My Amazon Review of Justyn Walsh's "Investing with Keynes....."

 

Warren Buffett on the Thames

 

Investment banker and now money manager Justyn Walsh has offered up an overview of the investing style John Maynard Keynes where aside from running his own personal portfolio he invested the endowment of Kings College along with several insurance companies. His record as an investor in the troubled 1930’s was phenomenal.

 

Walsh recounts the influence of Edgar Lawrence Smith’s 1924 classic “Common Stocks as Long Term Investments” which became the great intellectual foundation of the 1920’s bull market. In that book Smith recognized that industrial companies by retaining earnings became compound interest machines. During the 1920’s Walsh characterizes Keynes as a momentum investor and in 1929 he paid the price with severe losses.

 

In the early 1930’s similar to Benjamin Graham he became a value investor seeking out individual securities that he believed sold at a discount to their underlying intrinsic value independent of behavior of the overall stock market. This approach is very similar to that of Warren Buffett. Keynes, also similar to Buffett, believed in running a concentrated portfolio where his best ideas would have a real impact. As with Buffett he believed that less than knowledgeable investors should own a broadly diversified portfolio.

 

My main problem with this readable, but somewhat repetitive book, is that there is no data on the year-to-year performance of the portfolios he was managing and there is no inkling of what securities he actually owned. Further he mentions that Keynes had a less than stellar sell discipline but offers no real proof.  Simply put, Walsh over-promises.

For the full amazon URL see: Warren Buffett on the Thames (amazon.com)

 

 

My Amazon Review of Henry Kaufman's "The Day the Markets Roared"

 

Kaufman Ignites the 1980’s Bull Market

 

August 17, 1982 marked the crowning achievement of Henry Kaufman’s long career on Wall Street. On that day, in a Memorandum to Portfolio Managers, the Salomon Brothers economist reversed his long-standing bearish position on interest rates and forecast a drop in 10-year U.S Treasury yields from 12 ¼% to 9%-10% and a drop in the federal funds rate from 10% to 6%-7%. The stock market roared in response advancing 4.7% on the day and 10% for the week as a whole. Of a sudden his call turned him from “Dr. Gloom” to “Dr. Boom.” (my characterization). Kaufman changed his view because he no longer believed in a second half recovery and that the financial system was getting ever more fragile becoming in need of a substantial reliquification.

 

His book is part autobiographical and in part a financial history of the 1960’s to the 1980’s. He gives credit to Albert Wojnilower of First Boston who was known at the time as “Dr. Doom” for writing the day before that interest rates were about to fall in a more hedged manner, and he noted that interest rates had already peaked in the previous Fall and that President Reagan said over the prior weekend that he was open to tax increases. Thus, the kindling was already there, and Henry lit the match.

 

I also would note how depressed stock prices were in August 1982. At the market bottom of 777 on the Dow Jones Industrial Average was back to where it was in 1964. Further in real terms the Dow was selling at the same level it was at its 1937 high. Simply put stocks were dirt cheap.

 

I remember that day all too well. That summer I was at the UCLA Business Forecasting Project (now UCLA Anderson Forecast) and were on our way to winning the Lawrence R. Klein Award for the most accurate economic forecast for 1982. The title of our December 1981 forecast report was “How do you Spell Disinflation: PAIN.” At the time we had the most bearish forecast for the year, and we were debating (with Bob Williams and Larry Kimbell) whether or not to ratch it down another notch. The market response to Kaufman’s forecast, for all practical purposes, ended our debate and we stood pat. Little did I realize that within 3 ½ years I would be working for him at Salomon Brothers.

 

Kaufman stressed the importance of research independence at Salomon Brothers. I remember one event all too well. Early in my career Kaufman received a letter from an irate investment banking client who pretty much wanted me to be fired for writing an unfavorable research report. Henry’s response was to have me draft a letter for his signature, which I did. That was the end of the matter.

 

I would recommend this book for all those interested in what the economy and markets of the 1970’s and early 1980’s was like. My one critique of the book is that Kaufman overdoes the press coverage of his change of view.

For the full amazon URL see: Kaufman Ignites the 1980's Bull Market (amazon.com)

My Appearance on Jonathan Rosenzweig's "Deep Dive" on Inflation, Interest Rates and Markets

 Last week I appeared with Willem Buiter, former Chief Global Economist at Citi and now at Columbia University and Steve Antczak, founder of TruMarkets to discuss the outlook for inflation, interest rates and the stock market. Rosenzweig is the former Director of Equity Research at Citi. The link is below and it lasts for about an hour.

 https://kvgo.com/oetv/deepdive_inflation_rates_mkts

My Amazon Review of Micah Goodman's "Catch 67: The Left, the Right and the Legacy of the Six-Day War"

 

Shrinking the Conflict

 

Shalom Hartman scholar Micah Goodman has offered up an important history of the Israeli-Palestinian conflict from the points of view of the Israeli Right and Left and the Palestinians going back to Ben Gurion and Jabotinsky. He argues the positions of the Israeli Right and Left better than they do themselves. He knows all of the arguments and how they evolved over time. For example, the Left has moved from peace to the evils of occupation and lead a security crisis caused by a rising relative Palestinian population and the Right has moved from biblical maximalism to the physical security needed to protect Israel proper. The Jordan Valley the hills of Judea and Samaria are of great strategic importance. Thus, both sides argue from a security posture.

