.

  • Firstly, Chinese banks typically try to get as much loan money out the door as possible early in the year to maximize interest income for the rest of the year.
  • Secondly, Chinese companies have been paying down foreign debt on expectations that the yuan would continue to weaken and that process has been expected to slow.
  • Thirdly, and perhaps the biggest surprise in the February loan growth thus far, loans for government infrastructure projects that helped boost the January data were expected to slow. That does not appear to be happening.

This means that just like Japan panicked on January 29 when it announced NIRP, so China too has taken on what may appear a step of desperation and is hoping to jumpstart the economy by flooding it with record mounts of debt. Mizuho said in a note to clients late Wednesday that a massive stimulus package is likely in the pipeline.

“We expect public infrastructure projects to receive another boost to stabilize the economic downtrend. This may include construction of intra-city railways, railways in the central and western provinces and making improvements in the agricultural sector. A new round of massive stimulus, in our view, will be announced around the National People’s Congress, which will likely convene in the second week of March,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd.

To be sure, the immediate impact from this credit surge will be favorable, if only in the near term as the following chart shows:

 

The downside to the surge in lending is that while it could support economic growth as the government undertakes much-needed structural reforms, it is also increasing the country’s already high debt burden. Credit is still growing much faster than even nominal GDP, which means China is getting far less economic bang for every yuan of lending.

Finally, recall that according to a Rabobank analyst, China’s debt/GDP is already at 350%. At this rate, it will surpass Japan’s 400% debt/GDP within the year, making China the most indebted nation in the world.

Most importantly, however, is that while the threat of NPLs coming to the fore has been a major concern for many China watchers, the indiscriminate surge in Chinese debt issuance means that the trillions in bad loans will be promptly masked by all the new loan issuance. It also means that China’s day of reckoning has likley been pushed back by at least 1 or 2 quarters.


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The End Of Economic Liberty: “A War On Cash Won’t End Well”

Originally posted Op-Ed via The Wall Street Journal,

These are strange monetary times, with negative interest rates and central bankers deemed to be masters of the universe. So maybe we shouldn’t be surprised that politicians and central bankers are now waging a war on cash. That’s right, policy makers in Europe and the U.S. want to make it harder for the hoi polloi to hold actual currency.

Mario Draghi fired the latest salvo on Monday when he said the European Central Bank would like to ban €500 notes. A day later Harvard economist and Democratic Party favorite Larry Summers declared that it’s time to kill the $100 bill, which would mean goodbye to Ben Franklin. Alexander Hamilton may soon—and shamefully—be replaced on the $10 bill, but at least the 10-spots would exist for a while longer. Ol’ Ben would be banished from the currency the way dead white males like him are banned from the history books.

Limits on cash transactions have been spreading in Europe since the 2008 financial panic, ostensibly to crack down on crime and tax avoidance. Italy has made it illegal to pay cash for anything worth more than €1,000 ($1,116), while France cut its limit to €1,000 from €3,000 last year. British merchants accepting more than €15,000 in cash per transaction must first register with the tax authorities. Fines for violators can run into the thousands of euros. Germany’s Deputy Finance Minister Michael Meister recently proposed a €5,000 cap on cash transactions. Deutsche Bank CEO John Cryan predicted last month that cash won’t survive another decade.

The enemies of cash claim that only crooks and cranks need large-denomination bills. They want large transactions to be made electronically so government can follow them. Yet these are some of the same European politicians who blew a gasket when they learned that U.S. counterterrorist officials were monitoring money through the Swift global system. Criminals will find a way, large bills or not.

The real reason the war on cash is gearing up now is political: Politicians and central bankers fear that holders of currency could undermine their brave new monetary world of negative interest rates. Japan and Europe are already deep into negative territory, and U.S. Federal Reserve Chair Janet Yellen said last week the U.S. should be prepared for the possibility. Translation: That’s where the Fed is going in the next recession.

Negative rates are a tax on deposits with banks, with the goal of prodding depositors to remove their cash and spend it to increase economic demand. But that goal will be undermined if citizens hoard cash. And hoarding cash is easier if you can take your deposits out in large-denomination bills you can stick in a safe. It’s harder to keep cash if you can only hold small bills.

So, presto, ban cash. This theme has been pushed by the likes of Bank of England chief economist Andrew Haldane and Harvard’s Kenneth Rogoff, who wrote in the Financial Times that eliminating paper currency would be “by far the simplest” way to “get around” the zero interest-rate bound “that has handcuffed central banks since the financial crisis.” If the benighted peasants won’t spend on their own, well, make it that much harder for them to save money even in their own mattresses.

