Tuesday, August 15, 2017

My Amazon Review of Graham Allison's "Destined for War: Can America and China Escape Thucydides's Trap"

Collision Course?

Graham Allison the Director of Harvard’s Belfer Center and former Dean of its Kennedy School has written a thought provoking book that should keep leaders on both sides of the Pacific awake at night. To Allison the rise of China to challenge the United States is a replay of the ancient Peloponnesian War where “it was the rise of Athens and the fear that it instilled in Sparta that made war inevitable” in the memorable words of Thucydides. By going through sixteen case studies where a rising power challenged an incumbent power Allison is careful to note that war is not inevitable, but it is likely.

The most glaring case study is that of the rise of Germany in the late 19th century to challenge the hegemony of England and the parallel rise of post-1905 Russia to challenge Germany on the continent created so much fear among the parties that the spark of an assassination in the Balkans heralded the onset of World War I.  In contrast the American challenge to England during the same time period led to a rapprochement between the two powers that exists through today. But what it took was England’s willingness to give America a free hand in the America’s. In the two cases I just cited economic rivalry preceded geopolitical rivalry.

So it is today with the U.S. and China. On purchasing power parity basis the Chinese economy is now larger than that of the U.S. and the fear of Chinese economic power is a constant drumbeat among American politicians. The question for the U.S. and China is the same that was presented to Sparta and Athens is whether or not an accommodation can be made. That would require either China pulling back on its ambitions to establish a sphere of influence in Southeast Asia or for the U.S. to accept the fact that Chinese ambitions are legitimate. Given what is going on with North Korea today it hard to tell whether diplomatic accommodations can be made. Of course for the U.S. to  cede Southeast Asia to China there would have to a high degree of confidence that the Chinese goals are limited just as the U.S. goals towards Latin America were limited at the turn of the 20th century.


To accomplish a modus vivendi will take a lot of hard work and remember the rise of China economically left in its wake abandoned factories throughout America just as the rise of Germany placed great stress on the British economy in the late 1800s. It is not going to be easy, but Allison is asking the right questions and pointing us in the right direction.  




Tuesday, August 8, 2017

Donald Trump and the Big Lie

"The essential English leadership secret does not depend on particular intelligence. Rather, it depends on a remarkably stupid thick-headedness. The English follow the principle that when one lies, one should lie big, and stick to it. They keep up their lies, even at the risk of looking ridiculous."

Joseph Goebbels

"All this was inspired by the principle—which is quite true within itself—that in the big lie there is always a certain force of credibility; because the broad masses of a nation are always more easily corrupted in the deeper strata of their emotional nature than consciously or voluntarily; and thus in the primitive simplicity of their minds they more readily fall victims to the big lie than the small lie, since they themselves often tell small lies in little matters but would be ashamed to resort to large-scale falsehoods.
It would never come into their heads to fabricate colossal untruths, and they would not believe that others could have the impudence to distort the truth so infamously. Even though the facts which prove this to be so may be brought clearly to their minds, they will still doubt and waver and will continue to think that there may be some other explanation. For the grossly impudent lie always leaves traces behind it, even after it has been nailed down, a fact which is known to all expert liars in this world and to all who conspire together in the art of lying."

Adolf Hitler, "Mein Kampf"

"His primary rules were: never allow the public to cool off; never admit a fault or wrong; never concede that there may be some good in your enemy; never leave room for alternatives; never accept blame; concentrate on one enemy at a time and blame him for everything that goes wrong; people will believe a big lie sooner than a little one; and if you repeat it frequently enough people will sooner or later believe it."

OSS Psychological Profile of Hitler

It seems that Donald Trump has been taking lessons from Hitler and his propaganda minister Joseph Goebbels. Trump tells lots of small lies, but it all evolves around his Big Lie attack on "fake news." He characterizes every news story that is critical of him as "fake news." And he repeats it over and over so after awhile people come to believe it. To further his goal he set up his own propaganda Trump TV channel on Facebook. 

Nevertheless because more than a few Americans rightly believe that much of the news media is biased against Trump, it behooves the news media to get the story right. Otherwise if the news media gets it wrong it supports Trump's "fake news" argument and further entrenches his big lie. 

Friday, August 4, 2017

My Amazon Review of Richard J. Evans' "The Pursuit of Power: Europe, 1815-1914"

The European Century

The distinguished Oxford Historian Richard Evans has given us a kaleidoscopic view of European civilization during the century it came to dominate the globe. A reader will learn a lot by going through this very long book (848 pages in the print edition without footnotes or endnotes.) In my opinion too long for the average lay reader. Evans offers us a bottom-up socio-political history where the focus is more on the average citizen and culture than the political elite.

In essence Evans discusses how Europe came to terms with the political earthquakes brought about by the French Revolution and the Napoleonic Wars and the industrial revolution. In 1815 the so called Concert of Europe is brought into being by Metternich as a conservative reaction to the French Revolution. That framework largely keeps the peace until 1848.  Nevertheless the ideas of the French Revolution bubble up and gradually work to democratize European society as the franchise is extended to more and more people. He highlights the conflict between the liberal reformers in the bourgeoisie and their more democratic counterparts whose visions extend to feminism and socialism.

Along the way nationalism becomes the most powerful force in Europe as Italy and Germany unify and the minorities within the decaying Austrian and Ottoman Empires revolt. It is those revolts that light the match that starts World War I.
Nationalism also becomes the motivating force in the establishment of European colonial empires in Asia and Africa. Territory abroad yielded political prestige home. The power of nationalism proves itself in 1914 when the previously anti-war socialist parties all vote for war credits in their respective nations.


All told The Pursuit of Power is well worth the read, but it will take a patient lay reader to get through it all.



