The Battle of Hurtgen Forest: Costly Failure and Lessons Learned

By Nick Deiuliis

Those with a keen interest in World War II are familiar with the European Theater’s famous Allied campaigns: Italy, D-Day and Normandy, Market Garden, Battle of the Bulge, and the final thrust over the Rhine River and into the heart of Germany. Movies, books, and series have been dedicated to them.

Yet there is a battle nestled in the middle of that chronology that gets little attention.  It was the worst performance and drubbing the US Army suffered in World War II.  A famous infantry division with Pennsylvania lineage played a central role and paid an epic price in the debacle.

The late 1944 campaign was the Battle of Hurtgen Forest.

Revisiting and analyzing the battle provides insights on leadership, strategy, and tactics that remain relevant both on battlefields and in board rooms.


The Allies were pushing up against the German border in September 1944.  In sight were the gateway to the industrial Ruhr and the heart of Germany, and possibly the end of the war.

Farther to the south on the frontline sat a heavy forest just inside western Germany, the Hurtgenwald, occupied by German forces and cut by a stream, the Kall. The region is enclosed by a triangle, with corners of the cities of Aachen and Duren, and the town of Monschau.

The Hurtgen Forest area was part of the Siegfried Line and had been prepped by German engineers for prolonged battle. Trees were carefully cultivated for decades into neat, straight rows providing clear fields of fire.  Mines were densely laid on trails, paths, and breaks. Pillboxes were built and set up to create kill zones.

39th Inf. passes through the dragon`s teeth north of Roetgen.

American leadership believed that for the advance to the Roer and Rhine Rivers and deep into Germany to continue, the forest had to be entered and the far high ground, the town of Schmidt, had to be seized.

The Allies quickly learned that wasn’t going to be easy.

Leadership Woes

American leadership was inept during the Battle of Hurtgen Forest.  Much of the blame can be attributed to 1st Army commander, Lieutenant General Courtney Hodges.

HIRTEEN COMMANDERS OF THE WESTERN FRONT photographed in Belgium, 10 October 1944. Front row, left to right: General Patton, General Bradley, General Eisenhower, General Hodges, Lt. Gen. William H. Simpson. Second row: Maj. Gen. William B. Kean, Maj. Gen. Charles E. Corlett, Maj. Gen. J. Lawton Collins, Maj. Gen. Leonard P. Gerow, Maj. Gen. Elwood R. Quesada. Third row: Maj. Gen. Leven C. Allen, Brig. Gen. Charles C. Hart, Brig. Gen. Truman C. Thorson. Source: U.S. Army Center of Military History.

Hodges’ career up to the Hurtgen was out of a Hollywood script. A southerner who didn’t make it through West Point (geometry class flummoxed him), he rose through the Army ranks the hard way, starting his soldiering career in 1905 as a private.

He earned two Purple Hearts in World War I but discarded them and considered them “sissy.”1  Hodges’ boss during the Hurtgen ordeal was the legendary Omar Bradley, who prior to the war was Hodges’ subordinate, and who still addressed Hodges as ‘sir’ despite the reversal in who reported to whom.

Although Hodges competently led the 1st Army through France after D-Day, he was by late 1944 mentally exhausted and spent. The scale of duties overwhelmed him; he made decisions slowly and micromanaged.  Worse, he would not visit the front line and tended to command from the rear, with little information (or worse, misinformation).

Hodges would brutally demote subordinate officers, sacking them at the first sign of setback.  That made those reporting to him extremely cautious in decision-making, to the point of being paralyzed. It didn’t help that his staff and other direct reports were constantly infighting.

He was archaic in tactics, favoring a mentality more representative of World War I than the current conflict.  Hodges favored the tactics of “straight on” and “smashing ahead” over flanking.2  Hodges and his staff believed the Germans were close to collapse, convincing him more of the need for blunt and direct frontal tactics.

Hodges saw the Hurtgen Forest as a threat to his flank in his drive east toward the Roer River and, ultimately, the Rhine River.  Yet the density of the forest made it highly unlikely that the Germans could amass enough armor and infantry to serve as a credible threat to the Allied advance.

Historian Russell Weigley summed it up best: “The most likely way to make the Hurtgen a menace to the American Army was to send American troops attacking into its depths.”3

That’s exactly what Hodges did.  And no one under him had the confidence or courage to question him.4

Early Phase of Battle

Thus, in late September 1944, the US 9th Division entered the Hurtgen, hoping to outflank the city of Aachen to the northwest. After a few weeks, little ground was gained at enormous cost; 4,500 causalities were suffered to advance 3,000 yards.  That’s a casualty for every two feet of gained ground, an attrition rate that soon depleted the fighting strength of frontline battalions.

Although the German defenders also paid a heavy price, the German high command in mid-October was confident the Americans would not be foolish enough to attempt another assault through the Hurtgen Forest. Field Marshal Model understood how the forest neutralized Allied advantages in mobility, armor, and airpower.

But the Germans misread the extent of ineptitude and stubbornness of American leadership.

The 28th Division Enters the Forest

The US 28th Infantry Division was originally a Pennsylvania National Guard organization.  Its original nickname, the Keystone Division, was derived from its keystone insignia on uniforms (the keystone is the emblem of Pennsylvania).5

The 28th had done it all in Europe leading up to the Hurtgen Forest: fighting and dying through the impenetrable hedgerows of France following D-Day, marching through Paris triumphantly, and breaking through the famous fortified defenses of the Siegfried Line.  The 28th crossed from France onto German soil in September 1944, having learned valuable lessons from prior campaigns but paying a high price in casualties.  A rest was badly needed.

So, in late September, the 28th was moved into reserve in Belgium.  Major General Dutch Cota, who enjoyed a stellar reputation till the Hurtgen, rested the 28th while rebuilding the ranks with inexperienced replacements and preparing for the next fight.

General Eisenhower and Major General Cota at the 28th Div. C.P. Rott.

But the 28th Division was the only corps in reserve after the failed attempt of the 9th Division to give the Hurtgen a go.  Thus, in late October it was hastily brought forward and ordered back into action.