 

He also realizes that Israel will never compromise on security and that the Palestinians will never compromise on the right of return. The crux of the problem is that at its core the Palestinians real quarrel is not with 1967, but rather with 1948 that brought with it the Israeli state. Thus, the issue for them is far more than the occupation brought about by the 6-Day War in 1967. Importantly Goodman notes that the Palestinians are an occupied people, rather than the Palestinians living on occupied territory. That territory was never theirs to begin with because Israel conquered it from Jordan after Jordan attacked in 1967. To Goodman the territories should rightly be characterized as “disputed.”

 

Meanwhile history has passed this 2017 book by with the growing diplomatic recognition of Israel by several Arab states. Simply put the Sunni-Shia rivalry, not the Israeli-Palestinian conflict, has become the critical variable in today’s middle east.  

 

This makes Goodman’s idea of shrinking the conflict far more practical. His idea is to increase the autonomy of the Palestinians by connecting all of their communities with roads thereby avoiding roadblocks and increasing their ability to control development within their boundaries. Of course, the Israeli Defense Forces would continue to be responsible for security. If, and that is a big if, acceptable to the Palestinians his ideas would certainly remove some of the rough edges around the conflict. This would also enable greater foreign investment in the Palestinian zones.

 

Goodman leaves out two important issues. One, the Palestinian government is a kleptocracy and two, there is no discussion about Gaza which is ruled by the iron and corrupt hand of Hamas, certainly not a good example.

 

Nevertheless, Goodman takes us away from the Right’s status quo argument of “managing the conflict” and the Left’s “solving the conflict.” His solution is sensibly to shrink the conflict over time.

For the full Amazon URL see: Shrinking the Conflict (amazon.com)

My Amazon Review of Ronald Brownstein's "Rock Me on the Water:......."

 

Sex, Drugs, Rock and Roll, Movies and too Much Politics

 

Atlantic magazine editor and political writer Ronald Brownstein has written an ode to the creativity surrounding Los Angeles in 1974. Of a sudden Los Angeles was awash in musical, television and motion picture talent with something to say. He highlights Jack Nicholson and Warren Beatty for their roles in “Chinatown” and “Shampoo”, respectively. Both movies were written by Robert Towne. With respect to “Chinatown,” Brownstein, in essence, summarizes Sam Wasson’s “The Long Goodbye.” ( See:  Shulmaven: My Amazon Review of Sam Wasson's "The Big Goodbye: Chinatown and the Last Years of Hollywood") Just like Wasson Brownstein views the end of Los Angles’ creative moment with the arrival of Steven Spielberg’s “Jaws” the following year. He forgets that most people go to the movies to be entertained.

 

With respect to the music, he highlights the careers of singer songwriters Linda Ronstadt and Jackson Browne along with Joni Mitchell, the Eagles, Crosby, Stills and Nash and the music impresario David Geffen. The way he writes about Ronstadt it seems that he had quite the teenage crush on her. Brownstein was sixteen at the time and likely was not alone.

 

Among the musicians and the actors Brownstein writes of excessive drug use and bed swapping among his leading characters. At times you needed a scorecard to see who was sleeping with who and as the year progressed cocaine use grew to the extent that it eroded their creativity in the years to come.

 

On television Norman Lear and Bud Yorkin made social commentary and had big hit with “All in the Family.” Archie Bunker, played by Carroll O’Connor, became a caricature of Nixon’s silent majority. But what Brownstein does not understand a good part of the audience was laughing with Archie, not at him. As an aside, I sat next to O’Connor at a wedding and he was far funnier than he was on television. It was also the time of “Maude,” “Mash” and “Mary Tyler Moore.” Brownstein revels in idea that previously untouchable subjects were brought up on television.

 

Where Brownstein goes astray is when he writes about politics of the era. He spends way too much time on Jane Fonda and Tom Hayden. I knew both of them. By 1974 the antiwar movement was a spent force. The real activism on the Left was taking place in the nascent environmental movement which was planting the seeds for today’s housing crisis in California, feminism, and gay rights.                        

On the Right activism was on the rise in opposition to feminism, school busing and rising property taxes. Those movements would flower later in the decade and bring on the Reagan revolution. In 1974 Jerry Brown was not the future, Ronald Reagan was, and I say this as someone who knew Brown then and served on his Housing Task Force. Jerry Brown was a far better governor 40 years later in his second go around.

 

Most troubling and not mentioned by Brownstein was that while all of the actors and musicians were partying on, Los Angeles was beset by gas lines, a recession, and the collapse of its manufacturing base. For most people 1974 was a very bad year and what they longed for was escape. It took a while, but Hollywood finally figured it out, just as it did during the Great Depression.

