Thursday, February 11, 2016

Today's Links

1---Some Hedge Funds Want to Make Subprime Auto Loans Next Big Short

For investors who see more risks building in auto securities, shorting the bonds is a tempting proposition. Outstanding auto loans grew by nearly 50 percent between 2010 and December 2015, the last period for which the data are available, and now stand at more than $1 trillion. Rapid growth can signal that lenders have not been paying enough attention to risks, as was the case during the housing boom last decade. There were about $170 billion of bonds backed by auto debt outstanding as of the end of last year, up more than 45 percent from 2010, but below pre-crisis highs.

New risks are also emerging that weren’t seen in the last lending cycle. Those include longer loan repayment terms, ballooning loan amounts and more willingness to finance used cars.

“The auto loan market is very similar to what we saw before,” she said, calling loan fraud one of her biggest concerns. “Borrowers aren’t well-documented, and in many cases they don’t even need credit scores,” she said. "It’s a real scandal this is happening.”

2--“Worse than 2008”: World’s Largest Container Carrier on the Slowdown in Global Trade , wolf street

3--This Is Why the Fed Is Paying Interest to Big Banks, Bloomberg

Why so much "excess"?

During and after the financial crisis, the Fed bought trillions of dollars in Treasuries and mortgage-backed securities. It didn't pay for them with wads of bills. Instead, it simply credited the sellers of the securities with bigger reserves at the Fed. So now banks have way more reserves than they could possibly use.

And that's a problem?

Yes, because the Fed can't conduct monetary policy the traditional way. In the past, if the Fed wanted to push up interest rates, it would sell a bunch of Treasuries. Banks would pay for the Treasuries by using money in their reserve accounts. That would leave them short on required reserves. To replenish their reserves they would borrow reserves from other banks at a well-known interest rate: the federal funds rate. That won't work any more because the banks have so much in excess reserves that any Treasury purchases they made wouldn't make a dent in the total.

So why exactly is the Fed paying interest on excess reserves?

As a way to raise short-term interest rates, to keep the economy from inflationary overheating.

4--A bad time to be a bank? The chart that shows just how much bank stocks are getting hammered

5--Fresh Wave of Selling Slams Global Markets – Live Analysis , WSJ

Markets around the world are selling hard on Thursday, a day after U.S. stocks rose but faltered on the back of Congressional testimony from Federal Reserve Chairwoman Janet Yellen. Crude oil is down sharply, the yen is strengthening, gold has surged, and the yield on the U.S. 10-year Treasury note continue to slide. There is a scramble for safe-haven assets and a wholesale dumping of risk. Emerging markets, energy and banking stocks are under heavy pressure.

6--Treasury yields plunge to lowest level since August 2012

7--Militants' Defeat in Aleppo Has US Scrambling to Derail Syrian Juggernaut

8---Head of Chechnya: We have infiltrated ISIS in Syria

9--US A-10s bombed city of Aleppo on Wednesday, shifted blame onto Moscow – Russian military

10--Amid mounting signs of slump and financial crisis...Fed seeks to reassure markets on rate increases, wsws

The slide toward global recession was sharply expressed this week in the descent of Japanese government bond yields into negative territory. In the US, the yield on 10-year Treasury bonds has plunged well below 2 percent, reflecting the same deflationary trends.

The proliferation of super-low and even negative interest rates is wreaking havoc on banks that remain burdened with bad loans and stand to incur more losses from energy-related assets that are souring due to the collapse of oil prices and its impact on energy revenues and profits.

Bank stocks in Europe are down an average of 27 percent so far this year, with Deutsche Bank, Germany’s biggest, suffering a loss of more than 40 percent. In the US, bank stocks are down 18 percent, with shares of Bank of America and Morgan Stanley having dropped 27 percent and 28 percent, respectively.

US stocks overall have fallen by more than 9 percent since the beginning of the year, and stocks in Europe have declined even more sharply. In the US, tens of thousands of job cuts have been announced in both the industrial and retail sectors. Among the major non-retail firms announcing layoffs are Johnson & Johnson, Norfolk Southern, US Steel, Yahoo and Altria. Energy and mining firms have laid off thousands more workers.

The worsening social crisis impacting broad sections of the US population is reflected in the wave of store closings and layoffs by major retail chains, including Wal-Mart (269 stores, 16,000 job cuts), Macy’s (40 stores, 4,500 layoffs) and Sears-Kmart (more than 50 stores, thousands of job cuts).

US economic growth is estimated by the government to have slowed to 0.7 percent in the final quarter of 2015, and data on manufacturing continues to show recessionary conditions.

US corporate profits are also down. Profits reported by firms in the S&P 500 index for the fourth quarter of 2015 are down 4.1 percent from a year earlier. Sales are down 3.5 percent. This means profits have declined, year-on-year, for two straight quarters, the first time that has occurred since 2009. Sales have fallen for four consecutive quarters.

The near panic in financial circles was summed up in a statement released last week by strategists at Citibank, which declared, “The world appears to be trapped in a circular reference death spiral.” Predicting that the world economy would grow by only 2.7 percent this year, far below the already depressed projections of the International Monetary Fund, Citibank warned of “a proper/full global recession and dangerous disorder across financial markets.” Its report concluded, “The stakes are high, perhaps higher than they have ever been in the post-World War II era.”

Wednesday, February 10, 2016

Today's links

[Michal] Kalecki’s insight…is that for big business, unemployment is first and foremost a mechanism for disciplining workers. Under full employment “the ‘sack’ would cease to play its role as a ‘disciplinary measure,’” and “the social position of the boss would be undermined.” Discipline and political stability, he argued, “are more appreciated than profits by business leaders.” Naked Capitalism

1---Banking Crisis in Europe? Deutsche Bank’s CoCo Bonds Collapse

Shares of Deutsche Bank have plunged 57% since July 31, to a new 30-year low today of €13.71. Since the beginning of the year, they lost 38%. Credit Suisse plunged 8.3% today to CHF 13.01, down 53% since July 31. Other European banks got mauled too.

The Stoxx 600 Europe Banks index dropped to the lowest level since the gloomy days of the Eurozone debt crisis in 2012. At the time, Draghi’s whatever-it-takes pledge kicked off a bank rally. When it petered out, Draghi came up with negative deposit rates and QE, which in early 2015 kicked off another bank rally. But it all came unglued around July 31. Since that propitious date, the index has plunged 40%.