Tuesday, July 25, 2017

My Amazon Review of George Melloan's "Free People, Free Markets: How The Wall Street Journal Opinion Pages Shaped America"

The Making of an Editorial Page

Because I have been reading The Wall Street Journal since I was a kid I looked forward to reading “Free People, Free Markets..” George Melloan did not let me down and as a former reporter, columnist and deputy editor of the editorial page has written a definitive history of The Wall Street Journal’s editorial page. He covers the page’s evolving politics and personalities during it’s over a century history. He is particularly adept at chronicling the roles of Vermont Royster and Robert Bartley in shaping the page from the 1950s to the dawn of the 21st Century. It was those two editors who catapulted the page into a major force in conservative thought and American journalism. And Melloan had a ringside seat in writing those editorials and serving as Bartley’s deputy.

To me the highlight of the book was Melloan’s recounting his commute from New Jersey into Manhattan on 9/11. I made the same commute on a different New Jersey Transit line and witnessed the second plane hitting the World Trade Center. I worked next door to the then WSJ headquarters and immediately went home. Melloan had a paper to put out and by the efforts of their heroic staff the WSJ was put together at their Princeton printing plant. It was journalistic grace under fire.

What perhaps made the editorial page was their walk on the supply-side in the late 1970s where fiscal orthodoxy was abandoned in favor of broad-based tax cuts. The results came a few years later with the Reagan revolution.


I have a few quibbles though. Sometimes the book reads like a very long newspaper article. I would have liked to see full reprints of a dozen or so editorials that Melloan considers to be the most important. Lastly Melloan leaves out the views of the editorial board prior to America’s entry into World War II. My guess he was not proud of them, but they should have been discussed for the sake of history. 

The full amazon URL appears at: https://www.amazon

Tuesday, July 18, 2017

My Amazon Review of Michael S. Neiberg's "The Path to War: How the First World War Created Modern America"

Over There

Military historian Michael Neiberg history of America’s entry into World War I is the mirror image of Michael Kazin’s “The War Against War…” Where Kazin looks America’s entry from the point of view of the anti-war coalition, Neiberg tracks the views of the broad American public and the war proponents, especially former President Theodore Roosevelt who was incensed by Woodrow Wilson’s initial “Too proud to fight” slogan.  He notes that the American public was sympathetic to the Allies from the get go, but he doesn’t really explain why the neutrality sentiment was so strong and why it took so long for the public’s sympathy for the Allies to be realized.  

But when America entered the war the public went all-in and he notes how quickly George M. Cohan’s “Over There” became such a national hit. However to get the public it would take the German resumption of unrestricted submarine warfare, the Zimmermann Telegram and the abdication of the Russian Czar in the early months of 1917 to enter a war that was in the broad strategic interests of the United States.

Neiberg discusses how elite America with their Anglophile sympathies were especially important in bringing America into the war. Unlike today it was the Ivy League college students who were the most hawkish and many volunteered to fight for England and France before America’s formal entry into the war. Many of them would become disillusioned in the 1920's.

Where Neiberg is especially good is his deep sourcing on the changing attitudes of the hyphenated Americans. He discusses how German-Americans, Italian- Americans, Irish Americans, Jewish-Americans and African-Americans moved from initial ambivalence to full throated support for the war. In essence those groups identified more as Americans than their ancestry.  As a result the stature of the four White groups was much improved after the war ended. However African-Americans faced the revival of the Klan in the 1920’s.


Unfortunately Neiberg leaves out the role of the large banks, the munitions suppliers and British propaganda in pushing America towards war. Further his title over promises. He doesn’t say much about how the war created modern America. For insight into that I would recommend Adam Tooze’s “The Deluge…..” Thus for me it is hard to get too excited about the book.

Friday, July 14, 2017

My Amazon Review of William Christie's "A Single Spy"

Double Agent

William Christie has written a fast-paced spy thriller. His protagonist is Alexsi Smirnov, a street and desert smart Azeri teenager who is very handy with a knife. He would ultimately become a well-placed KGB agent inside the Abwehr. Smirnov is a library educated autodidact who is fluent in Russian, Farsi and German. We trace his adventure from being a teenage smuggler in the Trans Caucasus to his capture by Russian authorities that sends him to a prison/orphanage where he spotted as potential spy materiel.

From the orphanage he is transported to KGB headquarters in Lubyanka prison. There under the tutelage of a master spy he is groomed to enter Germany by impersonating the nephew of a senior Nazi diplomat. With the aid of his “uncle” he becomes an intelligence officer in the Abwehr where he discovers Hitler’s plans to invade Russia. Of course Stalin does not believe the report he files.

Later in the book Smirnov becomes involved in the mythical plot (Operation Long Jump) to assassinate the Big 3 at Tehran led by the Germany’s star commando Otto Skorzeny. This plot has been the subject of more than a few spy novels.


Along the way Christie paints a very realistic picture of life in 1930s Russia and wartime Germany. “A Single Spy” is well worth the read!





Wednesday, July 12, 2017

Breaking out the Vodka at the SVR and the GRU

No matter what the outcome of the Trump Jr., Kushner and Manafort meeting with Russian lawyer/intelligence operative? Natalia Veselnitskaya, the Russian security services have won bigtime. Break out the vodka in Moscow. Why? They have succeeded magnificently in creating total chaos in Washington by putting the Trump Administration in complete meltdown mode. And who knows what additional information the SVR (Russian Foreign Intelligence Service) and the GRU (Russian Military Intelligence) has on the Trump Administration. Remember the Russian intelligence services have information on every single contact the Trump people had with them and/or their cutouts. So my guess is there are more shoes here to drop to than in Imelda Marcos’ legendary closet.


Nevertheless there is far more to this story. Why are all of the leaks occurring now just days after Trump’s meeting with Putin? Did “The Donald” give away the store to Putin causing our national security apparatus to start leaking like a sieve or was he surprisingly tough on him causing the Russians to do the leaking? My guess is the former, but either way Putin wins.

Sunday, July 9, 2017

Reinventing REIT Sell-Side Research

I am beginning to think the current sell-side REIT research model is, if not broken, severely challenged. Simply put, the notion that REITs as a whole belong in an industry group is mistaken. Why? A tax code election, which is what makes a REIT, does not an industry make.  Think about it. Today’s REIT analysts not only cover office, retail, apartment, industrial and hotel properties, they also cover companies that own healthcare, timber, data center, and cell tower assets. 

