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May 22, 2004

The Sleaziest Journalism on Earth
by John Mauldin

This week we explore the problems with generalizations and assumptions. We will use as the launching point a rather poor piece of sensationalistic journalism from an otherwise excellent magazine. We look at the problems, costs of and the drive for the regulation of hedge funds. And I offer what may be a controversial opinion or two. This is not my usual gentile style, as I take the gloves off.

Let me note upfront that this issue is going to deal with hedge funds. Long time readers know that this is my economic backyard where I make the main part of my living. Normally, I do not discuss this specialized part of the economic scene in this letter, except in oblique references. I try to use this weekly space for general education and thoughts on the markets and investing.

However, the authors of the cover article for the latest May 24th issue of Forbes, "Hedge Funds: the Sleaziest Show on Earth" offer us such a wide open opportunity to study the foibles of financial journalism, that we simply must take it. It reminds me of the World War I story about how the famous German General von Kluck (his real name) decided to forego the original plan to capture Paris, which was laid our before him like a jewel. Noticing the French army appeared to be in wholesale retreat, and perhaps panic, he decided to try and crush the French army and win the war decisively and early.

Actually, they were simply retreating in good order. Noticing that the Germans were extending their lines, General Galieni uttered his now famous line, "Gentlemen, they offer us their flank." The French attacked and won the day and the war extended for years into mud, death and weapons of mass destruction here-to-fore unleashed upon the world.

While the writers at Forbes offer us their flank, hopefully my "attack" will not yield so dire a result. But it will provide an opportunity for education, and maybe a little amusement.

Three quick points before we start. First, I like Forbes. It is one of a very few financial magazines to which I subscribe. Steve Forbes, the publisher, has been a stalwart in the movement for free trade and open markets for many years, and I have a very high opinion of his work and analysis. I do not believe this article is in keeping with his philosophy, or that of his publication in general.

Secondly, this will not be an apologetic tome for hedge funds. They are not investment nirvana. The Forbes article pretty much rehashes all the tried and true old anti-hedge fund bromides that we see from time to time in mainstream journalistic endeavors. In the interest of moving on, I offer a few more realistic critiques and problems with hedge funds that future writers might explore rather than visiting old sensationalist stories and half-truths. Investors might well decide that hedge funds are not appropriate for their portfolios, but not for the reasons that Neil Weinberg and Bernard Condon suggest.

Third, while it should go without saying, this letter is entirely my personal opinion. When I make judgmental statements and acid comments, you should insert "in my opinion" before the sentence. Rather than doing it 40 times and annoying you, gentle reader, I do it for the letter at this one instance.

Let's set the table, for many of you have not read the article. The cover screams at you, with a carnival barker in the middle: The Sleaziest Show on Earth: How Hedge Funds are Robbing Investors." In the article, they list some hedge funds frauds (a grand total of eight, stretching over multiple years to find them), site some very iffy "research," and generally assume that because hedge funds have fees that are higher than mutual funds, they are robbing investors. The conclusion is that only naive investors would invest in hedge funds, and should look to mutual funds or stocks for value and returns.

So Many Targets, So Little Time

The writers of this article at Forbes conveniently provide so many easy targets of opportunity, that it is hard to decide where to start, so we will start where they do. They start with a list of investment frauds, only a few of which might legitimately be called a hedge fund, and list others throughout the seven pages. I count 8 separate frauds, with investor losses of $1.03 billion, give or take a few dollars. The bulk of that, $971 million was in two large funds, Lancer and the defectively named Safe Harbor Fund from Beacon Hill. The other six funds averaged losses of less than $10,000,000.

Many points. First, three guys (two of them students) raising $400,000 is not a hedge fund. It is a car on a way to a train wreck. Tarring a $1 trillion industry, laden with sophisticated and highly trained managers, with that brush is insulting to any intelligent investor. Later in the story, Neil and Bernard appropriately site the two private investigation groups that are routinely used by the hedge fund industry. They note that up to 20% of the fund mangers they investigate have some item in their background which does not check out, mostly degrees never earned or jobs and titles never held. 20% sounds like a lot, doesn't it? Frankly, it is.

