My Review of Porter Stansberry's "Warren's Mistakes"*

 Chinks in Buffett’s Armor

Financial newsletter writer Porter Stansberry has written a detailed critique of legendary investor Warren Buffett’s investments after 1999. In essence Stansberry believes that Buffett changed his investing style in 1999 when Berkshire Hathaway offered its then undervalued stock to buy General Re. From there, instead of finding hidden value in the stock market, Berkshire embarked on a process of buying companies whole with huge investments in electric utilities and the Burlington Northern Railroad. Berkshire became a clunky conglomerate, a business model he once derided. In a notable example he cites Berkshire’s acquisition of the Benjamin Moore paint company for one billion dollars in 2001. Instead Stansberry argues that Berkshire should have bought a 25% interest in Sherwin Williams, a far better paint company.

 

The reason why the years around the turn of the century are so important is that from 1967-2000 Berkshire dramatically outperformed the stock market as a whole. After that Berkshire’s performance roughly tracked the S&P 500. To Stansberry, Buffett is a better investor than an operator.

 

One of the questions Stansberry asks is to what we attribute Buffett’s success as a stock market investor. He found the answer in a 2018 Financial Analysts Journal article by Andrea Frazzini, David Kabiller and Lasse Heje Pedersen, all of AQR, entitled “Buffett’s Alpha.” Using data from 1976-2017 the AQR authors developed a multi-factor analysis that attributed much of Buffett’s outperformance to buying high-quality low beta stocks with a considerable amount of leverage. A good piece of the leverage came from Buffett’s utilizing the float from his insurance companies.

 

Buffett’s genius was to consistently utilize these factors, even the face of temporary downturns that could have broken other managers employing the same strategy. In 1998-1999 Buffett was sorely underperforming and many “value” managers were crushed during that period. (See for example: https://shulmaven.blogspot.com/2026/02/my-review-of-jeremy-granthams-making-of.html ) Such was the strength of Buffett’s reputation and the permanence of his capital that enabled him to ride out the storm.

 

Stansberry is especially critical of Berkshire’s investment in the Burlington Northern Railroad in 2010 and a series of investments in Berkshire Hathaway Energy. (BHE) In the case of Burlington Northern the author notes that is has the worst operating ratio of all the Class I railroads significantly underperforming its competitor, Union Pacific. Indeed, Buffett himself has noted that Burlington’s capital expenditure consistently exceeds its depreciation allowance. Thus, owner’s income is less than reported income.

 

In the case of BHE, Stansberry states that it has yet to pay a dividend to the parent company. BHE’s huge investment in solar and wind energy is done solely for the tax credits that the parent company utilizes. Absent the tax credit the investments in solar and wind would not be economic. Furthermore, in 2022 BHE was valued in excess of $90 billion in 2022 when then CEO Greg Abel sold his stock back to Berkshire. Two years later the company was valued when the Scott family sold its interests back to Berkshire, a huge haircut. In the interim the PacifiCorp subsidiary became on the hook for a maximum of $50 billion for potential liabilities accruing from the Oregon wildfires. Stansberry unfairly harps this maximum liability because should it be awarded the liability would be limited by the bankruptcy of its Pacific Power subsidiary.

 

Stansberry’s solution is for Berkshire to spin off both Burlington Northern and BHE. That would clean up Berkshire’s balance sheet and make it look more like the Berkshire of old.  

 

My primary criticisms of the book are twofold. First, Stansberry after paying lip service to Buffett’s investment acumen, he takes on the role of prosecutor and in many instances, he refers to Buffett as an “old man,” hardly fair. Next, he leaves out perhaps the most important reason as to why Berkshire has failed to outperform the S&P 500.

 

My explanation is that Berkshire’s primary competitive advantage, aside from Buffett’s investment acumen, is the ability to access its insurance float at a low or zero cost. With the Federal Reserve operating at a very low or zero interest rate policy for the past 25 years, Berkshire’s competitive advantage from this source has been severely eroded. Thus, with interest rates normalizing, we should expect Berkshire to once again outperform the market averages. However, this would be a tall order with Buffett no longer at the helm. Greg Abel, Berkshire’s new CEO, has his work cut out for him.

