The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

This is the transcript from Friday’s Bloomberg Radio appearance.

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Source: Analyst Wire
This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)

BARRY RITHOLTZ, CEO, FUSIONIQ, TALKS ABOUT THE ECONOMY AT BLOOMBERG SURVEILLANCE JUNE 24, 2011

SPEAKERS: TOM KEENE, BLOOMBERG SURVEILLANCE HOST
KEN PREWITT, BLOOMBERG SURVEILLANCE CO-HOST
BARRY RITHOLTZ, CEO, FUSIONIQ
9:30

TOM KEENE, BLOOMBERG SURVEILLANCE HOST: It is The Big Picture. It is must read by everyone in the Street on the web. Barry Ritholtz with us. We just had on Tobias, really pushing against stocks are cheap. Are stocks cheap right now?

BARRY RITHOLTZ, CEO, FUSIONIQ: They are – it depends on what sort of metric you want to look at and how long a time line you take. If you look at the very big picture – pardon the pun – the long term, the Q ratio, the Shiller trailing ten year earnings ratio, stocks are by no means cheap. They are actually rather expensive.

When you look out on a very short term basis, either trailing four or a forward four, and you look at how earnings have come snapping back from the recession lows, stocks are reasonably priced.

The problem is most people’s time line is not really adjusted to those two differences. If you are a buy and hold investor, this is not really the ideal time to jump in. If you are a trader, there are more opportunities. But given the long term price, the opportunities are fewer and further between.

KEN PREWITT, BLOOMBERG SURVEILLANCE CO-HOST: Well, we had six down weeks. Did it turn up any bargains?

RITHOLTZ: It just took a little bit of that slight overvaluation off stocks and created an environment for a bounce – we came into this week short and covered on Monday. I thought was great until yesterday and the joke in the office was I picked a bad week to stop sniffing glue. And then, you know, by the end of that day that reversal, if you are long or at least not short, that reversal is pretty encouraging to see the market climb.

So just – I know you guys were talking earlier about tech and IPOs, if you look what the Nasdaq did yesterday on a chart, that is a very significant reversal from pretty red to pretty green.

KEENE: It is the Sass power breakfast, folks. We’re here at the Lowe’s Regency Hotel, Park Avenue, mid-town Manhattan. And we thank Sass for their support. Sass, the power to know.

Barry, was your breakfast okay here?

RITHOLTZ: Delightful.

KEENE: They do a -

RITHOLTZ: Worth every penny of the – whatever it turned out to be.

KEENE: Tom Keene, don’t drop the -

RITHOLTZ: Right, I actually have to take a mortgage out for that, right.

KEENE: Barry, -

RITHOLTZ: But the rates are low.

Read the rest of this entry »

Mortgage application denial rates last year were highest in the South and along the Rust belt, according to a WSJ analysis.

Here’s the WSJ:

“The percentage of mortgage applications rejected by the nation’s largest lenders increased last year, spotlighting how banks’ cautious lending practices are hampering the nascent housing market recovery.

In all, the nation’s 10 largest mortgage lenders denied 26.8% of loan applications in 2010, an increase from 23.5% in 2009, according to an analysis by The Wall Street Journal of mortgage data filed with banking regulators.

Although lenders were expected to pull back from the freewheeling conditions that helped inflate the housing bubble, some economists argue they are now too conservative, and say that with the U.S. economy still wobbly, mortgages need to be easier to obtain for qualified borrowers, not harder.

The pendulum swings the other way . . .

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Source:
Tighter Lending Crimps Housing
NICK TIMIRAOS And MAURICE TAMMAN
WSJ, JUNE 25, 2011     
http://online.wsj.com/article/SB10001424052702304569504576405660006330644.html

In this handout photo released by Nasa Earth Observatory on June 7, 2011 and taken from Nasa’s Solar Dynamics Observatory, sunspot complex 1226-1227, shows the Sun unleashing an M-2 (medium-sized) solar flare, an S1-class radiation storm and a coronal mass ejection resulting in a large cloud of particles mushrooming up and falling back down giving the impression of covering an area of almost half the solar surface. An unusual solar flare observed by a NASA space observatory on June 7 could cause some disruptions to satellite communications and power on Earth over the next day or so, officials said. The potent blast from the Sun unleashed a firestorm of radiation on a level not witnessed since 2006, and will likely lead to moderate geomagnetic storm activity by Wednesday, according to the National Weather Service. (NASA)

