My Review of Stuart Banner's " The Most Powerful Court in the World:...."

 A History of the Supremes (Not the Motown Group)

UCLA law professor and former Supreme Court clerk Stuart Banner has written an encyclopedic history of the Supreme Court of the United States. He not only covers the case law, but he also covers the personalities, the politics inside and outside the court, from its earliest beginnings in the 1790’s to the present. In the interest of full disclosure, I had a very small adventure with the Supreme Court as a plaintiff in Yahr v. Resor (4th Circuit 1970) and having cert. denied in 1971.

What Banner rightly argues, the Supreme Court always was and always is a political body. When the Senate was controlled by a party not in the White House, appointments were often delayed until the next election. Merrick Garland’s nomination in 2016 was not an exception to history. As the old wag goes, “the Supreme Court follows the election returns.”

What I found interesting was Banner’s discussion of the 1925 judicial reforms, authored by Chief Justice Howard Taft and adopted by Congress. Those reforms enabled the Supreme Court to reject cases coming before it and it enabled the court to leave a rather dingy office space in the Senate office building to the Greco-Roman shrine it occupies today. According to Banner the ability of the court to choose its cases enabled it to take cases, many concerning civil rights, that it wouldn’t have previously taken because of a very crowded docket. Further he notes that the Republican Administrations in the 1920’s appointed several moderate justices, Harlan Fiske Stone, Charles Evans Hughes, and Owen Roberts. Those three justices played a meaningful role in ratifying the New Deal legislation of the late 1930’s.

While Banner applauds and criticizes many Supreme Court cases, he is silent on why the Supreme Court, from Marberry v. Madison in 1801 to Dred Scott in 1857, the Supreme Court did not overturn a single act of Congress. While after the Civil War and to this day many congressional acts were overturned. So, why was the court, so deferential to the congress in the early 1800’s. Banner rightly mentions Gibbons v. Ogden ((1824) which established federal supremacy over interstate commerce, but he fails to mention its huge economic impact in opening the Midwest and establishing New York City as the nation’s leading port.

He also doesn’t criticize Euclid v. Ambler Realty (1926) which ratified local zoning and, in my opinion, a regulatory taking; Berman v. Parker (1954) and Kelo v. New London (2005) which enabled government to seize private property and turn it over to another private party, not for direct use by the government for a public purpose.  He does note the extreme extension of the commerce power in Wickard v. Filburn (1942) which prevented a farmer from growing crops for his own use, hardly interstate commerce. My guess is that the case would be decided differently today. 

Lastly, he speaks favorably of Chevron v. NRDC (1984) which gave huge discretion to administrative agencies to go beyond the clear intent of Congress. Fortunately, that was overturned this year in Loper Bright Enterprises v. Raimundo. I do note that his book went to press ahead of that case.

These criticisms aside, Banner clearly explains how and why the Supreme Court overturned much of Reconstruction and how and why much of the rights we enjoy today were creatures of Supreme Court actions from the 1920’s on. However, although he discusses how the Supreme Court functioned as a super-legislature in overturning laws protecting workers and individuals, he is less critical of the court creating rights without any direct constitutional underpinning. The controversy over Roe v. Wade and its repeal is an exemplar of this. This is a book for supreme court nerds, and if you are one, it is well worth the long read.

We are in the Early Stages of a Bond Bear Market

Bond market cycles last a long time. For example there was a bond bull market from 1920-1946 when long term U.S. Treasury yields declined from 6% to 2.3%. Thereafter a 35 year bear market ensued to September 1981 which took the yield on 10-Year U.S. Treasury Bonds to 15.84%. This was followed by a 39 year bull market that ended in August 2020 with the 10-Year U.S. Treasury yield trading at a meager 0.56%. It seems clear to me that with the 10-Year bond closing this week at 4.76%, we have been in a bond bear market for over four years. 

Thus if history is any guide, we are only the the early stages of a bear market that could last another two decades. Of course, as in any bear market, there will be rallies along the way, the the path for yields will be decidedly upward.

The fundamentals underpinning the bear market include monumental budget deficits throughout most of the world's largest economies, unfunded pension plans, a still smoldering inflation, and, at least in the near term, the global electorate's preference for populist politics that is working to deglobalize the world economy.  Further, if you add to the mix the need for enormous expenditures to harden infrastructure for weather events and the costs associated with energy transition, all the forces are in place for higher inflation and higher yields.

As far as the stock market goes, stocks can and have risen in the early stages of a bond bear market. That certainly has happened over the last four years. However, as high interest rates begin to bite, the stock market will no longer have a bond bull market at its back to support a near record price-earnings ratio for the broad market.  

