Every quarter, investors eagerly await the disclosures for the holdings of top-notch hedge fund managers. Which stocks are being dumped? What are the new purchases?

Just look at billionaire hedge fund manager John Paulson. Over the past couple of years, he has been a big holder of gold stocks. And yes, in light of the terrible plunge in the precious metal in January, investors are wondering if Paulson is still a bull.

Last month was certainly tough for gold. In fact, it was the worst January in about 20 years.

But as usual, there were many investors who thought that this was the end of the bull run. Hasn't gold risen for ten straight years? Isn't it time for a bear market?

Well, the fact is that corrections are normal, even for gold. And there is no reason to believe that the recent fall-off is yet another example.

The more I think about the issue of Goldman Sachs (GS) being charged by the SEC for questionable business practices, and hauled in front of Congress for a big show, the more I think it is Congress that is at fault for the whole financial mess and should be answering questions.

It is not that Wall Street had no hand in the entire debacle, but it started with Congress and they magnified the damage by failing to correct their critical mistakes. I will get back to this later, but first I want to discuss the recent hearings and the fact that Goldman Sachs management was actually too easy on Congress.

It looks like John Paulson wants to get ahead of the crowd. He and other large homebuilders are buying prime building lots in states like Arizona, Colorado and Nevada.

The big players like Lennar Corp (LEN), Standard Pacific Corp. (SPF), KB Home (KBH), DR Horton (DHI) and Toll Brothers (TOL) are all grabbing lots at bargain basement prices.

With sovereign debt crises in Europe and record deficits in the US, speculation in gold is on the rise. Add to the mix, record low interest rates in the US and speculators are jumping back into gold. Let's look first at the bullish side:

• Billionaire, George Soros, increased his holdings in the SPDR gold trust by 152%.
• Bloomberg analysts predict prices will increase to $1,300 per ounce this year.

There's nothing like a quick profit. Hedge fund manager, John Paulson, made $45.3 million in five weeks in a single gold trade. Bloomberg reports he owns 10.3 million shares of Detour Gold (DRGDF). Since purchasing the shares in October, they soared 35% to close at CAD $18 per share in Toronto.

Paulson, who manages $30 billion, has invested heavily in several gold companies. He is the largest shareholder of Anglo Gold Ashanti Ltd. (AU) with 12% of the company's stock. He also has stakes in Kinross Gold Corp (KGC) and Gold Fields Ltd. (GFI).

Why are Americans hoarding $3.5 trillion in cash? An interesting question. Let's dig deeper and see if we can find out why.

Here are some interesting facts about the $3.5 trillion:

• After reducing money market accounts by 11% this year, investors hold cash equal to 73% of S&P 500 Index. At its peak in 2007, the buying power was at 62%.
• Estimates are for GDP to increase sixfold to 2.9% in the third quarter.
• In 2007 and 2008, investors placed $1.45 trillion in money market accounts. As of the week ending January 14, that number reached a record $3.92 trillion.
• Investors have added $15.8 billion to domestic equity funds since March.

This morning's revised GDP and still high jobless claims were of no concern to the bulls. After a key DJIA component had news, and after interest perked back up in the financial stocks, traders forgot about selling and just started buying all over again. Seven days in a row of an up market is becoming a normal event, it seems.

Here were today's unofficial closing bell levels:

Dow 9,576.47 +32.95 (0.35%)
S&P 500 1,030.91 +2.79 (0.27%)
Nasdaq 2,028.09 +3.66 (0.18%)

Top Analyst Upgrades
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On Monday, the stock market rose 498 points -- a move that many attributed to the announcement over the weekend of a plan to buy $1 trillion in toxic waste that uses government loans to lure investors -- such as hedge funds -- into buying extremely risky securities.

That sounds like the same thing that got us into the financial crisis in the first place. It also sounds like the sort of thing that hedge funds do for a living -- and those hedge funds are making a handful of skilled people into billionaires.

In 2008, the average stock on the S&P 500 lost 38.5%. John Paulson, no relation to the former Treasury Secretary who is famous for making billions shorting sub prime mortgages in 2007, made almost exactly the same percentage increase as the S&P 500 lost. So in some sense, if you're wondering what happened to your money, ask John. He's got it.

