This year has already been the worst in at least a decade for the $2.5 trillion hedge-fund industry, associations say. But last week's collapse of Lehman Brothers and an unexpected, temporary ban by the Securities and Exchange Commission on the short-selling of financial stocks -- a widespread hedge fund practice that bets a share price will fall -- sent shockwaves through the industry. Several funds are now teetering.
Unregulated and secretive about their trading strategies, hedge funds have enormous sway over the markets. Industry groups say they are responsible for more than a third of stock trades. Some market analysts worry that a collapse of a major fund could shake confidence in an already fragile financial system.
Losses from hedge funds may also quickly spread to other segments of the investment world. In 2007, pension funds had about $76.3 billion in hedge funds, up from about $50.5 billion the previous year. Endowments have invested about $75 billion, according to a recent study.
Sit on your money for now; it's not a good time to buy anything. Right now, cash is king.
I expect the DOW to hit close to 9,000 before we see any basement buying, and that may take until late next year when the sub-prime mortgage lenders have cleaned out their books - but 9,000 is the magic number for me. I'm holding off until then, because I sold some funds when it was up at about 14,000 knowing we were headed for this bear.
I do look at history; all 73 years of it. Do you know what happened before the current school semester? Many didn't buy what they usually buy for their children as in past years. Families are cutting back where ever they can.