Initial Take on the Israeli Elections: Is A unity Government Possible?

According to the latest exit polls (but nowhere near final results) the Gadi Eisenkot-led opposition has 52 seats, the Netanyahu government has 50 seats and the Arab parties ae doing better than expected with 18 seats. The Israeli electorate has rejected Netanyahu, but, at the moment, there is no viable alternative for the needed 61 seat majority. Arab parties have served in the government once before, but it is not likely this time.

Thus, the alternative to a new election is some form of unity government or a grand coalition that would exclude both the Arab parties and the far right. This would include either a breakaway from Eisenkot's coalition to join Netanyahu, or Netanyahu's Likud Party joining the opposition in in a truly grand coalition. Both options would be difficult given the egos of all of the principal players; never under-estimate ego in Israeli politics.

However, this time there might be no alternative. A deal might include Netanyahu retiring and getting a "get out of jail free card" or with Netanyahu remaining in some kind of power sharing deal with Eisenkot where there the Haredim (religious parties) would receive a dramatic cut in their subsidies and subject some of their youth to the draft in exchange for holding off on an October 7th Investigation Commission. I know all of this is hard to visualize today, but stranger things have happened. 

My Review of Robin Wigglesworth's "A Fabulous Debt: How Bonds Built the Modern World

 A Paean to Debt

Less than a month after the release of Financial Times editor Robin Wigglesworth’s paean to the heroic role debt has played in the building of the modern world, France has become consumed by a debt crisis. Only in the very last chapter does Wigglesworth discuss the risk of governmental over-indebtedness, otherwise governmental debt is a “blessing” in the words of Alexander Hamilton. For example, he ignores the Argentine debt crisis of 1890, the interwar debts arising out of World War I, the collapse of Latin American bonds in the 1930’s and again in the 1980’s. 

 

Nevertheless, Wigglesworth has written a lively history of the bond market from the Venice of the middle-ages, to Amsterdam, to London and then on to the United States. He rightly attributes a good part of England’s victory over Napoleon to its ability to issue a perpetual bond called CONSOLS that enabled it to fund Wellington’s army and to subsidize Prussia.

 

When his history moves to the United States, we are in the room with Hamilton consolidating the America’s Revolutionary War debt in 1791 which a decade later enabled the Louisiana Purchase. I did not know that bankers from Baring Brothers and Hope & Co. assisted Special Envoy James Monroe in his negotiations over Louisiana with Napoleon. The result was an $11.5 million bond issues with Barings on the right and Hope & Co of Amsterdam on the left. In many real estate classes that I have taught the Louisiana Purchase was the first cross-border real-estate transaction with due diligence taking place after the signing of the deal. As a side note Lewis and Clark’s expedition did the due diligence.

 

He discusses the role of Jay Cooke in financing the Civil War and his subsequent but and goes on to discuss the role of Treasury Secretary William Gibbs McAdoo in his selling liberty bonds to fund World War I. That effort introduced the American public to the securities market that enabled the 1920’s to roar.

 

 

As he moved into the modern era, we witness the role of Michael Milken in establishing the high yield market that enabled companies hitherto frozen out of the bond market to fund their efforts and to be utilized in financing hostile takeovers. Wigglesworth highlights the role of my old firm Salomon Brothers and Lou Ranieri in particular in creating a vast securitization market for mortgages and other assets. The 1980’s see the flowering of the futures markets for interest rates and currencies along with giant swaps market that has the ability to convert fixed rate debt to floating and vice versa, for example. His character portraits of both Milken and Ranieri are both vivid and accurate.

 

To be sure he discusses the Long-Term Capital Management blowup in 1998 and the financial crisis of 2007-09. In both cases the plumbing of the repo market became crucial in exacerbating the situation and in the case of the financial crisis securitization run wild accompanied by corruption in the ratings agencies led to a near complete meltdown.  The aftereffects of the financial crisis led to a long period of financial repression caused by quantitative easing that was further exacerbated by the COVID epidemic of 2020 which brough the yield on the 10-year U.S. Treasury Bond to an all-time low of 0.56% in August of that year. As I have noted before that marked the end of the bull market in bonds that began in 1981. (See: https://shulmaven.blogspot.com/2025/01/we-are-in-early-stages-of-bond-bear.html )

 

“A Fabulous Debt” is an easy and enjoyable read. His character sketches of such personages as Nathan Rothschild, SG. Warburg and Jay Cooke are a joy to read. I only wish that he tempered his enthusiasm for debt. To be sure it helped bring on the modern world, but as France and soon other are about to learn, the piper must be paid.