But that is the point. A routine background check - or even Google - would have highlighted that some of the people involved in the frauds were banned from the investment industry or had seriously checkered pasts. Simply verifying brokerage statements or reading the fine print on audits would have turned up problems in the others. Legitimate hedge fund managers know they are going to have private background checks done on them. The two main firms who do them can actually sell them below initial cost, because they know lots of professional investors will come knocking to buy a copy. They are anywhere from $500 to $1500. Cheap insurance.

If you don't do your basic homework in any investment, whether it is in bonds or stocks or hedge funds or a new business venture or real estate, you are taking big risks.

Let me stipulate to Neil and Bernard (I read the article so many times I think we can go to first names for a little while) that there are several dozen other frauds and problems, mostly of the smaller variety. Every hedge fund allocator can give you a few favorite personal stories.

But the "Sleaziest Show on Earth?" Come on, guys. Compared with Enron, WorldCom, HealthSouth, the Rigas, Tyco and on and on? Can we say Dick Strong, Putnam Funds and the host of mutual funds caught up in the recent scandal? Those frauds costs hundreds of billions of investor dollars and shook investor confidence to the core. While the investors in the various funds mentioned are right to be angry and their losses are very real to them, the overall market shrugged them off.

How many investor dollars are lost each year due to either outright fraud or mismanagement (or incompetent management) by stock and commodity brokers and investment advisors? The list is a lot longer than 8 funds and a billion dollars. Yet would anyone suggest that the vast majority in the industry are other than hard-working, honest men and women doing their best every day for their clients?

There are 8,000 hedge funds with $1 trillion dollars (maybe). You think problems in 1/10 of 1% is sleazy? I think it's a miracle given my rather low opinion of human nature that the number of frauds are not significantly higher, especially given the altogether too poor level of what passes for due diligence in the industry.

"Hedge fund investors don't always understand what they're investing in. According to a study by Prince & Associates, three-fourths of the 384 affluent hedge fund investors surveyed didn't know their hedge fund's investment style or if they used leverage. And according to the study, those who didn't know, didn't want to know. But it makes for good cocktail chatter. Just pass the shrimp, please." (Rich Peebles from the Prudent Bear)

The vast majority of hedge funds, and I mean vast, are hard working people trying to create a business that makes money for them and their investors. Like the well-intentioned brokers and advisors mentioned above, that does not mean they will always succeed, but it is not from lack of good intentions and hard work. It is simply insulting to suggest otherwise, and that is exactly what they did. I have yet to talk to someone in the industry who was not offended by the cheap shots and shoddy comparisons. Sleazy, indeed.

Let a Thousand Hedge Funds Bloom

And that brings us to the next point. Quoting their dire apocalyptic prose: "It's [sic] amateur hour in the hedge fund business. This sideshow of sometimes bizarre (and always costly) investing is on a tear like never before. It's attracting some of the shrewdest and sharpest minds on Wall Street--and also shills, shysters, charlatans and neophytes too crooked or too stupid to make any money for you. In 1990 only 600 or so U.S. hedge funds were in business. When we last surveyed the genre (FORBES, Aug. 6, 2001) there was $500 billion on the table. Now $800 billion is invested, says Hedge Fund Research, a hedge fund tracker, divided among 6,300 funds--900 of them less than a year old. Besides growth, there is a lot of coming and going in this business. More than 10% of hedge funds tracked by HedgeFund.net became defunct in the past year."

Every issue of Forbes, I almost always first turn to the column in the magazine by the publisher of Forbes, the brilliant Rich Karlgaard, extolling the virtues of the American system and technological progress. Rich would be aghast if a reporter in Forbes suggested that 900 new technology companies in Silicon Valley was a sign of problems. He would see it as a sign of future growth.

My friend Michael Gerber, who wrote The E-Myth, tells us that 80% of all new businesses fail (or get merged) within the first five years and 80% of the remainder do so within the next five. Not good long term odds, yet American entrepreneurs ignore such statistics and start hundreds of thousands of new businesses each and every year, even in the midst of recessions and doom and gloom.