All of which ignores the virtues of cash for law-abiding citizens. Cash allows legitimate transactions to be executed quickly, without either party paying fees to a bank or credit-card processor. Cash also lets millions of low-income people participate in the economy without maintaining a bank account, the costs of which are mounting as post-2008 regulations drop the ax on fee-free retail banking. While there’s always a risk of being mugged on the way to the store, digital transactions are subject to hacking and computer theft.

Cash is also the currency of gray markets—amounting to 20% or more of gross domestic product in some European countries—that governments would love to tax. But the reason gray markets exist is because high taxes and regulatory costs drive otherwise honest businesses off the books. Politicians may want to think twice about cracking down on the cash economy in a way that might destroy businesses and add millions to the jobless rolls. The Italian economy might shut down without cash.

By all means people should be able to go cashless if they like. But it’s hard to avoid the conclusion that the politicians want to bar cash as one more infringement on economic liberty. They may go after the big bills now, but does anyone think they’d stop there? Why wouldn’t they eventually ban all cash transactions much as they banned gold and silver as mediums of exchange?

Beware politicians trying to limit the ways you can conduct private economic business. It never turns out well.


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Philly Fed Contracts For 6th Month In A Row As “Hope” Crashes To Nov 2012 Lows

While jobless claims look rosy, Philly Fed's employment index plunged by the most since May 2013 as the headline survey extended its period of sub-50 contraction to six straight months – the longest streak outside of a recesssion in history. Across the board the underlying components were weak with current all tumbling led a collapse in average workweek, employment, and new orders. Worse still, the "hope" index plunged to its lowest since Nov 2012.

6 straight months of contraction flash red for recession…

 

The underlying components were a disaster…

 

As hope plunged…

The diffusion index for future general activity fell from a reading of 19.1 in January to 17.3 this month. The index has trended down since last summer and is now at its lowest reading since November 2012 (see Chart 1). The largest share of firms expects an increase in activity over the next six months (42 percent), but 25 percent expect declines. The future indexes for new orders and shipments also edged down slightly this month. Firms’ forecasts for future employment have been moderating the past few months. The future employment index fell from 5.5 to 2.3 this month, the third consecutive decline. The future workweek index also declined into negative territory for the first time in six months.

Charts: Bloomberg


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Bad News For Fed Doves – Initial Jobless Claims Plunge Near 43 Year Lows

After a dismal start to the year, pushing initial jobless claims to six-month highs, it appears 'everything is awesome' again as despite surging layoffs (Challenger, Grey and headline after headline in the press), initial claims tumbled to 262k this week – just above the 43 year lows of last fall. It's not all ponnies and unicorns of course as continuing claims rise once again to 2.273mm – just shy of the highest levels in 7 months.

Initial claims tumble sback towards 43 years lows…

 

But Continuinmg Claims surges to 7 month highs…

 

We are sure as long as The Dow keeps falling that The Fed wil lstay on hold but this "good" data is clearly not helping the dives case.

 

Charts: Bloomberg


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First Iran, Now Iraq Refuses To Commit To Oil Production Freeze

For all the euphoria about the proposed OPEC oil production freeze deal, the reality is that nothing has been actually decided. As readers will recall, the only “decisions” agreed to between the Saudi and Russian oil ministers were to cap production at already record high levels of output, however contingent on everyone else voluntarily joining said production cap.

Then yesterday, as part of its own meeting, Iran made it clear that while it supports efforts to push the price of oil higher, it would certainly not limit its output at current levels, and instead requires an explicit loophole granting it a production limit from the pre-sanctions period. This put OPEC in a bind: if it grants Iran special treatment, then who else will have a similar request.

The answer was revealed just hours later when Iraq earlier today stopped short of saying it would curb production of oil to prop up sagging prices, saying negotiations are still ongoing between members of the Organization of the Petroleum Exporting Countries.

According to the WSJ, Iraq oil minister Adel Abdul Mahdi said his country supports any decision that will serve producers, prop up prices and achieve balance in the crude markets. However, just like Iran he didn’t explicitly say whether Iraq would curb its own output but said any rapprochement between all sides to restrict crude output is a step in the right direction.

