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“His Body Was Badly Swollen” – Chilling Account Of Death, “Coercion And Abuse” At The “Riyadh Ritz-Carlton”

Several months ago, we picked up on a story circulating in the Arabic-language press that one of the dozens of Saudi Arabian elites who had been rounded up during Mohammad bin Salman’s corruption crackdown had been beaten to death by mercenaries at the Riyadh Ritz Carlton.

Here’s an excerpt from that story, translated to English by Middle East Eye:

Major general Ali Alqahtani, who was detained in early November as part of an alleged anti-corruption drive, had been working in the royal guard forces.

He was the manager of the private office of Prince Turki Bin Abdullah, the son of former king Abdullah Bin Abdulaziz, according to the newspaper.

Alqahtani died on 12 December after being tortured with electric shocks, and his family struggled to recognise him after receiving his body, according to sources, the newspaper reported.

About a month before reports of Al Qahtani’s death, the New York Times’ Tom Friedman was being mercilessly mocked for a bizarre puff piece portraying bin Salman as a brilliant and liberal modernizing reformer.

Well, it appears that – when it comes to coverage of Saudi Arabia, at least – Grey Lady has learned from its mistakes. Because today, it published a scathing expose about the abuses endured by the detainees, a group that included many members of the Saudi royal family. In its report, the Times revealed that at least 17 detainees were hospitalized for physical injuries during captivity, and that one detainee later died from his wounds.

During months of captivity, many were subject to coercion and physical abuse, witnesses said. In the early days of the crackdown, at least 17 detainees were hospitalized for physical abuse and one later died in custody with a neck that appeared twisted, a badly swollen body and other signs of abuse, according to a person who saw the body.

Most of the captives were released last month. But even though they’ve regained their freedom, many of the country’s wealthiest businessmen now live in fear of being arrested in one of MbS’s shakedowns.

Businessmen once considered giants of the Saudi economy now wear ankle bracelets that track their movements. Princes who led military forces and appeared in glossy magazines are monitored by guards they do not command. Families who flew on private jets cannot gain access to their bank accounts. Even wives and children have been forbidden to travel.

In November, the Saudi government locked up hundreds of influential businessmen — many of them members of the royal family — in the Riyadh Ritz-Carlton in what it called an anti-corruption campaign.

Most have since been released but they are hardly free. Instead, this large sector of Saudi Arabia’s movers and shakers are living in fear and uncertainty.

…

To leave the Ritz, many of the detainees not only surrendered huge sums of money, but also signed over to the government control of precious real estate and shares of their companies — all outside any clear legal process.

The government has yet to actually seize many of the assets, leaving the former detainees and their families in limbo.

One former detainee, forced to wear a tracking device, has sunk into depression as his business collapses. “We signed away everything,” a relative of his said. “Even the house I am in, I am not sure if it is still mine.”

As MbS prepares to embark on his second visit to the US since inauguration day, his backers are emphasizing the liberalizing reforms that he’s enacted: Allowing women to drive, liberalizing entertainment and his ambitious “Vision 2030” initiative to diversify the Saudi economy away from its energy dependence, which has left it vulnerable to painful economic shocks when the price of oil is low.

Mohammad bin Salman

As the Times does – correctly – point out that many of the members of the royal family who were prosecuted had probably stolen from the state, since corruption is famously endemic in Saudi Arabia. But it’s unclear, says the Times, how much of the process was motivated not by an urge for justice, but by personal score-setting.

A long-running family feud appears to have played into it somewhat, as MbS presses the children of King Abdullah, the monarch who died in 2015, to return billions of dollars that they believe to be their inheritance.

Though the Saudi government had promised to improve transparency, the crackdown has mostly been conducted in secret, with transactions carried out in ways that avoid public disclosure, and with travel bans and fear of reprisals preventing detainees from speaking freely. And unsurprisingly, a representative for the Saudi attorney general said the detentions were carried out with respect for the law:

The government said in its email that “the investigations, led by the Attorney General, were conducted in full accordance to Saudi laws. All those under investigation had full access to legal counsel in addition to medical care to address pre-existing, chronic conditions.”

…

They have argued, however, that it was a necessarily harsh means of returning ill-gotten gains to the treasury while sending a clear message that the old, corrupt ways of doing business are over. And they have defended the process as a kind of Saudi-style plea bargain in which settlements were reached to avoid the time and economic disruption of a drawn-out legal process.

…

“At the start of the crackdown they promised transparency, but they did not deliver it,” said Robert Jordan, who served as American ambassador to Saudi Arabia under President George W. Bush. “Without any kind of transparency or rule of law, it makes investors nervous that their investments might be taken and that their Saudi partners might be detained without any rationale to the charges.”

As of now, nobody outside of the royal family can say for sure of the dollar value of the assets expropriated by the Saudi state. But reports have put the figure at $100 billion. Though, as the Times notes, it’s unclear whether the State has moved to repossess real estate and other assets that were supposedly handed over as part of individuals’ settlements.

Times reporters spoke to dozens of people familiar with how the crackdown unfolded, and they managed to provide the most detailed glimpse yet into exactly what happened inside the walls of the world’s most luxe prison.

It began its story with an anecdote about the arrest of Prince Alwaleed bin Talal, one of the most recognizable Saudi businessmen. Bin Talal was reportedly forced to pay a $6 billion “freedom fee” or face weeks of unrelenting torture. However, associates of the prince have said they don’t know the full extent of the penalties he was forced to pay. Because of this, he has been removed from the Forbes list of the world’s richest individuals, along with nine other Saudis who were captured during the crackdown:

After being lured to Riyadh, more than 200 members of the Saudi elite were locked in the Ritz Carlton in rooms where glass shower doors and curtain rods had been removed to prevent suicide attempts.