My problem is not that 900 of the current crop of hedge funds are less than one year old. My problem is that there are only 900. If Gerber's statistic holds true for hedge funds, and anecdotal experience suggest it might, that means that only 180 of those hedge funds will be alive in five years.

Of course, it is not as bad as all that. While many of those 900 are indeed amateurs, many are also, as they note, "some of the shrewdest and sharpest minds on Wall Street." The survival rate of those managers will be higher than 20%.

But be that as it may, for those of us who are looking for hedge funds for client money, we want to see lots of hedge funds started. I am not (or maybe VERY rarely) going to invest in a start-up. Yet some of those "amateurs" become professionals. How do we know who is going to be the next guy who can hit the 90 mile an hour fastball, with the occasional curve and slider, as the market throws its best stuff in front of their plate?

I expect a lot of hedge funds to close for a variety of reasons. Some, because while they may be profitable in terms of their investing, they just never develop business profit traction. As an example, what if you are managing $10,000,000 at a 1% management fee and 20% of the profits? Let's say you have two partners, a staff person or two, rent and phones plus the usual overhead, computers, data and research costs, legal and accounting costs, not to mention a lot of late night pizzas.

You make 10% in one year. You get to keep 2% (20% profits) plus your 1% management fee, for a grand total of $300,000 to cover all the expenses and some take home salary for the partners. In New York or Dallas, that does not leave a lot of profit to cover living expenses and support a family.

And $10,000,000 may be larger than the median hedge fund. Let's take the latest study (for now) which suggests $1 trillion in hedge funds spread among a total of 8,000 hedge funds. The largest 100 fund managers have $439 billion of that money, according to Alpha which is published by Institutional Investor. Since God seems to have designed Pareto's Law into the warp and woof of the fabric of the universe (the 80/20 rule), that would suggest that the next 1,500 (or 20%) have about $800,000,000. The bottom 80% or 6,400 funds would then be left to split $200 billion among them. That is an average of $30 million a fund. While no one has done anything close to a definitive study, based upon my experience, I think a large majority of those have $10,000,000 or less.

Indeed, research by the Capco Institute (The Journal of Financial Transformation) suggests over 50% of funds have less than $25,000,000, and 17% have less than $5,000,0000

These funds are simply small businesses trying to catch lightening in a bottle. Some research suggests their results might even be better than their larger brethren, but they do not have the marketing or exposure to attract enough assets to fund a going enterprise. Simply looking at the numbers, it suggests to me that 50% of the hedge funds out there (if there are 8,000) are too small to be self-sustaining over long periods of time. That a significant number die off every year should not be surprising, due to economics rather than negative returns.

Sound research supports this observation. Ed Easterling of Crestmont Research gives us the following summary of research his firm has done: "In two separate studies, we have attempted to quantify the impact of survivorship bias among hedge fund indexes. Both studies produced similar results. In the first, we assessed a series of sixty funds that had ceased to report results to a recognized hedge fund database. The returns from each fund were reviewed for their performance during the prior three months and twelve months. Funds with negative performance were marked as possible 'closures,' whereas those with positive results were considered 'closings' to new investors. We found that almost two-thirds of funds that ceased to report had positive results preceding the end of their reporting.

"The second and more comprehensive study included 462 hedge funds that had stopped reporting over a number of years. The funds were assessed for their performance over the three, six, and twelve month periods prior to their last report. For the entire group, the results were substantially similar to the first study: only about one-third of funds had poor returns through the point of voluntarily ceasing to report.

"CONCLUSION: Both studies indicate that survivorship bias in hedge funds is skewed heavily toward 'closings' (to new investors) rather than 'closures' (going out of business). Given the lack of reporting requirements and the potential for both positive and negative drivers within the hedge fund industry, survivorship bias may actually cause an understatement of returns available from hedge fund investing." (http://www.crestmontresearch.com/pdfs/HF%20Myth%20Article.pdf)

Fees That Would Be Illegal

And while we are on the subject of fees, let's look at one of the headlines in the Forbes diatribe: "Driving this red-hot industry: fees that would be illegal in mutual funds."

