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There is not a better Manager in the pros than Torre to culture the talent pool the Yankees have. Brian Cashman knows this. So do Hal and Hank Steinbrenner.

Don Mattingly and Joe Girardi are good candidates to take Torre’s place, but they need some more time to ripen. It’s too soon. Guess who they look to for mentoring? Torre. As Yogi said, “you can observe a lot by watching,” and that’s what Mattingly and Girardi will do – that’s how they learn.

The Yankees made an investment in their future this year. By not trading away young talent during the year, they made a statement. The statement was that they were going back to what helped them win big in the mid to late 90s: develop the farm system and let them compete alongside an all-star team of veterans for a spot. Torre is the best Manager to assimilate that talent into day players and bring that investment to fruition.

That education is something a player can’t get on any other team. And this is before the Bronx Faithful in the stands let you know how they feel about you. Remember how they booed A-Rod last year? And he’s the best in baseball…

At the core of this strategy is Brian Cashman, who wanted sole responsibility from Mr. Steinbrenner to make the decisions about player personnel. Now he’s got all his marbles, and all his players. IMHO, I think it was Torre who saved Cashman’s job this year.

Although Torre’s contract is not under Cashman’s control, it is with Mr. Steinbrenner and his sons, Cashman will nonetheless weigh in heavily with Mr. Steinbrenner as will Jeter, Posada, A-Rod, Rocket, and Mo.

The Yankees will most likely face Cleveland in the first round and the Indians are tied with Boston for the best record in baseball. The Yankees have not won the World Series since 2000. They have had two wild-card berths recently in 95 and 97 and neither of those berths ended up with an AL Championship, never mind WS. This is daunting for a team whose ethos states that the season is a failure if they don’t win the World Series.

This is the 12th season in a row that the Yankees have advanced to the post season and bringing the Yanks to the post season from 14 games out with the issues they had this year will weigh heavily in Torre’s favor. The Steinbrenner clan knows that as it translates to additional revenue to Yankee Global, LLC, the holding company that owns The Yankees and YES Network. Torre adds a lot of Alpha to their portfolio.

Torre will sign on for another 2 or 3 years regardless of how they do in October. If Cashman is going to acquire any free agents over the winter break, having Torre back as Manager will be a significant selling point for top talent. Torre showed that he’s as much a Chess Master as much as a Manager.

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The Treasury Department has announced the formation of two advisory groups to determine “Best Practices” for hedge funds. The new advisory groups were formed under the auspices of the President’s Working Group of Financial Markets. One group is comprised of hedge fund investors, the other Asset Managers, and they are tasked with deriving some recommendations by year’s end.

Their main focus should be to look at Portfolio Financing. I’m not so concerned with how Hedge Funds trade or their strategies, but I am interested in what they come up with around Hedge Fund Operations wrt Prime Brokers. Specifically, Prime Broker risk management within their Portfolio Financing/Lending Operations.

Three or 4 Prime Brokers control the majority of the business – it is very concentrated. While a hedge fund might broker trades through literally everyone on the street, it is uncommon for a large hedge fund to have more than 2 Prime Brokers. Trading strategies are less of a concern to me than how they are financed.

Prime Brokers provide hedge funds with enough credit so that a fund may be trading 2 to 10 times nominal capital. How are the loans priced? Computer models are used to evaluate a manager’s strategy and calculate event risk to said strategy in the fund. Financing decisions are made off computer models. IMHO, these models most likely underestimate the chance of an outlier event.

Given that there are only a handful of Prime Brokers controlling a large percentage of the Prime business, the models and the eventual lending are not diversified enough to withstand a cataclysmic shock to the financial system should there be such a Black Swan event. We saw what happened to the markets during the subprime fallout and loans that were priced to models, not the markets. We need to know more about how the Prime Brokers diversify their books. On the outside, it looks like one big trade to me.

A second area with Prime Brokerage to look at is the lack of transparency around Equity Loans.

The Working Group was created in March 1988 by President Reagan in response to the events that led to Black Monday. The Working Group is comprised of The Secretary of the Treasury, and the Chairs of the Fed, the SEC, and the CFTC.

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It is expected that Alex Rodriguez is likely to exercise an Opt-Out clause in his current contract with the Yankees to test the waters of Free Agency. He is currently earning $27MM per year and his agent Scott Boras said that $30MM will be the New New thing.

David Rosenheck concluded in the September 16th Sunday NYT Sports Column, Keeping Score, that the best thing for any team to do, would be to “pass” on the bidding process, save their funds, and continue to develop their farm systems. I couldn’t agree more and I applaud Brian Cashman’s decision to keep our young talent (read Pitching) and not trade away the future for some short-term emotional comfort this year. The baseball Gods have rewarded Mr. Cashman’s decision to sit on his hands at the trade deadline with a Yankee winning streak that has drastically narrowed Boston’s lead in the AL East to 1.5 games.

I take Brian Cashman at his word: the Yankees will not bid on A-Rod, but they will make him a deal that will keep him around because it is in everyone’s best interest. A-Rod is the sport’s most popular player and he’s a star on a team where it’s hard to stand out. He’s a perennial front-runner for MVP. He is 32 years of age, healthy, articulate, and good looking – an advertiser’s dream. He has a wife and a child. He’s making $27MM this year, and I think if the Yankees are pushed, they’ll pay him the $30MM. Yet a raise will not likely increase his quality of life at this point. He knows that. He’s a star and he wants to be on the biggest stage he can. Where’s he going, to Atlanta and TBS?

