Meanwhile, greedy creative financiers, who provided the products and services that gave the public what they wanted only fanned the fires that were already brewing.

And since 1988, the policies of George Bush I, Bill Clinton, and George Bush II have only exacerbated the situation and created the now infamous sub-prime mortgage problems that have led to the downfall of many financial institutions.

I’ll give you a personal example of how the financial market has become clogged…

The Runaway Hedge Fund Industry… From Growth Explosion To Market Meltdown

When I was active in the hedge fund industry in the early and mid 1990’s, there were fewer than a couple of hundred funds.

Since then, however, the industry has swelled enormously - and now contains more than 10,000 funds.

And such huge growth in numbers has resulted in equally massive growth in assets, mushrooming from $500 billion to $2 trillion.

Even when I was in the market, it was extremely difficult finding the portfolio managers, analysts, traders, and others, who could manage and run a successful hedge fund that investors were willing to pay a premium for superior performance.

So it stands to reason that with all the newcomers in the market, there are even more who are unable to achieve this and are wilting under the pressure of a severe market downturn.
Don’t get me wrong… most hedge fund managers are very bright. But they simply lack the experience of seasoned veterans. And we can attribute much of the stock market’s recent weakness to the enforced selloff of stocks from fund partners and the lack of buyers in the market. It then becomes a vicious, self-perpetuating cycle, born from fear and a crisis of confidence (as Richard Fuld, CEO of the now-bankrupt Lehman Brothers firm testified before Congress yesterday).

How the heck do you invest in an environment like this?

The Analytical “Double Play” That You Should Be Using For Your Investing

Simply put, fundamental analysis should be at the root of any investment decision. Combined with technical analysis and the current price of an asset, investors should then be able to make informed, intelligent decisions.

However, during severe market corrections, rational thinking gives way to psychology and perception. Or put another way… fear and greed.

Consequently, since this isn’t accurately quantifiable, making predictions becomes much tougher. Nevertheless, that’s our business! So while I confess that I don’t yet see a real bottom in the near-term, the market is deeply oversold, which suggests that we could get a significant rally at any time.