2---William White, Debt reduction, negative rates, and fiscal stimulus (Bloomberg video, must see)

3---Is the European banking industry facing its own Lehman Brothers moment?

Lenders have been spending their investors' cash like drunken sailors on shore leave for nearly eight years now. Patience is running out

4---Five reasons behind US bank stocks sell-off

5---Surging Credit Risk for Banks Is Becoming a Major Issue in European Markets

Some of the latest analysts to weigh in on the subject come from Bank of America Merrill Lynch. In a research note out on Monday titled “the tide has turned,” analysts Ioannis Angelakis, Barnaby Martin and Souheir Asba argue that risk is becoming more systematic.

The authors go on: “Risks are not contained any more within the EM/oil related names. Global growth outlook fears and risks of quantitative failure have led to weakness into cyclical names. Add also the recent sell-off in financials and you have the perfect recipe for a market sell-off that looks and feels systemic.”

6--Europe's 'doom-loop' returns as credit markets seize up

We all know that QE2 is not really going to work but the market says "I’m a smoker, I know it kills me, but so long as I can get cigarettes, I’m happy

“People are scared. This is very close to a potentially self-fulfilling credit crisis,” said Antonio Guglielmi, head of European banking research at Italy's Mediobanca.

“We have a major dislocation in the credit markets. Liquidity is totally drained and it is very difficult to exit trades. You can’t find a buyer,” he said.


Mr Ostwald said the Bank of Japan’s failure to gain any traction by cutting interest rates below zero last month was the trigger for the latest crisis, undermining faith in the magic of global central banks. “That was unquestionably the straw that broke the camel’s back. It has created havoc,” he said. ...

7--Foreign Policy Diary – Turkey’s Military Intervention to Syria, south front (NB)

8---Turkish PM announces plan for invading Syria, RT

Turkish PM Ahmet Davutoglu pledged to return a “historical debt” to Turkey’s “Aleppo brothers” who helped defend the country in the early 20th century, just days after Russia warned of Ankara’s intentions to invade Syria as the rebels there falter.    

“We will return our historic debt. At one time, our brothers from Aleppo defended our cities of Sanliurfa, Gaziantep, Kahramanmaras, now we will defend the heroic Aleppo. All of Turkey stands behind its defenders,” Davutoglu said at the meeting of the Party of Justice and Development parliamentary faction, which he heads.

9--ISIS leaders remain in close contact with Ankara – Lavrov

The leaders of Islamic State maintain a constant liaison with the Turkish government, working out a new approach to the war in Syria as the Russian Air Force cuts off traditional smuggling routes, says Russian Foreign Minister Sergey Lavrov.

Moscow has intelligence that Islamic State’s (IS, formerly ISIS/ISIL) command continues to hold backdoor negotiations with the Turkish leadership, Lavrov told Russian newspaper MK in a vast interview in honor of Diplomats’ Day.

The airstrikes of the Russian Air Force in Syria have severely disrupted “traditional smuggling routes,” so the Turks are discussing in all seriousness creation of “IS-free zones” in Syria.

10--Russia Puts South Military District’s Airborne Forces on Full Combat Alert

The units of the airborne troops and military transport aviation have been placed on full combat alert to undergo snap drills.

MOSCOW (Sputnik) — Snap drills to inspect the combat readiness of the Russian Southern Military District's airborne troops and military transport aircraft have been launched in Russia, the country's Defense Minister Sergei Shoigu said Monday.

"In accordance with the decision of the commander-in-chief, today at 5 a.m. [02:00 GMT] the troops of the Southern Military District, units of the airborne troops and military transport aviation have been placed on full combat alert. Since that time we have started a snap inspection of the troops' combat readiness in the southwestern strategic direction," Shoigu said at a meeting.

11--Will Geneva talks lead right back to Assad’s 2011 reforms?

The Syrian crisis might have been resolved in 2011 if US president Barack Obama had not declared on August 18th that year that his Syrian counterpart Bashar al-Assad had to 'step aside.'”Were the additional 250,000 Syrian deaths worth those empty slogans? Or might reforms, in Syrian hands, have been worth a try?

Four years later, with the benefit of hindsight, many of these things can be contextualized. The ‘protests’ were not all ‘peaceful’ – and casualties were racking up equally on both sides. We see this armed opposition more clearly now that they are named Jabhat al-Nusra, Ahrar al-Sham and ISIS. But back in early 2012, these faces were obfuscated – they were all called “peaceful protestors forced to take up arms against a repressive government.”...

Either way, the reforms came hard and fast - some big, some small: decrees suspending almost five decades of emergency law that prohibited public gatherings, the establishment of a multi-party political system and terms limits for the presidency, the removal of Article 8 of the constitution that assigned the Baath party as “the leader of state and society,” citizenship approval for tens of thousands of Kurds, the suspension of state security courts, the removal of laws prohibiting the niquab, the release of prisoners, the granting of general amnesty for criminals, the granting of financial autonomy to local authorities, the removal of controversial governors and cabinet members, new media laws that prohibited the arrest of journalists and provided for more freedom of expression, dissolution of the cabinet, reducing the price of diesel, increasing pension funds, allocating housing, investment in infrastructure, opening up direct citizen access to provincial leaders and cabinet members, the establishment of a presidential committee for dialogue with the opposition – and so forth....

Western governments complained about reforms not being implemented. But where was the time – and according to whose time-frame? When the Assad government forged ahead with constitutional reforms and called for a nationally-held referendum to gain citizen buy-in, oppositionists sought a boycott and US Secretary of State Hillary Clinton called the referendum “phony” and “a cynical ploy.”

Instead, just two days earlier, at a meeting in Tunis, Clinton threw her significant weight behind the unelected, unrepresentative, Muslim Brotherhood-dominated Syrian National Council (SNC): “We do view the Syrian National Council as a leading legitimate representative of Syrians seeking peaceful democratic change.”

And when, in May 2012, Syria held parliamentary elections – the first since the constitution revamp – the US State Department called the polls: “bordering on ludicrous.”

But most insidious of all the catch-phrases and slogans employed to undermine the Syrian state, was the insistence that reforms were “too late” and “Assad must go.” When, in the evolution of a political system, is it too late to try to reform it? When, in the evolution of a political system, do external voices, from foreign capitals, get to weigh in on a head of state more loudly than its own citizens?

Tuesday, February 9, 2016

More Links

1--Companies lose billions buying back their own stock

If you think your stocks are doing poorly, check out the performance of some of the most sophisticated investors, the ones with more knowledge about what's going on inside businesses than anyone else: Companies that buy their own shares.

