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As deaths mount in Gaza, some question whether American-provided information is adding to the humanitarian crisis

WASHINGTON—A secret memorandum that expanded intelligence sharing with Israel after the Oct. 7 Hamas attack has led to growing concerns in Washington about whether the information is contributing to civilian deaths, according to people familiar with the issue.

Among the worries is that there is little independent oversight to confirm that U.S.-supplied intelligence isn’t used in strikes that unnecessarily kill civilians or damage infrastructure, the people said.

The secret U.S.-Israeli intelligence-sharing agreement has received less public scrutiny than U.S. weapons sales to Israel. But it is prompting increasing questions from Democratic lawmakers and human-rights groups, even as alarm mounts within the Biden administration over how Israel is conducting its military campaign in Gaza following Hamas’s Oct. 7 attacks, which killed about 1,200 Israelis.

The concerns about intelligence sharing in some ways mirror those over the provision of American weapons as the death toll mounts in Gaza, and President Biden has left open the possibility of withholding some arms from its closest ally in the Middle East. That possibility hasn’t been raised with intelligence, but its potential for contributing to civilian casualties is being discussed in the administration and on Capitol Hill.

“What I’m concerned about is making sure our intelligence sharing is consistent with our values and our national-security interests,” Rep. Jason Crow (D., Colo.), a member of the House Intelligence Committee, said in an interview.

Crow, who in December wrote to Director of National Intelligence Avril Haines seeking details of the sharing arrangements, added that he worried that “what we’re sharing right now isn’t advancing our interests.”

Israel’s military operation since the Oct. 7 attack has led to the deaths of about 32,000 residents of Gaza, many of them women and children, according to Palestinian health authorities, whose figures don’t distinguish between militants and noncombatants. Israel’s military says the total death toll is roughly accurate but disputes the composition, saying more than one-third of the dead are militants.

Israel’s military operation in Gaza has also destroyed or severely damaged a large swath of civilian infrastructure, including mosques, hospitals and universities. Israel says the widespread destruction is unavoidable because of Hamas’s decision to embed its military infrastructure intentionally within civilian areas to shield itself from Israeli attacks.

Crow said he met separately with a senior Israeli military figure and U.S. intelligence officials and said there were “some pretty big inconsistencies” in the two sides’ accounts of the civilian toll.

The intelligence sharing with Israel is conducted under a secret memorandum that the White House issued shortly after Hamas’s Oct. 7 attack and amended a few days later, U.S. officials said. At about the same time, the U.S. expanded its intelligence collection on Gaza, having largely relied on Israel to spy on the enclave in recent years.

At the start of the war, the U.S. intelligence community framed guidelines for sharing intelligence with their Israeli counterparts, but top White House policymakers ultimately determine whether any violation has occurred, people familiar with the process said.

U.S. intelligence agencies compile instances of potential violations of the laws of armed conflict by both sides in Gaza as part of a biweekly report titled the “Gaza Crisis Potential Wrongful Acts Summary,” outlining specific incidents and trends related to the war, one of the people familiar with the process said.

Israeli military spokesman Rear Adm. Daniel Hagari said in a press briefing Tuesday that in his 30 years in Israel’s military, the level of intelligence and military cooperation between Israel and the U.S. has never been higher.

“We are experiencing unprecedented levels of intelligence coordination,” he said.

Israeli officials declined to comment on specifics of the intelligence-sharing arrangement.

American spy agencies’ support to Israel is aimed mainly at helping locate the leaders of Hamas’s military wing, finding hostages held by the group and watching Israel’s borders, U.S. officials and others familiar with the issue said. The U.S. shares what is known as raw intelligence, such as live video feeds from intelligence-gathering drones over Gaza, with Israeli security agencies, they said.

The U.S. doesn’t share intelligence specifically intended for ground or airstrike operations in Israel’s military campaign in Gaza, the people familiar with the issue said.

“Our intelligence sharing is focused on hostage-recovery efforts and preventing future incursions into Israel. That includes monitoring mobilization or movement near the border,” an administration official said.

U.S. officials familiar with the October secret memorandum said that Israel is required to ensure that U.S. intelligence isn’t used in ways that cause unacceptable civilian casualties or damage to civilian infrastructure.

However, Israel is responsible for certifying its own compliance, and in some cases does so orally, officials said. In addition, they said, it is hard to know how U.S.-provided intelligence is used once it is combined with Israel’s own data.

“Israel provides assurances that operations making use of U.S. intelligence are conducted in a manner consistent with international law, including the Law of Armed Conflict, which calls for the protection of civilians,” a senior U.S. intelligence official said.