The views outlined here are consistent with an earlier blog in 2022 outlining the prevalence of 13-year cycles. (See: https://shulmaven.blogspot.com/2022/05/the-useconomy-is-entering-new-thirteen.html) Also see my recent short term outlook       (https://shulmaven.blogspot.com/2024/12/2025-revenge-of-bond-vigilantes.html)

Memo to the Republicans: Don't Over-Reach

You missed a bullet by electing Mike Johnson speaker on the first ballot. By the way I think Johnson has been under-rated by the media, and it is my guess that he has the potential to turn out to be a speaker of consequence. My primary suggestion is that you don't make the same mistakes the early Biden Administration did. They over-reached, and while it looked good early on, the Democrats reaped the whirlwind in 2024. Don't let that happen to you. Remember we are still a 50/50 country; Biden forgot that.

Thus you should focus on a few narrow, but important priorities. Namely extending the 2017 tax cuts with few amendments, immigration control, energy deregulation, increased defense spending and targeted tariffs. Don't mess around with the tax subsidies for alternative energy embedded in the misnamed Inflation Reduction Act. For example wind energy supplies a huge portion of the electricity needs of all of the states going north from Texas to North Dakota. I need not remind you that the folks in those states are your prime constituency. 

I am not smart enough to know that all of this can be done in one or two reconciliation bills. That tactical decision is way above my pay grade. But remember, success breeds success and if you can get this done early, the rest of your wish list could very well come within range.

One more thing, on the foreign policy front, do not abandon Ukraine. If you do, it will be your Afghanistan.

My Review of Brett Gardner's "Buffett's Early Investments"

 A Nerdy Look at Buffett’s Early Investments

Investment analyst Brett Gardner did yeoman’s work in piecing together Warren Buffett’s investment process in the early days of his career, first as an individual investor and later through his partnerships.  He went through contemporaneous annual reports, Moody’s manuals, and news stories from the early 1950’s to the mid-1960’s to understand what information Buffett had available to him at the time he made his investments. 

He also availed himself of previously published biographies of Buffett which brought out the legwork Buffett undertook by going beyond the numbers in talking to the managements, employees, and customers of the firms.  Further, he investigated the history, and the managements of the companies Buffett invested in. His is the work of a truly obsessive finance nerd and the reader is the beneficiary of his work.

Gardner investigated 10 investments a few of which I never heard of, such as Marshall-Wells and Cleveland Worsted Mills and several that I am familiar with including Studebaker, American Express and Disney. We should note that Buffett was and is a generalist. There is no industry theme associated with his investments.

Buffett, being a student of the great Benjamin Graham (See: https://shulmaven.blogspot.com/2023/08/my-review-of-seth-klarmans-ed-of-graham.html) who stressed corporate balance sheets as the central focus of investment analysis. Graham was looking for a margin of safety in buying companies that were trading below the value of their working capital, thereby buying the fixed assets for free. This, of course, was not the only factor, but it was significant.

Buffett’s early investments were balance sheet focused. However, he later focused on the importance of controlling the firm’s capital allocation process and the value intangible assets that did not appear on the balance sheet. In the case of American Express it was its brand name which did not take a hit after the company was victimized by the salad oil scandal of the mid-1960’s. In the case of Disney, it was its film library that was carried on the books at close to zero. Thus, instead of buying average companies at cheap prices, Buffett moved on to buying wonderful companies at a fair price. The other thing that Buffett did was to concentrate his investments. He went all in with some investments accounting for a third of his portfolio.

Now the question remains what an investor can do today. The average investor is not plagued by the curse of bigness. It is very difficult for an individual investment to move the needle in a large fund. Buffett himself has admitted that for years. Next the small investor can find unloved and uncovered stocks not on the radar screen of large institutional investors. Of course, this takes a lot digging and a lot of leg work but can be done. However, the one major disadvantage an investor faces today that Buffet didn’t face in the 1950’s is that the overall stock market is trading at levels where there are few companies that offer the margin of safety that Buffett had when he was starting out.

2025: The Revenge of the Bond Vigilantes

 Before going on to our thoughts about the outlook for 2025, I would like to review what we got wrong and what we got right about 2024. ( See: https://shulmaven.blogspot.com/2023/12/2024-volatile-politics-volatile-markets.html)

• We were dead wrong about the stock market. Instead of trading in 5000-4200 range, The S&P 500 soared above 6000.

• Stocks completely ignored the geopolitical risks we outlined.

• The S&P 493 did not outperform the Mag 7. 

What we got right or close to right:

• Inflation, as measured by the core CPI, accelerated to a 3% run rate and the 10-Year Treasury closed well above 4%. (For my UCLA discussion on the economy see: https://shulmaven.blogspot.com/2024/12/my-ucla-anderson-talk-on-prospects-for.html)

• The Fed avoided a recession but did not cut rate soon enough to help Biden.

• The presidential election was close, and, at the time, we were leaning toward Trump.

• Ukraine did not set the West Siberian oilfields ablaze, but it did hit energy infrastructure deep into Russia.