The companies losing money on these bets are down a collective $126 billion over the past three years, a decline of 15 percent.

Many corporations would have been better off investing that cash in an index fund instead of their own stock. The overall market rose 39 percent over the same period. The companies could also have distributed that cash as dividends to shareholders, allowing them to spend what is, in the end, their money.

And it's not just a few big corporate losers accounting for all the pain. The group includes 229 companies in the Standard and Poor's 500 index, nearly half of the companies in the study prepared by FactSet for The Associated Press.

When a company shells out money to buy its own shares, Wall Street usually cheers. The move makes the company's profit per share look better, and many think buybacks have played a key role pushing stocks higher in the seven-year bull market.

But buybacks can also sap companies of cash that they could be using to grow for the future, no matter if the price of those shares rises or falls...


Nearly a third of the companies studied, 153 in all, lost $100 million or more on their purchases in three years.

And, sure enough, buybacks approached record levels recently even as earnings for the S&P 500 dropped and stocks got more expensive. Companies spent $559 billion on their own shares in the 12 months through September, according to the latest report from S&P Dow Jones Indices, just below the peak in 2007 — the year before stocks began their deepest plunge since the Great Depression.

2--From ZIRP to NIRP: What's the Fed's next move?

Negative interest rates in the U.S. may seem like a far-fetched idea, but the Federal Reserve is telling banks to prepare, just in case

One nation mired in an economic slump decides that the best way out is to devalue its currency, cheapening its exports and thus making them more attractive in countries that have higher-yielding currencies and, consequently, more buying power.

Seeing the success that country has, another seeks to emulate. And then another. And another. And another. In order to stay ahead of the game, central banks keep devaluing until there's nothing left, tangibly at least, to devalue, and negative interest rates come into play


The idea would be to charge banks to store reserves, making the cost prohibitive to let the money lie fallow there and push it into the broader economy through lending, thus stimulating growth.

3--Contagion Hits Japanese Banks, Nikkei Plunges, 10-Year Yield Negative for First Time Ever

Today, the Nikkei plunged 919 points or 5.4%. It’s now down 23.1% from its recent high, in a solid bear market. Fears about global growth coagulated with fears about a banking crisis radiating out from Europe, and particularly its epicenter, Deutsche Bank.

So Japan’s four systemically important megabanks that will not be allowed to implode if at all possible got totally smoked today, and have gotten crushed since their highs last year:

  • Mitsubishi UFJ Financial Group plunged 8.7%, down 47% from June 2015.

  • Mizuho Financial Group plunged 6.2%, down 38% since June 2015.

  • Sumitomo Mitsui plunged 6.2%, down 26% since May 2015

  • Nomura plunged a juicy 9.1%, down 42% since June 2015

4--Why a Recession Could Arrive Without a Yield Curve Warning

Investors may not be able to count on a once-reliable economic warning bell to ring before the next recession.  Before every one of the past seven U.S. recessions, long-term interest rates fell below short-term rates, producing what economists call a yield curve inversion. Historically, the slope of the yield curve has been such a reliable predictor of economic conditions that economists at New York and Cleveland Federal Reserve banks use it to calculate the probability of recession.

Ultralow yields on short-term bonds, however, may prevent the yield curve from inverting even if the economy is about to contract.

The yield curve is a graph of interest rates arranged in order of bond maturities. Normally, it slopes upward because long-term interest rates are higher than short-term rates to compensate investors for accepting increased risk. Long-term bond yields are thought to reflect the average of future short-term interest rates expected over the life of the bond plus this so-called term premium.

5---Bank-Stock Carnage: This Number Is Killing Them

Another day, another round of bloodletting for bank stocks.

The KBW Nasdaq Bank index fell another 3% Monday on yet another miserable day for financial markets. It is now down nearly 19% so far this year and has shed a quarter of its value since hitting a post-financial-crisis peak last summer.

The reasons for the carnage are many: fears of a global slowdown, worries about energy-related losses, spillover from the grinding down of European bank stocks. But there is also a particular issue at play: Bank profitability is again under serious threat.

To see how, look to the difference between yields on 10-year and two-year U.S. Treasurys. The difference, or spread, between the two is often seen as a rough proxy for bank profitability, based on the profit banks make from taking in deposits and lending out that money.

On Monday, the 2-10 spread fell to 1.09 percentage points—its lowest level in at least five years. This happened as the yield on the 10-year Treasury fell to 1.74%, which was where it bottomed in early 2015. The lower that spread, the tougher it is for banks to eke out a profit. This point of pain is even worse in an age of ultralow interest rates because banks effectively can’t reduce their funding costs any further since they are in many cases near zero.

In the face of that, investors seem to be saying there is little point to owning bank stocks. Increases in bank-stock valuations from 2013 onward were based on the idea that the U.S. Federal Reserve would be lifting interest rates and that the subsequent normalization would lift bank profits, returns and share prices.

6--Negative Interest Rates Are a Dead End, William Poole

he Bank of Japan recently announced that it would follow the European Central Bank’s lead and implement a “negative interest rate” policy. Reducing interest rates is supposed to increase spending and investment, spurring growth.

It won’t work. Negative central-bank interest rates will not create growth any more than the Federal Reserve’s near-zero interest rates did in the U.S. And it will divert attention from the structural problems that have plagued growth here, as well as in Europe and Japan, and how these problems can be solved.

Part of the impetus behind a central bank’s negative interest-rate policy is a desire to devalue the currency. With lower market interest rates, holders of euros, for example, may sell them to flee to countries with higher interest rates—driving down the euro’s exchange rate, boosting European exports and growth. But it is impossible for every country in the world to depreciate its currency relative to others. If the European Central Bank hopes to force euro depreciation against the yen and the Bank of Japan hopes to force yen depreciation against the euro, one or both of the central banks will fail.


The situation in the U.S. is not much different. The interest rate on a 10-year T-bond is a bit below 2%. Can any informed person believe that the cost of borrowing is holding back capital formation in the United States?

Nonresidential investment in the U.S. actually fell in the fourth quarter, and year over year is up by a paltry 2.9%. Central banks are part of the problem, because their monetary-policy gimmicks are promising to citizens and legislators alike what they cannot deliver. Honest central bankers know that policy gimmicks will not deliver growth, but admitting as much is politically verboten.