Source:
Here Comes The Sun

Boston.com, 22 June, 2011

The Contagion Risk of Europe
By John Mauldin
June 25, 2011

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The Contagion Risk of Europe
Will the Euro Survive?
A Greek Coup?
No Good Deed Goes Unpunished
Home Again, Home Again

I am back from Europe. The last three weeks I spent quite a bit of time talking with money managers and investors from a lot of countries, as well as numerous locals about the European situation. This week’s letter is a collection of my thoughts, as I recover from jet lag. I expect the letter will thus be shorter than usual, but hopefully a few pithy comments will emerge. But first…

As you know, I am a firm believer that the state of the global economy is such that we as investors have to be especially agile and focused today. Consequently I spend a great deal of time and effort looking into alternative investment strategies and managers. I’m very pleased to announce that I am relaunching my special newsletter for accredited investors, to share the latest opportunities and pitfalls in alternative assets.

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[[Click here now to register]] and you’ll be part of the summer relaunch of my letter exclusively for accredited investors. In the meantime, enjoy the video presentations and benefit from their wisdom as you plot your investment course. Over time, we will make all the conference videos available to the subscribers of the free Accredited Investor E-letter. Those who attended the conference, or have spoken with an Altegris professional, already have access to all the speeches and panels.

I do not like limiting the letter to accredited investors, but those are the rules under which I work. This is not of my choosing, and I have worked in front of and behind the scenes to try to change what I think is a very unfair rule. (See important risk disclosures below. In this regard, I am president and a registered representative of Millennium Wave Securities, LLC, member FINRA.) And now to the letter.

The Contagion Risk of Europe

Bernanke gave another press conference after the FOMC meeting this week. Taking his time to address the situation in Europe, and the increased urgency of the crisis in Greece, Bernanke said US bank exposure to Greece was minimal and only indirect, via positions in large, core-nation banks in Germany and France. Raising a red flag, the bearded academic said that money-market mutual funds had substantial exposure to those same banks and could take a big hit if push came to shove in Europe. “A disorderly Greek default would have significant effects on the US” economy, he added.

About the only thing there was seeming consensus on in Europe was that Greece will eventually default. The question is when. European leaders, along with the IMF, have caved and will give Greece €12 billion to tide them over while they debate on finding €70-100 sometime late next month. By some accounts that amount will have to be a lot more. Meanwhile, the ECB is adamant that Greece cannot be allowed to default.

The whole process is somewhat akin to trying to help someone who is drunk by giving them another bottle of whiskey. Trying to cure a problem of too much debt with even more debt is simply irrational, and everyone but Europe’s leaders can see that. So why are they doing it?

Because if Greece is allowed to go, there is real reason to believe that the problems will spread rather quickly to the rest of peripheral Europe. By the way, it is not just French and German banks that US money markets have exposure to; there are a lot of Spanish banks that have issued commercial paper as well. And my sources told me that many of the state-owned German Landesbanks are essentially insolvent, with massive amounts of sovereign debt. By the way, another source notes that US money-market funds are not rolling over the commercial paper to some of the banks (like Spanish ones), so there is a liquidity squeeze coming to European banks in peripheral countries.

The ECB has taken on some €100 billion of Greek, Irish, and Portuguese debt, if I remember the number right. They have capital of only about €10 billion. They want to take on even more debt from the banks, as the banks are using sovereign debt as collateral. The whole process is a way to paper over the fact that many European banks are essentially insolvent if they have to mark to market their Greek debt.

I think it is a given that in the near future Ireland is going to tell the ECB that the line item on their balance sheet for €60 billion that says “Loans to Ireland to bail out their banks” should be moved from the line that says loans to the line that says capital. They will simply walk away from the debt. “Here are the keys to your banks. What are you going to do with your banks?”

Let’s assume (generously) that there is only a 50% haircut on Greek debt. Add in the Irish debt, assume a smaller haircut on Portugal, at least initially, and you can easily get to €100 billion in losses for the ECB. That makes Lehman look like small potatoes.

The ECB would either be forced to print money to cover the losses or have a massive capital call to ECB members. Germany is 27% (again, from jet-lagged memory), so their portion would be a mere €27 billion. How do you think that will play with the voters in Bavaria? The ECB was not supposed to take on bad debt, according to its original charter. More than one person speculated to me that Germany might simply use that as an excuse to leave the euro. Not by the current set of politicians running the place but the new set that will be elected when things go bad.

And printing? Not all that good for the value of the euro.

Will the Euro Survive?