Before dawn on Nov. 4, Prince Alwaleed bin Talal, the kingdom’s most famous investor and one of the world’s richest men, was asleep at a desert camp where he repairs to relish the simple life when he was summoned by the royal court to see King Salman, according to two associates of his family. It was a strange request for that hour, but one does not ignore the king’s wishes, so he returned to Riyadh, where his guards were dismissed, his phones taken from him and he was locked in the Ritz.

Over the next 24 hours, similar calls lured in more than 200 people, including some of the kingdom’s wealthiest and most powerful men. They included Prince Mutaib bin Abdullah, a son of King Abdullah and head of one of the country’s three main security services; Fawaz Alhokair, who owned the kingdom’s franchises of Zara, the Gap and dozens of other stores; Salah Kamel, an elderly businessman from the Red Sea port city of Jidda; and many other princes, businessmen and former government officials.

Most ended up in the Ritz, in rooms whose glass shower doors and curtain rods had been removed to prevent suicide attempts. They could watch television and order room service, but had no internet or phones.

Outside, their relatives panicked, and managers of their far-flung businesses drew up contingency plans to keep operations running, unsure of how long their bosses would be gone.

Eventually, the detainees were allowed to reassure their families through short, monitored calls.

Reports of abuse have begun to leak out as relatives of the detainees told the Times that their loved ones were deprived of sleep, beaten and interrogated with their heads covered.

Relatives of some of the detainees said they were deprived of sleep, roughed up and interrogated with their heads covered while the government pressured them to sign over large assets.

Evidence of such abuse has been slow to emerge, but officials from two Western governments said they deemed the reports credible.

One case involved a Saudi military officer who died in custody. One person who saw the corpse of the officer, Maj. Gen. Ali al-Qahtani, said that his neck was twisted unnaturally as though it had been broken, and that his body was badly bruised and distended. His skin showed other signs of physical abuse, the person said.

A doctor and two other people briefed on the condition of the body said that it had burn marks that appeared to be from electric shocks.

The Times also included a detailed account of the circumstances surrounding the death of Al Qahtani’s

General Qahtani, an officer in the Saudi National Guard who was believed to be about 60, was not wealthy himself, so his value as a major anti-corruption target is questionable. But he was a top aide to Prince Turki bin Abdullah, a son of the late King Abdullah and a former governor of Riyadh, and the interrogators may have been pressing the general for information about his boss, Prince Turki. The members of King Abdullah’s family are seen as rivals of Crown Prince Mohammed and his father, King Salman.

In November, General Qahtani was taken to an elite hospital near the hotel for radiological scans and other treatment, where he showed signs of having been beaten, according to a doctor briefed on his condition.

He was returned to the hotel for further interrogation, and later pronounced dead at a military hospital.

The kingdom has never publicly provided an explanation of the general’s death.

Members of Qatani’s family have been afraid to speak about his death since word got back to MbS that one of the late King Abdullah’s sons had complained about Qatani’s death.

Members of the Qahtani and Abdullah families have been afraid to discuss the general’s death publicly for fear of further retribution, several people who have spoken to them said.

Another of the late king’s sons, Prince Mishaal bin Abdullah, complained about General Qahtani’s treatment to a circle of friends, and immediately afterward Prince Mishaal, too, was arrested and locked in the Ritz.

In another galling revelation, the Times revealed that several Western firms were complicit in the government’s expropriation of companies and assets owned by the detainees. Both PwC and British law firm Clifford Chance helped transfer the ownership of MBC, the world’s largest private media company, to the Saudi state.

Crown Prince Mohammed first expressed interest in buying the Arab world’s largest private media company, MBC, in 2015, according to three associates of the company’s leadership. Although not considered highly profitable, MBC owns a range of satellite television stations beaming shows like “The Voice” and “Arabs Got Talent” into millions of homes, and the company has tremendous power to sway Arab public opinion.

Negotiations over the sale had bogged down when a team from the international accounting firm PWC arrived to vet the company’s books in October.

The company’s owners and most of its board were arrested and detained on Nov. 4. Four days later, PWC’s accountants visited the company’s headquarters in Dubai to finish their report, according to two professionals with knowledge of the meeting.

Then a second foreign firm, the British law firm Clifford Chance, drew up the paperwork to transfer the company’s ownership, according to three professionals with knowledge of the deal.

Last night, reports emerged that the Saudi government wouldn’t be ready to hold a public offering for a 5% stake in state-owned Aramco until 2019. But given the disturbing revelations published by the time, investors are growing increasingly wary of investing in a company controlled by the Saudi state…

…Which would suggest that a private sale to the Chinese government, which has a proven track record of ignoring human rights abuses, is looking increasingly likely.

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Is The Dot.Com Bubble Back?

Authored by Lance Roberts via RealInvestmentAdvice.com,

Let me start out by saying I hate market comparisons.

While history certainly does “rhyme,” they are never the same. This is especially the case when it comes to the financial markets. Chart patterns may align from time to time, but such is more a function of pattern-fitting than anything else.

However, when it comes to fundamentals, standard-deviations, extensions, etc., it is a different story. A recent article by Ryan Vlastelica brought this to mind.