* Shulmaven is a longtime shareholder in Berkshire Hathaway. Subsequent to the original post I discovered that Stansberry was found civilly liable by the SEC for violating the securities law to the tune of $1.5 million in 2007.

 

Warsh Strikes the Right Chord

Fed Chairman Kevin Warsh struck the right chord in his Jackson Hole speech yesterday. He noted that the Fed has missed its 2% inflation target for five years and the economy is operating at full employment. Although there has been some modest improvement in the recent inflation data, Warsh remains skeptical that it is on a clear glide path towards 2%. Although not giving forward guidance in the traditional sense, Warsh put the markets on notice that a rate hike is likely at the September Open Market Committee meeting.

 

The treasury market responded with a “bear flattener” where short rates went up much more than long rates. The 2-year surged by 12 basis points to 4.36% while the 10-year and 30-year yields advanced by 5 basis points and 2 basis points, respectively. The market action on Friday was the mirror image of the response after Warsh’s comments after the July Fed meeting. Then the market put on a “bear steepener” trade with short rates falling and long rates rising significantly. (See: Shulmaven: The Bond Vigilantes Strike)  I would remind readers that the 10-year treasury is trading at 4.72%, precisely the level when Treasury Secretary Scott Bessent announced his expanded bond buyback program. (See: Shulmaven: The Treasury Strikes Back )

 

Whether a September rate hike is one-off or the start of new tightening cycle remains to be seen. However, with the 2-year note yielding 4.36%, it looks like the federal funds rate is now on a slow road to 4.5%.

My Review of Daron Acemoglu's "What Happened to Liberal Democracy?”

The New, New Deal

M.I.T. economist and Nobel Laureate Daron Acemoglu’s idea of a liberal democracy is the New Deal era of 1933-1973 where under some very unique circumstances the U.S. enjoyed a “shared prosperity.” True to form, the book is being hailed by a host of Left and Far-Left economists.  As a result, his liberal democracy is not the liberal democracy of Milton Friedman and Friedrich von Hayek. Thus, if a reader wants a more balanced account on the need to restore liberal democracy, I would suggest Adrian Wooldridge’s the “The Revolutionary Center.” (See: Shulmaven: My Review of Adrian Woodridge's "The Revolutionary Center" ) What both books have in common is that they go back to the seminal works of Kant, Hobbes, and Locke.

 

In many respects this book is a follow-on to Acemoglu’s and James Robinson’s “Why Nations Fail.” Simply put, Acemoglu worries about how the collapse of democratic institutions leads to authoritarians of the Right and the Left. Here Acemoglu makes a plea to the Democratic Party to return to its working-class roots of the Roosevelt era. He notes that the party began going astray when it traded the working class for the college educated elites. This was in response to the post-industrial world’s reduced need for mass production factory workers in favor of highly educated technical workers needed to run the more automated work of the future.

 

To Acemoglu the first sign of this was the student deferments of the 1960’s during the Vietnam War. It was the factory workers that went to Vietnam while the college students of that era lived it up with sex, drugs, and rock ‘n roll. I know from experience as college graduate in the army at the time, college graduates among my fellow enlisted personnel were few and far between.

 

To Acemoglu, the turning point of the Democrats abandoning the working class went into full force in the 1980’s. This dating is no coincidence because it represented the start of Reagan’s first term. To the author the slow demise of the working class begins then.

 

He is wrong on this point. I would date the slow decline in the working class to the early 1970’s which brought with it the first oil shock and increased foreign competition in automobiles and steel. The date that will live in infamy was September 19,1977 when Youngstown Sheet and Tube shut down its 5,000-worker Campbell Works. Within five years the Mahoning Valley lost 50,000 workers. Why is this important? The Democrats held the presidency and both houses of Congress and did nothing.

 

At the same time the Democratic Party, instead of supporting in the interests of factory workers, turned its attention to the environment, abortion, and racial preferences. To be sure those are real issues, but it was of no solace to the relative and absolute decline of manufacturing work. Thus, it is no wonder that many workers moved away from the Democratic Party.

