My Amazon Review of Marie Yovanovitch's "Lessons from the Edge: A Memoir"

 

In Service to America

 

After reading Marie Yovanovitch’s memoir my respect for America’s foreign service officers has only grown. Most of the officers do not serve in glamourous capitals like London and Paris, but in out-of-the-way places where many are both corrupt and dangerous. Yovanovitch was no exception where aside from serving in London where she attended a ball at Buckingham Palace, she served in Somalia and as ambassador to Kyrgyzstan, Armenia and, of course, Ukraine. I also learned that most officers are not engaged in high policy, but rather are engaged in making sure the American embassy works on a day-to-day basis. In Mogadishu, for example, Yovanovitch made sure there was sufficient gasoline for the embassy’s vehicles, no easy task.

 

Yovanovitch is most famous for being fired by Donald Trump as our ambassador to Ukraine in April 2019 where she was a pawn in Rudy Giuliani’s intrigues to get dirt on Joe Biden’s son, Hunter. Giuliani was working hand-in-glove with the corrupt Ukrainian prosecutor Yuri Lutsenko. Several of the Ukrainian oligarchs wanted to get rid of Yovanovitch because she was supporting the anti-corruption forces in Ukraine. One of her duties as ambassador was to support anti-corruption and pro-democracy efforts in Ukraine. As a result, corrupt politician in America and Ukraine had a common interest in removing her.

 

Her removal made her a star witness in Trump’s first impeachment trial. It was here where America got to know her. Needless to say, her testimony was a showstopper. What the public did not know at the time was that her 90-year-old mother died, and she cracked a tooth leading to root canal surgery.

 

From her memoir we learn about her family who fled both Nazi and Communist tyranny and ended up in rural Connecticut via Canada where her father taught at a boarding school. We also learned that her then 88-year-old mother was with her in Ukraine while she was ambassador. She never married and the only hint of a romantic attachment she gives out was when she dated a marine guard in Mogadishu.

 

She did very well for a self-proclaimed introvert who had to attend numerous public functions and deal with various heads of state and foreign ministers. She also had to balance American interests with American values. In her view short-term interests many times prevailed over our values. Simply put it is very difficult to trust corrupt dictators who would betray us to the next higher bidder.

 

Mari Yovanovitch has written an important book describing her life as a foreign service officer and an ambassador and the lessons she learned from being on the edge and part of history. We need more people like her.

For the full Amazon URL see: In Service to America (amazon.com)

 

The Bond Market Wakes up to Yield Curve Control

For about a week the bond market was in a tizzy about the inversion in the 2-10 Treasury curve where the two year note yielded a bit more than the 10-year note. Market particpants were screaming "Rececession, Recession." Then, of a sudden a few Fed speakers came out like screaming hawks and from an inversion of about 9 basis points the yield curve normalized at a higher level with the 10-year yielding about 20 basis points more than the two year.

What was brought home to market particpants is that the Fed has the ability to control the yield curve. At the height of quantitative easing there was much discussion about yield curve control where the Fed would fix the 10 year yield at an unusually low level, a throwback to its 1940's policy. Now, however, with a $9 trillion balance sheet the Fed with quantitative tightening can all but fix the 10 year yield wherever it wants it. Thus it has the ability to keep the yield on the 10-year note above the 2-year note thereby preventing an inversion.

My sense is that recession fears for 2023 are overdone, but 2024 could be another story. To be sure the very significant backup in interest rates will slow the economy. Nevertheless, if inflation declines to the 4-5% range by yearend a 2-3% Fed Funds rate would still be signalling negative real yields. Thus monetary policy remains far from contractionary and it will likely take a positive real Fed Funds rate to break the economy.

My Amazon Review of Mary Childs' "The Bond King:......"

The Tragedy of Bill Gross

 

NPR’s Planet Money host Mary Childs has written a biography of Bill Gross and PIMCO, the investment firm he founded. Fresh out of the UCLA Anderson School with a newly minted M.B.A., Bill Gross was hired to work as an investment analyst in the sleepy bond department of Pacific Mutual Life Insurance Co. It was there where Gross comes up with the then novel idea of trading bonds for total return, rather than holding them till maturity.

 

As the concept takes hold in the inflationary 1970’s, Gross begins to outperform other bond managers and he attracts a swath of institutional investors as PIMCO is spun out of the life company. By 2000 Gross is a star money manager and 70% of the company is acquired by Allianz, a German insurance giant.

 

Gross makes his bones by using futures, options, and all sorts of derivative instruments. He generated super returns in 1983 by arbitraging the difference between the futures price of GNMA securities and the underlying cash market where he cornered the market on the cheapest to deliver security. Yes, I know this is arcane bond market stuff. In 2002 Fortune Magazine names him the Bond King.