Ironically, the 28th Division’s motto was “Fire and Movement.”6 The Battle of Hurtgen Forest presented a situation where the former was challenging while the latter was often impossible.

The assault into the Hurtgen commenced on November 2 after a few days of delay due to cold, cloudy, and wet inclement weather; conditions that would be the norm for the duration of the campaign. Cota deployed three infantry regiments, the 109th, 110th, and 112th, in the attack.  Tanks were attached to each regiment but were often useless in the terrain and weather.

American plans were for the 109th to aim for the village of Hurtgen to the northeast, the 110th targeted Raffelsbrand/Simonskall to the southeast, while the 112th was to head east to Kommerscheidt and then to the key objective of Schmidt.

That’s three separate lines of attack.  And due to delays in launching attacks at other points across the wide front, the 28th in the Hurtgen would be the only attack occurring those first few days of November, meaning the Germans could dedicate full attention to the battle.

The first day of attack on November 2 devastated the 110th; as they attempted to advance to the southeast they were mowed down by machine guns and artillery.  Zero progress was made and by the end of the week the 110th had lost effectiveness as a fighting force.

The 109th made limited progress until it encountered a dense minefield, stopping short of Hurtgen village and suffering heavy casualties.

The best American progress on November 2 was by the 112th in the middle, having reached the village of Vossenack on the way to the ultimate objective of Schmidt.  By the next day, the Americans in the 112th traveled down the ravine to the Kall stream, traversed the stream, and climbed the opposite bank toward Schmidt.  Germans in the town were taken by surprise, and the Americans surprisingly held Schmidt by late afternoon on November 3.

But snipers made movement in and around Schmidt impossible. And it was tough to reinforce the position with 30-ton Sherman tanks due to the muddy, narrow, and steep Kall trail.

Field Marshal Model and the Germans were initially surprised by the attack, thinking the Americans would be too smart to try an assault into the impenetrable forest. Ironically, at commencement of the 28th’s attack, Model and his staff were conducting map war game exercises to play out a hypothetical American campaign in the area.

Model responded quickly. He sent some officers to the front and kept others back at his headquarters to monitor and manage the battle.  Cloudy weather negated Allied air power and the Germans were able to quickly move troops and tanks to the outskirts of Schmidt and Hurtgen village.

The Americans in Schmidt were too few to handle the coming counterattack.  They were oblivious to the threat, felt the Germans lacked enough remaining armor to mount an attack, and were short of anti-tank equipment and mines. General Cota remained far from the front lines, out of touch with developments and thinking the battle was already won.

The morning of November 4 delivered a strong dose of reality.  German artillery opened on Schmidt, tanks blew apart the town, and screaming German infantry surged toward the undermanned Americans.  The Americans, routed and in disarray, fled.  Schmidt was back in German hands by noon.

Some of the routed American forces regrouped at Kommerscheidt (between the Kall stream and Schmidt) and a few Shermans arrived up from the nearly impassable Kall trail.  The Kall trail was the only avenue for reinforcement and supply, but it was a muddy, narrow mess.  Engineers worked continuously to make it barely passable for tanks and antitank equipment.  A tank broke down on the trail and impeded progress for days until it was shoved over the ravine. The pace to traverse the trail was excruciatingly slow, and the route was lightly defended and vulnerable to continuous German attack.

At the time when the desperate Americans needed leadership the most, they didn’t get it.  General Cota remained far from the front and was confused.  General Hodges showed up at Cota’s command post and went on a tirade.  An intimidated Cota was sending orders to the front line for Schmidt to be retaken at once and to “roll on.”7 Obviously, the detached American generals had no clue as to the critical state of their troops or the battle.

By November 7, Kommerscheidt had fallen. The Kall trail was under heavy attack, making an attempted night retreat deadly and difficult.

It wasn’t until the next day that Generals Eisenhower and Bradley became worried enough to show up at Dutch Cota’s headquarters.  Eisenhower commented, “Well, Dutch, it looks like you got a bloody nose.”8

The first winter storm hit on November 9. A truce allowed US wounded to be evacuated across the Kall stream and up the trail.  Finally, the decimated 112th was off the front line.  The 110th was possibly in worse condition, reduced to less than sixty infantry, including reinforcements.

Sherman tanks mounted with 105mm. howitzers open fire in a muddy field amid the Hurtgen Forest on November 17, 1944.

Of the over two thousand Americans who set foot east of the Kall stream during the battle, only three hundred managed to make it back to the western bank.  In about a week of battle, the Americans suffered over 6,000 casualties, to the Germans 3,000.

The reputation of General Dutch Cota went from hero prior to the Hurtgen to inept leader after.  The most likely explanation as to why he was not relieved of command was that prior purges by Hodges and the recent Hurtgen combat losses drained the depth of officers.  There was no one able enough to replace Cota.

Costly Third Attempt

But the American generals, including Hodges, did not learn, and for months continued to throw troops into the meatgrinder of the Hurtgen Forest.  Next up was the 22nd Infantry Regiment.

The regiment was commanded by Colonel Charles Lanham.  Lanham led from the front to the point of recklessness.  Many considered him brilliant but crazy.  No one questioned his courage.

He expected much of his officers and told them, “As officers, I expect you to lead your men. Men will follow a leader, and I expect my platoon leaders to be right up front. Losses could be very high. Use every skill you possess. If you survive your first battle, I’ll promote you. Good luck.”9

A German bunker in the Hurtgen Forest (2018).

The 22nd started eighteen days of hell in the Hurtgen on November 18.  After three days, the regiment lost its three battalion commanders, and the attrition rate among rifle company leaders was over three hundred percent. By the end of the sixth day, the regiment suffered fifty percent casualties.

Yet the regiment fought on, suffering more than 2,800 casualties to advance just over 300 yards a day. One soldier fell for every two yards gained. The casualty rate was a staggering eighty-six percent of normal regiment strength.

The Damned Dams

American leadership spent years after the battle defending the decision to enter the forest.  One of the more popular explanations was the need to secure two forest dams that controlled the water level of the Roer River flowing northward, which sat to the east and between the Allies and the Rhine River. The Allies believed they could not attack eastward to the Rhine as long as the Germans held the dams and could threaten to flood the Roer River Valley.