“While the strategy of investing in internet-related companies will likely always be first associated with the dot-com era, the long-lived bull market has proved to be just as strong a period for a sector that has influenced nearly every aspect of the economy.

Friday marks the ninth anniversary of the financial crisis bottom, and since that period—by one measure, the start of the current bull market—internet stocks have been among the best performers on Wall Street.”

“’The current tech rally is possibly the greatest investment story ever told,’ wrote Vincent Deluard, global macro strategist at INTL FCStone, who was speaking about the sector broadly, and not these ETFs in particular. He noted that the MSCI World Technology Index has added $5.7 trillion in market capitalization since February 2009, ‘when the entire sector amounted to just $1.5 trillion.’”

Since Ryan was probably in elementary school during the “Dot.com” era, and many current fund managers weren’t managing money either, it is easy to dismiss “history” under a “this time is different” scenario. Even the ETF’s used as an example of the “this time is different” scenario didn’t even exist prior to the “dot.com bubble” (The QQQ didn’t come into existence until 1999)

Unfortunately, while the names of the companies may have changed, the current “dot.com boom” is likely more than just a “rhyme” with the past.

Investors Once Again Being Misled

From a fundamental basis, there is a difference between today and the “Dot.com days of yore.” In 1999, “dot.com” companies were all bunched together and few actually made money. Fast forward to 2018, and the division between an “internet company” and every other company is now invisible. In fact, companies like Apple and Amazon are no longer even classified as “technology” companies but rather consumer goods companies.

But nonetheless, fundamentals don’t discriminate between classifications, and once again investors are paying excessively high prices for companies that generate very little, if any, profit.

Just after the “dot.com” bust, I wrote a valuation article quoting Scott McNeely, who was the CEO of Sun Microsystems at the time. At its peak, the company was trading at 10x its sales. (Price-to-Sales ratio) In a Bloomberg interview Scott made the following point.

“At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees.That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?

How many of the following “dot.com” companies do you currently own which are currently carrying price-to-sales in excess of 10x? (Price-to-Sales above 2x becomes expensive. If I included companies with P/S of 5x or more, the list was just too expansive for this post.)

As noted above, there were only 3-ETF’s that existed just prior to the “dot.com” bubble -SPY, QQQ, and DIA. In order to do some better comparative analysis, I had to dig to find a technology-based mutual fund that existed back in 1990. Not surprisingly, there were very few but the T. Rowe Price Science and Technology (PRSCX) fund fit the bill and tracks the technology index very closely.

When we compare the fund to Shiller’s CAPE ratio, not surprisingly, since Technology makes up a quarter of the S&P 500 index, there is a high correlation between Technology and overall market valuation expansion and contraction.

As was the case in 1998-2000, the fund exploded higher as exuberance over the transformation of the world was occurring before our eyes. Investors globally were willing to pay “any price” to “get in on the action.” Currently, investors are once again chasing returns in the “FANG” stocks with little regard to underlying value. The near vertical ramp in the fund is reminiscent of the late 1990’s as valuations continue to escalate higher.

The chart below shows this a bit more clearly. It compares the fund to both the RSI (relative strength index) and inflation-adjusted reported earnings of the S&P 500 on a QUARTERLY basis. Using quarterly data smooths volatility of these measures over time.

A couple of interesting points arise.

The RSI of the market is as overbought today as it was leading up to the “Dot.com” crash and more overbought today than just before the “financial crisis.”
Despite massive stock buybacks and cost reductions through wage and employment suppression, reported earnings have only grown by a little more than $11 / share since the peak of the market in 2007. In other words, despite the ongoing bullish commentary about how great earnings are, they have actually only achieved a 1.14% annualized rate of growth.

Of course, investors have disregarded the lack of real earnings growth. The valuation surge is also shown in the analysis below. I have taken the price of the fund and divided by the inflation-adjusted reported earnings of the S&P 500, or a modified “P/E” ratio. While not a strictly apples-to-apples comparison, the point is that since Technology makes up roughly 25% of the market, it is a big driver of the “P” and not a huge contributor to the “E.”

Again, on this basis, investors are once again paying a high price for poor fundamental quality in the “hope” that someday the fundamentals will catch up with the price. It has never been the case, but one can always “hope.”

Is The Dot.Com Bubble Back?

Whether you believe there is a “bubble” in the Technology stocks, or the markets, is really not important. There are plenty of arguments for both sides.

At the peak of every bull market in history, there was no one claiming that a crash was imminent. It was always the contrary with market pundits waging war against those nagging naysayers of the bullish mantra that “stocks have reached a permanently high plateau” or “this is a new secular bull market.” (Here is why it isn’t.)

Yet, in the end, it was something unexpected, unknown or simply dismissed that devastated investors.

This is why the discussion of “this time is not like the last time” is largely irrelevant.

Individuals no longer “invest” to become a “shareholder” in a publicly traded business. The “quaint concept” of “valuations” died with the mainstreaming of investing during the 1990’s as the “Wall Street Casino” opened for business.

Today, investors only think in terms of speculating on “electronically traded bits of paper” in the hopes the value will rise over time. The problem, of course, is they are never told when to “sell” to capture that valuation increase which is the most critical aspect of the investment process. Instead, individuals continue to “bet” the “greater fool” will always appear.

For now, the “bullish case” remains alive and well. The media will go on berating those heretics who dare to point out the risks that prevail, but the one simple truth is “this time is indeed different.”

“When the crash ultimately comes the reasons will be different than they were in the past – only the outcome will remain same.”