 

Later in that decade Gross was way ahead of the curve in predicting the mortgage melt down that was to come. He sent his people out to pose as home buyers to get a better understanding of the deteriorating underwriting standards for mortgages which led to a stellar year in 2007.

 

Gross then brings back Mohamed El-Erian from Harvard Management as his co-chief investment officer. Never mind that El-Erian’s international bond fund suffers from horrid performance. Of a sudden Gross became paranoid as El-Erian appears to be a rival. He became erratic and his performance suffered. So much so, that in 2014 his very own executive committee stages a palace coup and ousts him. He goes down hill from there and in 2016 his wife of 40 years divorces him.

 

Childs is very good at explaining PIMCO’s culture. Unlike the boisterous trading floor at sell-side firms and many buy-side firms, PIMCO’s trading floor is silent. There is no chatter among the traders; they communicate by email. As a product of the sell-side culture, the quiet trading floor seems outright weird.

 

My criticism of Childs’ book is that she leaves out quite a bit and makes a few big mistakes. In order for trading strategy to be successful you need counter parties willing to trade. At the same time Gross was starting out a revolution was taking place on Wall Street. Mortgage securities were being invented by Salomon Brothers’ Lew Ranieri and First Boston’s Larry Fink. Over at Drexel, Mike Milken was bringing into being the high yield bond market that enabled leveraged buyouts which had the effect of converting investment grade corporate bonds into junk overnight. Thus, the days of buy and hold were over and active trading became the norm in the fixed income market. Simply put Childs leaves out the milieu Gross was trading in.

 

Childs cites the reason for Pacific Mutual’s move to Orange County from downtown Los Angeles to Newport Beach in Orange County as lower rents. That is wrong. The real reason is that the WASP power structure in Los Angeles was losing relevance in the post-Watts riot era. The ascendant Black-Jewish-Latino coalition was taking over leaving less room for the power barons especially Asa Call, its CEO, at Pacific Mutual. She also characterizes Orange County as “barren strip mall desert,” which is so far from the truth. Only a snobbish east-coaster would make such a comment.

 

Nevertheless, aside from my comments above and aside from my view that her book takes on the feel of a very long magazine article, Childs offers up an interesting history of a finance titan in his time and place.

For the full Amazon URL see: The Tragedy of Bill Gross (amazon.com)

My Amazon Review of William Walker's "If War Should Come:....."

 

War On

 

This is William Walker’s fourth novel about the banker/diplomat/spy Paul Muller, a man who moves in the highest circles of the Swiss government.( Shulmaven: My Amazon Review of William Walker's "A Spy in Vienna.....")  In prior novels we find Muller in Danzig, Vienna, France and Germany, this time we find him in Romania, Turkey, and Finland as he intersects with prewar crises and the start of World War II. Thus, we see those historic events through the eyes of neutral Switzerland. With the war on the great fear in Europe is that of the Russo-German de facto alliance created by the Molotov-Ribbentrop Pact would destroy the West.

 

The novel opens in September 1939 with Muller acting as a representative of the Bank for International Settlements where he takes possession of the Polish gold reserves being transported by train from the Polish/Romanian border to port of Costanza. This is sort of a follow-up to Alan Furst’s great novel “The Polish Officer.”

 

From Romania he gets caught up in the intrigue of Istanbul, Turkey where neutral Turkey is under pressure from Germany and Britain to enter the war on their respective sides. German Ambassador Franz von Papen and his wife who Muller had a dalliance with her in Vienna make a cameo appearance here.

 

The novel ends with Muller on the Finnish border fighting for the Finns in response to Russian aggression in November 1939. Quite a life telescoped into four months of 1939.

 

My quibble with Walker here is that he gets wrong the price of gold, the number of grams in a troy ounce and the price of jewelry in the Turkish bazaar of 1939. My sense is that he used today’s prices for 1939’s. Otherwise I found his latest novel to be a satisfying way to get a sense of Europe at war, but it is not quite as good as his earlier efforts.

For the full Amazon URL see: War On (amazon.com)

 

 

A Discussion with Ambassador Martin Indyk on his Book "Master of the Game"

Ambassador Martin Indyk appeared in a discussion with Jim Falk of the Santa Fe Council on International Relations on March 10th. He discussed his book on how Henry Kissinger engaged in Middle-East diplomacy in the 1970's and the lessons to be learned for today. He also dicussed the current situation in Ukraine. The links for a video recording of the event and my review of his book are below.