What senior analyst has the bandwidth to credibly cover all of those industries? I am not saying it can’t be done, but rather it is very difficult. That is why analyst coverage at sell-side firms is largely based on clearly defined industry groups. Furthermore we already see that with mortgage REITs which are usually covered by specialty finance analysts, not traditional REIT analysts.

My suggestion is that instead of covering REITs horizontally, analysts should cover them vertically by their true industry groupings. Thus data center REITs should be covered by computer software analysts, cell towers by telecom analysts, healthcare REITs by healthcare analysts and timber REITs by forest products/paper analysts. In the case of data centers and cell towers, two very hot groups today, I wonder how many REIT analysts have seriously thought through the risks of technological disruption. However let me make this clear, it does not mean the REIT analyst disappears, it just means the individual analyst moves from working in a horizontal REIT group to a vertical industry group where the industry expertise lies.

For example, in the case of healthcare, how many REIT analysts are up to speed on the healthcare reforms now working their way through Washington D.C.? Is any REIT really thinking what the impact of putting Medicaid on a budget, which by the way I believe is inevitable, will have on nursing homes and hospitals? Without a doubt there is more regulatory expertise sitting in the healthcare group than the REIT group. As a personal note, because of the regulatory complexities of covering healthcare REITs and the need to understand what is going on in congressional committee rooms, I never covered those stocks. Life was too short for the brain damage required.

Further I would extend this vertical model into the core food groups of real estate. The revolution now going on in retail makes it essential for retail REITs to be covered by retail analysts. Of course the retail analyst will have to know more about real estate, but the drama is now on the operational side, not the real estate side. Remember real estate is a derived demand. Similarly it would make sense to put the industrial REITs under the transportation/logistics umbrella, office REITs in the business services category, and apartment REITs ought to be covered by housing analysts. In the case of hotels there already is integration between the management companies and real estate owners in many shops. That model seems to work well.

A good example of the model I am suggesting is the boutique firm Zelman & Associates which does an excellent job covering the entire housing complex including single family home builders, apartment REITs, single-family REITs, building materials, building products retailers, real estate brokers and title companies. Why can’t this be done for the REIT industry writ large?


My sense is that with the REIT analyst community doing the same old same old there is very little value being added. Don’t you think it is time to break out of the mold? The buy-side is not going to bite you; they may even welcome the change. If not going all of the way, isn’t it time for further integration and coordination of REIT analysts with the primary industry groups I suggested on the research floor?

Wednesday, July 5, 2017

My Amazon Review of Joseph Kanon's "Defectors: A Novel"

Moscow Days, Moscow Lies

I last ran into Joseph Kanon in the Berlin of the late 1940s (“Leaving Berlin”). This time his novel is set in the drab Moscow of 1961 among the community of American and British defectors who have their KGB minders. There are cameos for the British spies, Donald MacLean and Guy Burgess. The notorious Kim Philby will defect two years later.

The novel revolves around the editor Simon Weeks who is seeking to publish the  autobiography of his defector brother, Frank, under the title of “My Secret Life” which is reminiscent of Philby’s autobiography written seven years later. Both brothers served as OSS officers during World War II. However Frank was recruited by the KGB during his time fighting in Spain and he later becomes the CIA’s most prominent defector in 1949. Frank lives in Moscow with his alcoholic wife, but nevertheless, he remains a KGB officer.

The KGB has authorized Frank to publish his autobiography and what better reason for them to bring his brother Simon to finish up the book. Of course Simon doesn’t enter Moscow blind and he is in constant contact with the CIA station chief in Moscow. Thus both brothers are lying to each other and themselves.


The book ends with quite the chase scene across the Russian border into Finland. Kanon tell a good story and he certainly knows how to write. Here is just one example: ”Leningrad at first glance, was a faded beauty that had stopped wearing makeup-all the buildings, the pastel facades, needed paint.”

Saturday, July 1, 2017

My Amazon Review of Richard Florida's "The New Urban Crisis:......"

An Indictment of Urban Liberalism

I know urban planning professor Richard Florida did not intend it, but his new book represents an indictment of urban liberalism. To Florida the motive force in urban America is “The Rise of the Creative Class,” the title of a highly influential book he wrote in 2002. The creative class consists of occupations in the sciences, the arts, music, entertainment, media, management, finance, healthcare and education; in other words the educated elite. Sitting below them is the working class who represents blue collar workers and the service class consisting routine jobs food service, hospitality, maintenance and retail. In other words people like Florida, despite his humble roots, determine the destiny of a city. And to him the defeat of Hillary Clinton and the victory of Donald Trump in last year’s presidential election meant that the barbarians were at the gates. That may be true but the seeds urban liberalism failures were already planted well before the arrival of Trump. As an aside, my guess is that if Hillary won, Florida would now be sitting in a high post at HUD.

As Florida accurately notes the influx of the creative class into the cities of America brought with it rising real estate prices that exacerbated pre-existing income inequality, racial segregation and spatial segregation of the well-off from the  poor. This has been especially true in the super star cities of New York and Los Angeles and the education/tech hubs of Boston, San Francisco and Washington D.C. In those cities the demand-driven house price increases are exacerbated by the planning and zoning controls put in place by the very creative class that Florida champions. If you don’t believe me, just look at the over-the-top real estate ads that appear regularly in The New York Times and The Los Angeles Times. As a result the creative class has been enriched and the middle class is being forced out. Thus in urban America zoning is the engine of economic inequality.

All of this was true from the 1980s on and most, if not all of it, were accomplished under the auspices of urban liberal regimes. Florida’s major error is that he conflates social liberalism with economic liberalism. While his creative class may largely support immigration, gay rights and a high degree of tolerance for different lifestyles; they do not necessarily believe that social liberalism requires them to make personal sacrifices with respect to their tax burden, the schools their children go to and the location of affordable housing in their neighborhoods. For example the liberal voters of Los Angeles just voted to tax themselves to provide housing for the homeless. However there are no neighborhoods volunteering to accommodate such housing.