7--Russia Puts South Military District’s Airborne Forces on Full Combat Alert

8--The Aleppo Operation

" The Aleppo operation has now entered its deciding phase, whose objective is to take control of the entire length of border with Turkey. The West expected Syrian government forces to become bogged down in Latakia at least until April, when the change in weather would impose an operational pause. This area is vital to ensure continued supply of reinforcements and munitions  by Turkey, which is why its control is a matter of life and death for the Islamists. Fighting in Latakia and Aleppo is tying down significant Syrian forces which otherwise could be used to annihilate the demoralized militants in Idlib province. But now, as it to spite the West, the terrorists are on the brink of complete defeat in Syria’s north-west. The victory will free sizable forces that could next be used to defeat Idlib province militants. That defeat, in turn, will destroy the terrorist front leaving the militants no choice but to flee to Turkey. Erdogan is no doubt breaking out in cold sweat, knowing that his terrorist chickens are about to come home to roost."
Rebel forces are giving up the fight in Syria's NW.  Having been defeated in their own minds, they are either fleeing toward the Turkish border in the case of the Nusra and other jihadi elements or in the case of the less theologically inclined surrendering to the government and in many cases joining government sponsored local defense groups formed to hold population centers recently re-occupied by the Syrian government and its allies (R+6

9---Syria says aims to control border with Turkey, recapture Aleppo

"As for talk of a ceasefire, it comes from states that do not want an end to terrorism in Syria, but which want to shore up the positions of those terrorists."....Turkey is the problem. The Erdo─čan government is the problem, and cannot be part of the solution."

There would be no letup in an army advance, which aimed "to liberate cities and villages that were controlled by the terrorists for 3-1/2 years, and also an attempt to liberate the city of Aleppo from the crimes of terrorism", Shaaban said.

Damascus intended "to control our borders with Turkey, because Turkey is the main source of terrorists, and the main crossing for them".

Shabaan said Turkey was using the refugee crisis to blackmail European states, criticizing Ankara and its "Ottoman ambitions" as the prime cause of the war that has driven 11 million people from their homes and killed 250,000 people.

Today's Links

 "We will never forget (Turkey's) collusion with terrorists...or those who shot our pilots in the back....We're not going to rattle the sabre, but if someone thinks they can commit a heinous war crime, kill our people and get away with it, suffering nothing but a ban on tomato imports,... they’re delusional. We’ll remind them of what they did (and) they’ll regret it."  Russian President Vladimir Putin, Presidential Address to the Federal Assembly

1---US Investment Grade Credit Risk Spikes To 5-Year Highs, zh

The market has taken over The Fed's role - forget above 25bps here or there, the cost of funding for even the highest quality US Corporates is exploding...Simply put, the credit cycle has turned and is accelerating rapidly - crushing any hopes for debt-funded shareholder-friendliness.

2--A new stage in the global economic breakdown, wsws

3--$7 Trillion In Bonds Now Have Negative Yields

And, as Bloomberg calculates, this means that as of this moment, $7 trillion or about 30% of all sovereign bonds, are yielding negative rates, implying "investors" have to pay governments for the privilege of holding their money. It also means that in the past 10 days a record $1.5 trillion in global treasurys have gone from having a plus to a minus sign in front of their yield

4--European Sovereign Risk Soars As Bank Contagion Spreads, zh

The ECB's "whatever it takes" ponzi strategy of keeping the dream alive in Europe's financial system has finally been caught as rapid collapse in the banking system is contagiously spreading to peripheral sovereigns once again. Portugal risk spreads are up 120bps in the last 3 weeks and Spain and Italy are soaring over 35 and 50bps respectively as the almost self-dealing nature of banks buying "risk-free" EU bonds and repoing for cash via The ECB comes home to roost...And now The ECB is cornered as any more NIRP will merely exacerbate the stress in the financial system and lead to a vicious circle in sovereign risk.

5--'Panic situation': Asian stocks tumble amid fears of new global recession

“The Nikkei has been well and truly savaged today,” said Chris Weston, chief markets strategist at IG in Melbourne. “It is clear that strong buying in the Japanese government bond market is not going to drive the (yen) weaker in times of extreme volatility, so negative rates have little bearing on markets.”

The Bank of Japan’s rates decision has prompted fears that after years of monetary easing, central banks have few avenues left to explore to encourage investment and boost growth.

Talk of an impending recession in the US, however, is creating speculation among investors that the federal reserve will put on hold its attempts to normalise rates

6--`Panic' Level With Japan Yield Below Zero

7--Bye, Bye, Greenback: Iran Signs Oil Deal With Total, Deal Done In Euros

8---U.S. bank stocks and bonds clobbered by recession worry

U.S. bank stocks and bonds took a pounding on Monday as recession fears compounded concern about their exposure to the energy sector and expectations that global interest rates are unlikely to rise quickly.

The S&P 500 financial index, already the worst performing sector this year, fell 2.6 percent and now stands more than 20 percent from its July 2015 high, confirming the sector is in the grip of a bear market.

Shares of Morgan Stanley slid 6.9 percent in their largest one-day drop since November 2012, while rival Goldman Sachs fell 4.6 percent. Both stocks closed at their lowest since the spring of 2013.

Meanwhile, bonds issued by U.S. banks extended their decline, with the yield premium demanded by investors to hold these securities, rather than safer U.S. Treasury debt, climbing to the highest in three-and-a-half years, according to Bank of America Merrill Lynch Fixed Income Index data.

"Investors' attitudes seem to be worsening relative to the likelihood of a global recession. I think that's what financials are reflecting – that their net interest margins are going to be further compressed under collapsing (sovereign) bond yields," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia



The pessimism around bank profits continues bleeding through credit markets as well. High grade financial sector yield spreads have climbed to an average of 211 basis points over comparable U.S. Treasuries, their highest level since August 2012, according to Bank of America Merrill Lynch data.

The widening is a dramatic turnaround for banks, which strongly outperformed other sectors last year, prompting many investors to name them as one of their top picks for 2016.

9--The $102 Billion of Bank Debt That's Making Investors Nervous

Banks have issued about 91 billion euros ($102 billion) of the riskiest notes, called additional Tier 1 bonds,since April 2013. The problem is the securities are untested and if a troubled bank fails to redeem them at the first opportunity or halts coupon payments investors may jump ship, sparking a wider selloff in corporate credit markets.

“It’s the first thing that gets cut from portfolios,” said David Butler, a portfolio manager at Rogge Global Partners, which oversees about $35 billion of assets. “When the wider credit market turns, it leaves investors exposed.”