Eventually, like all amateur gamblers in the Las Vegas casinos, the ride is a “blast while it lasts” but in the end, the “house always wins.”

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Climate Change Problems Will Be Solved Through Economic Growth

GlobalWarmingPetarVeinovicDreamstime “It is, I promise, worse than you think,” David Wallace-Wells wrote in an infamously apocalyptic 2017 New York Magazine article. “Indeed, absent a significant adjustment to how billions of humans conduct their lives, parts of the Earth will likely become close to uninhabitable, and other parts horrifically inhospitable, as soon as the end of this century.”

The “it” is man-made climate change. Temperatures will become scalding, crops will wither, and rising seas will inundate coastal cities, Wallace-Wells warns. But toward the end of his screed, he somewhat dismissively observes that “by and large, the scientists have an enormous confidence in the ingenuity of humans….Now we’ve found a way to engineer our own doomsday, and surely we will find a way to engineer our way out of it, one way or another.”

Over at Scientific American, John Horgan considers some eco-modernist views on how humanity will indeed go about engineering our way out of the problems that climate change may pose. In an essay called “Should We Chill Out About Global Warming?,” Horgan reports the more dynamic and positive analyses of two eco-modernist thinkers, Harvard psychologist Steven Pinker and science journalist Will Boisvert.

In an essay for The Breakthrough Journal, Pinker notes that such optimism “is commonly dismissed as the ‘faith that technology will save us.’ In fact, it is a skepticism that the status quo will doom us—that knowledge and behavior will remain frozen in their current state for perpetuity. Indeed, a naive faith in stasis has repeatedly led to prophecies of environmental doomsdays that never happened.” In his new book, Enlightenment Now, Pinker points out that “as the world gets richer and more tech-savvy, it dematerializes, decarbonizes, and densifies, sparing land and species.” Economic growth and technological progress are the solutions not only to climate change but to most of the problems that bedevil humanity.

Boisvert, meanwhile, tackles and rebuts the apocalyptic prophecies made by eco-pessimists like Wallace-Wells, specifically with regard to food production and availabilty, water supplies, heat waves, and rising seas.

“No, this isn’t a denialist screed,” Boisvert writes. “Human greenhouse emissions will warm the planet, raise the seas and derange the weather, and the resulting heat, flood and drought will be cataclysmic. Cataclysmic—but not apocalyptic. While the climate upheaval will be large, the consequences for human well-being will be small. Looked at in the broader context of economic development, climate change will barely slow our progress in the effort to raise living standards.”

Boisvert proceeds to show how a series of technologies—drought-resistant crops, cheap desalination, widespread adoption of air-conditioning, modern construction techniques—will ameliorate and overcome the problems caused by rising temperatures. He is entirely correct when he notes, “The most inexorable feature of climate-change modeling isn’t the advance of the sea but the steady economic growth that will make life better despite global warming.”

Horgan, Pinker, and Boisvert are all essentially endorsing what I have called “the progress solution” to climate change. As I wrote in 2009, “It is surely not unreasonable to argue that if one wants to help future generations deal with climate change, the best policies would be those that encourage rapid economic growth. This would endow future generations with the wealth and superior technologies that could be used to handle whatever comes at them including climate change.” Six years later I added that that “richer is more climate-friendly, especially for developing countries. Why? Because faster growth means higher incomes, which correlate with lower population growth. Greater wealth also means higher agricultural productivity, freeing up land for forests to grow as well as speedier progress toward developing and deploying cheaper non–fossil fuel energy technologies. These trends can act synergistically to ameliorate man-made climate change.”

Horgan concludes, “Greens fear that optimism will foster complacency and hence undermine activism. But I find the essays of Pinker and Boisvert inspiring, not enervating….These days, despair is a bigger problem than optimism.” Counseling despair has always been wrong when human ingenuity is left free to solve problems, and that will prove to be the case with climate change as well.

For more background, see my article, “Is Degrowth the Only Way to Save the World?“

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Juror in Saifullah Khan Yale Rape Case Says Acquittal Was Justified: ‘I Think He’s Innocent’

Yale A jury acquitted former Yale student Saifullah Khan last week of committing rape on Halloween night in 2015. If you read Time, The New York Times, The Yale Daily News, or any number of other mainstream media outlets’ coverage of the case, this verdict may seem like a travesty of justice, even a calculated counterstrike against the #MeToo movement.

Khan’s defense attorney put the victim on trial, critics say, by asking her uncomfortable questions about her sexy Halloween costume, her sexual history, and her flirtatiousness toward Khan. Jess Davidson, interim director of the group End Rape on Campus, called this line of questioning “every survivor’s worst victim-blaming nightmare.”

But the Khan case is a lot more complicated than such stories have made it seem. Just ask Elise Wiener, a 56-year-old mother of three who served as an alternate juror in the case, who says she would have eagerly voted to acquit Khan if given the chance.

“It just didn’t add up,” Wiener tells me. “I think he’s innocent, I think he doesn’t deserve this, and I think it’s sad.”

Wiener didn’t get to attend the jury’s deliberations, but she sat through the entire trial, evaluating all the evidence the prosecution presented. She came away quite convinced that there was little to support the accuser’s story.

“It was like George Orwell, like 1984, where you’re looking at [the evidence], and they’re saying it’s the complete opposite of what it looked like,” said Wiener.