Martin Indyk: Master of the Game - YouTube

Shulmaven: My Amazon Review of Martin Indyk's "Master of the Game: Henry Kissinger and the Art of Middle East Diplomacy"

My Amazon Review of Ananyo Bhattacharya's "The Man From the Future: The Visionary Life of John von Neumann"

 

Genius

 

Something was in the water in fin de siècle Budapest. Out of that community came Nobel Laureates in physics Edward Teller, Eugene Wigner and Leo Szilard, the rocket pioneer Theodore von Karman, and the subject of Ananyo Bhattacharya biography John von Neumann. I would note that the book is more a biography of von Neumann’s ideas rather than a full biography of his life.

 

Von Neumann was born into a very upper-middle class Jewish family in Budapest, Hungary in 1903. He was a child prodigy from the beginning and received his math Ph.D. before he was twenty. The then studied engineering and before he was thirty, he authored "Mathematical Foundations of Quantum Mechanics” which integrated Heisenberg’s matrices with Schrodinger’s waves, a monumental accomplishment.

 

But that was only the beginning. He developed Minimax theory and at the Army’s Ballistic Research Lab he became an expert at the trajectory of artillery shells. That led him to the Manhattan Project at Los Alamos where developed the implosion lens necessary for the creation of the Atomic Bomb. He also conceived of stored program computer which had yet to be invented. Indeed, his second wife Klara was among the very first computer programmers.

 

Along the way he coauthored with Oskar Morgenstern “The Theory of Games and Economic Behavior” which revolutionized economics and was found to be very useful in business and war strategies, especially concerning the use of nuclear weapons. After World War II he divided his time among Princeton’s Institute for Advanced Study, Los Alamos’ Weapons Lab, and the Rand Corporation in Santa Monica, California.

 

While at Rand he instrumental in the development of ICBM’s and he came up with the idea of self-replicating computers. In essence he was the progenitor of artificial intelligence.

 

Bhattacharya tells the story of a true genus who also loved to party hard. My one criticism is that several of the science and math parts of the book can be a real slog for the lay reader.

 

The full Amazon URL is at: Genius (amazon.com)

Mr. Zelenskyy Goes to Washington (Via Zoom)

Ukraine President Volodymyr Zelenskyy came to Washington today via a Zoom connection from Kyiv. In a moment that only can be described as pure Churchillian he called upon the United States not only to supply his beleagered country with arms, but also to act like a great power. His video presentation showing the horrors of the Russian bombardment of Ukraine was reminiscent of the Joris Ivens 1937 film "The Spanish Earth" that was made in support of the Spanish Republican fight against fascism. To be sure, President Biden offered up a host of arms, but he remains understandably reluctant, but wrong, to put U.S. forces into the conflict.

There have been several suggestions short of a no-fly zone that can be done by the Administration if it only had the will. The first would be a limited no fly zone in western Ukraine that could be enfored by anti-aircraft missiles based in Poland and Romania. The second would be a humanitarian airlift flying in food and medical supplies to Kyiv, a move analagous to the 1948 Berlin Airlift. Remember in the 1990's President Clinton declared we wouldn't get involved in the Bosnian War until the horrific news coverage forced him to directly act militarily.

The most unfortunate thing about this whole episode is that it was totally predictable. Reprinted below, typos and all, is my blog posted on May 7, 2014.

WEDNESDAY, MAY 7, 2014

Reliving the 1930s

According to aphorism attributed to Mark Twain, “history does not repeat itself, but it rhymes.” I am afraid our generation is reliving some of the horrible experiences of the 1930s. The Great Recession of 2008-09 was our version of the Great Depression. The recent experience certainly was not as bad, but after many decades of plenty, it certainly felt that way.

As the 1930s progressed concerns shifted from the still depressed economy to the rise of fascism and a series of foreign policy crises in Europe and Asia. Instead of Hitler fascism we are now witnessing the rise of Vlad, “The Impaler,” Putin’s version of it. In the 1930s Germany was the revisionist power seeking to undo the strictures of the post- world War One settlements. Today Putin is attempting to revise the post-Cold War settlement established from 1991-1994. His seizure of the Crimea and his attempts to further dismember Ukraine are part and parcel with his strategy to restore the past greatness of Russia. Just like Hitler, he is succeeding.

Why? The West is doing its best to rhyme the failed policies of the 1930s of vacillation and appeasement. Both the United States and Europe want the world go away so they can hide in cocoon of isolation. This is true of factions of both the left and the right of the political spectrum. Unfortunately this policy is a luxury we cannot afford. To paraphrase the Russian revolutionary Trotsky, the U.S. and Europe might not be interested in the world, but the world is interested in them.

Instead of making speeches, our vacillating President should act by imposing real sanctions on Russia, providing direct military aid to the Ukrainian government, increasing rather than decreasing the military budget, moving NATO forces into the front line states on a more permanent basis and take the energy infrastructure steps necessary to wean Europe off of Russian gas. Will President Obama act? The stakes are high!