Now Florida to his credit understands all of this. He offers several commendable proposals to offset the income inequality generated by his creative class. I fully agree with him that urban/suburban densities ought to be substantially increased, additional density bonuses ought to be issued to allow for an affordable housing component in major developments, property taxation should build on the ideas of Henry George by taxing site value alone rather than land and improvements, transportation infrastructure should be expanded to accommodate higher densities, and low income earners need an expanded earned income tax credit. Further he sensibly understands that rent control is not part of the solution.

Where I would disagree with him is that he advocates a substantial increase in the minimum wage on metro-area by metro area basis. The problem here is that substantially higher minimum wages may worsen the problem it seeks to solve and recent research out of the University of Washington on Seattle’s minimum wage tends to support my skepticism. We are also in an age of artificial intelligence and that will work to obliterate routine task jobs in food service and retail.

Where I really differ with Florida is that he thinks that his creative class will support substantially increased urban densities. Here I am very skeptical because it is the legally savvy creative class who has refined protesting new developments to a high art. Listen, I hope he is right, but I am not holding my breath. Three last points, he leaves out a discussion on self-driving vehicles which might work to decrease urban densities by making long distance commuting far easier. He fails to even mention the underbelly of every major city in America, unfunded pension liabilities largely created by that bulwark of urban liberalism, the public employee unions. And third he is silent on the state sponsored child abuse that takes place in all too many urban school systems. I am hopeful he will discuss these three items in a future book.


Despite my critique, Florida’s data driven analysis told us how we got to this place in urban America today and for that he deserves much credit.

Tuesday, June 20, 2017

In the Sacramento Bee, "Think rent is really high in California? Here's why it probably will get higher," June 19

“President Trump wants to keep people out by building a wall. California is more sophisticated – it uses zoning and development laws to keep people out, but they have the same effect,” Shulman said.

For the full article see, http://www.sacbee.com/news/politics-government/capitol-alert/article156864219.html

Read more here: http://www.sacbee.com/news/politics-government/capitol-alert/article156864219.html#storylink=cpy

Sunday, June 18, 2017

Amazon, Whole Foods and Shopping Center REITs

Amazon’s proposed takeover of Whole Foods sent shock waves through the grocery, packaged food and shopping center REIT industries. The instant judgement of the market was that the deal is very good for Amazon and bad for the three industries named. Seemingly oblivious to the true import of the deal were stock analysts who cover the REIT industry. To them the deal ratifies the value of what they characterize as high quality real estate. To be sure the 460 or so Whole Foods’ locations mostly sit on some of best shopping center real estate in the country, but that is a tiny segment of the industry.

Nevertheless that really misses the larger point. Amazon’s roll in life is to destroy the gross margins of its competitors. Thus if Amazon succeeds, and it doesn’t always, the 21% gross margin of supermarket operator Kroger will be a relic of the past. My guess is that under Amazon, Whole Foods’ industry high 35% gross margin will give way to something much lower. Although most analysts use sales/square foot as metric for rent paying ability, the true metric is gross margin/square foot and that is about to collapse for most food retailers. As a result rents will fall. Just think of all the grocery stores that will face pricing and market share pressures from the combined behemoth. Trust me, it is not going to be pretty and investors will soon find the safety they sought in grocery anchored centers to be illusory.

What Amazon appears to be doing is to link up the high income consumers who are Amazon Prime customers with the equivalent Whole Foods customer. In fact of all of the supermarket chains in America there is probably the greatest overlap between Whole Foods shoppers and Prime. Simply put Amazon wants to own the high income consumer which will make it easier for the Whole Foods customer to buy goods on Amazon Prime while shopping with the physical store becoming either a delivery point (where the customer takes physical delivery) or a distribution point (where the goods are shipped out to the customer). In essence Amazon will be placing its digitally sophisticated integrated global logistics capabilities at the service of the high income-time constrained consumer.


One last point, to the extent that Amazon will “own” the high income consumer it will be bad news for the operators of A+ regional malls.

Friday, June 16, 2017

My Amazon Review of Martha Gellhorn's "A Stricken Field: A Novel"

Obituary of a Democracy

Martha Gellhorn’s 1940 novel is not a great book, but an important one. Her book can be viewed as a novelized version of her December 10, 1938 Collier’s Weekly article entitled “Obituary of a Democracy” which described life in post-Munich Prague. Gellhorn arrived in Prague just after covering the Spanish Civil War where she established her reputation as a war reporter and was Ernest Hemingway’s lover. She would become his third wife in 1940 and go on to become one of the great war reporters of the 20th Century.

The novel’s protagonist is reporter Mary Douglas, Gellhorn’s alter ego if you will. She is there to cover the demoralization of Czechoslovakia after being sold out by England and France at Munich. As a result the Czechs surrendered the Sudetenland to Hitler. With that the Czech’s lost their defensible border with Germany and it became inevitable that the Germany would ultimately swallow up the heart of the country.

Mary Douglas notes the demoralization of the Czech Army which was not defeated in battle as the soldiers return home. It is one thing to lose a war; it is another to surrender without a fight. With the German occupation of the Sudetenland, Prague is flooded with refugees who join other fleeing Hitler from Germany and Austria. Among the Germans are two communists, Peter and Rita who Douglas befriends. Little did they know that their resistance to Hitler would soon be sold out by Stalin. Those two organize safe houses for the refugees but with European borders closed they are trapped when the Czech government orders them all home. Rita and Peter then go on the run and Peter would soon face a horrific torture by Gestapo agents operating with seeming impunity in Prague. Democracy is dying.


Gellhorn’s prose puts you in the place of the demoralized soldier, the struggling resistance and the hopeless refugee. In a way it is a lesson for our time.