When Washington shares intelligence with allies, it first assesses what a partner could do with that information—such as conduct a strike—and decides whether it would be legal for the U.S. to do the same. Based on that determination, the U.S. may ask for additional assurances from the ally on what it would do with the intelligence before sharing it.

“We cannot provide actionable information that could lead to lethal consequences by a country unless we ourselves are authorized to conduct the same activity,” said Douglas London, a retired CIA operations officer and nonresident scholar at the Middle East Institute.

The House Intelligence Committee’s Republican chairman, Michael Turner of Ohio, said in December that the U.S. was being cautious in sharing intelligence on Hamas’s leadership and filling gaps in Israel’s intelligence collection.

“We are being selective as to the information that’s being provided,” Turner said on CBS’s “Face the Nation.”

But Sarah Yager, Washington director of New York-based nonprofit Human Rights Watch said the intelligence-sharing arrangement has little in the way of rules and restrictions and “essentially opens up the entire U.S. vault.”

Separately, the administration is weighing assurances from Israel that U.S.-provided weapons are used in accordance with humanitarian law and isn’t blocking U.S. or U.S.-supported humanitarian aid deliveries, U.S. officials said.

Israel earlier in March provided those assurances, which are required to keep U.S. weapons flowing to the country, they said.

Human Rights Watch and Oxfam, a British charity, argued in a March 19 memorandum to the U.S. government that those assurances are “not credible” and said arms transfers should be suspended immediately.

EVs and other digital-controlled products open extra access to the grid, which enemies can exploit.

China launches an amphibious attack on Taiwan. The U.S. responds with a missile attack to sink Chinese ships. Within minutes, California is plunged into darkness, followed by New York and Washington. Electric trucks around America start crashing into other vehicles.

This may seem far-fetched, but government climate policies are making it easier for the Chinese Communist Party to wage a multifront cyberattack. Even the Biden administration is raising alarms about how malign actors could exploit electric vehicles, chargers and rooftop solar systems to wreak havoc on the homeland.

So-called distributed energy systems provide an increasing number of entry points to the grid. An academic study last November modeled a case in which a remote attacker commandeered public EV chargers to create electric frequency distortions that led to a systemwide blackout in Manhattan.

“Such attacks will become feasible by 2030 with increased EV adoption,” the authors warned. President Biden hopes to install 500,000 public EV chargers by 2030. That’s 500,000 potential bots America’s enemies could turn into weapons to take down the grid.

Rooftop solar and renewable generators are similarly vulnerable. A 2022 Energy Department cybersecurity briefing noted that distributed renewable generators could be more vulnerable than fossil-fuel and nuclear plants to cyberattacks because “their output is highly configurable in unique and powerful ways” and “software-driven and digital-controlled.”

“As more solar is installed and inverters become more advanced, this risk grows,” the Energy Department warns. If a solar inverter’s “software isn’t updated and secure, its data could be intercepted and manipulated. An attacker could also embed code in an inverter that could spread malware into the larger power system.” Notably, Chinese companies including Huawei—whose telecom equipment the U.S. has blacklisted for national-security reasons—dominate the global solar-inverter market.

EVs present their own risks. New cars are equipped with high-tech software that improves navigation, fuel efficiency and safety. EVs additionally connect to the grid when they charge and are controlled by software systems that can be updated remotely. Tesla has been able to increase a vehicle’s battery range and power input simply with a remote software update.

Many Chinese EVs are even more advanced than those coming off U.S. assembly lines. They can alert drivers when a traffic light is about to turn green and trigger flashing lights or audible warnings if a driver appears to be getting drowsy.

But these systems rely on sensors, facial recognition and microphones that can collect sensitive information. Vehicles can record audio and video, as well as gather intel about the driver’s identity, finances and contacts if his phone is connected by Bluetooth. If the idea of the government using “smart cars” to surveil and control society sounds Orwellian, welcome to the People’s Republic of China.

The Associated Press reported in 2018 that China was requiring automakers operating in the country, including foreign-owned companies like Tesla, to transmit real-time data on drivers of “alternative energy vehicles” to government monitoring centers. Here’s betting Chinese mandarins don’t want this data only to nab speeders.

Enter the Commerce Department, which in March launched a national-security investigation into vehicles that connect to the grid and other critical infrastructure and that are designed, developed or manufactured by foreign adversaries. “Connected vehicles from China could collect sensitive data about our citizens and our infrastructure and send this data back to the People’s Republic of China,” Mr. Biden warned as he ordered the probe. “These vehicles could be remotely accessed or disabled.”

