Reading Roundup: April & May 2025
This month we read:
The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance by Ron Chernow
Source Code: My Beginnings by Bill Gates
The New Merchants of Grain: Out of the Shadows by Jonathan Kingsman
Trump: The Art of the Deal by Donald Trump
The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance by Ron Chernow
This book is ostensibly a history of The House Of Morgan. In reality it’s a history of Anglo-American banking. Chernow isn’t shy about this: “The story of the Morgan banks is nothing less than the history of Anglo-American finance itself. For 150 years, they've stood at the center of every panic, boom and crash on Wall Street.”
The story of the House Of Morgan begins when Junius Morgan became a junior partner at George Peabody & Co in London in 1854. When George Peabody retired in 1864, Junius assumed control and changed the bank’s name to J. S. Morgan & Co.
Junius practiced wholesale or merchant banking. Unlike retail banks, like JP Morgan today, wholesale banks lent only to large blue-chip corporations and governments. They did not do business with normal people. They never advertised, and scarily even had their name on their office. Doing business with Junius required a referral from other clients and was like gaining admission to a secret club.
Junius’s son J. Pierpont, ultimately eclipsed him as the more famous of the two, but Junius laid the foundation for his son’s success. After establishing the Morgan bank, Junius channeled British capital into America, financing its railroads, the Civil War, and its industrial expansion. Junius also led a syndicate in financing France in the Franco-Prussian War and supported Cecil Rhodes’s takeover of the South African diamond market.
The financial world during Junius’s era was highly unstable and prone to frequent panics. He instilled a conservative culture and taught his son Pierpont how to weather the booms and busts. There was almost no regulation to speak of, so reputation and trust was paramount. Junius understood that his reputation and that of his bank was their most valuable asset and protected them at all costs.
In 1890 Junius died and Pierpont took over. While Junius had always worked out of the London office, Pierpont worked out of New York, shifting the company’s nexus to North America.
During the 1880s and 1890s Pierpont was famous for reorganizing bankrupt and struggling American railroads. He forced competing lines into agreements (known as "Morganization"), stabilized their finances, and often gained significant control, earning him the moniker "the Great Stabilizer." By 1902, he controlled about 5,000 miles of American railroads. Pierpont imposed order on a chaotic industry plagued by ruinous competition and overbuilding.
Morgan’s control (via board seats) of so many railroads led to criticism and conspiracy theories. However, it seems like Morgan took control and reorganized the industry out of necessity and that he was mostly a benevolent dictator.
In the panic of 1893 the gold standard was in effect and being tested. The US did not have enough gold to satisfy incoming redemption requests. Pierpont and the Rothschilds organized a syndicate to loan the US $62 million in gold, averting a default and a deeper crisis. This solidified Pierpont as the lender of last resort. He played a similarly pivotal role in halting the Panic of 1907. His actions served as an example for the Federal Reserve Act of 1913.
As Pierpont’s importance rose, so did scrutiny on him. This was the beginning of the end of the gentleman banker era and the start of the modern era of financial regulation.
When Pierpont passed in 1913 his son J.P. “Jack” Morgan Jr. took over. He financed the allies during WW1 and presided over the roaring twenties, the great depression, and outbreak of World War Two. He faced even more intense scrutiny and public hatred than his father had, frequently getting called in front of Congress for hearings and surviving an assassination attempt in 1915.
The Glass-Steagall Act of 1933 ended the era of a unified house of Morgan. The law required investment banks to split from commercial banks. Many of Morgan’s investment bankers, including Jack's cousin Henry S. Morgan and Harold Stanley, left to form Morgan Stanley & Co in 1935.
Jack was the last Morgan to lead the firm. When he retired in 1943 Thomas Lamont took over. Without investment banking profits to lean on, Lamont leaned on the commercial bank’s relationships with American blue chip companies built over generations. He made the company more professional and more corporate. Since he wasn’t named Morgan, he was increasingly subject to rules and regulations.
The book shows how power slowly but steadily shifted from London to New York and how financial markets transitioned from the wild west to highly regulated. These changes were generally incremental, taking decades to play out. Progress accelerated in response to wars or depressions, often with a multi-year lag. It goes to show how difficult it is to suss out the second, third, and fourth order effects of a major event.