Khan and his accuser were seniors living in the same dormitory at Yale. They didn’t know each other well. Both attended a series of events that Halloween. In the course of the evening, the accuser became so drunk that she vomited and found herself separated from her friends. Khan walked with her back to her dorm room, where they had sex. Later, they would each remember the night very differently. Khan maintained that she had taken off her clothes for him, initiated oral sex, and then vomited again. She took a shower to clean herself off while Khan called his long-distance girlfriend, with whom he was in an open relationship. Khan’s girlfriend would testify at trial that she spoke with the accuser very briefly after her shower. The call then came to an end, and Khan and the accuser had sex.

Khan’s accuser claimed she couldn’t remember many of the night’s events but that she hadn’t consented to sex. The next morning, she told him he was “a piece of shit” and went to the university hospital to get the morning-after pill and an STD test. (Khan told her they had used protection, but the accuser didn’t trust him, she said in her testimony.) The accuser told hospital personnel that she had engaged in “consensual sex”; during the trial she said that was because she was too traumatized to admit the truth to them. After meeting with her friends, she decided to go to the university’s sexual misconduct office, where the police immediately began an investigation.

Two key pieces of evidence were supposed to establish Khan’s guilt. The first was surveillance footage of Khan and the accuser walking to her dorm. According to the prosecution, this footage showed Khan dragging an unwilling victim. But that’s not what Wiener saw.

“She was strolling with him with a big grin,” said Wiener. “And that was supposed to show that she was in a drunken stupor, and she was being dragged by him?”

The video footage, according to Wiener, simply didn’t support the prosecution’s argument.

Then there were the text messages. As The New York Times characterized them:

After Mr. Khan left, the victim said, she looked through her phone and found that he had sent messages to her friends on her behalf the night before, declining their invitations to meet up after the show.

Such a specifically deceitful act would indeed make Khan’s guilt seem more likely. The problem—unacknowledged by The Times—was that the prosecution could present no evidence that Khan had sent those messages instead of the accuser.

“There’s no evidence that it was him,” said Wiener. “It’s just not evidence, it’s conjecture.”

I asked Wiener why the accuser would make up such a story—why she would go to such lengths to punish Khan. Wiener saw a couple of possibilities. One was that she woke up revolted with herself for having slept with Khan. The other, more benign explanation is that she really had convinced herself she hadn’t consented to sex. In either case, Wiener felt the evidence simply wasn’t in her favor.

Other jurors apparently reached the same conclusion, according to The Times:

The juror who spoke anonymously said that the panel had not focused on the banter or on Mr. Pattis’s suggestion that the woman’s Halloween costume had been too sexy. Instead, the jurors focused on evidence like security camera footage that showed the complainant and Mr. Khan walking back to her dorm room. The complainant had testified that the footage showed her so drunk that she was unable to support herself, her leg dragging behind her.

“We looked at and we looked at and we looked at that video of them walking,” the juror said. “We could not see her leg dragging. We could not see her eyes shut. We could not see what she said.”

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February Budget Deficit Surges As Interest On US Debt Hits All Time High

February is traditionally not a good month for the US government income statement: that’s when it usually runs a steep monthly deficit as tax returns drain the Treasury’s coffers. However, this February was worse than usual, because as spending rose and tax receipts slumped, the US deficit jumped to $215 billion, the biggest February deficit since 2012.

According to the CBO, receipts declined by 9.4% from last year as tax refunds rose and the new withholding tables went into effect. On a rolling 12 month basis, government receipts rose only 2.1%, a clear slowdown after rising 3.1% in December after contracting as recently as March 2017. At this rate of decline, the US will post a decline in Federal Receipts by mid-2018.

Outlays meanwhile rose by 2% due to higher Social Security and Medicare benefits rose and additional funds were released for disaster relief.

But most troubling was the jump in interest on the public debt, which in the month of February jumped to $28.434 billion, up 10.6% from last February and the most for any February on record. In the first five months of this fiscal year, that interest is $203.234 bn, up 8.0% y/y and the most on record for any Oct-Feb period. The sharp increase comes as the US public debt rapidly approaches $21 trillion. And with the effective interest rate now rising with every passing month, it is virtually assured that this number will keep rising for the months ahead.

Source: Reuters

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Treasury Yields Tumble – Erase Post-Payrolls Spike

After Friday’s excited celebration of slowing wage growth spiked 30Y Treasury yields, it appears a weekend of reality-checks has prompted some to see economic growth prospects sliding…

And the yield curve is testing back to its flasttest since the start of Feb…

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Fed Admits ‘Yield Curve Collapse Matters’

As the US Treasury yield curve collapsed over the last year, various Fed speakers have promulgated the “it’s probably nothing” or “it’s different this time” narrative to divert attention away from the curve’s almost-perfect record of predicting US economic recessions.

Even US Macro data has started to disappoint (and stocks briefly caught down to it)…

So, it is fascinating that none other than Janet Yellen’s old haunt – The San Francisco Fed – has issued a report warning about the flattening of the yield curve…

“[it] is a strikingly accurate predictor of future economic activity.

Every U.S. recession in the past 60 years was preceded by a negative term spread, that is, an inverted yield curve.

Furthermore, a negative term spread was always followed by an economic slowdown and, except for one time, by a recession.”

Furthermore, as the two Fed authors explain below, the recent decline in the Treasury curve is sending recession probabilities notably higher…

The predictive power of the term spread is immediately evident from Figure 1, which shows the term spread calculated as the difference between ten-year and one-year Treasury yields from January 1955 to February 2018, together with shaded areas for officially designated recessions.