High Yields

The notes were issued in Europe and offer some of the highest yields in credit markets, at an average 7 percent, compared with an average yield for European junk credits of less than 6 percent, according to Bank of America Merrill Lynch indexes.

But critics say banks are too opaque, the notes are too complex to be properly understood, they’re too varied and too much like equity to be considered bonds. With so many unknowns, the risks are high.

“Basically you have the upside of fixed income and the downside of equity,” said Gildas Surry, a portfolio manager at Axiom Alternative Investments. “AT1s are instruments of regulators, by regulators, and for regulators.”

10--Oil Bankruptcies Seen Spurring M&A on Signal Prices Near Low

11--The impending crash: "We're all going to suffer"

Central banks will panic. They will do whatever they can to save the markets.

It’s artificial… it won’t work… there comes a time when no matter how much money you have, the market has more money.

I don’t know if they’ll even call it QE (Quantitative Easing) in the future… who knows what they’ll call it to disguise it… they’re going to try whatever they can… printing more money or lowering interest rates or buying more assets… but unfortunately, no matter how much P.R. or whitewashing they use, the market knows this is over and we’re not going to play this game anymore.

12--What’s Holding Back the World Economy, stiglitz

Seven years after the global financial crisis erupted in 2008, the world economy continued to stumble in 2015. According to the United Nations’ report World Economic Situation and Prospects 2016, the average growth rate in developed economies has declined by more than 54% since the crisis. An estimated 44 million people are unemployed in developed countries, about 12 million more than in 2007, while inflation has reached its lowest level since the crisis

But the dominant policies during the post-crisis period – fiscal retrenchment and quantitative easing (QE) by major central banks – have offered little support to stimulate household consumption, investment, and growth. On the contrary, they have tended to make matters worse. ...

Neither monetary policy nor the financial sector is doing what it’s supposed to do. It appears that the flood of liquidity has disproportionately gone toward creating financial wealth and inflating asset bubbles, rather than strengthening the real economy. Despite sharp declines in equity prices worldwide, market capitalization as a share of world GDP remains high. The risk of another financial crisis cannot be ignored.

13--Fears over new financial crisis come back to haunt global markets as trading turmoil hits

Anxiety over negative central bank interest rates and new bail-in laws send banking stocks spiralling in a turbulent day of trading

14--European banks face major cash crunch

15--Why the Market Freakout About Bank Stocks is Well Warranted

16----The Syria War Will Not Be a Quagmire -- Because Putin and Assad Are Winning

Russian Foreign Minister Sergey Lavrov made it absolutely clear (to Turkey and to everyone else) that Russia intends to close the border area between ISIS-held territory and Turkey: "The key point for the ceasefire to work is a task of blocking illegal trafficking across the Turkish-Syrian border, which supports the militants," he said. "Without closing the border it is difficult to expect the ceasefire to take place." Russia is politely telling Turkey that any incursion risks direct confrontation and war. Recently, for whatever reason, ISIS forces have appeared to start pulling out of that area.

The grey, ISIS-controlled corridor, especially the Jarablus border crossing with Turkey, remains effectively open. Turkey has proclaimed this represents its "red line." Were this corridor to be closed by the Syrian Kurds, the Turks have indicated they could respond by invading Syria. The YPG say nonetheless, that they are contemplating just such a move....

should Nusra members (who are mainly Syrian) and other rebels try to disperse and hide amongst local communities, there will be no water in which these fish can swim, to paraphrase the Maoist adage. They will find little or no public support. Syria has a very effective intelligence service. We may expect that within a year, most of the disbanded jihadists will have been found out and reported to the intelligence services by locals, who suffered grievously under their occupation. Most will be arrested or killed.

17--Liquidity stress: the canary in the coalmine

liquidity crisis always lead to financial crisis, and yes, dear readers, credit always lead equities....deteriorating liquidity is at the heart of and may be the primary driver of broader rising financial stress. If so, then continuation of the rising trend in liquidity stress may eventually lead to another spike in broader financial stress in the months ahead." - source Bank of America Merrill LynchCredit flows matters, because if indeed, the "credit tap" is about to be turned off, recovery and growth will be difficult particularly for China, in the absence of course of a sizeable real exchange rate depreciation. This would trigger a significant deflationary wave impulse for the rest of the world rest assured....

The next question that arises is: what can be done to stabilize liquidity, or even reverse the trend of liquidity deterioration? ...The only response to poor liquidity would be related to cause #2, the credit problems. We see two possible alternatives to watch for:

 1. A coordinated global policy response. Here we are referring to what BofAML Chief Investment Strategist Michael Hartnett is calling the “Shanghai Accord,” a coordinated policy response from G20 Finance Ministers and Central Bankers at the February 26-27 Shanghai meeting.

2. Coordinated oil supply cuts from OPEC and Russia, which would help alleviate the downward pressure on oil, and the associated credit stress. 
Barring developments on these fronts, further liquidity deterioration seems inevitable.

..."One key aspect of later stages in the cycle is unlikely to recur this time – liquidity. In the new regulatory environment dealers hold less than one percent of the corporate bond market. Previously dealer inventories grew to almost 5% of the market through the cycle. " - source Macronomics, Cushing's syndrome, May 2015.This we think is the current state of affairs in the credit space, which is akin to a 2007 environment. We've seen it before and we think it is playing out again, hence our heightened attention to the Securitized markets.

18--Kurds march west of Euphrates

The Kurdish YPG has announced it’s going to launch a military operation in order to connect Afrin with Kobane and Hasakah. This gain will be hardly possible without a support of Russian warplanes and the pro-government forces pulverizing the terrorists’ manpower which could be used to prevent the Kurdish offensive

Monday, February 8, 2016

Today's Links

1--Oil settles at lowest level since Jan. 21, cnbc

2--Treasuries Surge as Bets Evaporate That Fed Will Hike This Year , Bloomberg

Bond market's inflation expectations at almost seven-year low

3--Whiff of Panic? Global Bear-Market Progress Report, wolf street

Europe’s big banks are seriously listing. Italian banks, weighed down by immense amounts of non-performing loans, are undergoing a bailout of sorts at the moment. Shares of Deutsche Bank and Credit Suisse are getting crushed. Their CEOs have gotten keelhauled last year. New CEOs are at the helm now. Some of their bonds have gotten trampled. Credit default swaps are blowing out.