We had dinner on Monday night at the home of Hervig von Hove of Notz-Stucki Bank, where I was speaking the next morning. There were 16 of us at the table, and these people represented a great deal of money as managers and investors. All very well-informed. We sat outside in perfect weather in the Swiss countryside. Charles Gave sat across from me at the middle of the table, and we talked and debated as the rest asked questions and offered opinions for 3-4 hours. The wine was flowing, and it was a most interesting evening. Now, with that set-up…

I was asked if I still thought the euro was going to parity with the dollar, and I said I did, although I was not sure what the euro would look like in three years, or who would be in it. There was some pushback from people who thought the dollar would be the weaker currency. So I asked for a show of hands as to how many people thought the euro would be higher in one year’s time. There were 6 hands raised, but one gentleman said he was actually abstaining. So I asked how many thought the euro would fall, and we got 12 hands. Yes, that is 19 votes for 16 people. Clearly there were at least three economists in the group who voted both ways!

Then someone asked Charles about the issue. Now, for those who have never had the extreme pleasure of time with Charles, he is a powerful, white-haired French patrician, and one of the better economists I know. Quite a brilliant thinker and not afraid to express his mind forcefully with a voice that sounds like God talking, with about the same assurance (note to self: never again follow Charles on a speaking stage).

“The question is entirely irrelevant” – punctuating the air for added emphasis. “The euro will not exist in a year. The whole thing was dysfunctional from the beginning.”

I suggested that was a tad bearish.

“Not at all. I think it is extremely bullish. The demise of the euro and the return of national currencies will allow for proper allocation of investments and resources. It is the best thing that could happen for the markets.”

I could not get him to commit to exactly how that process of dissolution would look.

“I didn’t create the euro so it is not my responsibility to solve the problem for them.”

But I cannot help but think that any exit by anyone from the euro will be disorderly, giving rise to Bernanke’s “significant effects.” Many European banks are simply not solvent if there are major sovereign defaults. The US banks have sold some $90 billion in credit default swaps on Greek, Irish, and Portuguese debt to European banks. That is supposedly balanced with other purchases of CDS, but my sources say that much of that insurance is from German Landesbanks. Yes, the same ones I mentioned above that are basically insolvent. We are joined at the hip to Europe. A European recession would certainly be felt here. And a credit event could cause the same problem as in 2008, as banks start to refuse to lend to each other again. Ugh.

The potential for a real crisis is far too high for comfort. It would mean another recession for sure, with the US already close to stall speed and global growth slowing. I hate to sound alarmist, but I am worried. Absent a problem in Europe, the US should be fine, if slow. And maybe European leaders can stall the crisis off longer, buying time for banks to move their debt to the ECB and raise capital. We have to really keep our eyes on this.

At some point, Europe needs to realize that the problem with Greece, Portugal, et al. is not illiquidity, but that they are insolvent and have few prospects for economic growth anywhere close to what is needed to solve their problems.

Europe would be better off just taking the money they are giving to Greece and using it to recapitalize their banks. Let Greece go. Give it up. Let them enter a 12-step program or whatever it is that insolvent nations do. That is harsh, but it is also the truth.

But there are very sad things going on. It is not just banks that are losers here. Pharmaceutical companies are starting to refuse to deliver to Greek hospitals, as they are up to two years behind on their payments. It turns out that Greece owes some €6 billion to private businesses like hospitals and simply cannot pay. Those costs are rising, and much of it is to hospitals for medical care supported by the government. They are issuing bonds (shades of California) for the debt in some cases, which sell for a discount of 50%, if they can be sold. And we thought finding €12 billion was a hard thing.

This is not just a Greek problem, it is a concern in many countries that are having financial difficulties.

A Greek Coup?

Now, time for some speculation on my part. For Greece to leave the euro, the politicians would have to make a rather serious decision. That will not happen overnight. The minute there was any speculation or a “secret” meeting of Greek leaders to discuss leaving the euro, the run on the banks would be massive and fast. It would all come down quickly.

To go back to the drachma would require a bank holiday for a week, and it would have to be a surprise move. About the only way for that to happen would be a military coup coupled with a bank holiday and promises to return to elections after the currency issue was solved. The current government does not have the votes or the power to declare a holiday and move to the drachma, or at least they don’t as I read it. Just a thought.

No Good Deed Goes Unpunished

Switzerland was irrationally expensive. Small Diet Cokes at the Mandarin Hotel were $12. That is not a typo. I get a full 12-ounce can on sale here for about $.25. A casual meal, not particularly outstanding, was easily $100. Taxis are outrageous, with a one-mile trip costing up to $70.

In the category of no good deed goes unpunished, the Swiss are suffering such high prices due to managing their country responsibly. Everyone wants the Swiss franc. It was about $1.20 for one franc. I remember when it was $.25. Then again, so was the German mark.

In the Biggest Loser category, the award for the central bank that made the worst trade in history goes to Switzerland, with losses of 21 billion francs in 2010, trying to keep the value of the franc down against the euro. That’s about $25 billion at today’s valuation.

Home Again, Home Again

I have been gone for 31 days, and it is good to be back home. And I am home for much of the next three months, at least the way it looks now. I have a speech at the Agora conference in Vancouver late July, and my annual trip to Maine to fish with my son at David Kotok’s event (with so many friends) in early August (which I will likely combine with a few days in New York). And not all that much travel in September, though that could change. That really sounds good right now, as I have almost 100,000 miles on American Airlines alone this year. I hope I can cut that down to about a third for the last half of the year.

Kiev was amazing. I don’t know what I was expecting, but what a vibrant place with lots of things going on and building everywhere. Our host, Andy Bain, came to Kiev in 1992, fresh from Yale with an MBA. He started going east in Europe and kept finding too many MBAs to compete with, until he got to Kiev. He now has some 20 companies and is quite successful.

He invited us to his annual company picnic on Saturday, at a lake park outside the city. There were about 200 people there. The unusual thing was how young the group was. I remarked on that to his CFO, who is only 38 himself. Who are all these young girls and guys?

He pointed them out: “This girl manages that company and that one has this account…” One woman started out as a receptionist two years ago and is now managing three national advertising accounts. I looked around. The only “gray hair” was the expatriates. It turns out that when Andy started, he had to hire young people who were trained under Soviet management styles and who would work. They were right out of college, and as the business grew they simply got promoted fast. Andy was essentially training a new generation. This was also an alumni picnic, so many people came who had been trained at his companies but now run other operations. Quite the eye-opener.

My son Trey had a great time, with so many young ladies in bikinis. Kiev may have the most beautiful girls of any city I have ever been to. I think Trey is thinking of learning Russian, which many of them spoke. He is certainly begging to go back. It was fun to have him on this trip. But for Dad, the best moment was when he said, “I have to learn another language. I don’t want to be stuck in the US all the time.” Italian? French? He now gets it. It made the whole trip worth it. I wish I had figured that out at 17. I truly regret not being multilingual. C’est dommage.

It is time to hit the send button. I have to start in tomorrow on the 400 emails that are still in my inbox. I owe a lot of people responses and will work hard to catch up, plus I have some writing to do, etc. While I love the internet and it has been very, very good to me, it has also got me busier than at any time in my life. But who’s complaining? It is a fun life! Have a great week.

Your happy to be home analyst,

John Mauldin

John@FrontlineThoughts.com

Some reads for the rest of the weekend:

• Taking wrong lessons from the banking crisis. (David Olive’s Everybody’s Business)
• The Great Corn Con (NYT)
• Whither Greece? (Truman Factor)
• Austerity Is Already Here, and It’s Killing the Recovery (The Atlantic) see also Mr Keynes and the moderns (Vox)
• Madoff Trustee Demands $19 Billion in Damages (Bloomberg)
• Why Do Airlines Always Lose Money? Hint: It’s Not Due to Taxes or Fuel Costs (Freakonomics)
• Silly Liberals and Their So-Called “Facts” (Plain Blog About Politics) see also If Congress Does Nothing, The Deficit Will Disappear (Talking Points Memo)
• Scorecasting: Swing for the Fences (London Review of Books)
• Misfires in Marketing at BlackBerry (WSJ)
• Practical Tips on Writing a Book from 23 Brilliant Authors (Neuro Tribes)

What are you reading?

Saul Doctor, JP Morgan research analyst, walks Tom Keene and Ken Prewitt through the complexities of credit default swaps on Greek government debt and why some short Greek paper may actually be a good buy.

Q: Tell us the distinction between actual government bonds and credit default swaps. What is the the relative size of peripheral Europe’s bond market and the credit default swaps on this debt?

A: If you look at the notional outstanding on Greek government or government bonds – CDS on government bonds throughout the western European sovereigns
- and compare the sort of net notional of CDS contracts versus the actual sort of net amount of government bonds that we see outstanding, you are probably looking at somewhere in the region of sort of one to about five percent of the actually outstanding of sovereign bonds, which you see in the CDS market.

Q: Well, how does that compare to the worries that we had over AIG? Is there a parallel or is it a different kettle of fish?

A: I think the outstanding you see in
government bonds is significantly bigger than what we see in the CDS market. In corporates, it is sometimes different. In corporates, you can see up to kind of 20 percent, sometimes even 100 percent of the notional of outstanding bonds. You can see a similar amount in the CDS market. But when you are talking about sovereign bonds, the CDS market is significantly smaller, the volumes are much less, and relative to the liquid government bond market it is just a lot smaller.
It does get obviously a lot of attention and many of the holders of sovereign CDS are fairly vocal in their views. But if you actually look at the numbers, it is a pretty insignificant market.

Q: Should the IMF, the various institutions in Europe manage this crisis focusing on the bonds? Or should they focus on the elites that hold those derivative instruments?

A: It is important to focus on both really.
As I said, you know, CDS is very small. In the case of Greece, it is probably somewhere about sort of one to two percent of the notional outstanding. But the holders of those CDS positions can be fairly vocal in their views. You look at corporate treasurers and how they have dealt with these problems in the past. And in many cases the amount of CDS holders is obviously bigger. But it is a very kind of easy group of people to get onside if you are going through any restructuring offer.
All you have to do essentially is create a CDS trigger and all of those bondholders who also hold CDS against those positions will pretty much be happy to sign up to whatever restructuring you are going to offer because as long as they get their CDS trigger, they know they are going to get asset par. So I think in the government bond world as well, it is worth kind of taking that into account that CDS holders will be encouraged by any restructuring offer that is presented to them as long as they can trigger their CDS contract. At the same time, I don’t think governments are going to care that much because at the end of the day, it is a pretty small percent of the outstanding notional.

Q: This problem with Greece surfaced
about a year ago. Was the market predicting it? Could you see price movement well in advance of the efforts to bail out Greece last year?

A: You saw it both in the CDS and in the bond market. CDS spreads were widening, and government bond yields on Greece versus Germany, for example, were also increasing. To say that one market spotted it earlier than the other, I am not sure. But you definitely saw both markets widening out and showing there was a lot more risk for a default in Greece and other European sovereigns as well.

Q: Would you buy Greek paper here with
those wonderful yields?

A: You’ve got to be a bit careful about
what maturities you are looking for. You know, probably some of the short dated stuff is going to be okay. But the longer dated stuff might see some significant write downs. It is a difficult question at the moment. You are basically taking a punt on European legislators and regulators and how they think the best outcome for Greece and Greek government bonds is.
So it is not really kind of market trading, it is really kind of trying to trade political will at the moment.

(This interview was condensed and edited.)

Source:
Bloomberg Brief/Economics 6-22-11

click for ginormous graphic

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Source:
World’s wealthiest people
Jill Treanor
Guardian, 22 June 2011
http://www.guardian.co.uk/business/2011/jun/22/worlds-wealthiest-people-now-richer-than-before-the-credit-crunch

Source: Kurt Vonnegut Interviewed on NPR Inside Second Life

This is last weekend’s Washington Post column, originally published: June 18

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7 life lessons from the very wealthy

By Barry Ritholtz, Published: June 18 | Updated: Friday, June 17, 9:45 PM

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“Money won’t buy happiness, but it will pay the salaries
of a large research staff to study the problem.”
-Bill Vaughan

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Please excuse the very wealthy for feeling a bit under siege lately.

Taxes for the top 2 percent are very likely to go higher. Uncle Sam’s share of capital gains and dividend income might rise, and means-testing for Social Security and Medicare is probable. In the United States, the very rich hold most of that wealth in dollars, which are worth increasingly less. As income inequality has grown dramatically in the nation, the very wealthy are blamed for all manner of social ills.

Rather than pile on the wealthy, this week I’d like to approach the subject of money a little more philosophically. There are surprising insights to be gleaned from the experiences of the very wealthy regarding their investments and experience with wealth.

Some context: In my day job, I come into contact with very high-net-worth individuals. These include young technologists with modest portfolios to families that measure their wealth in nine and 10 figures. For the math-averse, that’s hundreds of millions to billions of dollars.

Over the years, I have had some fascinating conversations with people who have hospitals and graduate schools named after them. I’d like to share some of the things I have learned from these folks.

1. Having money is better than not having money.

Sure, this may be obvious, but let’s get it out of the way upfront. Money may not buy you happiness, but it buys many other important things. Like financial security, excellent health care, education, travel and a comfortable retirement. In a word: freedom.

2. Don’t become “cash rich” and “time poor.”

Devoting all of your waking hours to making money is a problem, especially in professions with a partnership fast track. Lawyers, doctors, bankers and accountants can get so caught up in the competitive nature of their jobs that they lose touch with their family. Any semblance of a normal personal life disappears, and a very unhealthy balance between work and home can develop.

Work is the process of exchanging your time for money. Remember: What you do with your time is far more meaningful than the goods you accumulate with your money. If you are working so much to become rich but you ignore your spouse and miss seeing your kids grow up, you are actually poorer than you realize.

3. Memories are better than material objects.

You may be surprised to learn that among the monied set, expensive cars, yachts, houses, jewelry and watches come at the end of the list.

Their priorities? Memories and accomplishments. This was especially true when it came to family. Toys matter less than good times.

The rule of diminishing returns is a harsh mistress with luxury goods. Do you really think $100,000 audio speakers sound 20 times better than a pair of $5,000 speakers? (They don’t). Is a $250,000 sports car five times faster than a $50,000? (It is not). These days, you can buy quite a lovely home for $1,000,000 (and much less in the country’s interior). Those $10,000,000 manses are not 10 times roomier. Anyone who has owned a $10,000 Rolex will tell you that a $39 Casio keeps better time.

When discussing the benefits of wealth, I have heard again and again about amazing experiences, family get-togethers, vacations, shows, sporting events, weddings and other events as these people’s most important life experiences. While these things cost money, nearly every family can afford reasonable versions of them.

4. Watch your “lifestyle leverage,” especially early in your career.

Those partnership-track careers? The dirty little secret: Those firms love to get their young employees leveraged up. They will even help you get that way, co-signing mortgages for big houses or even directly lending you the cash on favorable terms.

They encourage up-and-comers to spend extravagantly; they extend lines of credit to their rising stars. You need a big house with a jumbo mortgage; you cannot pull up to a business meeting in anything less than the best luxury car. It is part of their corporate culture.

Isn’t that nice of them?

Not really. The big banks, investment shops, law firms and accountants have learned how profitable it is to have “golden handcuffs” on their best employees. These highly-leveraged, debt-laden wage slaves will work harder, put in longer hours and stay with the firm longer than those debt-free workers.

Besides, overleveraged employees do not leave to work at a new start-up or a smaller, more family friendly competitor.

You recent graduates: Remember this when you are offered credit on generous terms. Your leverage is your detriment.

5. Having goals is incredibly important.

I have a friend who is a serial entrepreneur. He was a board member in a household-name dot-com from the 1990s. He sold his stock — too early, I warned at the time — for $30 million. (It would have been worth $90 million a few months later.)

But that didn’t matter to him — he planned to use that money for his next company, which he promptly built and sold for $250 million. He rolled that l into his third venture, which he cashed out of for a cool $1 billion. His long-term goal, and the ability to execute that vision, are what led him to incredible success.

He once said something that has stayed with me: “I am always surprised at how many people have no goals. They simply let life’s river flow them downstream.”

There is a Latin phrase associated with military actions: “Amat victoria curam.“ It translates as “Victory loves careful preparation.” You would be amazed at what you can accomplish with planning.

6. You must live in the here and now.

Goals are important, but don’t miss out on what is happening today.

This is especially true among entrepreneurs, corporate execs and Type A personalities. Do not let dreams of that mansion on a hill prevent you from enjoying the home you live in.

This is an area that can easily veer into cliche. Rather than risk that, I’ll simply remind you of what John Lennon sang in “Beautiful Boy”: “Life is what happens to you while you’re busy making other plans.”

7. It helps to be incredibly lucky.

I am struck by how many very wealthy people I know — especially tech entrepreneurs – have expressed being grateful for their good luck. Again and again, I have heard the phrase: “Being smart is good, but being lucky is better.”

Rather than leave you with the impression that success is simply a roll of the dice, I am compelled to remind you what the Roman philosopher Seneca the Younger was reputed to have said: “Luck is where preparation meets opportunity.”

I don’t know whether it’s better to be smart or lucky, but I would suggest that making the most of the opportunities takes more than just dumb luck.

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Washington Post reader comments here (164)

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Ritholtz is chief executive of FusionIQ, a quantitative research firm. He runs a finance blog, The Big Picture.