Perhaps, Neil and Bernard, it is because they are NOT mutual funds. The above nonsensical statement is like saying that editors' salaries would be illegal if they were congressmen or some other job with a mandated limited salary. The statement has no meaning, other than to suggest in the best traditions of yellow journalism that somehow hedge funds are bordering on illegal, or at the very least, unethical behavior.

And while we are on that point, I cannot recall (although my aged mind may have forgotten) one point in my career where a client called me up at the end of the year and complained that a hedge fund manager took too much in fees. When a hedge fund manager, who charges that 1% and 20% of profit takes home 10%, that means the client made 36%. Calls from clients when that event happens (sadly not often enough) are generally of the "Weren't we smart (or lucky) to have chosen this fund?"

No, the more typical complaints that I and my counterparts throughout the industry get are the times when the manager doesn't make any incentive fee money. That means the client lost money. That conversation generally runs along the line, "Why did you put me with this dog and why should I stick with him?"

Hedge funds charge no more (and sometimes less) than venture capital, real estate deals, oil and gas partnerships, etc. Basically any deal where you buy skill-based management you have to pay for it. And that includes corporate America. You think Fortune 1000 CEO's should work for the same as less qualified managers?

Fakery Aside

Probably the worst (the kindest word I could think of would be mis-informed, but pejoratives which trip blithely from my 16 year old son may be more appropriate) assertion is the headline:

"Fakery aside, hedge funds have returned less than stocks and bonds."

Really? Over what time period? Which hedge funds? Which mutual funds? Which bonds? Show me the research.

Well, they do, kinda. They find one piece of statistical assumptive garbage parading as academic research from something called the Free University of Amsterdam. A "working paper" (which should be unemployed quickly) called "A Reality Check on Hedge Fund Returns" looks at the returns from the TASS hedge fund database.

"It is as if Morningstar allowed mutual fund firms to calculate performance by cherry -picking the winners. Take away this fakery and TASS net returns drop from 10.7% to 6.4% annually for the six years through 2002, the Reality Check study says. (Other academics have come to similar conclusions.) That compares with a 6.9% annual return for the S&P 500 and 7.5% for Lehman Brothers' intermediate bond index." (Forbes, Page 118)

How do the guys in Amsterdam (we should note drugs are legal there) come up with this bit of legerdemain? Among other stupid economist' tricks, they simply assume that any fund which stopped reporting lost 50% the next month. Since a significant number of funds stop reporting each year (see above), that whacks off a large part of the return.

(Oh, by the way, guys get your facts straight. Morningstar actually does drop off non-reporting funds, what you call "cherry-picking." Which it is not, of course. It does create survivorship bias. As Ed noted above, survivorship bias may be (even likely?) worse for mutual funds. This is sloppy reporting. Someone should be fact-checking. And by the way, if you could point me to those other "academics" who have published peer-reviewed research? Maybe it comes from being isolated in Texas, but I have not yet run across those studies.)

Note the Free University "research" does not add 50% for funds which stop reporting because they did well and are closed to new money (not that any funds I know ever did 50% in one month and then close, or even made 50% in one month).

Weinberg and Condon then go on to suggest you can get 6.9% from the stock market. Some years you can. But there have been many 10 year periods in the last 100 where investors would have been better in money market returns (Shiller, Grantham, Mauldin, Easterling, Alexander, etc.) Investors since 1998, or 6 years ago, are flat in the S&P. Think NASDAQ investors would like to see 6.9% for the last six years? How can you assume there is no diversification benefit, which you implicitly do?

That being said, the 10.7% TASS returns for something called "Hedge Funds" doesn't mean a whole lot. You can't invest in a database of 3,600 funds, nor would you want to. Investing in "hedge funds" is somewhat analogous to investing in "African mammals." There are so many different types, shapes and sizes that investing in an average mammal would have no real meaning, and would probably look like a wildebeest, which few people would want in their backyard.

Further, the average of "hedge funds" is boosted by high risk-high reward macro and commodity funds, which should only be a small part of any portfolio, if at all. "Hedge funds" include a lot of funds which purposely limit their returns in order to reduce their risk and volatility. They include fund of funds, which include "hedge funds" but with more fees.