For the Amazon URL see:

Thursday, June 8, 2017

An Open Letter to President Donald Trump: It’s Time to Go

I hate to break it to you, as one kid from Queens to another, it aint working. The trouble is that you are still acting like a 14 year old kid, not an adult much less a president. The American people know it, Congress knows it, your cabinet knows it, the White House staff knows it, Melania knows it and yes, Ivanka knows it.

Let’s face it you don’t understand our constitution and how our government functions under it. Your decision to fire F.B.I. Director Comey violated Lyndon Johnson’s rule with respect to J. Edgar Hoover. President Johnson understood that it was far better to have Hoover inside the tent pissin out rather than outside the tent pissin in. Put bluntly you are not up to the job and it is time for you to go before making an even bigger mess.

Your foreign policy is a wreck and is putting our country in grave danger. You have managed to give the middle finger to our European allies, Mexico, Canada and most of Asia. The only country in the world that seems to be happy with you is Russia, who under Putin is our enemy. Meantime with three carrier groups approaching Korea a real war looms. Do you really think you are up to this? Remember we are not talking about a real estate deal here. At home hardly anyone wants to work in your administrations as key positions remain unfilled. Further nothing is happening in Congress with no real progress being made on healthcare, tax reform and infrastructure legislation.

You can claim credit for appointing Neil Gorsuch to the Supreme, Court, the rollback of Obama-era regulations, bringing a much needed increase to defense spending and in rethinking our trade deals to better understand their impact on the American worker. So why don’t you claim victory, call it a day and leave. The country will be in good hands with Mike Pence.

Yours in making America great again,

David Shulman


Monday, June 5, 2017

My Amazon Review of Henry Hemming's "Agent M: The Lives and Spies of MI5's Maxwell Knight"

Inside MI5

Henry Hemming introduces us to Maxwell Knight a jazz playing naturalist with his own private menagerie who turns out to be a great talent spotter and spy runner for MI5. He is the model for Ian Fleming’s “M.” He marries three times, but none of them were consummated. In other words he was quite the quirky guy.

Hemming’s biography largely focuses on the 1920’s and 1930’s where Knight is recruited into a private spying operation that infiltrates the British fascisti. Knight is well suited for this because he largely sympathetic to their goals and was a firm anti-communist. There he meets William Joyce who would go on to become the pro-Nazi broadcaster Lord Haw-Haw in the 1940's.

When Knight formally joins MI5 his main focus is on Soviet espionage and its handmaiden the British Communist Party. There he pioneers the use of female agents and with the great work of Olga Gray he breaks a major Soviet spy ring that infiltrated the naval armaments industry. He stays focused on the Soviets until Italy invaded Ethiopia and then, and only then, does he wake up to the threat of fascism.

Hemming focuses on Knight’s successes, but Knight, despite suspecting Anthony Blunt, he completely misses the notorious Cambridge Five spy ring. He comes close to detecting the Soviet infiltration of the British nuclear program, but objectively he fails.


Hemming offers us great insight into the operations of MI5 and the life of one of its best agents. For those interested in this topic, though a bit long, his book is well worth the read. 




Monday, May 29, 2017

A New Look at Mall REIT Valuations: Part 2

Earlier this month I posted my view on how to approach mall REIT valuations given the stresses engendered by online competition. (See https://shulmaven.blogspot.com/2017/05/a-new-look-at-mall-reit-valuations.html) Since then the mall REITs drifted lower rallied and then fell back a bit. Nevertheless I believe that the burden of proof is on the bulls with the mall REITs continuing to trade at substantial discounts to Street net asset values. (See below) If the Street is right then back up the truck, but my question with the world still awash in a sea of liquidity, where are the sovereign wealth funds and private equity? This is especially true for GGP whose CEO all but announced the company is for sale and where Brookfield already owns 29% of the company. The silence, up to now, is deafening. Thus if private equity or sovereign wealth funds don't come in soon to scoop up the apparent bargain, the Street, as I argued, is way off.

REIT   Street   Market Price   Discount   Mkt. Cap.
             NAV                                              (in $bil)

SPG       214                 157             27%        50
GGP         32                  23              28           20
MAC        79                  59              25              8.5
TCO         95                  62              35              4

In my view sophisticated buyers understand two things. One, there is a structural revolution going on in retail as result of online commerce and two, the retail bankruptcies that we have seen this year will look like child's play during the next recession. Remember we are witnessing an onslaught of retail bankruptcies when income, consumption and employment data are relatively benign, what will happen when the economy turns more hostile.

As a result the clock is ticking. In the absence of a major deal or a portfolio sale/jv (a one-off transaction won't really count) over the next few months, Street estimates of net asset value will have to come down. As they say, time will tell.


Thursday, May 25, 2017

My Amazon Review of Richard Bookstaber's "The End of Theory: Financial Crises, the Failure of Economics and the Sweep of Human Interaction"

Stuff Happens

Richard Bookstaber a long time finance practitioner/risk manager who has worked for Morgan Stanley, Salomon Brothers, Moore Capital and Bridgewater as well as the Financial Stability Oversight Council and the Office of Financial Research has written a broad-based attack on financial economics and the DSGE models now used by most central banks. Trust me he knows what he is writing about and in the interests of full disclosure I interacted with him when I worked at Salomon Brothers.

Although not cited he is writing in the tradition of Nicholas Nassim Taleb (“The Black Swan”) with his fundamental disagreement with the theoretical underpinnings of financial economics. Simply put in a world of radical uncertainty we don’t know the underlying probability distributions of future financial returns and we don’t even know the potential states of the world needed to calculate a probability distribution. He argues that modern finance theory is built around top down axioms based on deductive reasoning where an all knowing representative individual calculates the future probabilities for all of the known states of the world. And importantly the future probability distribution is based on historical evidence. Under radical uncertainty that simply does not work.

Instead he argues for agent based models built upon inductive reasoning where the actors are “reflexive” in the word used by George Soros, in that they respond to the actions of others. As much as economists envy physics, Bookstaber turns the Heisenberg uncertainty principle on them. Thus while financial theory works in normal times, in a crisis all bets are off as “stuff happens.”