Yet General Hodges made no plans prior to battle to capture the dams on the Roer, just inside the Hurtgen Forest. The dams were apparently the key to the river, but it would take prolonged battles in the forest by several divisions before Hodges ordered an attack against them.

Hodges did not press for air attacks on the Roer River dams until late November, but they failed. Direct hits were made, but the concrete structures were so massive that damage was negligible.

In mid-December, months after the Americans entered the Hurtgen, a ground assault on the dams was launched. It would not be until February 1945 that the Allies controlled the dams and could land on the eastern bank of the Roer River.

American leadership blundered by not proposing an easier avenue of approach southeast of the Hurtgen Forest, allowing Hodges to seize the dams and then clear the terrain downriver.  The Battle of Hurtgen Forest didn’t have to be.

The Hurtgen’s Bloody Tally

The slaughter and misery dragged into December 1944, when the Americans finally pulled out of the forest.  By that time, Allied attention was fixed on German Field Marshal von Rundstedt’s breakthrough in the Ardennes; what came to be known as the Battle of the Bulge.

American soldiers of the 1st Infantry Division in defensive positions in the Hurtgen Forest, December 1944.

All said, 120,000 American troops were deployed in the Battle of Hurtgen Forest, suffering 33,000 casualties.

Combat fatigue, pneumonia, and trench foot claimed 9,000 of that gruesome toll.  Soldiers lacked sufficient boots and winter clothing.  Hot food and dry cover were almost nonexistent.  Men spent long nights frozen in foxholes.  American domination of logistics and supply enjoyed throughout the war failed in the Hurtgen.

Making Coffee in the Hurtgen Forest, December 1944. By Tony Vaccaro.

The campaign absorbed enormous resources and destroyed morale. It weakened the American front and set the stage for the initial German success in the Battle of the Bulge.  The worst American setback in the European Theater prolonged the war.

Historian Carlo D’Este saw the American performance in the Hurtgen Forest as “the most ineptly fought series of battles of the war in the West.”10  Hemingway referenced World War I by describing the Hurtgen Forest as “Passchendaele with tree bursts.”11  Colonel David H. Hackworth, a battalion commander in the Vietnam War, called the Hurtgen battle “one of the most costly blunders of World War II.”12

Six Lessons

Because it was disastrous, and because we tend to best remember victories, the Battle of Hurtgen Forest has been virtually forgotten.  It is only briefly mentioned in the memoirs of Generals Eisenhower and Bradley and has been overlooked by many historians.

The battle should have been avoided.  Its lessons must be remembered if we are to honor those who paid the ultimate price.

The Battle of Hurtgen Forest provides six key lessons:

  • Leadership matters, and poor leadership negates inherent advantage. Eisenhower, Bradley, Hodges, Collins, and Cota failed to understand the strategic irrelevance of the forest and the ability to reduce it and avoid it by flanking to the southeast.  Hodges applied obsolete tactics and lost composure at the worst times. Hodges and Cota both led from the rear, failing to grasp the frontline situation as events unfolded, compounding mistakes with more mistakes.
  • Preparation and homework are prerequisites to success. The Allied command went into the Hurtgen unprepared and with no clear agreement on why they were there to begin with. A simple reconnaissance of the Kall trail would’ve warned of its challenges.  Much was made of the need to capture the dams on the Roer to the southeast of the Hurtgen as justifying the battles.  Yet there was a lack of clarity, before and during the battle, on intended timing of dam capture, the impact the dams could have on flooding of the Roer River, and on alternatives to address the dams (including flanking or bombing them).
  • Avoid terrain and environment that neutralizes your strengths. Since Sun Tzu, strategists understood the importance of picking the proper field of battle.  Yet the Allies chose the worst place for battle.  The Hurtgen’s thick woods, ravines, steep ridges, lack of roads, mud, and weather eliminated Allied superiority in mobility armor, and airpower.  Tanks were largely useless until late in the battle and airpower was hampered by cloud cover.
  • Supply chain weakness will hamper success in modern warfare and economy. The Kall trail was the primary lifeline for Americans on the frontline for much of the battle. Yet the trail was too steep, too narrow, too muddy, and too prone to German attack.  This crucial artery of movement was far too fragile to feed a victory.
  • Success demands teams have the proper tools and equipment. One of the Allies’ greatest strengths during the war, logistics, failed miserably during the Battle of Hurtgen Forest. Soldiers were deprived of the basics: hot food, winter gear, and boots to protect from trench foot.  The failure to equip troops with the essentials resulted in thousands of avoidable casualties.
  • Underestimate your adversary’s capacity and will at your own peril. The Allies in late 1944 were too overconfident. They ripped across France, were now inside Germany, the industrial Ruhr was within reach, and the fighting spirit of the German army was thought to be poor. A blunt and direct assault into the Hurtgen would be easy and unresisted.  The Germans benefitted from such ignorance and foolishness, which carried on beyond the Hurtgen and bled into the Battle of the Bulge.

History is written by the victors. But if the victors desire to remain on top, analyzing and learning from the failures is essential.


[1] Atkinson, Rick, The Guns at Last Light, p. 310.
[2] Atkinson, Rick, The Guns at Last Light, p. 311.
[3] See; The Hurtgen Forest, 1944: The Worst Place of Any.
[4] That held true even after the war. Loyal Hodges subordinate General Joe Collins stated post-war, “We had to go into that forest to secure our right flank.” And, “What was the alternative?”  (Atkinson, The Guns at Last Light, p. 314.) How about a flanking maneuver around it?
[5] The Germans in World War II gave the 28th Division another nickname, the Bloody Bucket Division, because of the blood-red color of the keystone insignia and the vicious fighting tactics used by the 28th through Normandy.
[7] Atkinson, The Guns at Last Light, p. 321.
[8] Pereira and Wilson, All Souls Day: The World War II Battle and the Search for a Lost U.S. Battalion, p. 146.
[9] See; The Battle of Hürtgen Forest: A Tactical Nightmare for Allied Forces.
[10] D’Este, Carlo, Eisenhower: A Soldier’s Life, p. 627.
[11 Hemingway, Ernest, Across the River and Into the Trees, p. 218.
[12]; The Battle of Hürtgen Forest: A Tactical Nightmare for Allied Forces.