 

To cure this Acemoglu wants to return the Democratic Party to its to emphasize prolabor positions by strengthening labor unions, selectively supporting tariff, investment in public goods improving the safety net, and above all stop having its elites look down on people who work with their hands and live in small and mid-sized cities across America that have been devastated by deindustrialization. No more should a Hillary Clinton call them “Deplorables.” People forget that FDR was socially conservative, religious and very patriotic, characteristics that hardly define the Democratic Party of today.

 

What Acemoglu gets right is his hostility to identity politics and the cancel culture it breeds. As a liberal he believes in free speech and compares the cancel culture with the Spanish Inquisition, Maoism, and Soviet Communism. The logic behind identity politics requires Orwellian speech police to enforce all of its strictures. Acemoglu, within limits, accepts the rights of diverse communities to live their lives as they see fit.

 

My problem with Acemoglu’s New, New Deal is that the original New Deal was a product of a time and a place that no longer exists. The massive factories of that era are gone, and America has lost its postwar monopoly position in tradeable goods. Further the original New Deal was not bogged down by a host of regulations that make it impossible to build. To be sure Acemoglu is supportive of the “abundance agenda,” but that is a long way from being implemented. (See: Shulmaven: My Review of Ezra Klein's and Derek Thompson's "Abundance") Even more problematic is the prevalence of government employee unions which makes effective government hard to deliver. Recall that FDR himself was against public employee unions. And if you need further proof all you have to do is to look at the failed states of California, New York, and Illinois to see how a New, New Deal would work in practice.

 

To conclude I wish the Democrats would take to heart Acemoglu’s criticism of identity politics. Here he completely agrees with Adrian Wooldridge. I am also glad that Acemoglu is at the barricades fighting the illiberality of the Left and Right. It is good fight. On a more technical level, the book is in need of an editor because it bogs down in too many places and it is need of tables and charts to visualize the data in the text and finally why does the author have to cite himself 56 times in the bibliography, a bit over the top.

The Treasury Strikes Back

As we wrote earlier this month the bond vigilantes were on the warpath sending the yields on 30-year sovereign debt to generational highs. ( See: https://shulmaven.blogspot.com/2026/08/the-bond-vigilantes-strike.html ) With the headlines screaming “bond market rout,” Secretary of the Treasury Scott Bessent announced that he was doubling the treasury’s bond buyback program from $2 billion to $4 billion a week starting in early September to be financed in the short-term bill market. In essence the treasury is engaging in a version of “operation twist,” a policy that historically had little long-term effects.

 

In response the yields on the 30-year U.S. Treasury bond declined from 5.3% to 5.19% and the yield on the 10-year dropped from 4.7% to 4.64%. In a clear way Bessent told the speculators that shorting bonds was not a one-way street. In response gold and bitcoin rallied and the dollar declined.

 

However, Bessent, as former hedge fund trader, knows full well that temporary interventions of this type do not work unless they are backed up by the underlying fundamentals. In this case nothing has changed as fiscal deficits continue to mount, AI spending soars and there is a global build-up in military spending.

 

Thus, it will take a lot more that $4 billion a week to halt the secular bear market in bonds that we are now in. If Bessent wants to engage in a policy of yield curve control it would require the full cooperation of the Federal Reserve, which at this time seems unlikely. Why?  It would unleash a collapse in the dollar with a concomitant increase in inflation.

 

Net. Net. Look for yields to work their way higher as the summer turns to autumn. 

My Review of Batya Ungar-Sargon's "The Jews and the Left"

 Jews and Democrats: Time for a Divorce?