The Stoxx Europe 600 banking index, after declining six weeks in a row, the longest weekly loosing spree since 2008 when the sky was falling on the banks (and when it declined 10 weeks in a row), fell another 5.6% on Monday. It has plunged 39% since its peak at the end of July.

4--Deutsche Bank is shaking to its foundations – is a new banking crisis around the corner?

5--Why a selloff in European banks is ominous , market watch

European banks have been caught in a perfect storm of market turmoil, lately.

Lackluster profits and negative interest rates, have prompted investors to dump shares in the sector that was touted as one of the best investment ideas just a few months ago

6--Member of the UN commission of inquiry on Syria supports Russia's airstrikes against terrorist groups

"I think the Russian intervention is a good thing, because finally someone is attacking these terrorist groups," Carla Del Ponte told Swiss broadcaster RTS on Monday, listing the Daesh Takfiri group and the al-Qaeda-affiliated al-Nusra Front among the groups targeted. Carla Del Ponte, a former chief prosecutor of UN international criminal law tribunals

7--Yield on 10-year Japan government bond hits zero for first time 

8--What the ‘Chart of Doom’ is saying about a global recession

9--HELOC abuse rising along with house prices , oc housing

10--Recession risk on the rise, wsws

Sunday, February 7, 2016

Today's links

1--Investors are shying away from margin debt. Why that may not be a good thing.

Post-crisis, the Fed's highly accommodating monetary policy, which included quantitative easing, spurred investors to take on even more debt than before — pushing margin levels to record highs. Last April, that debt reached $507 billion (a month later S&P 500 hit an all-time) before dropping 9 percent to its current level of $461 billion...

Could decreasing margin debt and money flowing from former high-flyers and riskier small caps indicate a potential slowdown ahead? That is a likely scenario, given that gains this year in defensive utilities and telecommunications — where investors frequently park cash during times of market stress — further confirms that traders are taking risk off the table for now.

2---Iran wants euro payment for new, outstanding oil sales

Iran wants to recover tens of billions of dollars it is owed by India and other buyers of its oil in euros and is billing new crude sales in euros, too, looking to reduce its dependence on the U.S. dollar following last month's sanctions relief.

3--Recession risk on the rise, wsws

Writing in the Financial Times this week, market columnist John Authers noted that the “greatest concerns [over recession in the US] surround industrial production and manufacturing.” He continued, “Industrial production fell in 10 months out of 12 last yeara figure that has always, since 1919, been associated with a recession.”...

But even as he spoke, those “headwinds” were getting stronger. In US financial markets, the yield on ten-year Treasury bonds has fallen back below 2 percent, generally an indication of coming recession. The fall in yields has been particularly marked. In early December, Bloomberg reported that only two of the 73 analysts it polled predicted that the 10-year rate would go back below 2 percent.

4---Jim Hightower: What Really Poisoned the Water in Flint, Michigan

5--Exxon Ends Share Buybacks -- It Must Be Acquisition Time

6--Saudi March pricing, Consumer credit

7--Debt, defaults, and devaluations: why this market crash is like nothing we've seen before

A pernicious cycle of collapsing commodities, corporate defaults, and currency wars loom over the global economy. Can anything stop it from unraveling?

8--Will The Saudis And Turks Really Invade Syria?

The Azaz-Jarabulus Corridor:

While it may figuratively be a pipedream for Turkey and Saudi Arabia to alter the Syrian battlespace to the point of enforcing their preferred post-conflict “solution” on the country, it doesn’t remove the actual pipeline motivations for why they would both want to do so in the first place.

Using Ralph Peter’s 2006 “Blood Borders” article as a strategic foundation, the author and his colleagues published a mid-October analytical forecast entitled “The Race For Raqqa And America’s Geopolitical Revenge In ‘Syraq’”, where it’s argued that Riyadh and Ankara would like to create a transnational sub-state “Sunnistan” along the Syrian and Iraqi frontier in order to facilitate the construction of a Qatari gas pipeline to Europe (which was one of the original causes for the War on Syria).

In terms of the scheme’s overall feasibility, Saudi Arabia and Turkey would have to change the battlefield conditions to the point where they and/or their proxies are in control of the broad diagonal swath of territory all the way from Iraq’s Anbar Province to Syria’s Azaz-Jarabulus Corridor, hence the talk of a conventional military invasion aimed at critically securing the latter.

Without the Corridor under their control, it’s impossible for the pipeline to be built because Ankara would never trust for it to be built in the Kurdish areas of Iraq, Syria, and especially the revolting southeastern part of its own territory....

The US, for its part, wants to build a bastion of influence in the central geostrategic space between Turkey, Syria, Iraq, and Saudi Arabia, but in order for its power-hungry plans to spring into action, Erdogan first needs to invade the Azaz-Jarabulus Corridor and succeed in his near-impossible and likely suicidal task of stopping the Syrian-Russian liberation counter-offensive in Aleppo.

9--Al-Nusra Front Confirms Deaths of 300 Terrorists in Syria's Aleppo

10--A Turkish-Friendly Zone Inside Syria

11---Saudi Arabia, Turkey Pushed Syrian Opposition to Leave Talks, wsj

The Syrian opposition abruptly withdrew from peace talks in Geneva this week under pressure from Saudi Arabia and Turkey, two of the main backers of the rebels, according to diplomats and at least a half-dozen opposition figures....

About a half-dozen cities and towns targeted in the new regime offensives have one thing in common: All were held by a mix of Islamist and moderate rebel groups funded and armed by Saudi Arabia and Turkey. Complicating the picture is that some, but not all, of these groups collaborate with the al Qaeda-linked Nusra Front. That gives the regime and its allies fodder for their claim that they are fighting terrorism....

The focus of all parties is shifting to Munich, where a meeting this coming week will bring together international powers involved in the five-year conflict, including the U.S., Russia, Saudi Arabia and Turkey. They are expected to focus first on forging a cease-fire, albeit a partial one, in the hope that this would enable the parties to restart the talks in Geneva on a political transition.
But ahead of those talks, events on the ground are moving quickly as both sides try to position themselves for a possible return to the negotiating table. Syrian regime and Iran-backed forces encircled the country's biggest city, Aleppo, threatening to cut off a major rebel supply route to Turkey, as thousands of civilians fled Russian airstrikes....