What Bookstaber would like is to use agent based models that are used to model automobile traffic and schools of fish, for example, through the use of complexity theory. All this is fine and good, but aside from a narrative Bookstaber does not offer up a formal model for the financial markets. Perhaps he has one, but it is not here. Nevertheless he offers a road map for future research.

At times Bookstaber’s writing style is clear and lucid with analogies from literature motion pictures and military combat. He is a student of “OODA”, observe, orient, decide and act. He is particularly acute in his discussion of the origins of the financial crisis and is highly critical of the role played by Goldman Sachs in their failure to honor a small “novation” request from Bear Stearns, which brought that firm down. However, at other times his writing is dull and staid


Bookstaber has written an important book and it should be read by risk managers and policy officials. The old models failed in 2008, now almost ten years later it is time for new ones.

Sunday, May 21, 2017

My Amazon Review of Henry Kaufman's "Tectonic Shifts in Financial Markets: People, Policies and Institutions"

Too Big to Fail is Still with Us

Henry Kaufman, my former boss at Salomon Brothers, has written an easy to read and an important book about our nation’s financial structure. Simply put, Dodd-Frank did not solve the “too big to fail problem” and in fact made it worse by ratifying the undo concentration of the giant “financial conglomerates” that rule finance today. He further argues that this financial concentration impedes Federal Reserve policy. In a crisis that might be true, but it is not clear whether that is true in more normal times. After all Canada has run monetary policy for decades with a highly concentrated financial system with few issues than what occurred in the United States.

His book is part autobiographical as well in that he discusses his years at Salomon Brothers where in the late 1970s and early 1980s the financial world waited with baited breath for his comments. He notes his great friendship with Paul Volcker where he is very kind; he is not so kind to Alan Greenspan where the he believes the Fed became more political. This is not to say it wasn’t political in earlier times.
He makes an acute observation about Margaret Thatcher who impressed him with her sophisticated knowledge of macroeconomics.

What troubled me about his book is his discussion of Lehman Brothers where he was a board member before and at the time of its high profile bankruptcy. He argues that the Fed had more options than letting the firm go bankrupt and suggested that Treasury Secretary Henry Paulson was driving the bus, not the Fed. That could very well be true, but I wish he discussed what happened in the Lehman boardroom when the firm ran up its debt/equity ratio to 33-1 and loaded up their books with highly illiquid real estate, including the giant Archstone transaction. Further in late 2007 Lehman had a chance to walk from that transaction, but didn’t. Were it not for their real estate heavy transactions in both physical real estate and what was to become highly illiquid positions in commercial mortgage backed securities, the firm could very well have survived. In the interests of full disclosure I left Lehman in 2005.


Thus having opened the discussion about Lehman, I wish he would have given us more details. Otherwise this is a fine book for those interested in how our financial system evolved over the past 60 years.

The full Amazon URL is:

Tuesday, May 16, 2017

My Amazon Review of Duff McDonald's "The Golden Passport: Harvard Business School, The Limits of Capitalism, and the Moral Failure of the MBA Elite"

Put the Blame on HBS

Duff McDonald has written a very long (672 pages in the print edition) minutia filled anti-American business and anti-Harvard Business School screed. For the most part he believes that American business can’t do almost anything right and he places the blame on the “West Point of Capitalism,” the Harvard Business School for practically everything that is wrong with America.

He doesn’t like the managerial capitalism of the 1950s that ran aground in the 1970s and the shareholder capitalism that began to evolve in the 1980s. What he would prefer is some broad version of “stakeholder” capitalism that protects the environment and combats income inequality, but my question is whether business is the vehicle to do that. My guess is that if business tried as it did minimally in the late 1960s he would use the leftist pejorative term “corporate liberalism.”

The villain of his piece is finance professor Michael Jensen who laid the intellectual foundations for shareholder capitalism in the late 1970s. Out of this flows leveraged buyouts, mass layoffs and the philosophy of short-termism with respect to the undo focus of corporate management on meeting quarterly earnings expectations. He however conveniently ignores such successful corporations as Amazon, Google and Berkshire-Hathaway who invested for the long run and mightily succeeded.

McDonald is highly critical of HBS’ case method of instruction which by its very nature lacks real theoretical underpinnings. That is true, but the case method is useful in organizing how to think about very real business problems. It also leads to superb teaching. He admits that pretty much every professor at HBS is a great teacher, a skill that is lacking at other business schools.

He does favorably mention Harvard professor General Georges Doroit who was an expert on logistics and went on to found the venture capital industry in the early 1950s with his American Research and Development. He also singles out for praise Arthur Rock who was one of the earliest venture capitalists in Silicon Valley.

In the interests of full disclosure I have an MBA, not from Harvard, and taught MBAs. As a professor I used discussion of formal finance theory with an occasional case study in corporate finance. Indeed in the most case intensive course I taught, I so inspired one student that many years later he endowed a teaching award in my name. As a result it is hard for me to get too worked up about McDonald’s criticism of the case method.


With McDonald continually in the attack mode his book makes for a very difficult read so I would recommend readers to find better things to do with their time.  

The full Amazon URL is:



Thursday, May 4, 2017

A New Look at Mall REIT Valuations

As most REIT practitioners know all too well, the mall sector has been hammered of late by fears of obsolescence engendered by the explosive growth of e-commerce causing the group as a whole to trade at a 30% or so discount to Street net asset value estimates. My explanation is that the estimates of value are way too high. How so?

At the present time the Street seems to be assuming that high quality malls are valued at a 4.5% cap rate, but in my opinion that doesn't take into account the increased capital spending required by mall owners to compete with the likes of Amazon. So instead of using a 4.5% cap rate lets use 5%. There is more though. Simply put some of the high quality malls are going to be degraded over time. My very rough estimate is that about 15% of the high quality malls will be re-rated over the next five years causing a cap rate increase to say 6% for those malls. Thus the weighted average cap rate should be 5.15%.

