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.

Bondage: A Note on the Bond Market Rout

Last week U.S Treasury bonds sold off across the entire curve. The 2-year rose 11 basis points to 4.86%, the 10-year surged 22 basis points to 5.17%, and the 30-year advanced by 19 basis points to 5.49%. Those Friday closing levels were off the weekly highs as short covering, and the hopes rose for a settlement to the Iran War after comments from the Iranian foreign office. On Saturday Trump rejected the Iranian offer, but he later stated that talks will continue in the coming week.

What was notable is the bond yields have become more detached from oil prices as investors and traders are beginning to recognize that underlying inflation is more embedded than previously thought, fiscal deficits are getting worse, the economy may be stronger than the current consensus, and there are far more uses of funds than there are sources of funds. Meantime, the market is pricing two more rate hikes from the Fed with one coming as early as late next month. (See: https://shulmaven.blogspot.com/2026/09/the-fed-acts.html )

 

As longtime readers of Shulmaven know, we have been arguing that we are in a secular bear market for bonds. (See for example: https://shulmaven.blogspot.com/2025/01/we-are-in-early-stages-of-bond-bear.html ) The current bear market began in August 2020 when the 10-year U.S. Treasury bond yield bottomed at 0.55%. We are now in the seventh year of the bear market, and we would note that the last bond bear market lasted for 35 years, 1946-1981. Thus, in our opinion, we are still in the initial stages of the secular bear market in bond

 

That said, long term market moves are never in a straight line. It is likely that the recent backup in rates will break a significant sector in the financial markets before too long. Thus, while I think we are on the road to much higher interest rates that will make today’s yields look low, it is not out of the question that a countertrend rally could soon begin. My guess is that will happen around a 6% yield for the 10-year U.S. Treasury Bond.

 

While the S&P 500 has been seemingly immune from the bond market route as earnings are on pace to increase 33% this year, the forward price-earnings ratio of the index has declined from 22 times to 19 times. As long as the strong earnings momentum continues stocks are likely to hold up reasonably well. However, once a crack appears in the earning cycle, stock market investors will take note of the high bond yields, and we will face a Wile E. Coyote moment.

The Fed Acts

As we noted last week the Fed was on track to increase the federal funds rate by 25 basis points. ( See: https://shulmaven.blogspot.com/2026/09/the-die-is-cast-for-fed.html)  Today the Federal Reserve's Open Market Committee acted. What is more, according to the infamous dot plot projection most of the committee member signaled that at least one more hike is in the cards. To add emphasis, Chair Warsh noted that "we removed a dose of accommodation." We would note that with the committee forecasting a 3.7% year-over-year increase in the personal consumption deflator by December indicates a mere 0.2% real funds rate at the new 3.75%-4% target range.  

In response the yield on 2-year U.S Treasuries surged by 7 basis point to 4.74%, thereby confirming at least one more rate hike. The 10-year Treasury advanced by a more modest 2 basis points, while the 30-year was unchanged. In other words a continuation of the "bear flattening" trend.

Although the more cyclical Dow Jones Industrial Average sold off by 1.2%, the S&P 500 was only off by 0.45% and the NASDAQ was flat. Thus, the stock market took the hike and the prospect of another hike by yearend reasonably well. The real issue for the stock market is at the long end of the yield curve. Our view is that long rates will work their way higher with the 10-year exceeding 5.25% and the 30-year exceeding 5.5% by yearend as the secular bond bear market grinds on.

My Review of Robert Harris' "Agrippa"

Caesar’s General

This is the fourth Robert Harris historical novel I have reviewed. (See: Shulmaven: My Amazon Review of Robert Harris', "An Officer and A Spy: A Novel", Shulmaven: My Amazon Review of Robert Harris' "Munich: A Novel", and Shulmaven: My Amazon Review of Robert Harris' "V2" ) Here Harris in the voice of Marcus Vipsanius Agrippa retells his life story in the form of a dying man’s memoir starting from his very plebian beginning to rising to the heights of the Roman Empire. His rise is the result of his boyhood and ultimately lifelong friendship with Octavian who would become Agustus Caesar, the supreme ruler of the empire.

 

Agrippa was not only Caesar’s general, but he was also his admiral, and, in many respects, he was the Robert Moses of Rome by building aqueducts, public baths, parks, and waste removal systems. When Agrippa was 19 and Octavian was 18, they both exhibited high-order military skills. By the time there were 30 they were in charge of all Roman and land and naval forces.

 

Here you have to brush up on your Shakespeare because Octavian had to defeat Brutus and Cassius and later defeat Antony and Cleopatra. While Agrippa was the military strategist, Octavian was the political strategist in outmaneuvering all his rivals from the outside and from within. He does this through guile and having his children engage in strategic marriages, including forcing Agrippa to divorce his wife in order to marry Octavian’s daughter.   

 

So great was Agrippa’s military skills that in a period of 18 months he built a port and an entire naval fleet that would successfully defeat Sextus Pompeaus’s pirates in the Bay of Naples. Would that our Navy work with the same alacrity today?

 

Harris gives a very real sense of the power politics of the late Roman Republic and the dawn of the empire. From Julius’s Caesar crossing Rubicon the days of the republic were numbered, and constant fighting made the once great Roman Senate irrelevant. Harris also brings up with anecdotal evidence, but no proof that Agrippa was Julius Caesar’s illegitimate son.

 

Harris does a real service in presenting the grandeur that was Rome in a very readable format. He gets the history right and gives the reader a chance to be a fly on the wall when many of the great decisions were made along with getting a real sense of what life in the Roman army and navy was like.

The Die is Cast for the Fed

 With the headline consumer price index for August coming in at 3.4% and at 2.4% year-over-year for the core, the die has been cast for the Fed to increase its policy rate by 25 basis points at its meeting next week. As we noted two weeks ago, Fed Chair Kevin Warsh and his Open Market Committee members have all the evidence they need to hike rates. (See: https://shulmaven.blogspot.com/2026/08/warsh-strikes-right-chord.html ) Indeed with oil prices moving higher in September and diesel prices at record highs, it is hard to believe that August's increase in energy prices were a one-off event.

 

The bond market responded appropriately by flattening the yield curve with the yield on 2-year notes advancing by 6 basis points and the yields on the 10-year and 30-year Treasury bonds declining by one basis point and four basis points, respectively as of midday. For the moment, the Fed has gained a modicum of credibility, but time will tell as to whether or not it can be maintained. Shulmaven has long believed that inflation is more endemic than what most market participants believe, and thus the hike next week has to be viewed as the start of a tightening cycle, not one off.  

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%.