Pervasive data sharing of sensitive information, the Commerce Department warns, reflects the Chinese government’s “broader approach to co-opting private companies—one that raises significant concerns about how the PRC government might exploit the growing presence” of Chinese-made vehicles in foreign markets.

Chinese electric passenger cars haven’t penetrated the U.S. market in part because of 25% tariffs. American consumers also haven’t warmed to EVs. But businesses and governments are spending hundreds of millions of dollars to electrify their fleets to meet their CO2 emissions goals. Many are now turning to Chinese EV manufacturer BYD.

BYD ranked as California’s top seller of electric trucks in 2022 and second in buses, mostly used by public-transit agencies, ports and airports. A congressional investigation this year revealed suspicious cellular modems in Chinese cranes at U.S. ports. Don’t think Chinese electric trucks pose the same risks?

You don’t have to be paranoid to wonder whether Beijing has egged on the West’s climate obsession because Chinese leaders view green technology as a tool they can exploit. Some of the technology’s national-security risks can probably be mitigated, but not when the government is putting the pedal to the metal.

Factory does not have enough work to keep functioning normally in the coming years

French train maker Alstom has put the UK government on notice that it is planning to mothball its historic factory in Derby that employs 1,300 people after delays in orders for the High Speed 2 line. 

The plant, which Alstom acquired in its 2021 takeover of Canada’s Bombardier, does not have enough work to keep functioning normally in the coming years, in part because of UK Prime Minister Rishi Sunak’s decision to cancel the northern part of the project from Birmingham to Manchester.

“We have worked constructively with the government on securing a sustainable future for Derby Litchurch Lane, but after 10 months of discussions we have run out of time, and the production lines have stopped,” said Alstom.

“We will now consult with our staff, with trades unions and with our UK supply chain to provide as much certainty as we can,” it added. 

Alstom and its joint venture partner Hitachi in 2021 won a contract worth up to £2.8bn to build 54 trains for the HS2 rail line.

Mark Harper, the secretary of state for transport, said in a letter posted on social media platform X that he recognised the “challenges” faced by Alstom, Hitachi and their suppliers.

He said the government had “looked extensively at bringing forward opportunities for rolling stock orders and refurbishment”. 

But Harper also added: “Train manufacturing is a competitive, commercial market, which means there can be no guarantee of orders for individual manufacturers, and they need to factor this into their business planning and bidding decisions.”

Alstom’s woes in the UK were one of the causes of a cash crunch the group announced in October, which had led to inventory build-ups and delays in taking payment for orders. It said about a third of the squeeze stemmed from delays in completing the Aventra programme, a project to build 443 electric trains in the UK. 

As Alstom sought to protect its investment grade credit rating, the French company soon after said it would start selling assets and flagged that it might potentially need to carry out a capital increase. Alstom’s shares are trading about 30 per cent lower than before the October warning, near their historic lows, to close at €14.13 on Thursday.

Preparations are under way for the possible capital increase, people familiar with the matter have said, although no final decisions have been made on its size or timing. 

Known for making France’s high-speed TGV trains, Alstom is the world’s second-biggest train manufacturer after China’s CRRC and has contracts stretching from Australia to Saudi Arabia, with more than 80,000 employees globally.

Labour’s shadow transport secretary Louise Haigh said the mothballing of Alstom’s Derby plant “will be devastating for Alstom employees, for Derby, and for Britain’s rail industry”.

She added that Harper “has failed to treat this situation with the urgency it deserves and has questions to answer on why he has failed to deliver on agreements to act to plug gaps in order schedules”.

- Will not seek the second term when current one ends in 2025

Cliff Asness, CIO of AQR Capital Management, is on a winning streak after several years of losses. What’s working now.

Cliff Asness, chief investment officer of AQR Capital Management, one of the world’s largest quantitative fund managers, is feeling vindicated these days. The firm, with $103 billion in assets, uses analytical strategies to bet on different market factors, and lately these strategies have yielded solid returns.

Cliff Asness, chief investment officer of AQR Capital Management, one of the world’s largest quantitative fund managers, is feeling vindicated these days. The firm, with $103 billion in assets, uses analytical strategies to bet on different market factors, and lately these strategies have yielded solid returns.

AQR’s winning streak, however, comes on the heels of some of the biggest losses in its 25-year history, and a more-than 50% drop in assets under management, which peaked in 2018 at $226 billion. Like many quantitative funds, AQR was pummeled from 2018 to 2020 as the spreads, or return differentials between value and growth factors, reached the widest point ever.

“When you tell people [that the weakness in value factors] is ridiculous and that it will change, and then it does, you’re not entirely human if you don’t feel a little bit of vindication,” Asness says.