Now lets add another 50 basis points to allow for higher long term interest rates over the next few years yielding an adjusted cap rate of 5.65%. When you do this exercise you end up with a net asset value approximating current market prices. The arithmetic is below.

Net Operating Income   $45
Cap Rate Today                 4.5%
Firm Value                    $1,000
Debt @30%                       300
Equity Value                      700
Market Value                      490  (30% discount)

New Cap Rate                     5.65%
Firm Value                         $796
Debt                                     300
Pro forma Equity                  496
Market Value                        490

Thus the market might just have it right. You can play with my assumptions to your heart's content, but I think this is a reasonable analytical framework.

Monday, May 1, 2017

My Amazon Review of Charles R. Morris' "A Rabble of Dead Money: The Great Crash and the Global Depression: 1929-1939

The Great Depression: Who done it?

Charles R. Morris has presented us with a very thoughtful popular history on the origins of the Great Depression. He pulls together the thoughts of four really good books on the subject without getting too bogged down in technical jargon. They are Barry Eichengreen’s “Golden Fetters,”  Liquat Ahamed’s “The Lords of Finance,” Robert Gordon’s “The Rise and Fall of American Growth,” and Frederick Lewis Allen’s popular history of the 1920’s “Only Yesterday.”

To Morris and most of the economics profession the cause of the Great Depression was the imbalances that arose out of World War I with its interaction with the gold standard. This is more a Hooveresque version of the cause compared to Roosevelt’s view that causes were domestic; namely rampant speculation, the unequal distribution of income and the 1920’s depression in agriculture. Morris debunks all of the Rooseveltian causes and notes that agriculture wasn’t that bad off in the late 1920s. He does not however note the revolution in agricultural technology caused by the introduction of tractors eliminated the need for forage crops that accounted for 40% of the U.S.’s agricultural output. That alone would have triggered a fundamental restructuring of the industry.

Morris is very good at discussing the impact of electricity, automobiles and radio on production and the lifestyles of average Americans. The 1920’s truly brought with it a revolution in production and consumption. He also has vignettes about the rise and fall of the Samuel Insull, the utility mogul and Ivar Kreuger, the global match king as there empires collapsed under a mountain of debt.

If he holds out one party for special opprobrium it is Germany in its failure to step up to its reparations obligations after the 1924 Dawes Plan knocked them down enough to satisfy Keynes. Simply put they never were going to pay and it was the entire reparation process that put an inordinate amount of stress on the global financial system. However it is unrealistic to assume that any 1920’s social democratic government would have put on such a squeeze on their domestic economy as the French did following their defeat in the Franco-Prussian War of 1870.


As a result if a lay reader doesn’t want to slog through the four books I mentioned above, Morris’ alternative is well worth the read.

For the complete Amazon URL see:



Sunday, April 23, 2017

My Amazon Review of Michael Sims' "Arthur and Sherlock: Conan Doyle and the Creation of Sherlock Holmes"

When Dr. Doyle Became Sherlock Holmes

Michael Sims has written a very long biography of Sir Arthur Conan Doyle centered around his most famous character, Sherlock Holmes. It is a book that I wanted to like. The beginning of the book is terrific discussing Doyle’s as an avid reader with an alcoholic father and his medical school training at the University of Edinburgh medical school. There he comes under the sway of Professor Joseph Bell, a very shrewd diagnostician with dominant personality.  It is Bell along with Edgar Allan Poe’s detective Auguste Dupin that the Sherlock Holmes character is molded.

Also of interest are the original illustrations for the Sherlock Holmes series. It is those illustrations from the 1890s that for our image of Holmes and Watson today. Moreover Holmes’ dear stalker hat is a creature of the illustrator, not Doyle himself.


This is all to the good, but the book goes on and on dealing with Doyle’s medical practice, his life in Portsmouth and the problems of getting published. For me the book is way too long. Thus I can only recommend Sims’ book to a real Sherlock Holmes geek.

For the complete Amazon URL see:

Monday, April 17, 2017

My Amazon Review of Richard Haass' "A World in Disarray: American Foreign Policy and the Crisis of the Old Order"

A Foreign Policy for Clinton, not Necessarily for Trump

Richard Haass, a person I like (From TV) and respect has written a very long Foreign Affairs article on a foreign policy for the United States. It would be very appropriate for Hillary Clinton, not so much for Donald Trump. After all Haass is a pillar of the establishment, being president of the Council on Foreign Relations for the past fourteen years.

He is a student of Henry Kissinger and, as such, he goes back to the 1648 Peace of Westphalia which represents the beginnings of the nation state system as we know it. He believes that system which is based on the non-interference of the internal affairs of a state is inadequate for the 21st Century. He believes that states have the “sovereign obligation”, to reign in terrorism, fight drug trafficking, prevent nuclear proliferation, and deal with climate change. This is a far cry from the Westphalian System and it necessarily breeds suspicion of the established powers trying to enforce their codes on smaller states.

He is rightly critical of the Obama policies in Syria, Libya and Iraq. And in the 1990s he was prescient in proposing a preventive strike against North Korea’s then nascent nuclear program. The Clinton Administration failed to hear is warning and we are now suffering its consequences.


Haass opens his book with the Brexit vote. However, there is no real follow through. This is a real failure of his book because in my opinion the foreign policy challenges are not external, but rather internal. There is a revolt going on against the global elite of which Haass is an exemplar and I am a mere plebian. It is that revolt that is reordering foreign policy: witness France, Turkey, Hungary and above all the election of Donald Trump. Thus as Dr. Kissinger has taught us, in order to be successful a foreign policy has to have domestic support. I fear Haass’ ideas have yet to convince the general public. It is here where work has to be done.