Last November I wrote that Jews were between a rock and a hard place in that both Democrats and Republicans have become more hostile to Jews. (See: https://shulmaven.blogspot.com/2025/11/american-jews-between-rock-and-hard.html ) Here polemicist Batya Ungar-Sargon argues that it is time for the Jews to divorce from the Democratic Party. Simply put the Left in America has become increasingly hostile to Jews; witness the Michigan senate primary win of Abdul El-Sayed, the near gubernatorial primary win of Francesca Hong in Wisconsin, and Peggy Flanagan’s win the Minnesota Senate primary. However, Ungar-Sargon does not suggest that Jews marry the Republican Party, but rather to vote strategically. As my late father of blessed memory constantly reminded me the criterion for a vote is whether or not a candidate would be good for the Jews.

 

Ungar-Sargon presents a brief history of the relationship of Jews and politics in America starting in colonial times. She notes that with George Washington’s letter to the Jewish congregation in Newport, Rhode Island in 1790 that Jews in America would be free to practice their religion. Aside from Grant’s Civil War order which was cancelled by President Lincoln there hasn’t been official discrimination against the Jews. Thus, in her mind Jews should not consider themselves a persecuted minority. This is especially true because Jews as a group have achieved huge success in “The Golden Land.”

 

A problem with the book is that she ignores the entire 19^th Century history and the whole history of private discrimination against Jews (restictions on club membership and property covenants) that existed from the beginning. She also ignores the rabid antisemitism of the Klan in the 1920’s and Father Coughlin in the 1930’s. She also ignores that in Europe and especially in Russia it was the Left that led the charge against the antisemitism of the Right.

 

To her the source of the bond between the Jews and the Democratic Party is a result of the labor movement in the early 20^th Century where Jewish immigrants were in the vanguard of the growing movement, especially after the Triangle Fire in 1911. (See: https://shulmaven.blogspot.com/2020/01/my-amazon-review-of-terry-golways-frank.html )  The deal was closed with the very pro-Labor Roosevelt Administration and Roosevelt’s opposition to Hitler.

 

It was an easy step from labor activism to civil rights activism in the 1950’s and 1960’s. Here Jews were in lockstep with the northern Democratic Party. However, once the civil rights movement moved away from equal opportunity to equal results and later to the DEI mentality of oppressor versus the oppressed Jews began to have second thoughts about the Democrats. This is especially because DEI treats Jews as oppressors, not the persecuted minority of old. In a nutshell, the Democratic Party abandoned the working class in favor of identity politics.

 

All of this has come to a boil with the virulent anti-Zionism of the Left after October 7^th. Here the Left is calling for the destruction of Israel as a Jewish state and thus condemning half the Jews in the world who happen to live in Israel to death. That is exactly what “from the river to the sea” means.

 

Although I have outlined several issues with Ungar-Sargon’s book, she makes a convincing case that the Democratic Party as it exists today is far from the best political home for Jews today. That said, Trump and the Republican Party do not make for a comfortable home. However, given current trends, in a post-Trump world the Republicans could very well offer a better option than Democrats. In the meantime, a trial separation from the Democrats is in order.

 

My Review of Bojan Pancevski's "The Nord Stream Conspiracy"

 Sabotage in the Baltic

On September 26,2022, a team of six Ukrainian divers blew up the $20 billion Nord Stream 2 gas pipeline that lied 80 meters below the surface in the very dark and very polluted Baltic Sea at a cost of about $250,000. The 760-mile pipeline stretched from Russia to Germany and was to supply cheap gas for German industry. In this remarkable feat of investigative journalism Wall Street Journal reporter Bojan Pancevski tells us the story as to how the operation came together and the police work in Germany to uncover the source of the sabotage.

 

The operation was conceived shortly after the Russian invasion of Ukraine. It was put together by an off-the books operation of former SBU (Ukraine CIA) and GUR (Ukraine military intelligence) called The Start-Up. In order to protect their identities, the author calls the two leaders The General and the Colonel, respectively. They are high enough in the bureaucracies to get things done even though at time they were officially retired and later in jail. The purpose of the operation was to cut off the dollars that Putin received from selling natural gas to the West that fed his war machine.

 

Pancevski uses many aliases for the leading characters in his book. The most interesting is Freya, a woman in her late 30’s who in a former life graced the cover of an erotic magazine. She is full of spunk, and it was her who actually placed the charges that blew up the pipeline. 