The AQR Apex Strategy, the firm’s marquee multistrategy hedge fund, gained 16% in 2023 and was up 6.2% year to date through February. The $720.3 million AQR Diversifying Strategies ), an actively managed multistrategy mutual fund combining six of the firm’s alternative asset strategies, has a three-year annualized return of 12.3% since its 2020 launch, according to Morningstar, placing it in the top 9% of its multistrategy category, versus a 4.2% three-year return among peers.

Notably, in 2022’s stock market selloff, the fund returned 14.5%.

Asness was a student of and teaching assistant for Eugene Fama, the Nobel Prize–winning University of Chicago economist and a father of factor investing, an investment approach that targets specific drivers of return. Barron’s recently spoke with Asness about value investing and the importance of diversification. An edited version of the conversation follows.

Cliff Asness: If value works, on average, stocks with low multiples are too low. It isn’t that low-multiple stocks are better companies, they’re not. They’re typically worse than growth companies. Their inferiority to growth stocks is more than reflected in the price, leading them to be priced too low. On the expensive-growth-stock side, these usually are better companies in terms of execution, markets, and growth, but on average the market seems to pay too much for them. Low multiples and high multiples tend not to be justified.

We also remove the industry bias because comparing, say, tech to textiles is a hard one on multiples. To remove the industry tilt, we compare stocks only to their industry peers, using multiple valuation measures. Based on that, we go long and short within an industry in roughly equal amounts, and then repeat this across every sector. The whole quantitative investing process is very different from the [Benjamin] Graham and [David] Dodd value process. It is betting on the average tendencies of things, not specific companies, but the spirit of what most modern factor quants are looking for is similar to what traditional value investors seek.

We launched our firm in mid-1998, in the last 18 months before the top of the dot-com bubble. If you asked me post–tech bubble whether there was a chance that valuations would get out of whack at a scale bigger than the dot-com bubble, which was bigger than we had ever seen in the data before the dot-com bubble, I would have said, highly unlikely. At the end of 2020, by the way we measure value, the price distortion was more extreme than in the dot-com bubble. The biggest lesson I learned was, the world is even crazier than I thought.

We had gotten near the dot-com bubble level pre-Covid. It took a pandemic to shoot past it, wherein the only things you needed to own were stocks like Peloton Interactive and Tesla. I’m not even sure I would have done something dramatically different from an investment perspective. Maybe I would have braced our clients more [for our underperformance].

What has helped your performance lately?

Our value measures did well last year. We don’t bet on industries, so we weren’t massively short the Magnificent Seven. We were long some of those stocks. I don’t remember which, because that’s not how I view the world.

We run an active portfolio with 1,000 longs and 1,000 shorts that isn’t capitalization-weighted. Last year, weightings really mattered, [as did] not taking industry bets and not betting against all the big guys. Value outside the U.S. did well for us. The fact that value is strong almost everywhere ex-U. S. is often missed. Everything else worked, too. It was a good year for quality and low risk and all the other things quants like us enjoy.

We’re starting to see a turn, although it has been slower than I would have guessed. People look at a rolling few years’ performance, so it takes time. A separate matter, which I have whined about publicly, is that privates [companies investing in privately held assets] have been sucking up a lot of the world’s alternative investment.

At the end of 2020, the spread between value and growth was the widest we had ever seen. It has been steadily narrowing. Value is cheaper now than it normally is on a three- to five-year horizon. I still like value more than average.

Momentum among individual stocks has been strong this year. Quality has been going strong for the past three or four years. Broadly speaking, you can think of quality as falling into one or two buckets. Is the company making more money than in the past, or are profit margins better? Also, low-volatility stocks have tended to keep up with their riskier counterparts.

AQR is a proponent of diversification, but the average investor is heavily weighted in U.S. stocks, particularly large-caps. That has worked in investors’ favor. Why should they change?

Since the early 1990s, about 80% of the U.S. dominance has come from relative price/earnings multiple expansion versus non-U. S. stocks. People were paying less for the U.S. at the beginning, and now they are paying considerably more. Maybe that is justified; maybe things like U.S. tech dominance are real. But justified doesn’t mean repeatable. Justified at best means something isn’t going to reverse in a big way.

Looking to the future, the case that the U.S. will have permanently higher equity returns is pretty untenable. Even if U.S. companies are worth it, they are priced as such.

Why should you try to do better as an investor? There are a few reasons. Bear markets still happen, both short-term and long-term ones. Sources of return uncorrelated with stocks and bonds will always make a portfolio better. They protect you when stocks and bonds have a tough year.