Trump/Musk Perfidy in Ukraine

This week President Donald Trump and SpaceX CEO Elon Musk downgraded the StarLink/StarShield  systems in Ukraine. As a result, Ukraine was unable to defend itself against Russian jet powered drones and ballistics missiles and was severely limited in making long distance drone strikes into Russia. The perfidy of Trump and Musk caused the deaths of hundreds of Ukrainians and it is making Kyiv even more unlivable.

Adding insult to injury Trump is going forward with a Putin/Xi summit to discuss Ukraine among other things without presence of Ukrainian President Zelensky. This move is reminiscent of the Munich Conference of 1938 where Britain, France and Italy sold out Czechoslovakia to Hitler. It also could be a prelude to the spheres of influence outlined in Trump's National Security Strategy last December which strongly hinted of Yalta. (See: https://shulmaven.blogspot.com/2025/12/some-thoughts-on-trumps-national.html )

Where a few months ago it looked like Ukraine was on the offensive, the Trump/Musk actions represent a huge setback. (See: https://shulmaven.blogspot.com/2026/07/ukraine-goes-on-offensive.html ) Further, the StarShield cutoff has taken place against the backdrop of Russian attacks on Bulgarian and Romanian shipping in the Black Sea thereby widening the conflict. Indeed Putin's confidence is being buttressed by the gains of the far right in Germany and France. Thus, Ukraine now faces a very long winter which has to be put at the feet of Donald Trump. 

Note: Subsequent to publication on Saturday Oct. 24, StarShield was fully restored. It would be nice to think that Musk read this blog on X.

France on Fire

 France is burning. What started as a student protest against dilapidated schools has turned into a nationwide round of rioting over the weekend. Instead of peaceful protest an alliance of far left and Islamist protestors (the red/green alliance) has laid waste to cities across France. (See: https://www.nytimes.com/2026/10/18/world/europe/france-protests-shock-arson.html - paywall) In Marseilles a pogrom against Jewish shopkeepers brought up memories of Nazi Germany’s 1938 Kristallnacht. Although I hate to say it, France is now paying the price for its unrestricted immigration policy.

 

Cheering on the protestors was France’s far left leader Jean-Luc Mélenchon who is in the running to be France’s next president. Of course, it wouldn’t be a protest without the anti-west Greta Thunberg showing up.

 

Almost two years ago we wrote that France was quickly becoming the new Greece of Europe. (See: https://shulmaven.blogspot.com/2024/12/2025-revenge-of-bond-vigilantes.html ) Simply put, France cannot afford to pay for its welfare state. Since then, France’s finances have deteriorated and the scenes of the collapse of public order will only make things worse. In all likelihood the French electorate will soon turn to Marine Le Pen, the doyenne of the far right to be its next president. She might be able to restore civic order, but her policies would only make France’s fiscal crisis worse.

 

However, unlike the Greek crisis of 2011, France is part of core Europe, and its fiscal problems could very well undermine the Eurozone. Although in the near term that would be dollar friendly, we shouldn’t forget that the fiscal order in the U.S. is far from perfect.

My Review of Simon Sebag Montefiore's "The Cauldron: The Making of the Modern Middle East"

120 Years of Near Constant Warfare

 

The greater middle east (Morocco to Iran) has been pretty much in a state of war for 120 years. Here the distinguished British historian Simon Sebag Montefiore presents us with an encyclopedic history of the middle east starting with Abdul-Azizz (Ibn Saud) conquest of Riyadh in 1902 up to the early stages of the U.S./Israel War with Iran in 2026. The one constant throughout this history is that the nations of the middle east has been in a near constant state of warfare fighting outside enemies, fighting among themselves, and engaging in a host of civil wars. What Montefiore’s book makes clear is that the Arab-Israeli conflict represents only a minor portion of the fighting that has taken place over the past twelve decades.