Every recession over this period was preceded by an inversion of the yield curve, that is, an episode with a negative term spread. A simple rule of thumb that predicts a recession within two years when the term spread is negative has correctly signaled all nine recessions since 1955 and had only one false positive, in the mid-1960s, when an inversion was followed by an economic slowdown but not an official recession. The delay between the term spread turning negative and the beginning of a recession has ranged between 6 and 24 months.

…

The central feature of the business cycle is that expansions are at some point followed by recessions. Long-term rates reflect expectations of future economic conditions and, while they move up with short-term rates during the early part of an expansion, they tend to stop doing so once investors’ economic outlook becomes increasingly pessimistic. A flatter yield curve also makes it less profitable for banks to borrow short term and lend long term, which may dampen loan supply and tighten credit conditions. .

…

The key question is which threshold to choose; in other words, how far does the term spread need to decline so that a forecaster should predict a future recession? Analyzing the number of false positives and false negatives for each possible threshold suggests that the best trade-off is accomplished for a threshold very close to zero. There appears to be something special about a negative term spread and yield curve inversions, both for predicting recessions and, according to additional analysis, for predicting output growth.

The implication is that a negative term spread is much more worrisome for the economic outlook than a low but positive term spread.

…

A number of observers have suggested that a low or even negative term spread may be less of a reason to worry than usual, arguing that historical experiences do not necessarily apply to the current situation; but Michael Bauer and Thomas Mertens also add that “it’s not different this time“…

“While the current environment is somewhat special – with low interest rates and risk premiums – the power of the term spread to predict economic slowdowns appears intact”.

An extensive analysis of various models leads us to conclude that the term spread is by far the most reliable predictor of recessions, and its predictive power is largely unaffected by including additional variables.

Bauer and Mertens conclude by crushing The Fed’s narrative:

Forecasting future economic developments is a tricky business, but the term spread has a strikingly accurate record for forecasting recessions.

Periods with an inverted yield curve are reliably followed by economic slowdowns and almost always by a recession. While the current environment appears unique compared with recent economic history, statistical evidence suggests that the signal in the term spread is not diminished.

These findings indicate concerns about the scenario of an inverting yield curve.

Any forecasts that include such a scenario as the most likely outcome carry the risk that an economic slowdown might follow soon thereafter.

So who do you believe? The Fed’s researchers or The Fed’s talking heads?

Read the full paper here…

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2,000 years of history says this country should be on your radar

By the late summer of 30 BC, ancient Rome had been embroiled in an almost endless, decades-long period of instability and civil war.

Twenty years prior, back in 50 BC, Julius Caesar and Pompey the Great had waged a long, bloody conflict against each other for control of Rome, one that ultimately ended with Caesar’s victory… and his subsequent assassination.

With Caesar dead, Rome once again plunged into chaos, resulting in more years of bloodshed and warfare between Marc Antony and Octavian, Caesar’s grand-nephew.

By August of 30 BC, Marc Antony had lost the war.

And with Antony and Cleopatra’s famous double-suicide, Octavian (who was later known as Augustus) soon became Rome’s first emperor.

Romans welcomed the change. They were tired of war and yearned for stability.

And with his victory over Antony and Cleopatra, Augustus began a period of relative peace and stability known as the Pax Romana that would last for more than two centuries.

The benefits to Rome were extraordinary.

Liberated from the burdensome costs of war, Rome’s treasury became flush with cash, and the government invested heavily in much-needed repairs and expansion of infrastructure.

Their redeveloped network of aqueducts carried 300 MILLION gallons of water per day into the city from distant reservoirs, a volume that rivals major cities even in our own time.

They also improved their a highway system, which consisted of 51,000 miles of paved roads up to 24-feet wide.

Plus, with all the war savings, the government was able to eliminate certain taxes and simplify the tax code.

Trade and commerce flourished. Unemployment fell. Money held its value. Prosperity and opportunity abounded. And it lasted for decades.

History is full of similar examples which show that prosperity almost invariably follows peace… especially after decades of violent civil war.

That’s exactly what’s starting to happen here in Colombia.

The conflict against Communist revolutionaries and paramilitary forces began in this country more than 50 years ago. And it has been one of the longest and bloodiest civil wars in modern history.

The human cost alone, with roughly 200,000 dead, is absolutely appalling.

And the economic costs are incalculable.

Infrastructure is an easy example: Colombia has had pitiful, dismal road and rail networks for decades.

Every time the government built a road or railway, the revolutionaries blew it up.

Highways, oil pipelines, electrical infrastructure, and even Internet / mobile architecture have either been damaged, neglected, or outright abandoned as a result of the violence.

A simple 400 kilometer drive, for instance, between Colombia’s two largest cities– Bogota and Medellin– can easily take 8-10 hours due to the pitiful road conditions.

This has had a major, unimaginable impact on domestic trade and transport.

More importantly, the government has spent the bulk of its revenue for the past several decades on security and defense… and paying for it all through cumbersome tax increases.

But that’s all starting to change.

In late 2016, the Colombian government ratified a peace treaty that formally marked the end of the civil war– which included the FARC laying down its weapons and transforming itself into a political party.

And yesterday was the very first national election since the treaty was signed– a major step to demonstrate that the peace process is real.

15 million Colombian voters cast their ballots unimpeded. Contrary to gloomy expectations, there were no stories of polling stations being blown up or voters being gunned down in the streets.

It was a peaceful election.