The Logic and Morality of Share Buybacks

The following commentary is by Nick Deiuliis and Yemi Akinkugbe.

In 1982, the SEC, under President Reagan, reinstated share repurchases to the American public corporation capital allocation tool kit with Rule 10b-18 of the Securities Exchange Act. Every year since, the criticism of this crucial capital allocation option from the anti-business Left and the populist Right has grown more strident. Yet corporate business leaders will be hard pressed to find a more effective and moralistic approach to capital allocation than share repurchases, when executed at the right times by applying clinical math.

Political Witch-Hunt

President Biden, in his 2023 State of the Union address, attacked corporate share repurchases and proposed “quadrupling the tax on corporate stock buyback” to punish the practice. President Trump was a critic of buybacks prior to President Biden. Senator Elizabeth Warren calls share repurchases “nothing but a paper manipulation” and criticizes corporate executives who utilize the tool. Senator Bernie Sanders proposed introducing a bill that will prohibit corporations from performing share buybacks unless certain conditions are met.

It seems as if the whole of government these days aims to dictate and micromanage corporate America’s capital allocation decisions. The justification proffered is the popular, yet false, premise that stock buybacks necessarily lead to significant declines in business investment. How ironic that the anti-business crowd criticizes the tactic of share buybacks because it reduces…business investment!

Unfortunately, there are more than a few influential academics and Wall Street leaders who obligingly echo politicians when attacking share repurchases. The CEO of the largest financial institution in the world once stated corporate leaders needed to be on guard against practices “to deliver immediate returns to shareholders such as buybacks…. while underinvesting in innovation, skilled workforce, or essential capital expenditures to sustain long term growth.”1

Repurchases the Right Way

Like most things in life, how one assesses share buybacks and the timing and transparency of them matter greatly. The goal of share repurchases should be to perform them in a way and during a time when the capital allocation decision increases the intrinsic per share value of the corporation for the remaining owners.

The formula for achieving such a goal is surprisingly simple.2  The board and management of a corporation should have a refined view on the intrinsic valuation of the business, one that reflects the long-term cash flow generation expectations expressed into a present value on a per share basis. That view should be methodically updated and refined as conditions and strategy change.

Publicly traded corporations can then compare that internal view of the value of the business to the current share price of the company. If the share price is at or exceeds the internal per share value view, then share buybacks do not represent a value-adding capital allocation proposition at that time and should be avoided. The time is not right.

But if the company’s view of its per share value exceeds the current share price by a significant margin, the opportunity exists to deploy free cash flow into share repurchases, and by doing so leaving more per share future value of the business to the remaining owners.3 Running this clinical math highlights periods of time when share buybacks make tremendous logical sense.

A properly executed process for assessing share repurchases means there will be times when buybacks should be declined and times when they should be eagerly pursued without risking the balance sheet. The math dictates the timing. When the process and decision filtering are consistently adhered to over the long term, share buybacks can prove to be the most effective of capital allocation tools.

The Morality of Share Buybacks

The great economist Milton Friedman succinctly stated, “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game…”4

There are many tactics managers must apply at different times to achieve Friedman’s view: investing capital into the assets of the business, paying top talent to incentivize performance, building a strong balance sheet, and taking the long view of local communities that are core to the business by nurturing economic and social progress. Share repurchases, when applied clinically, can be as effective as these other tactics.

Following Friedman’s view and utilizing share repurchases under the right approach is not greedy, immoral, or wrong. It is morally just because of four reasons:

  • First, note who benefits when a corporation maximizes its profits through share repurchases at the proper times: the shareholder owners. Which include pensions (and their retirees and active workers), mutual fund investors (aka 401k owners), mom and pop investors, and nonprofit foundations. Sure, executives will stand to benefit by the proper application of the share repurchase tactic. But that is the essence of pay-for-performance and it places the business leader in the same shoes as those stakeholders who own the company.
  • Second, share buybacks are the ultimate expression of the individual investor’s freedom of choice. Even though the initial decision to repurchase a share starts with the corporate management and the board, the transaction is not consummated until an owner decides to sell the share back to the company. It is the ultimate exercise of a free market transaction. Those owners not wishing to sell are free to hold on to their shares and end up owning a larger piece of the corporate pie. Owners looking to exit the investment have a willing buyer, the corporation itself, ready and able to transact on the other end.  Each owner is ‘free to choose’ (to borrow another line by Dr. Friedman).
  • Third, share repurchases when done properly do not reduce investment in business. To the contrary, they grow investment in business and the economy. Owners who decided to sell shares back to the corporation are now able to redeploy their investment into whatever venture is compelling and in need of capital. And owners who hold their shares now enjoy a larger piece of future profits from the corporation, creating higher net worth to invest and stimulate the economy further. And the corporation should realize improved valuation and investment prospects as the market begins to reflect the business’ true intrinsic value over the long term.
  • Last, a proper process for share repurchases forces management and boards of public corporations to take the long view and shun the short-termism and herd mentality that plague the public capital markets. Advocates who understand the power of effective share buybacks learn to bask in times when Mr. Market misunderstands the future prospects of the business and wrongly devalues the stock. That is not a short-term problem to an effective capital allocator; instead, it is a long-term opportunity to grow the intrinsic per share value of the business.

If you doubt the case for share repurchases under the right circumstances, consider the view of the Oracle of Omaha.

Warren Buffet in his 2023 shareholder letter pushed back on share buyback critics when he said, “When you are told that all repurchases are harmful to shareholders, to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongue demagogue (characters that are not mutually exclusive).” Buffet knows a thing or two about capital allocation, and investors would be well served to heed his advice.

“When you are told that all repurchases are harmful to shareholders, to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongue demagogue (characters that are not mutually exclusive).”


Shun the Shrill Ideology and Embrace the Clinical Logic

Yes, the tactic of share buybacks can be poorly applied and end up harming a business.5 Yet that risk is present in all tactical business decisions and, frankly, most life decisions.6

A risk of getting share repurchases wrong does not make it immoral nor should it be grounds for limiting the ability of corporations to perform it or for investors to benefit from it.