And just like those African mammals, a lot of them are ugly and smell. Why would anyone give them money? If that is the case, then why assume investors, which the writers implicitly do, would fund them on an equal basis with the best of breed managers? Are hedge fund investors stupid?

Looking at "hedge funds" and comparing it to the S&P 500 is kind of like looking at a nail and picking up a screwdriver or trying to get that screw in with a hammer. Both are good tools, but you need to use them appropriately. It might (stress might) be appropriate to look at an index of long-short equity funds as opposed to the S&P 500, but what does a distressed debt or mortgage arbitrage fund have to do with a broad stock index? The latter funds might make sense in some portfolios, but not because they are in any sense an equity substitute.

Weinberg and Condon assume, and you can come to no other conclusion in reading the article, that investors who have been investing in hedge funds are basically naive, if not stupid. Frankly, investing in most of the frauds they mentioned was stupid. The investors should be angry at themselves for not doing their basic homework. The Safe Harbor debacle? I admit a lot of very savvy hedge fund investors got caught up in that. That was fraud after the initial fact, so to speak. But it was still fraud, not manager skill risk. But the real frauds, which might not have been discernable with decent due diligence, are in fact far more rare than in stocks, bonds (there are some doozies in the bond world) and those paragons of virtue preferred by the authors - mutual funds. (Let me stipulate the vast, vast majority of those in the stock, bond and mutual fund worlds are honest and upright citizens.)

Manager skill risk is always present. In fact, if we are looking for alpha, it is precisely what we do want.

As I testified to Congress in May of last year, "But the most significant reason for the growth of the hedge fund industry is investment returns. Simply put, if high net worth investors and institutions could get the same returns as hedge funds by simply investing in stocks, bonds or mutual funds, why would they choose hedge funds which have higher fees, are hard to find and evaluate, and need more scrutiny? The answer is they would not. The demonstrably observable higher risk-adjusted returns make the effort worth it.

"The key to this is the word "risk-adjusted." Hedge fund investors are not necessarily looking for higher returns. They are looking for strategies that can give them reasonable returns for the risks involved, or looking to lower the risks while getting potential steadier absolute returns."

The concept of hedge means to "preserve capital" or reduce risk, otherwise defined as volatility. Capital preservation is the key success factor for hedge fund survivorship and not performance as compared to some arbitrary index.

Flexible Standards?

And now we come to the silliest of all the paragraphs in the article: "Another way to blow smoke in the customers' eyes is to dress up a performance number in fancy statistical clothing. Popular here: the so-called Sharpe ratio, which adjusts returns for monthly volatility, giving credit to stable performers. This is a handy number to whip out for a manager with mediocre results and a low level of volatility. There is a lot of flexibility in how you arrive at a Sharpe ratio."

First of all, there is little flexibility in how you arrive at a Sharpe ratio (again, where are the fact checkers?). It is basically what it is. It is a useful tool for evaluating certain type of hedge fund strategies (such as a long-short equity fund), but meaningless for other strategies. I can think of several such strategies, such as funds which sell naked call options or a variant thereof, which have the best Sharpe in the world, right until they blow up.

Sharpe ratios, standard deviations, beta calculations, profit attribution analysis and a host of tools have been developed to help us understand the inherent risk within a fund and its application of its preferred investment strategy. Are the Forbes writers seriously suggesting we not use them or that they are meaningless? Isn't stable performance something we should seek? Or should we simply be happy with the wild swings and flat returns of the stock market and mutual funds over the last 6 years? What is mediocre to one person's eyes may be exactly what another investor is looking for.

Condescension Ill Becomes You

The pervasive tone of the article which I find most annoying is the air of condescension that permeates the article. It starts with the headline at the very beginning. "Hedge funds will suck in $100 billion from an ever-broader swath of investors. Pretty good for a business rife with exorbitant fees, phony numbers and outright thievery."

"Suck in," mind you. Not prudently invest or something a rationally cautious person would do. No, somehow this entire world has managed to delude institutions and high net worth investors with armies of accountants, consultants and lawyers and "sucked in" investors. Somehow they have been duped into leaving the safe havens and smooth returns of mutual funds and long-only strategies. Why did I ever redeem from that tech fund?