• It looks like Israel has defeated Hamas, but Saudi Arabia, as of yet, is not on track to join the Abraham Accords.

Now for what 2025 will look like:

• Inflation will run at a 3% rate because of continued wage growth of above 4%, the imposition of tariffs and the beginnings of a mass deportation of undocumented/illegal immigrants.

• With continued inflation and a rising federal deficit, the yield on 10-Year Treasuries will exceed 5%. The bond vigilantes will exact their revenge.

• In this environment stocks will exhibit the volatility we though would happen this year and the S&P 500 will likely trade in a wide range of say 6400-5400, closing lower on the year.

• The House Republican Caucus which puts the “dys” in dysfunction will get is act together to renew the 2017 tax cuts with a $20,000 SALT deduction. The other elements of Trumps tax cut plans will be put in separate bills making passage unlikely.

• Two of Trump’s controversial cabinet appointees will be turned town by the Senate.

• France is fast becoming the new Greece and German dysfunction will only increase.

• Israel will attack Iran’s nuclear infrastructure which will bring with it unknowable consequences.

As they say in Las Vegas, read’em and weep, but remember I am often wrong and never in doubt.

My Review of Sonia Purnell's "Kingmaker: Pamela Harriman's Astonishing Life ...."

 Sex, Money, and Power

Pamela Harriman was born in 1920 into minor nobility as a Digby. She later, through her marriage to Randolph became a Churchill and through her marriage to Averell she became a Harriman. In the middle she married Hayward Leland a Broadway producer of “Sound of Music” fame. However, the real story as journalist/biographer Sonia Purnell tells it in her hagiographic biography is about how a once chubby girl uses are innate smarts and her sexual powers of seduction to have access to great wealth and be influential in the corridors of power in England, France, and the United States. 

Her marriage to the alcoholic and womanizing Randolph was destined to fail. Nevertheless, she so charmed his father Winston, that she was able to sit on many high-level meetings of state at his Chequers country estate. She also had his full permission to seduce Averell Harriman who was in charge of lend-lease aid to Britain. She was 21 and Harriman was 50. It was said that her high diplomacy took place between the sheets of the Dorchester Hotel, where Harriman put her up. After Harriman was reassigned to Moscow, she seduced Edward R. Murrow, the leading radio journalist in London at the time. Murrow almost divorced his wife for Pamela. Her affair with Murrow did not stop her from sleeping with Bill Paley, Murrow’s boss at CBS radio.

These affairs took place after Pamela gave birth to young Winston. She was far from the best of mothers and young Winston was shuttled between relatives and nannies. Her sexual liaisons and the affairs of state took precedence over her son.

The end of the war was a letdown for her, but soon she took up with Prince Aly Khan. Khan teaches her the Arabian arts of lovemaking which she will soon use with great affect. According to Purnell she became quite expert at oral sex.

After her affair with Khan, she started a long lasting on and off affair with Giorgio Agnelli of Italy’s Fiat automobile company. He along with Khan rained substantial gifts upon her including apartments and artwork. She later had an affair with Eli Rothschild of the Paris branch of the eponymous bank.

She moved to the United States upon her marriage to Hayward Leland. The marriage was not a happy one but it last until Leland’s death in 1971. After his death and the death of Harriman’s wife, the two are reunited after thirty years. Remember at this time Harriman was 80 and she was 50. Harriman, a scion of the Union Pacific fortune was a power broker in the Democratic Party. He introduced her to the Washington D.C. movers and shakers and their Georgetown mansion becomes the locus of high-level socio/political events.

By 1980 she was the doyenne of the Democratic Party. After Bill Clinton’s defeat in his reelection race for the Arkansas governorship, she took him under her wing and introduced him to the D.C. establishment. By the mid-1980’s she had a political action committee and was funding Democratic Senate races throughout the country. She became close to Sandy Berger and Richard Holbrooke who would become key figures in the Clinton Administration. She also went with Averell to Moscow to meet with the then Soviet leader Yuri Andropov and sensed that times were changing in Moscow.

As a reward for all of her efforts, Bill Clinton appointed her ambassador to France in 1993. There she became very close to French president Jacques Chirac. He spoke at her memorial. While in Paris she played a behind the scenes role in settling the Bosnian Wars.

All wasn’t sex and parties. She had an abortion, and her finances were totally mismanaged by Washington power broker Clark Clifford causing the Harriman family to sue her, as she was the executor of the Harriman estate. 

All I have to say is that her seductive powers jump right off the pages of this wonderful book. Purnell gives great credit to this remarkable woman.

My UCLA Anderson talk on Prospects for the Financial Markets 2025

The link below presents my talk at the UCLA Anderson Forecast discussing the outlook for the financial markets in 2025. The link opens with my talk, but you can scroll to the beginning to view the entire forecast program.

https://www.youtube.com/live/rbpRv5pt5OE?feature=shared&t=3075