In the south, regime forces aided by Russian warplanes and Iran-backed militias captured the strategic town of Ataman, considered the gateway to the city of Daraa, according to the Syrian military and opposition activists. It was the second strategic town rebels lost in the south within 10 days.
All of these places were held by a mix of Sunni Islamist and moderate rebel groups funded and armed by Sunni-led Saudi Arabia and Turkey and in some cases in coordination with the U.S.

Friday, February 5, 2016

Today's Links

1---Negative rates in US? Here's why it could happen, cnbc

...Instituting negative rates has a goal of shocking banks into lending and stimulating inflation...While negative rates would deliver the sharpest blow to banks, which have been at the forefront of the recent market volatility, the move would become an increasing possibility for the Fed if officials remain dissatisfied with growth

Following the December rate hike, Fed members' projections indicated there would be four more hikes in 2016. However, in the tumult following the increase, market expectations have differed sharply with those projections. ...

2---Bond Market Suffocation: Beneath that calm surface, over-indebted, junk-rated companies are running out of oxygen.

Late yesterday was a propitious moment. And today, when the index was updated, it became official: The average yield of junk bonds rated CCC or below, the bottom tier of the rating scale, hit 20%.

Yields soar when bonds get crushed. The last time the average yield of those bonds jumped to 20%, on September 30, 2008, all heck had already broken loose. Lehman Brothers had gone bankrupt 15 days earlier. Liquidity had dried up. Banks were lining up to be toppled. Panic was breaking out.

Today, there’s no panic.


The companies in the index, which also often have a CCC or below credit rating, are facing one heck of a time borrowing new money, or even rolling over existing debt, given that for them, the cost of borrowing may approach or even exceed 20%.

These companies are essentially locked out from the capital markets. Their bonds trade at a fraction of face value. Their banks are getting nervous. They will have difficulties refinancing their maturing debts. Some of them – as is currently happening – might not even be able to make their interest payments. The increasing difficulties and costs in raising new cash will lead to many more defaults.

Moody’s warned late Monday that its “Liquidity Stress Index,” which tracks the number of companies downgraded to the lowest liquidity rating (SGL-4), had jumped from 6.8% in December to 7.9% in January, the largest one-month jump since March 2009, and the highest level since December 2009.

Moody’s wasn’t kidding. Beneath that calm surface, over-indebted, junk-rated companies are running out of oxygen

3---Dollar tumbles as Fed rescues China in the nick of time, AEP

The central banks of Europe and Japan discover that it is impossible to stave off deflation by debasing their currencies when everybody is playing the same game

In trade-weighted terms the euro is 5pc higher than it was in March, when the ECB began quantitative easing, showing just how difficult it has become for authorities to drive down their exchange rates. Everybody is playing the same game.

Yet a halt to the dollar rally is a huge relief for companies and banks around the world that have borrowed a record $9.8 trillion in US currency outside the US, up from $2 trillion barely more than a decade ago.


Markets are currently in a well-oiled "death spiral," according to Citigroup Inc. analysts led by Jonathan Stubbs.

"It appears that four inter-linked phenomena are driving a negative feedback loop in the global economy and across financial markets," the analysts write, citing the resilient U.S. dollar, lower commodities prices, weaker trade and capital flows, and declining emerging market growth. 

"It seems reasonable to assume that another year of extreme moves in U.S. dollar (higher) and oil/commodity prices (lower) would likely continue to drive this negative feedback loop and make it very difficult for policy makers in emerging markets and developing markets to fight disinflationary forces and intercept downside risks," the analysts add. "Corporate profits and equity markets would also likely suffer further downside risk in this scenario of Oilmageddon

5---Oil price fall brings significant losses for big producers

The “conventional wisdom” ignored two major changes in the structure of the global economy over the past decade. First, that so-called emerging markets, many of which depend on the export of oil and other industrial commodities, now comprise about 40 percent of global gross domestic product, double their share in 1990, and so any decline in their revenues has a much bigger impact than previously. And, second, that the financial crisis of 2008–2009 was not merely a conjunctural downturn in the business cycle but signified a breakdown in the functioning of the global economy.....

Overall, the energy sector is expected to cut spending to $522 billion this year, following a 22 percent reduction to $595 billion in 2015. This will be the first time since 1986 that the industry has reduced spending two years in a row....

Apart from lowered credit ratings, the fall in the oil price is impacting on the financial system, especially via US banks, notably smaller regional banks, which have funded shale oil operations. Figures for January reveal that the main contributor to the 5 percent drop in Wall Street’s S&P 500 share index was the fall in bank stocks.

The impact of lower prices has yet to be fully felt because oil producers have been able to cover their position by taking out future selling contracts at higher than current market prices. As those contracts expire, however, some shale producers will become unprofitable unless there is a significant upturn in oil prices.

6---Deficits=Good. Surpluses=Bad. Surpluses lead to Depression


Federal deficits are necessary and the government normally runs them.  It ran them during 129 of the past 200 years or nearly two thirds of the time.  During the other third, it ran surpluses to reduce its debt during five periods of six or more years.  Each period led to a major depression.

1823-1836: Federal debt reduced 99%  – depression began 1837.
1852-1857:        ”         ”         ”       59%  –        ”              ”      1857.
1867-1873:        ”         ”         ”       27%  –        ”              ”      1873.
1880-1893:        ”         ”         ”       57%  –        ”              ”      1893.
1920-1930:        ”         ”         ”       36%  –        ”              ”      1929.

The government had to run deficits to recover from each depression...

The economy needs a continuing influx of new dollars to grow.  The government creates new dollars when it runs deficits by spending more than it receives from taxes.

When the government collects taxes it takes dollars out of the economy.

Drive the Economy

The economy is like a car.  Government spending is the accelerator.  Taxes are the brakes.  To keep going or speed up, press the accelerator.  To slow down, ease off the accelerator or press the brakes.  Driving too fast could lead to hyper-inflation, but that never happened here because the country always slowed down in time

7--"Damn the torpedoes" Draghi says side effects from policy don't matter

“There can be no doubt that if we needed to adopt a more expansionary policy, the risk of side effects would not stand in our way,” Draghi said. “We always aim to limit the distortions caused by our policy, but what comes first is the price-stability objective.”...

The ECB is currently reviewing its monetary stance and policy makers will decide on March 10 whether the current program of negative interest rates and a 1.5 trillion-euro ($1.6 trillion) bond-buying plan goes far enough. Euro-area consumer prices rose an annual 0.4 percent in January and the rate is likely to turn negative in coming months...