Like many other religious tenants of the modern-day Left and, often, the populist Right, the attack on share buybacks is based purely on dogma bordering on an extreme religion. The belief that capitalism, business, and profit are unethical. That the individual company or investor should not be free to decide for themselves. And that meritocracy and survival of the fittest are to be avoided in the market.

Instead, too many politicians these days demand that government and the unelected, faceless bureaucrat should determine capital allocation decisions, along with selecting winners and losers in a stacked game. The individual, whether it be a company or investor, is subservient to the political and ideological whims of the elite and expert classes.

That belief system is more 1960s East Germany than the American legacy of a free market. If you wonder which is preferable, ask yourself which side of the wall Berliners risked their lives to end up on.

We should shun rigid ideology that limits the freedom of individual investors and that constrains the free market to optimally allocate capital.  Embrace the morality and rationality of share buybacks when done right.

Connect with Nick on Twitter at @NickDeiuliis and on LinkedIn, and CNX Resources consultant Yemi Akinkugbe on LinkedIn.


1 Larry Fink Annual Letter to CEO’s April 2015
2 A fantastic book on the topic of effective capital allocation and the power of share repurchases when done right is Will Thorndike’s The Outsiders.
3 What constitutes a ‘significant margin’, or adequate margin-of-safety, is quite subjective and will rely on the judgment of the manager or director running the corporation.  Yet such subjectivity will be present in all major business decisions for corporations, from M&A to capital expenditures into the going concern asset base.
4 Give a read online of Milton Friedman’s “A Friedman Doctrine: The Social Responsibility of Business is to Increase its Profits”, from New York Times Magazine in 1970.
5 The two most common mistakes when applying the tactic of share buybacks are placing too much debt stress on the balance sheet (borrowing to buy back shares instead of using free cash flow) and repurchasing shares when the stock price does not offer a substantial discount to the intrinsic value (or margin of safety). The former does not appear to be a widespread phenomenon, as the MSCI All Country World Index of Debt Issuance vs Buybacks shows little-to-no correlation between buybacks and debt issuance.  The latter is a much more common error, with Warren Buffet commenting that, “American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked.”
6 A person stuck in a bad marriage does not mean the institution of marriage should be vilified by all. A badly timed investment in a small business should not serve as justification for shuttering entrepreneurship.  The same logic should apply to corporate share repurchases.



Mis“LEED”ing: Fact Versus Fiction for Green Buildings

How many times have we heard those worn-out taglines of ‘sustainability,’ ‘green is good,’ ‘triple bottom line,’ and ‘doing well by doing good?’  Study after study, report after report, and headline after headline.  All used to help justify products like electric vehicles and solar panels, as well as to defend related policy mandates, market protection, and subsidies.

Many of today’s largest markets and industries rely entirely on the ability of the expert class to continue to hoodwink consumers, taxpayers, and investors on the false need and an altered reality of certain products and standards.

Consider the case of green building design, specifically LEED-certified buildings.

For those unfamiliar with LEED, it stands for ‘leadership in energy and environmental design.’  It’s become all the rage in real estate these days, particularly for commercial and office space.  LEED-certified buildings enjoy an unchallenged reputation for better performance, accretive economics, and societal benefit.

That’s due in large part to an ocean of studies that posit LEED-certified buildings as superior to non-LEED-certified buildings in every imaginable way.

Creating the Need for LEED

A recent example is the October 2022 research report from real estate firm CBRE titled Green Is Good: The Enduring Rent Premium of LEED-Certified U.S. Office Buildings.

The title is an eco-marketing thing of beauty; a rich, concentrated trove of all the gimmicky tricks.  Employ an obligatory worn-out tagline (‘green is good’)?  Check.  Inject an aura of economic legitimacy (‘rent premium’)?  Check.  Infer a longevity that exceeds the half-life of CO2 in the atmosphere (‘enduring’)?  Check.

The executive summary doesn’t disappoint. It begins by boldly stating that an analysis of 20,000 office buildings in America found that the average rent of those with LEED certification was 31% higher than those of non-LEED-certified buildings.

The impressive finding indicates that renovating existing or building new spaces that have high energy efficiencies and meet LEED certification standards are well worth the effort and investment.

Except, when digging a little deeper into the study’s details and data, that’s not exactly the case. In fact, that’s not at all the case.

The Devil in the Data

As with many studies, reports, and news articles surrounding the vaunted energy transition, reading beyond the title and executive summary is vital.  Doing so for this study of the economics of LEED-certified buildings betrays a very different set of conclusions than the popular consensus and the report’s title.

The golden rules of real estate, including the ultimate of location-location-location being the three most important factors determining value, apparently still matter today, even with Code Red for humanity and approaching climate doom.

When the study’s data are adjusted under regression analysis for building location, building age, and renovation history, the premium that LEED-certified buildings enjoy shrinks from the advertised 31% down to just under 4% before COVID and only 3% after COVID. 

That’s a massive drop to a paltry, low single-digit premium that may be within the statistical noise and uncertainty of the study.  Meaning when an apples-to-apples comparison is performed, LEED certification doesn’t amount to much of any appreciable rent premium.

Building age is far more impactful than LEED certification.  The regression analysis found that office assets built after 2012 commanded a 14% rent premium over those that were built between 2002 and 2011. Each additional decade in age decreased rent by approximately 5%.

Data prove age affects rent much more than LEED certification.

What’s intriguing is that the complete report disclosed these findings and how they evaporated the trumpeted rent premium for LEED certification.  It’s all in the body of the report, which very few people take the time to read.

By the way, LEED-certified office buildings tend to be larger and higher quality assets concentrated in downtowns of expensive cities, compared to non-LEED-certified buildings. Which means LEED-certified spaces should enjoy higher rent premiums than buildings that are smaller, lower quality, and not located in the most exclusive of zip codes.