Yankee Global Enterprises, LLC owns the New York Yankees and YES Network, where Yankee baseball games are broadcast. Like any network, YES does not want to lose eyeballs and the Yankees are a big draw to YES. And they are even bigger because A-Rod is a Yankee. If A-Rod signs elsewhere, viewership on YES will fall. So will the advertising revenue at the network. That doesn’t sound like the kind of thing YES would want as it lowers their franchise value – they want to keep the eyeballs. This is especially true if YES is for sale…

At the pace that he’s going, it is believed that A-Rod will surpass Bobby Steroid’s All-Time Home Run record, once held by Hank Aaron. The longer A-Rod plays, and the closer he gets to the record, Yankee Global will not want to read those headlines in the Chicago Tribune, with A-Rod a Cub. A-Rod might want to reconnect with his former Seattle Manager, Lou Piniella, with whom he is said to be very close. But who doesn’t love Sweet Lou#14 though?

There is a very prosperous future for A-Rod in New York. The marketing value will be too much to give up. He’ll go the way of Michael Jordan and become A-Rod, Incorporated. Manhattan is the single best city to accomplish this, not Chicago or Boston, as much as I like those cities.

A-Rod will go well beyond the endorsement Crown Jewels of soft drinks, athletic shoe, and cars. Hopefully, he will not record an album, but cologne and a clothing line will be fait accompli. He already owns a Mercedes Benz dealership in Texas. Endorsement deals can extend well past a player’s retirement, and A-Rod will mean a lot to the Yankees in his retirement too.

The Yankees will make a deal to keep him a Yankee for the rest of his career. He’ll remain with the Yanks as an owner/coach, following other Yankee greats who became coaches or executives such as Reggie Jackson, Ron Guidry, Mel Stottlemyer, and former Captain, Don Mattingly.

Think of all the talent that Cashman didn’t trade and think of the new talent being brought into the Yankee farm system now. Over the next 5-6 years, they might end up being teammates with A-Rod. The rest, players for him. The impact A-Rod will have on that young talent is immeasurable.

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I am reading Peter Eavis’ great article in FORTUNE Oh, the People You’ll Blame at The Newsroom on Robertson. I was getting a kick out of the number of fingers of blame when a loud, rather corpulent man, interrupted my wheatgrass – shouting into his cell phone….”Well you got me into this property…now…GET…ME….OUT!”

At his moment it occurs to me that the Real Estate Brokers have some culpability in the Real Estate mess and should be awarded several fingers. Here in Los Angeles, folks I know, who had great careers going in other fields, just got up and quit and got their Real Estate licenses faster than you can say “Daytrader.”

According to the California Department of Real Estate, “the number of Real Estate Licenses issued in 2005 soared to a record of more than 475,000 – a 14% increase over the previous year, and a 57% increase during the last 5 years.” With so many newly minted Real Estate Pros getting listings, property values had no place to go but up. My guess is that applications for Licenses peaked near the peak of the Property values.

To my knowledge, it takes a fee, a classroom/hourly requirement, and not too much more to become a Licensed Real Estate professional. And while this may qualify someone to know more than 80% of the general population, calling them Professionals at this stage would be like calling me Jeff Gordon a year after I passed my Learner’s Permit Road Test.

Brokers need property to sell and knowing there was easy money near, made the sales process much easier. The commissions Brokers are paid are based upon the closing price, regardless of how it’s financed. Peter Eavis did a great job of delineating the other charlatans. IMHO, I think the property owners are responsible for their milieu.

In the sales process, someone has to sell the dream of home ownership first. Financing comes next.

Herewith, I nominate the Real Estate Brokers of Los Angeles for 3 Fingers.

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The Fed cut Fed Funds and the Discount Rate by 50 bps each. Most pundits did not think they would cut both, nor did they think they would cut either one as much as they did. The market took this news as being a catalyst to put money to work, Buying Long and Covering Shorts. The indices had big moves today too. It seems that the investment community felt safe, or safe enough, to trade after some very low volume days. But is it safe?

I don’t know a lot about the woes of credit markets these days, other than the fact that I know lenders like a steep Yield Curve, and the Fed is doing everything it can to steepen it. There is such a lack of transparency (integrity) in the marketplace.

My sense is that investors want to trust, but at the same time they don’t want to wake up to an ABN Amro, Sentinel, Countrywide, or Northern Rock – and this is just a partial list. How does anyone know there isn’t another well-known name out there that won’t be the next shoe to drop? You don’t and it’s impossible to predict. I know. I was in business with Refco.

This is a type of dicey negative proposition – that there are no further sub-prime woes. As William Eckhardt said in Schwager’s The New Market Wizards, “Any negative proposition is very difficult to confirm because you’re trying to prove that something doesn’t exist. For example, consider the negative proposition that there are no chocolate cakes orbiting Jupiter. That may be true, but it’s very hard to prove.”

My sense is that cutting rates now to help the lenders is a lot like caring for your teeth between Dentist visits: you can’t start flossing 2 days before your next visit. The damage may have already been done – and the drilling may be inevitable.

From the film Marathon Man (1976) with Laurence Olivier (Christian Szell) and Dustin Hoffman (Thomas “Babe” Levy).

Christian Szell: Is it safe?

Babe: You’re talking to me?

Christian Szell: Is it safe?

Babe: Is what safe?

Christian Szell: Is it safe?

Babe: I don’t know what you mean. I can’t tell you something’s safe or not, unless I know specifically what you’re talking about.

Christian Szell: Is it safe?

Babe: Tell me what the “it” refers to.

Christian Szell: Is it safe?

Babe: Yes, it’s safe, it’s very safe, it’s so safe you wouldn’t believe it.

Christian Szell: Is it safe?

Babe: No. It’s not safe, it’s… very dangerous, be careful.

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