 

I was on the periphery of the events discussed in the book. To me the book stated out very strong then faded. Brownstein preaches too much and he forgets that entertainment is a business, and that business will not succeed if it beats people over the head by telling them how bad all of the social problems of the country are. As Brownstein notes George Lucas of “Star Wars” fame wanted people to feel better after they left the theater than when they first arrived. I go to the movies and listen to music to be entertained. If I want to look at the flaws in American life, I watch the news and read The Atlantic, of which I am a subscriber.

For the full Amazon URL see: Sex, Drugs, Rock and Roll and too Much Politics (amazon.com)

Biden's "Infrastructure" Plan: A Bridge too Far

 

Last week President Biden offered up his $2.3 trillion “infrastructure” plan, but only $115 billion goes to highways and bridges and only $111 billion goes for improving the nation’s water systems. There is also $85 billion for public transit, $80 billion for rail, mostly AMTRAK; $100 billion for building out broadband, and $100 billion for extending and hardening the electrical grid. All to the good, except maybe AMTRAK. In terms of intangible capital, Biden’s program calls for a $180 billion increase in R&D spending. Indeed, with real interest rates below zero, now is the time to finance much needed infrastructure.

 

What is questionable is the $174 billion allocated for electric charging stations. It seems to me that the administration is making a huge bet on electric vehicles. That bet may pay off, but with fast moving fuel cell technology, the future may not all be in electrification. What is even more questionable is the $213 billion allocated to affordable housing and the $400 billion allocated to home care. Although arguably necessary affordable housing and home care are a stretch to being called infrastructure. Further if such programs are enacted they would likely be continued beyond the plan’s eight-year budget window making it far more costly than advertised.

 

Make matters worse is that the plan does not waive environmental permitting and the prevailing wage requirements of the notorious Davis-Bacon Act. By avoiding the waivers, the plan all but guarantees exorbitant costs and delays. Indeed, by failing to waive environmental reviews we can look forward to years of delays in siting power lines from wind and solar farms to our urban centers. In fact, the Biden Plan requires project labor agreements that would put the Davis-Bacon Act on steroids.

 

We also learned that the Biden Administration is not really serious about climate change. If it were, it would have offered to pay for at least part of the plan with a carbon tax, a tax that Treasury Secretary Janet Yellen spoke highly of as a private citizen. A carbon tax would be a far more efficient way of financing infrastructure than an increase in the corporate income tax. Moreover, there is no mention of investments in carbon capture/sequestration technology which most experts believe to be essential in reaching our climate goals. Thus, there is much to like in Biden’s program, but quite a bit to dislike as well.

My Amazon Review of Gershom Gorenberg's "War of Shadows:..........."

 

Signals War in the Desert

 

Israeli journalist/historian Gershom Gorenberg has offered up a very detailed history of the north Africa theater of operations in World War II through the prism of signals intelligence. The book opens with Cairo in panic as Rommel’s vaunted Africa Corps is within 60 miles of Alexandria in June 1942. As we know the British stand at El Alamein stops the offensive in its tracks.

 

Gorenberg’s history is in depth going into the desert explorers of the 1930’s who map the shifting desert sands. Those insights would have enormous strategic value when the war begins. He is very detailed in discussing the Polish capture of the German’s highly prized enigma code machine that is ultimately transported to Britain and its code breaking headquarters at Bletchley Park. He goes into minute detail as the British ultimately crack the German codes with the insight that the machine it of itself might be unsolvable, but human input errors under the stress of battle leave enough clues to crack the German codes. To Gorenberg it was the unsung men and women of Bletchley who are the heroes of El Alamein.

 

U.S. Army captain Bonner Fellers’ role is highlighted as military liaison to the British in Cairo. Fellers was an acolyte of America Firster Charles Lindberg who becomes a full-throated supporter of the British. After the war he returns to his rightwing form. Nevertheless, while in Cairo he has full confidence of the British and is privy to their plans. He transmits those plans to Washington, but unbeknownst to him the Germans, have access to the American codes. Thus, the Brits are listening in to the Germans and the Germans are indirectly listening into the Brits. Just two days before the Battle of El Alamein, the U.S. changes its code, and for the first time Rommel is operating blind of British intentions. It leads to his defeat.

 

Gorenberg shows how steadfast Churchill was in protecting British interests in the middle east.  This was true, not only in Egypt, but in Iraq. A reader interested in that part of the war should read John Broich’s “Blood, Oil and the Axis."  (See: https://shulmaven.blogspot.com/2019/06/my-amazon-review-of-john-broichs-blood.html) Gorenberg discusses the neutrality of the Egyptian Army which kept them out of the fighting and the pro-Nazi sympathies on the then young officer Anwar Sadat. To Egyptian nationalists the British were the enemy. On the other hand, the Jews of Palestine fearing a holocaust in their homeland fought with the British against the Germans on many fronts. That battle hardening experience would pay big dividends when they faced off against an unprepared Egyptian army in 1948.

 

As I said at the outset Gorenberg offers up a very detailed history. As a result, the book slows down at times. It also would have helped if there were maps depicting the battles described in the book. Thus, I give the book four stars, instead of five.

For the full Amazon URL see: Signals War in the Desert (amazon.com)