“If we do not ‘surrender’ to low inflation -- and we certainly do not -- in the steady state, it will return to levels consistent with our objective,” Draghi said at the event hosted by Germany’s Bundesbank. “If on the other hand we capitulate to ‘inexorable disinflationary forces’ or invoke long periods of transition for inflation to come down, we will in fact only perpetuate disinflation.”...

8---Surprising way rising mortgage rates harm existing homeowners, oc housing news

First, in early 2009, regulators relaxed mark-to-market accounting rules allowing banks to hold bad loans on their books at a fantasy value to avoid loss recognition, buying the banks time. Further, in order to placate pressure from homeowners to “do something” and to provide lenders with a few additional debt service payments on these bad loans, the government embarked on a series of failed loan modification programs.

These were sold to the public as ostensibly helping struggling borrowers, but they were really designed to allow banks to kick-the-can loan-loss recognition and squeeze a few more payments out of hopeless borrowers before they imploded. These programs largely failed homeowners, but succeeded for bankers by providing operating cash while delaying loss recognition for a later equity sale.


Manipulated Mortgage Rates

Ultimately, banks don’t want to recognize losses. They would far rather delay their necessary foreclosures until the loans had collateral backing, allowing them to recover their capital. However, since potential buyers of these properties couldn’t afford to pay an amount which would recover the outstanding debt, the bubble needed to be reflated before the foreclosures could go forward.


To facilitate reflation of the housing bubble, the federal reserve lowered interest rates to zero, and embarked on a program of buying 10-year Treasuries (operation Twist) and directly buying mortgage-backed securities to ensure the flow of capital into the housing market and dramatically lower mortgage interest rates. At the peak of the housing bubble, mortgage interest rates were between 6% and 6.5%. They bottomed out near 3.35% in 2012 — a near 50% reduction. These super-low interest rates gave buyers the ability to borrow amounts commensurate with peak prices under stable loan terms.

Manipulated Supply

Due to the collapse of prices when the housing bubble burst, comparable sales were far below peak prices, and continued foreclosure processing was keeping prices down. The solution was simple; stop foreclosure processing and restrict inventory until the housing bubble reflates.

Lenders stopped foreclosure processing to dry up the inventory, and underwater homeowners patiently wait to list their properties because if they wait, they might escape through an equity sale, avoiding credit problems. With almost no foreclosures or inventory to burden the market, supply is greatly reduced further facilitating a rapid reflation of the housing bubble.

Once the problem of excessive MLS inventory was resolved, we quickly reflated the bubble to allow lenders to recover capital at peak prices, mostly through equity sales, which is where we are today.

9--Unemployment drops below 5%, marketwatch

10--Obama Readies to Fight in Libya, Again, counterpunch

On Jan. 27, the Times declared in an editorial: “This significant escalation is being planned without a meaningful debate in Congress about the merits and risks of a military campaign that is expected to include airstrikes and raids by elite American troops. That is deeply troubling. A new military intervention in Libya would represent a significant progression of a war that could easily spread to other countries on the continent.”

Stratfor analyst Scott Steward predicted a month before the first U.S./NATO attack in March 2011 that pandemonium would ensue. Now, on Jan. 27, he wrote:

“As the United States and its European and regional allies prepare to intervene in Libya, they should be able to reduce the jihadist’s ability to openly control territory. However, they will face the same challenge they did in 2011 — building a stable political system from the shattered remains of what was once a country. Now, Libya is a patchwork of territories controlled by a variety of ethnic, tribal and regional warlords. The last five years of fighting has led to significant hatred and blood feuds between these competing factions, which will only compound the challenges ahead.”....

The Bush Administration’s 2001 war in Afghanistan is still going on and will not end with a U.S. military victory. Washington’s 2003 illegal invasion of Iraq is still going on in its second excruciating incarnation. President Obama’s call for regime change in Syria and support for the rebels has transformed this country into a slaughterhouse, resulting in up to 250,000 deaths and millions of refugees. Last year’s U.S. backed and equipped Saudi Arabian invasion of Yemen is still going on with no end approaching 


11--Who is really on the left? Margaret Kimberley

Not anyone who clings to the Democrats after being cast aside again and again while still suffering from unrequited love. Leftists are opposed to imperialism in all its forms....

Leftists demand that the federal government spend however much is necessary to restore the people of Flint, Michigan to health and safety. Leftists are anti-zionist and anti-imperialist. They oppose all neo-liberal “free trade” deals like the Trans Pacific Partnership. They want killer police to go to jail but want to free the masses from it. They want to end gentrification and displacement and they don’t like the scam of charter school privatization of public education....

Leftists ought to be revolutionaries..... A revolutionary isn’t fooled by the quadrennial circus of the Democrats and Republicans. Revolutionaries aren’t browbeaten into lesser evilism. They say without hesitation that capitalism cannot be reformed and must be jettisoned altogether. They aren’t fooled by propaganda that legitimizes intervening in foreign countries. They want an empty prison system and community control of the police. Revolutionaries don’t exult over Bernie Sanders vis a vis Hillary Clinton because they know that great change comes from mass action and not the ballot box..... The word Democrat is not synonymous with leftist. Sander fans are Democrats with all of the flaws of the party they still support. The people who yearn to find a good person in a corrupt system have some choices to make, but putting the Sanders lipstick on the Democratic pig should not be among them

12---Russia’s Ambassador: Syria’s Opposition linked to Al-Qaeda

13---Why Aleppo Matters

if Russia and Hezbollah manage to recapture the city, it would effectively restore the Assad government in Syria even if the east of the country is still controlled by Islamic's key to Russia and Iran's plans to consolidate Assad's power in the west of the country.

As noted above, if the SAA can retake Aleppo, Assad will have control of most of the country's major urban centers, effectively restoring his grip on power. ...

"Backed by Russian firepower and Hezbollah militants, Syrian government troops have cut off rebel supply lines between the northern city of Aleppo and Turkey," Bloomberg writes. "Taking Aleppo, Syria’s former commercial hub, would give Russia, Iran and Assad more bargaining power at any future settlement talks and more say in how the region will be redefined."....

Washington, Riyadh, and Ankara know that if Aleppo falls, that's it for the "moderate" opposition.

Sure there will still be elements of the FSA and other groups explicitly backed by the West and its regional allies, and they'll undoubtedly wage a long war of attrition against the SAA. But once the urban centers are secured, Assad can begin the slow process of rebuilding his security apparatus and restablishing some semblance of normalcy in the country's west

14--Camp Bucca: ISIS University