 

The book opens with Abdul Azizz conquering all of what was to become Saudi Arabia in 1917. In the following year British forces marched into the Holy Land and the British and the French then had to fight to maintain their mandates in the region. In the early 1920’s the Greco-Turkish War led to the mass ethnic cleansing of Greeks on the Asian mainland and of Turks living in Greece. There was also the Turkish massacre of Armenians in 1915. Later there were coups and counter coups with Nazi inspired officers seizing control of Iraq in 1941 which the British has to forcibly remove them. (See: https://shulmaven.blogspot.com/2019/06/my-amazon-review-of-john-broichs-blood.html )

 

Of course, all of North Africa became a conflict zone from 1941-1943 and the British and the Russians took control of Iran during most pf the war, only to leave in 1946. In 1948 there was the Israeli War of Independence followed by the 6-Day War in 1956 and the 1967 war. All of this occurred against the backdrop of the Cold War where the U.S. and Russia jockeyed for influence and Nasser of Egypt played a dominant role.  

 

Before that Algeria endured seven years of war before achieving its independence from France. I can go on and on, with civil wars in Syria, Lebanon, Iraq, Sudan, and Libya.  Further, there was the six-year war in the desert between Iraq and Iran and later Iraq invaded Kuwait, and then a U.S. led coalition kicked them out. There were also mass killings in Syria, Iran, and Iraq to suppress the local population. I could go on and on, but I will stop here.

 

I have learned much from Montefiore’s book. For example, it was not the Sykes-Picot-Sazonov Agreement of 1916 that created the modern state system in the middle east; it was rather the San Remo Conference of 1920 (which reiterated the Balfour Declaration) and the Lausanne Conference of 1922-23 that establish much of the borders that we know today. Instead of starting America’s withdrawal from the region (until recently) with Donald Trump’s election in 2016, the signal was sent by Barack Obama’s failure to enforce his redline in Syria in 2013. He states that T.E. Lawrence (of Arabia) was more a showman than a warrior and he minimizes the U.S. role in 1954 Iran coup, despite CIA officer Kermit Roosevelt’s claiming of the credit.

 

He believes that 1979, the year of Ayatollah Khomeini seized power in Iran as one of the most pivotal years of the 20th Century. Khomeini fooled the west into thinking he was someone they could do business with. Instead, he was as diabolical as Stalin and Mao. He had no hesitation in mass murdering his opponents and we saw that in real time earlier this year when his son killed 40,000 protestors in the streets of Tehran.

 

My criticism of the book includes that he does not pay enough attention to the role of oil in region, he is too naïve about what the chances were for Jewish-Arab reconciliation in the early days of Zionism, he understates the role of UNRWA in helping to form the Palestinian identity in the so-called refugee camps ( See: https://shulmaven.blogspot.com/2022/02/my-amazon-review-of-adi-schwatzs-and.html ), and he characterized the Hamas fighters as “militants,” an understatement, if you will. He also had Wilson presenting his 14 Points in 1918 when it was in 1917 and he credits Saudi Arabia with forming OPEC in 1960, when it was Venezuela.

 

That said Montefiore has written perhaps the defining history of the middle east since 1900. There is much to take in. To him Iran, Israel and Türkiye will determine the future of the region. And we shouldn’t underestimate the role of Morocco, perhaps the best run state in the areas whose industrial production has surpassed South Africa.

Inflation Ticks Up

The CPI report today brought with it news that inflation is far from quiescent. The overall index came in up 0.6% inline with expectations, but the all-important core reading was up 0.3%, 0.1% above expectations. As result on a year-over-year basis the CPI is up 3.7% and the core CPI is 2.6%, both well over the Fed's 2% target. Perhaps more unsettling was the 0.4% increase in the core services index (services ex housing) signaling that inflation is more endemic than previously thought. Remember the huge increase in diesel prices are only now beginning to be felt in the prices of final goods and services.

Initially the bond market sold off hard, but rallied into mid-day with yields modestly higher on the short-end and modestly lower on the long end. Stocks sold off with the S&P 500 down 1.3% a little over an hour before the close. My sense is that stocks are beginning to price in an aggressive tightening cycle which would lead to a recession later in 2027. Although I don't think the Fed will increase the funds rate in October, I would not rule out a 50 basis point hike in December, if core CPI continues to come in in the 0.3% range.