The report cites that a third of Manhattan’s office inventory is LEED-certified while only a tenth of Louisville’s office inventory is LEED-certified.  And Manhattan office space is pricier than Louisville’s.  Yet rent premiums of Manhattan offices versus Louisville offices have very little to do with whether the buildings are LEED-certified.  It’s because it’s Manhattan and Louisville!

Voodoo Economics

What you don’t find discussed in the study, which harms its credibility, is recognition that constructing a LEED-certified building is a more expensive proposition in up-front capital investment than constructing or renovating a non-LEED certified building.  If there is only a miniscule, or nonexistent, rent premium for the LEED-certified office, the rate of return will indicate a losing investment proposition, not a winning one. That is the opposite conclusion that the study’s title warrants.

The study also argues green buildings offer lower mortgage default risk for investors.  That may not be the case looking forward into the coming years, when considering LEED-certified buildings are disproportionately concentrated in at-risk real estate bubble markets of Manhattan, San Francisco, and so on.

Further, LEED certified buildings are a favorite of the tech industry. And the tech industry right now is on the verge of a major correction, with job losses piling up and with office buildings, many LEED-certified, being vacant and leases being abandoned.  LEED-certified buildings may post higher default rates than traditional offices as we experience the grips of a recession or slowdown, or certainly if another tech bubble bursts.

Unaddressed in the study and regression analysis is what impact government leasing of LEED-certified buildings has on rent spreads.  One of the largest tenants of metropolitan office space is often government.  If bureaucrats favor LEED-certified space and aren’t afraid to pay up with taxpayer dollars to rent it, rent spreads for LEED-certified buildings are likely to skew.  Without government subsidy, there may be no rent premium for LEED certification.  Perhaps, there might even be a ‘green discount’.

Communal Paradise Lost?

There are other flaws in the study.

It wrongly assumes de facto ‘increased productivity’ associated with LEED-certified buildings.  That’s not obvious or necessarily true for the workers who inhabit them.  Ledger entries of debits and credits by accountants working in a LEED-certified building don’t magically happen quicker or more accurately than they would when the accountant is working in a non-LEED-certified building.

There’s another false premise about LEED-certified buildings, particularly in the era of pandemic: the health and wellness benefits associated with LEED-certified buildings.  Today, there are health risks found in LEED design features.

For example, are low-flow water faucets in restrooms of LEED-certified buildings a health risk when it comes to hygiene and germ spread?  A similar question pertains to HVAC systems in LEED-certified buildings that try to balance energy efficiency targets with fresh air-to-recirculation air ratios.

These days, most office occupants do not relish the thought of breathing air all day that has longer average indoor residence time.  Or using faucets that trickle to wash hands.  The safer office building environment would employ higher water flows in restroom faucets to minimize germ transfer and HVAC systems using as much fresh air feed as practical.

And those celebrated common areas for collaboration, meeting, and eating utilized in LEED-certified buildings? Just another venue for potential disease transmission.

Pandemic necessitated a re-think of all facets of life and business.  Yet LEED-certified design has largely escaped such a re-think.  Why?  Aspects common in, or mandated by, LEED certification need an objective reassessment as to whether they are beneficial in the era of Covid.

Too Much of a Green Thing

A key conclusion buried in the study escaped mention in the executive summary and title.  The regression analysis found no statistically significant rent premium associated with higher levels of LEED certification.

Attaining a higher level of LEED certification requires more investment to achieve the target level of points. If there is not a statistically significant rent premium associated with higher LEED certification, then being greener is not better.  Being greener is a poor investment decision; investors lose money when spending to attain a higher level of LEED certification.

The Echo Chamber at Work

How one stumbles upon this report is emblematic of how the echo chamber works in media, the expert class, and environmentalism today.

A headline on a major business website mentioned the study title, specifically the ‘green is good’ hook.  The website article exclusively highlighted the report’s title and the opening statement of the executive summary that advertised the massive 31% rent premium for LEED-certified buildings. Only until tracking down the study and reading the body of the report will the regression analysis come to light.

That’s how the environmental racket operates these days. The green formula:

  • Perform a study to skew in the desired direction by applying favorable assumptions.
  • Push the desired findings in the executive summary.
  • Come up with a creative and eye-catching title (use those eco-taglines we called out in the beginning), then post or publish the report.
  • Collaborate with major media to rebroadcast and further amplify the desired sound bite or headline.

It’s not greenwashing. It’s worse. Most would consider it misleading and unethical.

Nick Deiuliis’ CNX Q3 2022 Earnings Call Remarks

The following is a summary of Nick Deiuliis’ introductory comments from CNX Resources’ Third Quarter 2022 Earnings Conference Call, held Thursday, Oct. 27, 2022.

I want to provide a few thoughts regarding the macro backdrop and how CNX is continuing to uniquely position itself not just amongst energy companies, but also amongst the broader equity markets.

During the second quarter call, we discussed in depth the world’s growing demand for responsible energy development and how natural gas sourced from the Appalachian basin is an essential catalyst fuel in delivering that future. We laid out our vision of Appalachia as the heart of a sustainable energy revolution, and we discussed the numerous opportunities CNX is developing to leverage our existing asset base and core competencies to create significant free cash flow opportunities for our shareholders beyond our core gas development activities.

Today, however, I want to pivot back to the core of our investment thesis and the actions we are taking to position CNX for long-term per share value creation in the face of increasing uncertainty on three main fronts.

First, during the third quarter, the macro-economic backdrop in the US has continued to become more uncertain as inflation continues to erode purchasing power, interest rates have risen sharply, and equities valuations have declined. Despite this challenging backdrop, CNX was able to execute an attractive long-term debt refinancing that further extended our maturities profile and thereby unlocked additional degrees of freedom with respect to our capital market activities. Our combination of consistent quarterly free cash flow generation, extensive available liquidity, and our long debt maturity runway uniquely positions CNX to take further advantage of any deepening valuation disconnects that might occur in either the equity or debt markets.

Make no mistake about it, CNX is well positioned to continue to play offense in this type of environment.

The second area of uncertainty that featured prominently during the third quarter is the continued inability of our elected representatives to achieve consensus on interstate pipeline permitting reform. Without a meaningful acknowledgment of energy realities from Congress, the natural gas industry continues to be unable to unlock the full potential of US shale to serve the obvious energy demand centers here in the US.

Despite Washington continuing to ignore rational energy policy for the time being, CNX is one-of-one who has positioned itself to work in this potentially capacity constrained world. So, while Appalachia awaits future pipelines to be built, CNX will continue to focus on executing our maintenance of production plan to generate an annuity-like stream of significant free cash flow regardless of where we are in the commodity cycle. In addition to our organic base development plan, we will leverage our extensive legacy asset base to create new free cash flow growth opportunities through our New Technologies efforts and deep dry Utica development. We will clinically allocate this incremental free cash flow to create long-term per share value growth.

The third and last area of uncertainty that I want to highlight is the pricing volatility in the natural gas markets, and what we experienced during the third quarter is a reminder of just how volatile the commodity markets are, as well as how difficult they are to predict. However, CNX is uniquely positioned to respond to this uncertainty through its consistent programmatic hedging strategy and its basin-leading cost structure derived from its midstream ownership.

These two strategic differentiators significantly lower risk and provide long-term free cash flow visibility throughout all phases of the commodity cycle. This de-risked approach creates opportunity for significant long-term per share free cash flow growth even if lower natural gas price scenarios were to materialize.

So, the CNX story is simple, yet unique. It is a story about keeping our head down and executing our sustainable business model plan over an extended time-period time to generate sustainable per share value. Most companies do well when gas prices are high. What makes CNX unique is our ability to still thrive when prices are low, and things get tough. Our sustainable business model does not rely on gas prices staying high or on accurately predicting the future, which we all know is impossible; but instead, it is based on building a business that works in whatever the future holds. We are over two and a half years into executing this plan across many different macro backdrops, and Q3 adds another successful quarter to our track record.

I’ll wrap up my commentary with some final thoughts on our social impact. As we’ve discussed before, CNX’s sustainable business model is not only focused on creating value for our shareholders, but also on creating tangible and impactful value in the local communities in which we’ve operated for the last 150+ years.

I wanted to take the opportunity to highlight the kick-off of the second class of young men and women who are entering the CNX Mentorship Academy this fall.

As a reminder, this initiative is focused on exposing students in our underserved urban and rural communities to the myriad of career opportunities that exist within not just the energy industry but also throughout the region. These young adults are the foundation of tomorrow’s economy, and we are excited to build upon the success of last year’s class and to continue to provide a unique corporate engagement model for others in the region to follow. This fits right into CNX’s vision for the region as we wait for pipes to get built out of the basin.

There is no reason to wait to bring demand and manufacturing into our regions, which will help lift communities out of poverty by creating long-term manufacturing jobs, all while lowering global carbon emissions and improving the economy.

Additionally, in furtherance of CNX’s overarching aim to creating tangible and impactful value for our local community, another effort we’ve engaged in is “The HQ at CNX.” The HQ as we call it was created to provide office space in our headquarters building for non-profit, charitable, underserved, and underrepresented organizations to elevate and thrive their business while enabling collaboration with like-minded business individuals. We view it as the living embodiment of our Foundation – to find the diamond in the rough that might not receive attention from the establishment but is doing the important, hard work on the ground in our communities.

That’s what CNX is after – investments we can make that produce returns not only for our company but for the wider region. For generations, this region has fed CNX with unmatched talent and CNX has in turn fed the region with jobs, investments in our communities, and quality of life derived from the product we bring to market. That virtuous circle that is part of the fabric of our legacy lives on today through initiatives like our Foundation, Mentorship Academy, and HQ concept.

The HQ initiative is well underway, and we’ve gotten in half a dozen co-workspace tenants, which include a local non-profit career development association, a regional non-profit mentorship organization, a small local university, and two female-owned for-profit businesses (one a social media/marketing firm and the other a deli). We are excited for the opportunities ahead for the HQ to help reinforce our overall tangible, impactful and local value add philosophy.

Click here for more information on CNX Resources’ third quarter 2022 results.

When a Blinded 1930s Writer Saw the 2022 Future

Aldous Huxley, the English author, was blinded for nearly two years by infection when he was a teenager. Despite his ailment and lingering poor eyesight, Huxley managed to produce a dystopian classic with a precise vision that gazed ninety years into the future. His masterpiece, Brave New World, predicted with frightening accuracy modern society in the 21st century.

Huxley penned Brave New World in 1931 and published it in 1932, years before Orwell’s 1984. The dystopian worlds offered by each classic share similarities but also present sharp contrasts. Despite 1984’s rightful acclaim, one might argue Brave New World scores more direct hits when it comes to comparing its society to that of modern-day America.

Brave New World envisions a society run by a global bureaucracy that practices a kinder, gentler totalitarianism. There is a strict caste system of elite alphas at the top down through lowly epsilons at the bottom.  Humans are no longer born, but instead are manufactured, in labs with predetermined outcomes and castes.  Complex yet aimless entertainment and the drug soma are applied as tools to numb and train those in society to be passive and submissive.  God no longer exists, and everyone worships Henry Ford and makes the sign of the T.  Monogamy has been replaced with promiscuity.

A World of Parallels to Today

Seven eerily prescient parallels exist between Huxley’s Brave New World and today.

First, Huxley brilliantly illustrated how constant but hollow leisure in society does not lead to increased culture.  A popular saying in Brave New World is “never put off till tomorrow the fun you can have today.”  Games like obstacle golf are encouraged to the point of participation being a civic duty, and the games are designed to be complicated and constantly updated.   The complexity helps promote continuous and hollow consumption, so that people are kept busy by both playing the games and making the equipment to play the games with.  Self-cheating is encouraged.

The connections to today are striking.  Instant gratification prevails over long-term achievement.  Americans now have an obsession on consumerism with the constant acquiring of more stuff.  Consider the exponential growth in mindless entertainment such as VR and gaming.   And our everybody-gets-a-trophy/don’t-keep-score/cheat-until-caught culture.

Second, Brave New World informs us as to how science is the enemy of the totalitarian state when left unhindered and must be tightly controlled and distorted by the state so that it can become a useful instrument.