As the WSJ summarizes, his comments “came a day after Iran’s oil minister didn’t commit to limiting production, throwing into question the future of a plan brokered by Saudi Arabia and Russia this week for major oil producing countries to limit their output to last month’s levels.”

“The deterioration of the oil prices has directly impacted the global economy and the historical responsibly of the producers requires great speed in finding positive solutions that will help prices return to the normal [levels],” Mr. Abdul Mahdi said in a statement.

In other words, more of the same, or as we summarized it with a brief tweet one week ago:

Only it’s even worse, because while OPEC may have the luxury of cutting, even if its members do the unthinkable and decide to trust each other to comply (which they won’t), they still have to contend with the distressed US shale sector, which courtesy of several hundred billion in debt, has no such luxury, and must keep pumping just to repay the interest and maturities on its debt or face a wave of mass defaults, one which according to Deloitte could bankrupt as much as a third of the oil space.

And then, what’s worst for OPEC, is that even in bankruptcy (and after) US producers will still keep pumping especially with a debt-free balance sheet where the all-in production costs tumble; the same is true in the case of distressed M&A because any acquiror will i) have a far stronger balance sheet and ii) a motive to keep generating cash even if it means a modest loss; because shutting down production completely means foregoing on billions in revenue (regardless of margin) while mothballing costs are so prohibitive that most would rather just keep producing in hopes that “someone else” will cut production first.

The only problem is that no one else will be the first to cut.

For now, the market has ignored the nuances and is hoping that just the tentative indications of an OPEC deal are enough, pushing oil to the highest level in weeks. We don’t expect these prices to hold.


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Hungarian Central Bank Hoards 200,000 Bullets, Hundreds Of Guns Due To “Security Risks”

If we learned anything last September it’s that Janet Yellen’s reaction function now includes domestic and global financial markets.

Well that, and we learned that Hungarian PM Viktor Orban isn’t playing around when it comes to Europe’s worsening refugee crisis. While everyone else in Europe was busy trying to figure out how to accommodate the millions of asylum seekers fleeing the war-torn Mid-East, Orban simply built a razor wire border fence.

And then he built another one.

And then, when migrants tried to breach his barriers, he met them with water cannons and tear gas. This was the scene:

“Problem” solved. 

So clearly, Hungary isn’t playing around when it comes to security, but as it turns out, migrant-be-gone fences and tear gas aren’t sufficient in today’s dangerous security environment and so, the Hungarian central bank is stockpiling guns and ammo.

No, really.

“Hungary’s central bank, already facing criticism for a spending spree ranging from real estate to fine art, is now beefing up its security force, citing Europe’s migrant crisis and potential bomb threats among the reasons,” Bloomberg writes. “The National Bank of Hungary bought 200,000 rounds of live ammunition and 112 handguns for its security company, according to documents posted on a website for public procurements.”

Why, you might fairly ask, does the central bank need 200,000 bullets and hundreds of guns? Because of “international security risks,” central bank Governor Gyorgy Matolcsy says.

As Bloomberg goes on to note, “the security measures added to public scrutiny of the running of the bank, which under Matolcsy – an Orban ally – earmarked 200 billion forint ($718 million) to set up foundations to teach alternatives to what he called ‘outdated neoliberal’ economics.”

Well, the central bank could be championing worse things. They could be teaching Keynes and stockpiling fiat money. Instead, they’re doing away with neoliberalism and hoarding guns and ammo. 

We close with a quote from PM Orban who met with Vladimir Putin on Thursday: “Europe’s largest nations now believe that the flow of migrants is mostly positive. Our view is that it’s bad.”

And there’s nothing like 200,000 bullets to combat “bad” things.


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Turkey Blames Kurds, Assad For Terrorist Attack, Vows Swift Response

Moments after a massive explosion rocked Ankara on Wednesday, we said the following: “Expect this to be pinned on either ISIS or the PKK. If it’s the latter, Ankara will once again claim that the group is working in concert with the YPG and that will be all the evidence Erdogan needs to march across the border.”

In short, we wondered whether the bombing – which apparently targeted military barracks – would be just the excuse President Recep Tayyip Erdogan needed to launch an all-out ground invasion in Syria. Turkey has been shelling YPG positions for nearly a week in an effort to keep the group (which Ankara equates with the “terrorist” PKK) from cutting the Azaz corridor – the last lifeline between Turkey and the rebels fighting to oust Bashar al-Assad. It’s unlikely that cross-border fire will ultimately halt the YPG advance and so, Erdogan needs an excuse to send in the ground troops.