And for the first time in longer than anyone can remember, the question of “What to do about the FARC” did not dominate the issues.

Instead, Colombians finally have the chance to prioritize something other than security– like, the kinds of economic reforms that are necessary to increase prosperity.

(Colombia has more than a dozen political parties, so there’s no clear majority; but two of the more conservative parties had a very strong showing yesterday, suggesting a shift towards pro-growth policies.)

Now, there are definitely still problems here, so it’s not all rainbows and buttercups just yet.

Smaller paramilitary groups are still operating in the countryside. There are a lot of people who are opposed to the peace treaty.

They have mountains of regulations and tax rules to unwind.

And on top of everything else, Colombia is now having to deal with a refugee crisis from neighboring Venezuela.

But it’s becoming more and more obvious that this country is getting up off its feet.

Exports and economic growth are rising– slowly, but the initial signs are encouraging.

There’s also an abundance of new infrastructure projects already in the works or in the planning stages– and these will likely provide a strong boost to commerce and trade.

I also expect a foreign investment bonanza in this country.

Colombia is a great production hub, boasting a skilled, inexpensive workforce, cheap natural resources, plenty of manufacturing capacity, and deep-water seaports straddling two oceans.

Colombia also has a huge population of 50 million people whose economic prospects are rising.

This is a pretty rare combination, which makes this country a great option for foreign companies seeking high quality, low-cost production with quick routes to both Americas and a robust domestic economy.

And for the first time ever, these projects and investments can finally happen without the constant, looming danger of civil war.

This is just the beginning.

And if history is any guide, the prosperity and benefits that come from this Pax Colombiana can last for decades.

So it’s definitely worth keeping Colombia on your radar as there will continue to be some very compelling business and investment opportunities here.

Source

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Foreign Government Lobbying is an Abomination and Should Be Eradicated Immediately – Part 2

The sensitivities are especially important when it comes to the Qatari government — the single biggest foreign donor to Brookings.

Brookings executives cited strict internal policies that they said ensure their scholars’ work is “not influenced by the views of our funders,” in Qatar or in Washington. They also pointed to several reports published at the Brookings Doha Center in recent years that, for example, questioned the Qatari government’s efforts to revamp its education system or criticized the role it has played in supporting militants in Syria.

But in 2012, when a revised agreement was signed between Brookings and the Qatari government, the Qatar Ministry of Foreign Affairs itself praised the agreement on its website, announcing that “the center will assume its role in reflecting the bright image of Qatar in the international media, especially the American ones.” Brookings officials also acknowledged that they have regular meetings with Qatari government officials about the center’s activities and budget, and that the former Qatar prime minister sits on the center’s advisory board.

Mr. Ali, who served as one of the first visiting fellows at the Brookings Doha Center after it opened in 2009, said such a policy, though unwritten, was clear.

“There was a no-go zone when it came to criticizing the Qatari government,” said Mr. Ali, who is now a professor at the University of Queensland in Australia. “It was unsettling for the academics there. But it was the price we had to pay.”

– From the 2014 New York Times article: Foreign Powers Buy Influence at Think Tanks

The purpose of this short series is to give readers a small glimpse of how foreign governments spray around enormous sums of money throughout the Washington D.C. swamp to influence U.S. foreign policy.

Part 1 discussed the role of lobbyists in this grotesque and dangerous scheme. Specifically, lobbyists who work on behalf of a foreign government are supposed to register as foreign agents under the 1938 Foreign Agent Registration Act (FARA), but the law has no teeth in practice and is riddled with gigantic loopholes that ensure the sums of foreign lobbying happening is far beyond numbers reported under FARA.

As despicable as lobbyists running around D.C. as hired guns for foreign interests are, think tanks doing essentially the same thing are even more pernicious. At least lobbyists who register under FARA aren’t hiding what they do under an aura of respectability and academic rigor. Think tanks, on the other hand, act like prestigious paragons of policy formation and analysis, while taking enormous sums of money from foreign governments.

In some cases what’s expected from these think tanks is explicitly stated and documented, while other times the expectations, while implicit, clearly exist. It’s the arrogance and dishonesty of many of these major think tanks that really gets under my skin.

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Trump Is More Like Recent Presidents Than Anyone Wants To Admit

The flipside of Trump Derangement Syndrome, whose strongest form argues that the president is an “extinction-level threat” to democracy itself, is Trump Exceptionalism Syndrome, which holds that Trump is the greatest leader since Winston Churchill, the biblical kings David and Cyrus, or whomever.

Recent events reveal something more mundane: Trump is all too much like the other recent inhabitants of the White House. We are neither living through the End Times nor at the start of New Dawn. Instead of entering some sort of political Singularity, we’re still stuck in the Regularity. Trump is not a transformative character. Once we accept that, we can support the good things he does (supporting school choice, cutting corporate tax rates and regulations) while criticizing the bad (waving away due process, throwing in with white supremacists, and deporting immigrants, among other things).

Trump’s decisions to levy tariffs on steel and aluminum clearly fall into the bad category. They are idiotic, indefensible, economically counterproductive, and…not so different than similar policies levied by both George W. Bush and Barack Obama. Both of those guys pulled similar tricks on steel, after all. Bush did the same on Canadian timber, as Trump also did last year to much less fanfare than the current plan is getting. Hot and bothered that Trump isn’t listening to his economic advisors? Back in 2009, Obama waved away concerns that slapping a 35 percent tariff on Chinese tires would hurt U.S. workers. His administration took credit for saving 1,200 domestic jobs, even though later analyses found that the tariffs cost domestic consumers an extra $1.1 billion and actually pink-slipped over 3,000 workers on net.

