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Book Reviews

"This is a great book for novice and experienced traders. Soaking up its wisdom distilled from experience and introspection will help you become more successful. And that's true even if it doesn't make you a penny." --Aaron Brown, AQR

If you are in an MBA, CFA (or CFP Program for that matter) and are headed to Wall St. with your credentials thinking you’re going to be bullet-proof, quit while you can and save a lot of money. You don’t need them – they are useless. You need a high degree of Emotional Intelligence to manage risk or to trade. This type of intelligence was totally absent from the CFOs resumes of the major Wall St. banks. Unless you have Emotional Intelligence, no degree or designation is going to help you. You will shy away from being an individual or from being unique. You will be relegated to those that want to fit in.

You figure that at least one of the Street’s CFOs would have said, “Uh, we have way too much exposure here and we need to pull back. The trade was good while it lasted, but now we need to be proactive and at least sell this shit to someone else.” A good trader knows not only when to get in and when to get out, but what the right position size is for the level of heat he can withstand.

Why didn’t they do something? They were scared to stand out from the crowd and do something different.  The sad part is, they were scared to feel their own feelings and do something about it for themselves. Not only did they fail in protecting shareholder wealth, but they were not honest with themselves either. They are the bleating sheep now.

IMHO, the CFOs should go back to their respective Alma Maters and demand a refund. All the big-named schools and all the the bullshit designations didn’t mean shit. They are shit.

The next time a recruiter or headhunter tells you that you need a terminal degree or designation, tell them that you want to be different from the rest of Wall St. and have integrity by NOT getting one.

It’s all about how you feel and how you put those feelings to work.

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Tom Cruise is first in line to get the new Ducati. He must feel the need for speed. Unfortunately, here in LA there aren’t too many roads for him to open it up on because we live in a perpetual state of traffic. It is said that rush-hour starts at about 5 am and runs to 4:59 am the next day. It’s always rush-hour here.

Cruise, who looked really pissed at the SAG Awards the other night, has been the talk of the internet as Videos of him vamping on Scientology spread as fast as something like this would. My guess is he had that in the back of his mind at the SAG Awards and he knew everyone else was thinking about it too, so he felt like a big idiot.

I watched one of these videos, the one where he said “Being a Scientologist, when you drive past an accident, it’s not like anyone else. As you drive past, you know you have to do something about it, because you know you’re the only one who can help.”

I was going to take the road test for a motorcycle license a few years ago and someone who I respect a lot said to me “there are two types of motorcyclists: those who have been in accidents and those who are going to be.” I never followed through with the license.

I hope for Tom’s sake, if he ever takes a spill on his new Ducati, which I hope he doesn’t, that a friendly neighborhood Scientologist is nearby to take care of him. They’re the only ones who can really help.

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Gold as a commodity has gotten a lot of press recently, most likely because it is running at very high prices. It also has enjoyed a 50% increase in the last 6 months or so, so everyone is talking about it.

I’ve seen several television commercials that talk about taking advantage of the recent up move in Gold. From what I can see, the commercials aim are to take advantage of investors who don’t know better. If you are to invest in Gold, you gotta buy Gold. For the most part, that comes in 2 forms: Gold Futures contracts and their respective Options, or streetTRACKS Gold Shares (NYSE: GLD).

I don’t believe that gold coins are the best way for you to play the gold move. I have a gold coin collection myself. Mint Double Eagles from the early 1900s to be exact. They are beautiful and they are now family heirlooms. But they are collectibles, not investments. Gold coins will appreciate the more rare and more precious they become, not by the rise or fall of gold itself. Don’t be a fool and buy Gold coins thinking that you’re in on the gold move. You’re not. Buy them as gifts for you kids. They’re nice and they look pretty.

From Silence of the Lambs

Clarice Starling: Your anagrams are showing, doctor. (She circles the cage, still keeping him in view) ‘Louis Friend…?’ ‘Iron Sulfide.’ Also known as fool’s gold.

Hannibal Lecter: Oh Clarice, your problem is, you need to get more fun out of life.

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I’ve been following all the banks and brokerage firms and how much they’ve been writing down. It seems that there are Billions more to come beyond what some have already written off.

One major bank has written off about $8 Billion and has as much as $10 Billion more. And that might not be the end, only what they can do within the guidelines of NOT becoming insolvent or putting their balance sheets out of Compliance with the Regulators.

I am a big movie fan – all types – Hollywood and Bollywood. I remember, being a huge fan of Dustin Hoffman, watching a movie he’s in called Ishtar. It also starred Warren Beatty in case you didn’t see it. The movie was so horrible, I wondered afterward, “how bad were the scenes that they cut out?” My god…

Likewise, things in the financial sector are beyond bad. And, how can you trust the guys that run them now? They are worse than Cheaters.

I wonder, how much worse could these banks be had they left their respective CFO posts VACATED for the past 2 years?

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Stanley O’Neal, the CEO of Merrill Lynch is under scrutiny for a “major breach in corporate protocol.” His Board is upset that he allegedly discussed merger talks with at least one other firm without their knowing or approval. I’m not sure he needed either, but either way, they are upset. I guess they are going to show him.

The Merrill board is delusional. There seems to be some pretty big financial dudes on the Merrill Board. It seems they are more keyed in on protocol and Sarb-Ox than Risk Management.

Merrill, like all other firms in the sub-prime space still cannot evaluate their risk exposure. On a conference call recently, O’Neal could not put a number on how high the writedown from subprime losses will be in the next Quarter. I’ve seen various reports that estimate it anywhere between $3 and 5 Billion. Dishoom.

I think a bigger concern is that the risk management models that got them in trouble in the first place are still in use. VaR models and the phrase “marking to the models” work well in normal circumstances, but what’s normal anymore? Subprime slime has redefined Tail Risk. The Merrill Board should take a look at Risk Management and the leadership there. Changing captaincy on the Titanic after it hit the iceberg would not have helped, but it might have felt good. Icy!

When Traveler’s Group bought Solomon Bros. and ruined them by canning the entire Prop Trading Group, there was a small benefit – it eliminated the uncertainty of the variance of returns derived from their operations. Sanford was no idiot. He wasn’t going to take one in the “fat-tail” by something he didn’t understand or couldn’t quantify.

The Board of Directors of Merrill Lynch would be doing shareholders a much better service by getting their hands around the subprime morass (or is it more-ass in this case?) instead of effecting a hairtrigger response that feels good emotionally, and looks prudent politically, by canning O’Neal when the real risk to their entire operation is still thriving on their books.

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