 

Because much of the action took place on German territory, the German Federal Police became involved. Here we follow The Chief Inspector engage in the extraordinary nitty-gritty police work to piece together what happened and to ultimately name the Ukrainians involved in the plot. For example, a speed camera in Germany caught the license plate of an automobile used by the Ukrainians. Piece-by-piece the Chief Inspector solves the crime. However, when seeking help from Poland, he was turned down because Poland rightfully viewed the Ukrainians as heroes deserving of medals.

 

The author gives a great deal of background on the entire Nord Stream endeavor. Despite U.S. opposition, Germany’s need for cheap gas over-rode the strategic imperative of not funding Russia. Indeed, once Putin understood that his invasion would not stop the flow of gas, he green—lit the Ukrainian invasion. He was wrong in that assumption. The pipeline represented a massive outlet for Gazprom, Russia’s leading gas producer. The German-Russian relationship on gas was more than cozy as Pancevski notes that former German Chancellor Gerhard Schroder ends up on the Gazprom board. Did someone say payoff?

 

We also discover the CEO of Nord Stream was Mattias Warnig. Early in his career he was member of the Stasi, the East German secret police and later became a good buddy of Putin. It just shows how important Germany’s lust for cheap gas was and Angela Merkel was no exception.

 

We also learn that much of the Ukraine Army is funded privately with individual oligarchs and businesses putting up money for individual units. That is how The Start-up was funded. Furter Voldamyr Zelensky is not quite the boy scout his press portrays him and his former deputy Andry Yermak participated in more than his share of corruption. Nevertheless, that while both The General and The Colonel expected Zelensky to flee after the invasion, he did not. Lastly, we learn that the CIA station in Kiev was and is very active and there are American boots on the ground training Ukrainians how to use U.S. equipment. My guess is, not mentioned in the book, the special forces were and are on temporary duty to the CIA giving Washington deniability.

 

Bojan Pencevski has written a nonfictional spy thriller that gripped me throughout reading his book. We witness unbelievable human courage on the part of the Ukrainians and excellent police work on the part of the Germans. It should be a leading candidate for the major book awards!

The Bond Vigilantes Strike

 Most market commentators attributed last week’s bond market sell-off to the lack of specificity in newly installed Fed Chair Kevin Warsh comments during his post-open market committee news conference. Although the Fed voted to keep the Fed’s target rate unchanged, regional bank presidents Beth Hammack, Lori Logan and Neil Kashkari voted for an increase thereby issuing a challenge to Warsh who has said that “inflation is a policy choice.” Warsh did not give any guidance as to how the Fed will bring inflation down to its long missed 2% inflation target. Thus, short-term interest rates declined as long-term interest rates rose in a classic bear steepener trade.

 

To be sure, I am in general agreement with Warsh on the limitations of forward guidance. The markets should not be spoon-fed the Fed’s outlook as to the course of short-term interest rates. As I noted a decade ago, the Fed should not be the stock market’s fairy godmother. (See:https://shulmaven.blogspot.com/2016/01/memo-to-stock-market-janet-yellen-is.html )

 

My sense is that the back-up in yields has more to do with the return of the late 20^th century bond vigilantes in a 21^st century form. Simply put, the back up in the 30-year Treasury yield to 5.27%, its highest in 17 years and new multi-year highs in British, French, German and Japanese yields is telling us that something more fundamental is going on than a Fed meeting. What the markets are coming to grips with is the fiscal train wreck across the industrialized world, combined with supply shocks and an unprecedented amount of business investment associated with AI. Put bluntly, there is not enough funding to go around and the bond vigilantes sense this. There are more uses of funds than sources of funds.

 

In my year-end outlook I noted that the 30-year Treasury Bond would end this year at around 5.5%. (See: Shulmaven: 2026: A Year of Turbulence ) My guess is that target is likely to be exceeded before year-end and that it will likely have a 6 handle on it next year. Although the stock market rallied late week in response Citadel’s covering the hedge fund Situational Awareness’ margin call, it will soon turn its focus to the bearish forces emanating from the bond market.