Matt
Source Code: My Beginnings by Bill Gates
I’m fascinated by any book that covers the nascent days of industries that later become ubiquitous with every day life. Source Code is the first of three planned memoires by Bill Gates and it details his early life through the very first years of Microsoft. The second book will cover his time at Microsoft in detail and the third will be about his philanthropic endeavors.
I vaguely remember the days before internet and search were part of our every day lives, but it’s hard to transport your mind back to a time before computers had any practical application for most people; but Source Code does just that.
Likely surprisingly to no one, Gates was a difficult child to raise; fiercely independent and not apt to listen to what his parents wanted him to do. He wasn’t interested in sports and most of the other normal childhood activities. Then he discovered computers. Gates and a few other friends gained access to school computers and were instantly hooked. They wrote programs to optimize class schedules and almost immediately realized that the technology they were hooked on to was bound to change the world.
What struck me most was the way that Gates and his friends learned how to code. It was almost entirely self-taught as there were no user manuals on how to write software. The knowledge of programming was mostly closely held by a select cadre of university professors and niche industry groups. Obviously, you couldn’t search online or watch Youtube tutorials about how to use computers. Therefore, all that was left to do was trial and error. Learning to code was one big puzzle and they essentially lived in the lab writing code, breaking it, re-writing, re-breaking, and iterating until it was in workable form. They scoured around for knowledgeable people and any books they could get there hands on until they were suddenly experts.
This is a great analogy to learning almost anything that you are passionate about; there are no short cuts and you have to learn by doing. Learning investing, playing the guitar, or any other time-intensive skill/craft is the same; you need to embrace the struggle to learn and improve otherwise you’ll never stick with it. As Buffett says, “you can’t make a baby in one month by getting nine women pregnant”, in other words, some things just take time.
The other aspect that sticks out to me is the confluence of factors that had to come together to bring Microsoft to life. Bill Gates would have undoubtedly been successful in whatever field he went into because he is a genius. However, it was far from preordained that Microsoft would survive it’s early years let alone become one of the most valuable businesses on earth. Gates had to be born at the right time, in the right city, and with the right parents to learn about computers at the time he did. He had to navigate nearly getting expelled from Harvard, finding the right business partners, and a myriad of early business challenges such as pirated software and larger incumbents trying to put them out of business. In retrospect it looks inevitable that Microsoft would come to dominate but that was far from the reality when it was taking place in real time.
Source Code is a fascinating read and I’m already looking forward to parts two and three of Gates’ memoires.
Dan
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The New Merchants of Grain: Out of the Shadows by Jonathan Kingsman
The world’s “big seven” grain trading companies are some of the widest reaching and most important companies that you’ve never heard of. While like without Nvidia or Google might be painful, there would be no life without grain.
Almost everything that you eat or drink today will contain something bought, stored, transported, processed, shipped, distributed or sold by one of the seven giants of the agricultural supply chain. Out of an average 44,000 items in a U.S. supermarket, 40 percent contain corn, and 50 percent contain palm oil or one of its derivatives. You are almost certain to have consumed one of them today. Your bread, pasta and morning croissant will have been made from wheat. Meanwhile, your beef, chicken and pork – as well as your fish – will almost certainly have been fed soybeans or corn supplied by one of the big seven. And even if you haven’teaten or drunk anything today, the bus or car that took you to work will probably have been partially fuelled by crop-based bio-fuel handled or manufactured by one of these seven giants.
The big seven are: Archer Daniels Midland (ADM), Bung, Cargill, Louis Dreyfus Company (LDC), Glencore, COFCO International, and Wilmar International. Only a few are public, and the private ones are notoriously reclusive.
This book is a follow on to the original Merchants Of Grain published in 1979. The book is a series of interviews with higher ups at each of the world’s major grain trading companies.
One of book’s themes is the cyclical nature of commodity markets. Grain markets respond to prices, which respond to supply and demand. But a market that is undersupplied cannot instantly increase production, even if prices are high, because it can take a year or more to raise crops. Today cocoa prices are sky high because (among other factors) it takes several years for a new cocoa plant to begin producing. Likewise, production will not stop immediately the moment a market becomes oversupplied and production becomes unprofitable. Farmers have mortgages to pay and usually have no choice but to keep farming at a loss. Surpluses are usually carried forward and it can take years to run stocks down. The lag between prices and changes in production or consumption determine the cycle’s length.