Hedge funds are something to be resisted, we are told: "Hedge funds are irresistible to some investors. What if you just can't fight the temptation to join the crowd?" They then go on to offer some very bare bones suggestions as to the basic questions you should ask, which are all well and good, but no self-respecting analyst would consider them anywhere close to adequate. (For an essay on doing due diligence on hedge funds and private businesses, you can see chapter 22 in my book Bull's Eye Investing.)

Let's stop right here and make some basic points. I would not suggest that hedge funds are not potentially quite risky and/or difficult to understand. Some use lots of leverage or trade in illiquid markets. There may be long lock-up periods. The article on due diligence lists over 100 questions trying to ferret out where the risks are. There are lots of varied and different risks with every unique hedge fund strategy. Some of these funds and strategies make me shudder and run away.

But as I pointed out two weeks ago, it is the risks that also present the opportunity. Risk-free money is considered short term government T-bills. Anything which pays more than that carries some extra risk. Even T-bills have some risk. Gold in your back-yard has risk. The key is in how you control the risk. Prudent investors seek quantifiable amounts of risk for a hoped for potential return. One of the reasons for thorough due diligence is to make sure you don't get more risk, or the wrong type of risk, than you bargained for.

Further, if there are 8,000 hedge funds, there are less than 10% (if that high, but I have looked at nowhere close to 10%) that I would think worthy of your investment funds. I think most of my hedge fund allocating peers would agree with that statement. Now, we might not (probably would not) agree on which funds should be in the 10%, but we all have factors upon which we discriminate our choices among funds.

But the same statement is true of stocks or mutual funds or real estate or almost any other investment. We are told 80% of mutual funds do not beat their respected indexes. Is all real estate equal? Or stocks? Or bonds? Of course not. Choosing among the many offerings is one of the great opportunities we have in the modern world. It's what makes a horse race. But it is also among the riskiest of propositions. If it was easy, we wouldn't need professionals. Any 24 year old "amateur" could become a broker and buy mutual funds for you. (And if you are a young person starting in this industry, good for you.)

And that, at the end of the day, seems to be the conclusions of these two amateur investors. They end the article with this note: "Most investors should steer clear of hedge funds. Lush pay has lured the best and brightest to hedge funds, says Michael Price, a hugely successful money manager. But 'unless you've got at least $5 million to invest, hedge funds are not worth the risk and fees. Mutual funds will get you where you want to go, so screw hedge funds.' With more polite language, Warren Buffett said the same thing at the Berkshire Hathaway meeting recently. A word from the wise."

Of course, they could have quoted the same hugely successful mutual fund manager Michael Price, who said last January in the International Herald Tribune: "Most [mutual] funds are very mediocre," Price said. "They're lousy stock pickers who tend to run in a herd and who really got caught with their pants down in 2001 and 2002." (January 5, 2004)

(And exactly why should we avoid "the best and brightest?" To stay with "lousy stock pickers who run mediocre funds?" The logic simply flies over this Texas country boy's head.

It all comes down to choice. If most mutual funds are mediocre, then choose the better ones. The same with stocks or hedge funds or real estate. Would that we could go to a list that listed the best stocks, mutual funds and hedge funds and investments in general. Ah, if only it were that easy. But that's a tale for another day.

Finally, someone at Forbes should have stopped this type of tabloid nonsense before it got off the editing page. A great and serious publication, which features Forbes, Karlgaard, Dreman, Huber, Grant, Lehman and Shilling, among others, deserves better. Facts should have been checked by someone who has the knowledge base to check them. It is one thing to call for personal accountability among the citizens of the financial world. There should be the same within the world of financial journalism. There are scores of books on hedge funds and reams of legitimate academic studies, not to mention accomplished (and neutral) academics in the field. I would be glad to introduce them.