For the Amazon URL see:



Monday, April 10, 2017

My Amazon Review of Catherine Merridale's "Lenin on the Train"

Riding the Locomotive of History

One hundred years ago this month V.I. Lenin boarded a train in Zurich that would take him through Germany, Sweden and Finland to ultimately arrive at Finland Station, Saint Petersburg, Russia. As history professor Catherine Merridale describes, Lenin arrives in a city racked by three years of war and rapt in the chaos of a new revolutionary government struggling to govern and a Bolshevik Party torn between participating in governing and advocating another revolution.

Merridale vividly describes the collapse of the Czarist regime at home and on the war front and Lenin’s life in exile in Switzerland. It is the German government who seizes upon the idea of transporting Lenin into Russia with the goal of fomenting a revolution that would take that country out of the war. The plot succeeds brilliantly. The go between was a Bolshevik/ speculator Alexander Helphand also known as Parvus, who is quite a character. With the deal orchestrated Lenin and his entourage occupy three rail cars as they travel through Germany and beyond. Although it was known as a “sealed train” it was far from sealed and passengers actually disembarked on occasion. It was quite a menagerie and the passengers included such luminaries as Karl Radek, Grigory Sokolnikov and Grigory Zinoviev. All three would later die in the Stalin purges of the 1930s.

The interesting thing is that it was no secret. The Russian government knew, the British knew and the Bolsheviks knew that Lenin was coming. With his boisterous arrival he grabs the Bolshevik Party by the throat and with the force of his will he sets them on a revolutionary course. Lenin truly was the “plague bacillus” that Churchill described him as, because in his wake you can count the deaths in the tens of millions.


Although the book is slow going at times, Merridale tells the story with great verve and you get a sense of the drama building as the locomotive of history goes on its journey through northern Europe.

Thursday, April 6, 2017

Reliving the 1930s - Part 4

Yet again it looks like we are reliving the 1930s as we watch the U.N. sit idly by as the Assad government in Syria continues to make war on its own people with poison gas. The Obama red line of 2013 has come and gone and now President Trump stated yesterday that Assad went well beyond it. We'll see what Trump's apparent reversal of U.S. policy actually means. Hopefully the leadership of U.N. ambassador Niki Haley will prod him in the right direction.

But what is happening is Syria has an eerie parallel from the 1930s. In 1935 Italy invaded Abyssinia (now Ethiopia) and the League of Nations instituted sanctions. However in 1936 the British and French in the Hoare-Laval Pact chose to appease Italy and lifted sanctions. Meantime with the war on the ground not going well for the Italians, Italy resorted to the use of banned poison gas on the hapless Ethiopians. The war soon ended, but not before Ethiopian Emperor Haile Selassie made a dramatic plea before the League of Nations in Geneva. The delegates sat in silence because they knew that collective security and the League were dead. 

It looks like the U.N. is going down the same path unless America acts alone as we did with respect to the slaughter in Kosovo twenty years ago.

Tuesday, April 4, 2017

Bezos vs. Trump

Today's front page story in the Washington Post (https://www.washingtonpost.com/world/national-security/blackwater-founder-held-secret-seychelles-meeting-to-establish-trump-putin-back-channel/2017/04/03/95908a08-1648-11e7-ada0-1489b735b3a3_story.html?hpid=hp_hp-top-table-main_seychelles-0438pm-1%3Ahomepage%2Fstory&utm_term=.101c69598045) highlighting a meeting with Blackwater founder Erik Prince (brother of Education Secretary Betsy DeVos) and an emissary from Putin in the Seychelles Islands deep in the Indian Ocean signifies the lengths to which the Washington Post is going to investigate the Trump Administration. With sources in the Seychelles and the UAE, which brokered the meeting, a four reporter team pulled together a story that began in December with Trump triumvirate of Flynn, Bannon and Kushner meeting with a UAE representative in New York. The result was a January 11 meeting in the Seychelles.

To do a story like this requires substantial resources and it demonstrates the commitment Post-owner and Amazon founder Jeff Bezos has made to investigative journalism. Put bluntly Trump is in the cross-hairs of a multi-billionaire willing to go after him. However as the rivalry escalates do not be surprised to see Amazon in Trump's cross-hairs.     

Sunday, April 2, 2017

My Amazon Review of William Walker's "Danzig:A Novel of Political Intrigue"

To Die for Danzig

Cameron Watt in his “How War Came” devotes an entire chapter to Danzig: “Hitler Steps up the Pressure: “Die for Danzig.”” The events in William Walker’s book occur prior to 1939; more specifically the period between 1934 -1936 when Sean Lester was the League of Nations High Commissioner for the “free city” of Danzig. Walker places Danzig at the fulcrum of the growing struggle between Hitler and the rest of Europe.

The mostly German city of Danzig (pop. 400,000) was established by the Treaty of Versailles as a “free city” that would give Poland an outlet to the Baltic Sea. Today it is the Polish city of Gdansk. The League of Nations was responsible for maintaining its constitutional safeguards which would have worked well in more harmonious times, but with the rise of Hitler the German majority of the city moved sharply in the direction of the NDSAP (Nazi Party) thereby creating a crisis for the League.

Although this is far from the best written historical novel Walker integrates the actions of some very real people with his protagonist, Paul Muller an upper-class League diplomat of Swiss-English parents.  In the novel he is Lester’s chief aide and we find him fighting battles in Geneva, the League’s headquarters and on the streets of Danzig. He sees up close the role of Nazi thugs intimidating their opposition and the appeasement policy of Anthony Eden in Geneva as he continually sells out Lester. Eden would later break with that policy, but early on he was an appeaser.

Through Muller we become a fly on the wall in meetings at the League and in Danzig where Lester tries to negotiate with NDSAP leaders Arthur Greisser and Albert Forster who are following direct orders from Berlin and we also get a sense of the opposition Social Democrats who are fighting a losing battle. We also see which is timely for today, the very real risks diplomats and their families take in difficult environments.


I recommend William Walker’s book to those readers who want to get a sense of what dealing with the growing Nazi threat diplomats faced on a day-to-day basis as they struggled to maintain a semblance of collective security.

For the complete Amazon URL see: