What's ailing Wall Street?

Over the past week, lots of people have called and emailed me to ask what's causing the crisis in the markets. It's simple: Arrogance.

Arrogance is what has brought extremely powerful Wall Street firms to their knees, wiped out billions of dollars in assets, and lost thousands of people their jobs. It is arrogance that is the root of the crisis in the credit markets, what has caused all of this havoc over the last few weeks, and what will probably cause it to happen again sometime in the future.

As I wrote last week, there was so much news and information being thrown at me that my head was spinning. Well, I'm pleased to say that spinning has stopped. Just like the cause of today's troubles, the solution was simple: Turn it off.

The TV is off, I've cancelled my newspapers, and I've stopped surfing the web trying to figure out what is going on, what happened and what is going to happen. I have made my life much simpler and I love it.

Things are starting to get back on track and as we slowly make our way through the weeds, as we end of one of the most treacherous, tortuous and tumultuous weeks ever to hit Wall Street, there is one thing that we’ve learned. What we have learned is that the sun will always rise, and there's still going to be a line at the Lincoln Tunnel during rush hour.

So, here’s what I think you should be doing and thinking about if you’re thinking about during the next few weeks: Nothing. Don’t do a thing. Relax. Take a breath. Go outside for a run. Play with your kids if you have some. Try to make some if you don’t. Just try to enjoy yourself. Because tomorrow is going to come and things will get better. The tide is going to turn and you need to be ready.

Hang in there, stay focused, pay attention and remain calm. The times they are a changin'. It may take some time, but change will occur and all will once again be right on Wall Street and Main Street.

In other news, we finished HedgeAnswers this week. It was quite interesting and a lot of fun. The roundtable discussions were engaging, and panelists provided thought-provoking strategies for creating and launching hedge funds both here and abroad. If you didn't attend this year’s events, look for information about HedgeAnswers 2009 some time after the first of the year and get the dates on your calendar so you don’t miss these great programs.

HedgeAnswers chooses McCain for President!

At recent events in Chicago and Philadelphia, participants in HedgeAnswers 2008 chose John McCain over Barak Obama for President. All participants voted in a mock election with the results overwhemingly going to the McCain-Palin ticket. Voters cast their ballots in secret and while not completely scientific, it was clearly done in a way to avoid any issues of impropriatey.

For more information on the results or the events please get in touch.

Look for a blog posting tomorrow regarding recent market turmoil and economic events. Thanks as always for your continued support and interest in my work.

Stay Alert...

It is a very interesting time to be working on Wall Street. History is being made almost daily and all of us are witnessing it first hand. Buckle up, the ride is about to get wild and it is not going to stop anytime soon.

We are entering uncharted territory. Be afraid, be cautious, stay alert and pay attention. Focus during difficult periods is what will allow you to weather this and other storms.

Since things are moving so rapidly, I have decided to spend the next 48 to 72 hours collecting my thoughts and will publish a full post on Thursday. In the meantime, be careful what you read. The news is bleak but all is not lost. There are great days ahead. We will get out of the weeds. It will take some time, there will be some more blood in the streets but before we know it, the world will be right again.

Remember this - markets are efficient and always correct for price and value.

Stay alert - it is the key to success...

On another note, HedgeAnswers 2008 ends Tuesday in Philadelphia. Try to make it, the conversation will be extraordinary, thought provoking and worthwhile. Register at www.hedgeanswers.com

Blame the cocktail parties and managers!

I know it’s a cliché, but I’m going to write it anyway: I’m mad as hell and I’m not going to take it anymore.

I really just don’t know what else to say about what’s going on with hedge fund performance this year. The third quarter of 2008 is quickly coming to an end, and for the most part, hedge fund performance is abysmal. It looks like both the equity and fixed income managers are taking it on the chin. I have seen some funds down over seven percent, some down more then 20 percent and a number somewhere in between. The numbers are all over the map and really very poor.

It’s like a grisly car accident: I now for the first time in my life understand why people rubberneck on the highway. I can't throw my hands up in disgust, I can't turn off the television, I can't turn off the radio, and I can’t stop reading newspapers, because I just can’t get enough of it.

Unfortunately, it doesn’t seem likely that the tide will change anytime soon. There are a lot of people out there masquerading as hedge fund managers who, in reality, are doing nothing more than running expensive mutual funds. Simply put – they are not hedging!

I don’t blame these managers, though. They wouldn’t have assets if they did not investors making investments.

That’s right: I blame the investors, specifically unsophisticated investors. It is their fault and theirs alone. These people all want to have a bit of the apple – the forbidden fruit. Well guess what, there is a reason it was forbidden. It’s a bit of the reverse of the Garden of Eden story: In the case of hedge funds, the fruit is forbidden until you have the knowledge necessary to eat it.

But that’s not what unsophisticated investors want to hear. Every time, I go out to a cocktail party or every time I go out to an event, all I hear about is hedge funds. First the conversation is about how speculators are driving the cost of oil through the roof and wreaking havoc in the stock market. Then the name game starts: Who do know? How can I get access to that fund?

Having a the cash and the name of the hot new fund isn’t good enough. In fact, it’s probably going to hurt you. Hedge funds operate in the ether. Therefore it's much more difficult to determine if there is any real value in investing in a particular hedge fund. Forget the hot name. Read the documents and perform due diligence. Ask questions and get answers – understand what is going to happen to your money once it is wired into the fund’s bank account.

So, as the third quarter draws to an end, and you're thinking about your plans for 2009, all I can say is remember to perform thorough due diligence. Find out if it is worth it. Gather as much data about any given fund manager from multiple sources.. Review the audit; get a background check on the manager. Talk to other investors. Ask questions and make sure you get answers. It is your money make sure you know what is happening to it!

HedgeAnswers Chicago is Monday. It’s going to be great. I hope to see you there. Learn more at www.hedgeanswers.com.