Another theme is the important of the global grain trade. Lenin once said, ‘Grain is the currency of currencies’. It is easy to take for granted the food that’s available 24/7/365 at our supermarkets. But when supply gets disrupted and shelves are empty, it only takes a few days for riots to start. Recall covid’s empty shelves. The riots were not just about that, but they’re never about a single issue. Food scarcity, perceived or real, amplifies discontent.
One example of how grain markets interact with the broad geopolitical system is from WW1:
Crop prices doubled during World War I as production collapsed in war-torn Europe. In 1916, the U.S. government added fuel to the fire with the Federal Farm Loan Act, which extended long-term financing to farmers. When the war ended, agricultural production recovered in Europe, and world prices halved. Farmers began defaulting on mortgages during the 1920s, and the crisis led to the Great Depression. Once again, the U.S. government exacerbated the problem by imposing protectionist tariffs that stymied exports.
The last major theme was the steady march towards more efficient markets over the last fifty years. The big grain trading companies all started out as pure traders doing geographic arbitrage. They might have bought soybeans in Brazil and sold them at the same time in China for a big enough market up to cover their shipping and financing costs. Now that pricing data moves at the speed of light, simple arbitrages are no longer wide enough to pay the bills. The trading houses have all, in one way or another, vertically integrated and become food processors. Doing so allows them to capture additional margin. They buy raw commodities from farmers, process it into an intermediate or finished product, and deliver it to consumers.
This is still a difficult game. It is capital-intensive, has no pricing power, is subject to government intervention, and lies at the mercy of volatile commodity prices. It’s not an area I’m interested in investing it, but it never hurts to know a little about it. Without it, the world as we know it couldn’t exist.
Matt
Trump: The Art of the Deal by Donald Trump
When trade rhetoric whipped financial markets into a frenzy earlier this year it seemed every financial, economic, and political commentator decided the most important job they had was to predict what Trump and his administration would do next regarding trade. While we had little interest in trying to predict short term political posturing moves, it did strike me as logical to pick up Trump’s self-authored book from the late 1980’s to see if it would help frame what was occurring. It turns out that you really only need to read the first sentence to put the world’s shortest trade war into perspective:
“I don’t do it for the money. I’ve got enough, much more than I’ll ever need. I do it to do it. Deals are my art form. Other people paint beautifully on canvas or write wonderful poetry. I like making deals, preferably big deals. That’s how I get my kicks”.
If more people - particularly participants in the stock market - kept the opening quote of this book in mind during the weeks following “Liberation Day”, cooler heads may have prevailed. Trump has a pretty clear negotiation style - start with disruption, throw out an egregious first-round negotiating demand, and settle much closer to neutral. This isn’t always the case, but it certainly is a pattern. His book walks through this tactic on a deal-by-deal basis throughout the early part of his career, and he hasn’t changed tactics a whole lot since then; he just happens to be negotiating with countries instead of real estate counter parties nowadays.
His stance towards trade hasn’t changed much either; in the book he outlines what he perceives to be unfair trade practices by a number of other countries. These ideas have been on paper for everyone to read for decades.
Don’t get me wrong; it’s generally good for us at Eagle Point when investors have knee-jerk reactions to a President, the Fed, or any other unpredictable but transient short-term newsworthy event. Still, many investors would sleep better at night if they took a step back and - regardless of their political views - tried to understand the underlying motivations and goals of people in power, and The Art of the Deal is just one example of how to get there.
Dan
The Best Of The Rest
Watch Pro: Watch sales continue to “explode” in the United States
Bloomberg: Coal Loophole Undermines Bank Pledges to Cut Fossil-Fuel Funding
This is why NRP is adamant about paying off all of their debt.
Barrons: Google Search is Fading; The Whole Internet is at Risk
Carbon Herald: JPMorganChase Backs Large-Scale Carbon Removal With 1PointFive Deal
JPMorgan Chase agreed to buy 50,000 metric tons of carbon dioxide removal credits from Occidental Petroleum’s STRATOS direct air capture facility — which is still set to come on-line later this year.
OXY’s DAC is built on NRP’s land. Read more about NRP here.
EPC offers separately managed accounts, low minimums, and accepts most account types (including IRAs and 401k rollovers). Qualified Clients can elect a zero management fee structure inspired by the Buffett Partnership. EPC’s clients get complementary access to our premium Substack. To learn more please email info@eaglepointcap.com.
Disclosure: The author, Eagle Point Capital, or their affiliates may own the securities discussed. This blog is for informational purposes only. Nothing should be construed as investment advice. Please read our Terms and Conditions for further details.2