Further, I don't think the stock market has come to terms with growing probability of Democratic sweep in a few weeks. Should that happen, the markets should be prepared to see congressional show trials of all the corporate executives who cozied up to Trump.

 

My Review of William D. Cohan's "Money to Burn: The Unvarnished Truth about Leon Black........"

 

The Rise and Fall of Leon Black

       “Behind every great fortune there is a great crime.”

                                             Honoré de Balzac

Financial journalist and former investment banker William Cohan brings together the intertwined history of financier Leon Black and Apollo Global Management, the private equity firm he founded. The most formative event in Leon Black’s life was the suicide of his father Eli in 1975. The senior Black founded the 1960’s conglomerate United Brands which fell to hard times in the early 1970’s. It was Eli who convinced him to give up on his love of art history, which came from his mother and aunt, to go to Harvard Business School. Nevertheless, his knowledge of art and the big bucks he made enabled him to accumulate one of the largest private collections in the world whose value exceeds one billion dollars.

 

Black gets his start as a young associate at Michael Milken’s Drexel Burnham’s junk bond empire. By the mid-1980’s Milken became the “King of Wall Street” by first using high yield bonds to finance hitherto noncredit worthy smaller companies, especially in cable television (See: https://shulmaven.blogspot.com/2025/09/my-review-of-john-malones-born-to-be.html ) Black expanded the use of junk bonds to acquire established companies through the use of “highly confident letters” that sent shivers down the corporate establishment. It was that innovation that made Black’s reputation at Drexel.

 

However, Drexel and Milken were soon charged with securities law violations that brought down the firm and sent Milken to jail in 1990. Out of the wreckage Black formed Apollo. It was here where the great crime took place. Apollo received funding from France’s Credit Lyonnaise to acquire the junk bond portfolio of Executive Life Insurance that was in receivership in California. Executive Life was one of Drexel’s biggest clients and Black had intimate knowledge of its portfolio. As the junk market recovered Apollo made a fortune and its reputation. Although Apollo was never charged, Credit Lyonnaise was charged with violating state and Federal banking laws and ended up paying a $770 million fine.

 

Working hand and glove with Black in the early 1990’s Marc Rowan, now head of Apollo, and Josh Harris became key members of the firm. Although they were not exactly cofounders, Black gave them the title in the early 2000’s and made them billionaires. One of the keys to Cohan’s book is that Black, Rowan, and Harris talked freely to him. Thus, we get here inside views as to how Apollo grew from being primarily a private equity company to a leader in private credit. It was Rowan’s idea to establish a captive annuity company that would buy Apollo’s debt products. That company, Athene, has become a leader in the sale of annuities.

 

The advantage of having an insurance company to hold private debt is that it is not subject to the vagaries of short-term finance. It also has the benefit of being regulated by the generally understaffed state insurance departments. The risk here is that should private debt experience a wave of defaults the annuitants and the backup state insurance funds would be at risk.

 

After riding high for years, Leon Black got caught up in the Jeffrey Epstein sexual predator scandal. It was discovered that he paid Epstein a staggering $158 million fee for tax advice on his estate plan. To be sure Epstein found a way to correct a major mistake that Black’s white shoe law firm made, it hardly justifies the $158 million. Cohan goes into unsubstantiated reports of Black’s sexual proclivities, too much for my taste, but I guess it sells books and might explain the $158 million.

 

Then there is Black’s long time Russian paramour who claimed that Black sexually abused her. Black paid her off for years, but then she broke her nondisclosure agreement and the whole sordid mess became public. With that the Museum of Modern Art removed Black as its chairman but left him on the board. Why? Cohan suggests they want his art collection.

 

One of the great attributes of Cohan’s book is that he goes into great detail about the successful and failed deals that Apollo was involved in. Here his investment banking knowledge is crucial. Of particular note is the dispute with the Huntsman family of Utah and their eponymous chemical company. It was a knock down drag out fight that Huntsman won, but afterwards the relationship remained cordial.

 

Cohan makes all his leading players come alive. It becomes very clear that Black, Rowan, and Harris continue to have money to burn and they all show it. As a postscript Leon Black continues to ignore a congressional subpoena to discuss his involvement with Epstein.