Markets on average are still expensive versus history, although not as expensive as they were. My partner, Antti Ilmanen, wrote a book, Investing Amid a Low Expected Return Environment, which looked at a rolling 10-year stock-bond performance starting from 1900 to 2020. The 60/40 [stock/bond] global portfolio has returned about 4.5% over inflation for about 100 years, which sounds low, but 40% is in bonds and the return is above inflation.

At the end of 2023, Antti’s forecast for the global 60/40 was a 2.9% real return over the next five-to-10 years. That is a low return versus history. If people assume that the 20 th century repeats [in investment returns], Antti would still say they are being optimistic.

Do you want to get more people mad at me? Let me step back to private equity for a second. Private-equity funds are concentrated, levered equities. The notion that they are less risky, except on a very short-term basis when they have to report the value of their holdings, strikes me as ridiculous. Private-equity managers say, we don’t know the value of it, but they had an estimate of the value when they bought it. If their market fell by half, it wouldn’t be hard for the best managers to tell you what their estimate is of the new value. You simply can’t look it up on Bloomberg.

Sometimes private-equity investors will say, being in a private-equity fund forces us to be better investors because the long lockups won’t let us sell and we can’t watch the value every day. I also admit my criticism reflects my professional jealousy because it’s frustrating to compete against people who don’t have to report the same way you do.

Private credit has all the same features and problems. It’s the same lockups and the inability to look at the holdings. There is no magic to the business: Private credit funds are buying high-yield bonds and holding on to them. There’s no magic to that. If a long-term bear market occurs, which we haven’t seen in quite a long time, you don’t want to find out that you have 50% more risk assets than you realize.

May I defend myself? If someone asks a reasonable question politely, I’ll go through 10 rounds of trying to explain some geeky thing to someone who is genuinely trying to learn. I do have a bit of a short fuse when I sense intellectual dishonesty or someone is being rude. I have a bad habit of being rude back.

Thanks, Cliff.

Statistics bureau says companies still suffering from ‘insufficient market demand’ and calls for more policy support

China’s factory activity has shown signs of expansion for the first time in six months in a positive sign for Beijing as the world’s second-largest economy grapples with a deep property slowdown and weak investor confidence.

The National Bureau of Statistics on Sunday said the manufacturing purchasing managers’ index was 50.8 points in March, up from 49.1 in February and the highest in a year, supported by rising export orders. A reading above 50 indicates expansion from the previous month.

But the NBS warned that further state support for industry was needed, with companies suffering from “insufficient market demand”, underlining worries among China’s trading partners that industrial overcapacity could spill over into export markets.

“In March, as companies accelerated their resumption of work and production after the spring festival, market activity increased,” Zhao Qinghe, senior statistician at the National Bureau of Statistics, said in a statement, referring to the weeklong lunar new year holiday in February.

China’s economy has shown signs of stabilisation in recent weeks after mixed signals last year, when Beijing said gross domestic product grew 5.2 per cent despite weak export revenue and property sales.

The Communist party set a growth target of 5 per cent for 2024, the same as last year, at this month’s meeting of China’s rubber-stamp parliament. Analysts said the goal was ambitious and would require increased stimulus support.

But industrial profits in the January-February period hit a 25-month high, according to data released on Wednesday. Economists said this indicated the industrial sector was bottoming out.

Citi said this week it was revising up its full-year estimate for GDP growth in 2024 to 5 per cent from 4.6 per cent, citing recent data and firmer policy responses from the government.

In addition to stronger industrial profits, the bank said exports had beaten expectations, services activity was robust during the lunar new year holiday and capital expenditure and infrastructure investment were solid.

Non-manufacturing PMI, which includes services and construction, was 53 in March, up from 51.4 in February and the highest since the middle of last year.

The signs of stabilisation come after China’s president, Xi Jinping, sought to send a strong signal to foreign investors by meeting US chief executives in Beijing on Wednesday.

In its PMI release on Sunday, the NBS said the indices for new export orders and imports were 51.3 and 50.4, respectively, an increase of five and four points from the previous month.

The bureau said the increase was led by exports of chemical fibre, rubber and plastic products, as well as cars and computer and communications equipment.

The NBS said the PMI results reflected “intense industrial competition and a high proportion of enterprises with insufficient market demand”.

It said policies to boost domestic consumption through large-scale equipment upgrades and consumer goods trade “need to be further detailed and implemented” to provide strong support for manufacturers.

In a research note this week, ING said a continued recovery of manufacturing would contribute to Beijing’s goal of reaching the 2024 growth target, “but more supportive policies are still needed to sustain the momentum and recovery”.