Science is a crucial piece of the strategy in keeping society in line, but scientific progress was purposely frozen with the advent of the world state.  Science and the muzzling control of it are the prices of stability.  Science propaganda is practiced at colleges, and one believes things because they were conditioned to believe them.  The culmination is science becomes a cook-book orthodoxy that is never challenged. The effort is managed by the state in a 60-story building that houses the Bureau of Propaganda and the College of Emotional Engineering.

The mirroring to today’s world is obvious.

Science has morphed into political science.  The scientific method has been replaced by scientific consensus.  We are told when the science is settled and are instructed to obey.  Questioners and dissenters of popular views or of accepted science in the university culture get labeled as heretics and deniers.  Although most literary critics interpret Brave New World to warn of the danger of science, I interpret something subtly but crucially different:  the danger of the state suppressing and commandeering science.

Third, Brave New World exposes the dangers of how the system can institutionalize class and solidify socio-economic barriers.   Mothers no longer give birth.  Instead, embryos are constructed in the lab and customized through chemistry to manufacture people at the desired caste level.  Effectively, children are decanted, from the privileged alphas down to the low-ranking epsilons.  Each person is molded by the hereditary and by the environment of the state-chosen caste.  Babies are not raised by parents but by State Conditioning Centers and are trained by crude Pavlovian methods to hate flowers and books.  The ideal society is described as having the proportion of an iceberg, where 1/9th sits at the top as elite alphas and the remaining 8/9ths are toiling below the water line.

Think about how much of this is present today.

Our public education system in major cities virtually guarantees students never realize their full potential.  Self-determination as to what one does in life is becoming an increasing rarity because of socio-economic obstacles. Science, math, and reading competency are not the focus of education these days. Instead, the exclusive focus is to deaden the minds of students and create a subservient collective that thinks what it is told to think and believes what it is told to believe.  The 1/9th of elites are the alphas above the water line, while the rest of society is kept struggling below the water line.

Fourth, Brave New World reminds us of the perils of loveless sex and promiscuity.  In Huxley’s society, “everyone belongs to everyone else.”  Sex is pursued exclusively for physical pleasure and the idea of a dedicated and committed relationship is viewed as savage.  The character Lenina (Huxley assigned character names in Brave New World to be plays on despots, scientists, politicians, and business leaders) gets lectured by her friend for not being promiscuous enough.  Children are taught “erotic play.”  Family, love, and monogamy are pornographic.  The word “mother” has become a crude obscenity, so profane that to speak it sparks revulsion.

The similarities to today are obvious.  Marriage and the family structure have never been under more duress.  Internet porn and lust have replaced personal intimacy and love.  Topics that not long ago were discussed in high school sex ed class are now covered in explicit detail in elementary schools.  We are learning that free love often ends up in less love.

Fifth, in Brave New World we see what awaits society in a drug culture. The miracle opiate is soma, and it is administered from cradle to grave, with euthanized death set by the state promptly at age 60.  Workers are paid in soma to feed their addiction.  Soma giveth by arresting the aging process, providing an emotional high, and softening depression during tough times or from harsh realities. But soma also taketh by acting as a poison that kills the person over years of use and eradicating individual thought and free will.

Huxley would be shocked at how the various modern versions of soma afflict Europe and America today.  Social media brings mass emotional addiction to children and adults.  Fentanyl, heroin, crack, alcohol, and marijuana are consumed legally and illegally to create physical additions that cross all socio-economic levels, as people seek escape from whatever haunts them.  Imagery of the physical ideal sets expectations at a young age, leading to more and more medical procedures and treatments to halt the natural aging process.

Sixth, Brave New World paints a society where the individual is erased into the collective and where free will and independent thought are vanquished by totalitarian domination.  Imagination and sense of self are dangers. Individual free thinkers who read the banned great works, from the Bible to Shakespeare, are savages of old civilization and are exiled to the wilds.  A popular slogan is “when the individual feels, the community reels.” Another one is “everyone works for everyone else.”  War is waged against the past, when individual rights were supreme.  To be happy, you don’t pick your path; instead you learn to enjoy the path that has been selected for you.

What an accurate portrayal Huxley foresaw of today’s political correctness.

Views of the state are constantly streamed to kids from all directions and across all mediums so that it conforms their minds.  There are parallels to today’s cancel culture, where you must tear down anything traditional that would make one think and challenge.  College syllabuses delete classic works and public square statues of prominent leaders are removed.  Dissenters are not simply ostracized but attacked by the Twitter mob.  And meritocracy, attacked as unfair, is replaced with the unethical injustice of equal outcomes.

Seventh and last, Brave New World demonstrates how such a dystopian society is a result of omnipotent and global totalitarian government.  The World State motto is “Community, Identity, Stability.”  A World Controller determines what information is allowed for public access and consumption, what science is acceptable, and what works are to be locked up and forbidden.  The state figured out that social conditioning was much more effective and lasting than brute force when looking to control a population.

These days, global organizations and accords make one wonder if we still live in a republican democracy.   The United Nations, World Health Organization, World Bank, and G-20 hold more sway over Americans’ pocketbooks, quality of life, freedoms, and decision-making than the U.S. Congress.  The faceless unelected bureaucrat buried within the administrative state holds more power than our elected president.  Domestic regulations and international accords take away more of our liberty in 2022 than any legislation or statute.

The Brave New World Outside Our Doors

In conclusion, Huxley provided a valuable service to the human condition.  He presented in stark contrast two very different views for the individual and society.  Consider two passages from Brave New World as illustrative of the contrast.

First, from the Director, who as representative of the state betrays a hatred for the individual: “The greater a man’s talents, the greater his power to lead astray.  Better for one to suffer than many be corrupted. Murder kills only the individual and what is the individual?  We can make more of them.  Unorthodoxy threatens more than the life of the individual, it strikes at society itself.”

Second, from John the outcast, who didn’t want comfort if it prohibited truth: “I don’t want comfort.  I want God, I want poetry, I want real danger, I want freedom, I want goodness. I want sin.”

Huxley, who passed away on the same day JFK was assassinated, warned us that before we start pining for such a brave new world, we should wait till we see it first.  My fear is the wait is over and it now sits outside our doors.