Sure enough, Ankara has blamed the YPG for the attack and is vowing to retaliate. “Turkish Prime Minister Ahmet Davutoglu blamed a Syrian Kurdish militia fighter working with Kurdish militants inside Turkey for a suicide car bombing that killed 28 people in the capital Ankara, and he vowed retaliation in both Syria and Iraq,” Reuters reports, on Thursday. “Davutoglu said the attack was clear evidence that the YPG, a Syrian Kurdish militia that has been supported by the United States in the fight against Islamic State in northern Syria, was a terrorist organization and that Turkey, a NATO member, expected cooperation from its allies in combating the group.”

Right. It’s “clear evidence” of something alright, but “clear evidence” of what we’re not sure.

“The assailants have all been identified. It was Syrian national Salih Necar who was born in the northern Syrian city Amuda in 1992,” Prime Minister Ahmet Davutoglu said on Thursday. “YPG is a pawn of the Syrian regime and the regime is directly responsible for the Ankara attack. Turkey reserves the right to take any measure against the Syrian regime,” he added.

Obviously, that’s utter nonsense. Assad is fighting for his life. Both figuratively and literally. The idea that he spends his days plotting Ankara car bombs with the Kurds (who do not, by the way, wholeheartedly support the regime) is patently absurd.

For their part, the YPG says this is nonsense and also says Turkey’s self defense claim (used as an excuse to justify the shelling at Azaz) is equally absurd. “We are completely refuting that,” Saleh Muslim, co-chair of the PYD, told Reuters. “I can assure you that not even one bullet is fired by YPG into Turkey [because YPG doesn’t] consider Turkey as an enemy.”

Needless to say, this “terror attack” is exceptionally suspicious. Turkey is one of the countries with the most to lose if the effort to usurp Assad fails. And as you’re likely aware, the rebellion is on the ropes. Aleppo is surrounded by Russia and Hezbollah and it will fall in a matter of weeks. Once it’s recaptured by Assad, the rebel cause is lost. The rebellion will be over. 

Sending supplies to the hodgepodge of Sunni rebels operating in and around the city is no longer sufficient and even if it were, the YPG is about to cut the last supply line. As we said last week, it’s do or die time for Ankara and Riyadh. Either go to war on behalf of the rebels orconcede defeat to Moscow and Tehran. The question, we said, is how Ankara will ultimately be able to pitch an intervention at Aleppo as a fight against terror when the ISIS presence there is relatively minimal. 

Well, now we know. 

Turkey will use the Ankara bombing – which killed 28 people – to justify a ground incursion to punish the YPG which, you’re reminded, are not only backed by Russia, but the US as well. “All necessary measures will be taken against [YPG and PKK] anywhere and under any circumstances. No attack against Turkey has been left unanswered,” Davutoglu promised. “All those who intend to use terror pawns against Turkey must know that [playing] this game of terror will hit them like a boomerang,” he added.

So there you have it: the excuse for Turkey to invade Syria and it’s the same as it ever was. Ankara is just “fighting terror,” like everyone else in the world. 

For those unfamiliar, the YPG have been the most effective on-the-ground force when it comes to fighting Islamic State. They’ve managed to secure nearly the entire border with the Turks and are seeking to unite their territory east of the Euphrates with the towns they control west of the river, and that means capturing key border cities. For Turkey, that’s an unacceptable outcome, as it would effectively mean establishing a Kurdish proto-state on the border, a move that would likely embolden Turkish Kurds who are already seeking greater autonomy. 

So invading Syria serves two purposes for Ankara: 1) it checks the Kurdish advance, and 2) it shores up the rebels fighting to overthrow Bashar al-Assad. 

But while the Turks are known for being exceptionally capable on the battlefield, it isn’t clear they know what they’re getting into here. Hezbollah practically invented urban warfare and their fighters view martyrdom as an honor and a privilege (and not in the perverse way that ISIS conceptualizes death). Additionally, Hassan Nasrallah’s forces are backed by what is perhaps the most capable air force on the planet. 

We close with a rather inauspicious quote from Davutoglu: “I repeat my warning to Russia – which lately gives air support for YPG to advance into Azaz and conducts heavy shelling on Syrian people – not to use the terrorist organization against innocent Syrian people and Turkey.”

Those who live in glass houses Mr. Davutoglu, should most assuredly not throw stones.


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