So when it comes to trade, Trump is doing exactly what recent presidents—conservative and liberal, Republican and Democratic—have done. It’s lamentable, but FFS, Sen. Elizabeth Warren (D-Mass.) is out there saying she’s “not afraid of tariffs” and that we need to chuck over free-er trade because it helps the corporations. She’s also protecting her brand, so she’s refusing to say whether she supports Trump’s tariffs, his pullout from the Trans-Pacific Partnership, or his renegotiation of NAFTA. But she plainly does, right? She just can’t admit it, because it would screw up the narrative to admit that she and Trump—and Bush and Obama—actually share the same views on a bunch of stuff. As a presidential candidate, Sen. Bernie Sanders (I-Vt.) ran on explicit promises to protect U.S. industries from “unfair” competition. If you’re a free-trade, more-open-borders libertarian like myself, such broad, transpartisan agreement about letting in fewer goods (not to mention people) from abroad is actually a bigger problem and a tougher nut to crack than simply ascribing Trump’s random policy choices to insanity, ignorance, and narcissism.

When it comes to foreign policy, Trump isn’t staking out bold new pathologies, either. The establishment has been flipping out because Trump agreed to meet with North Korean dictator Kim Jong-un. There’s no question that Kim is a despicable human being, even if various Americans were willing to walk a mile in his shoes when his goons arrested and tortured American college student Otto Warmbier for being a “frat bro.” And there’s no question that Trump doesn’t seem to have any idea of what he’s doing. Yet it seems more than a little overwrought to argue, as my friend Eli Lake does at Bloomberg View, that Trump “shouldn’t waste his time negotiating with the dictator of North Korea.” After all, it didn’t work for Madeleine Albright during the last years of the Clinton administration, right? Instead, counsels Lake,

Trump could go back to his instincts from the State of the Union speech this year when he told the story of dissident Ji Seong Ho’s heroic escape from Kim’s gulags. Trump said Ji’s journey to freedom was “a testament to the yearning of every human soul to live in freedom.” Helping North Koreans achieve this basic human yearning is much harder than meeting with their tyrant. It’s also more promising—and less nauseating.

If history is any indication, it’s actually not more promising to keep on doing what we’ve been doing. The United States has held the line against North Korea since the 1950s, and things don’t seem to be getting any better. Even so, the fact that Trump is willing to say he will sit down with Kim makes him more like other presidents than different. Bill Clinton didn’t hoof it to Pyongyang, but he did send his chief diplomat to negotiate with the regime, and even Lake admits that there is “an argument that says Albright’s visit in the end was worth it.”

Trump may be acting like Clinton in another related way, too. Former congressman and current MSNBC host Joe Scarborough has said it’s “painfully obvious” that Trump is talking up the North Korea sitdown as a way to distract attention away from Stormy Daniels, the porn actress who seems ready to say she slept with Trump while he was married and was paid hush money by his personal lawyer.

“He just makes a decision on tariffs because of Hope Hicks, and he makes a decision on North Korea because of Stormy Daniels,” said Scarborough. “People can deny that all they want, but if you’re doing that you’re in the tank for Donald Trump because it’s painfully obvious that that’s exactly what’s going on.”

That’s a highly plausible read, especially for those who remember the advice of Politico‘s Jack Shafer to “stop being Trump’s Twitter fool.”

That is, we should be hip to the idea that every time Trump does or says something outlandish, he’s trying to divert our attention from another problem. Clinton did the same thing, except in more violent form. Back in 1998, Clinton bombed targets in Sudan and Afghanistan on the very day that Monica Lewinsky delivered grand jury testimony about whether the president had lied under oath. Later in the year, he saw fit to bomb Iraq on the day the House of Representatives began voting on articles of impeachment, thereby delaying the proceedings. So even if it’s true, as Scarborough claims, that Trump said yes to Kim Jong-un because “he did not want the Washington Post to have the word ‘Stormy Daniels’ on the front page today,” we’ve been there and done that as a nation.

The point here isn’t to “normalize Trump” on trade, foreign policy, or anything else. It’s to reduce the rage and fear factors a bit so we can more clearly understand exactly what we’re dealing with. Trump isn’t President Beastmode; he’s simply the current occupant of the White House. Detractors and sycophants would do well to stop ascribing superpowers to a guy whose tenure has been marked by spots of good and lots of bad. Wired co-founder Louis Rossetto, recently told Reason that Trump “diminishes the power of the state in our heads” by being such a volatile mix of jackass, narcissist, and bullshit artist:

Trump is a refreshing reminder that the guy that’s in the White House is another human being….The power of the state is way too exalted [and] bringing that power back to human scale is an important part of what needs to be done to correct the insanity that’s been going on in the post-war era.

The media, too, have refused to treat Trump with the decorum and politesse they gave Obama, Bush, Clinton. At least in this one sense, Trump is the end of the 20th-century consensus that even your enemies are somehow ennobled in the political realm and entitled to the benefit of the doubt.

When it came to foreign policy, domestic surveillance, governmental overreach, the drug war, deportations, and so much more, Barack Obama, George W. Bush, and Bill Clinton crossed lines that never should have been crossed. Trump is the shocking apparition that’s left when all the ceremonial trappings and respect have been stripped away.

As a country, we should have the guts to admit that and the resolve to be better than our presidents.

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