Regulating Hedge Funds

A quick final thought on the regulation of hedge funds, which GOP appointee SEC Chairman Donaldson seems intent on doing with his two democratic appointed colleagues (one of whom personally told me he was against the regulation of hedge funds less than six months ago, but we are all allowed to change our minds). First off, and contrary to the spirit of the Forbes article, 50% of the 100 largest funds are already registered with either the SEC or the CFTC, so nothing would change for them. It's probably pretty high as well for the next 1,000 funds.

While many of my hedge fund brethren will see this as heresy, I look at registration of the managers of the largest funds as "so what?" If the SEC will allow funds to advertise in a manner similar to mutual funds, as they are thinking of doing, in conjunction with registration, I for one would hit that bid in a heartbeat. That is a trade I would make all day. Perhaps it is because I am already registered, but I don't just see the big picture problem with the manager registering.

I do wonder what it will accomplish, however.

That being said, it should only be for management firms of a certain size, say $50,000,000 or more. The costs of regulatory compliance are real and are not cheap. You have to hire consultants, attorneys and/or staff. It can be quite expensive and a time problem, as there are so many details which have to be filed "just so." To small start-ups, it could literally mean the ability to stay in business or not.

Bull's Eye Investing

The book continues to do well. We will soon be starting promotional efforts beyond my own lists (and to you as well, if you have not yet bought!) Let me offer a very kind review from a reader on Amazon.com:

"'Bulls Eye Investing' is an extremely important book. It is macro-factual analysis that joins the zenith of economic scholarship. Mr. Mauldin does financial meta-analysis at a level that breaks ground from a philosophy of markets perspective. The graphs, tables, data, research, and yes, the thinking are as clear as any business bottom line--direct and unmistakably to the point. The writing is easy to understand and the reader stands in awe of how John Mauldin makes clear the endless, tortuous mumbo-jumbo of the market and the oceans of unfathomable data one has to confront when trying to make any sense out of investing at all. More important is what the reader may infer about his own stock market prospects (going forward!) armed thanks to Mauldin, with a withering tour de force of the facts.

"All in all, this work and its writing is brilliant, and revolutionary. I am extremely grateful to its author and will go so far as to extol its virtue to the gods. By reading this book, middle class boomers like me will be able to save thousands of hours of agony, useless study, pain AND MONEY. My heart valves thank the author--from the bottom up.

"Before listening to another word from a broker or believing in any of Wall Street's Smoke and Mirror malarkey, READ THIS BOOK. This is a MUST READ and STUDY for anybody in the market. Especially for the buy and hold believer. It will rock you to the core."

You can buy the book at your local bookstore, or from www.Amazon.com/Bullseye.

Yankees, Canada, New York, etc.

The Yankees are in town. Interestingly I note that without the highest paid player in baseball, my Texas Rangers are doing better this year, on an ever par with the invading Yankees who have a much more celebrated line-up. Our team batting average is much higher. One of the reasons is that when I look out my window in the afternoons, I see a bunch of young and hungry guys out for early batting practice. You didn't see that last year. Paying attention to the basics -honing your craftsmanship - works for investing and baseball or any endeavor in life.

I will be in Vancouver at the World Gold Show June 13-14. I am planning on a few days in late July in Montreal and then a long working vacation with my bride (who is my favorite Canadian export, by the way) during the hot days of August in Halifax. Lots of time in Canada this year. I should be in New York in a few weeks for a quick trip. It has been a very busy week, but I shall take some time off to watch some games with the kids. Son #3 has his birthday. They grow up way too fast.

Your always trying to improve his investment batting average analyst,

John Mauldin
Frontlinethoughts.com

Note: John Mauldin is president of Millennium Wave Advisors, LLC, (MWA) a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staff at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above. Mauldin can be reached at 800-829-7273. MWA is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS) an NASD registered broker-dealer. Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Funds recommended by Mauldin may pay a portion of their fees to Altegris Investments who will share 1/3 of those fees with MWS and thus to Mauldin. For more information please see "How does it work" at www.accreditedinvestor.ws. This website and any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement or inducement to invest with any CTA, fund or program mentioned. Before seeking any advisors services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Please read the information under the tab "Hedge Funds: Risks" for further risks associated with hedge funds.

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John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.

Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

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