Exactly how well did Paulson do and how did he do it? Paulson Advantage Plus, his largest fund with $7 billion in assets, returned 37.6% net of fees for 2008 -- this means that his pre-fee returns probably topped 40%. Paulson again bet right about the collapse of financial institutions. In early 2008, Paulson shorted Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) -- betting that they'd become insolvent or need to raise additional capital that would dilute shareholders.

Harvard's business school (HBS) has been celebrating its 100th anniversary this year. And it looks to be at the peak of its power. That's unfortunate because five of its most powerful graduates have made significant contributions to absolutely wrecking the global economy. HBS admits people who are natural leaders. Unfortunately, many of the most powerful of these leaders have followed the path of destruction.

Here are five Harvard MBAs who wrecked the economy:

• George W. Bush ('75). The best thing I can say about Bush is that he said he was sorry for all the problems that occurred while he was in the White House. Unfortunately, he seems to believe he was a victim of events outside his control. One of his HBS professors said of Bush "He showed pathological lying habits and was in denial when challenged on his prejudices and biases. He would even deny saying something he just said 30 seconds ago."
• Hank Paulson ('70). As Treasury Secretary Paulson has consistently ignored the severity of the financial crisis -- In June 2006 he gave a speech at HBS in which he said, "this is by far the best global economy that I have seen in my career" -- but this September he was able to sell Congress on an ineffective plan to fix what he finally realized was an imploding economy -- a plan has kept changing. The economy has continued to crash despite his bone-headed efforts to save it.

Hedge funds have had a lousy year, losing an average of 10.8%. But two hedge funds -- big winners in 2007 -- kept making money this year as well. Meanwhile, those two winners mask an awful lot of losers who will probably find their way into oblivion.

The winners for 2008 (at least through September) are run by James Simons (a math genius whose money-making techniques elude explanation) and John Paulson (who made so much money last year shorting subprime). Here are the details:

• Medallion Fund, run by Simons' Renaissance Technologies LLC, has $8 billion in assets and gained more than 58% -- or $1.43 billion in profits; and
• Advantage Plus fund, Paulson's $13 billion investor in takeovers, restructurings and other corporate events, returned 24.6% through September.

Meanwhile, investors are scrambling for the exit for the typical hedge fund, withdrawing $87.5 billion. Total industry assets fell 11% from the peak of $1.93 trillion in the second quarter of 2008 to $1.72 trillion at the end of the third. Hedge fund closures by the middle of 2008 were 15% ahead of 2007. And that may be only the beginning for the world's 10,000 funds.

Isn't capitalism great?

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

With the plunge in the markets, the hedge fund industry has gone into a tailspin. Even top hedge fund managers -- such as Citadel Kenneth Griffin, Paul Tudor Jones, Steven Cohen and so on -- are having troubles. In fact, there's talk of hedge fund failures, consolidation, and increased regulation. For example, hedge funds may lose 15% of overall assets by the end of 2008. Keep in mind that the average hedge fund is down a stunning 18% this year.

Yet, there are some wily hedge fund managers that are striking fortunes. Perhaps the most notable is John Paulson, who manages Paulson & Co. His fund scored $15 billion in gains last year. Basically, he shorted a variety of complex mortgage securities.

Interesting enough, Paulson's hot hand has continued. That is, his funds have seen increases of 15% to 25% so far this year.

In fact, if he can maintain this pace, Paulson will have personally amassed a $3.5 billion over the past two years.
Oh, and Paulson has 70% of his assets in cash right now. In other words, when the markets settle, he'll be a nice position to capitalize on things -- and make even more money for himself.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.

According to a piece in the Wall Street Journal [a paid publication], a variety of top-flight hedge fund managers have been going aggressively to cash. Some of the names include Paul Tudor Jones, Israel Englander, John Paulson, David Slager and Steven Cohen. In fact, it looks like Cohen is 50% cash and Paulson is about 75% cash.

These actions may reflect some technical factors. After all, hedge funds are likely to receive an avalanche of redemptions. Something else: the recent changes in short-selling rules have made things much more complicated (hey, when might the SEC decide again to ban the practice?)

Yet, these hedge fund managers have stellar long-term track records and have weathered the recent declines fairly well.

Besides, we have seen a recurring theme of a plunge/surge cycle-which is far from normal. If anything, it's a sign of irrationality. And if this is the case, how can you really make solid investment decisions?

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.

MAJOR PAPERS:

• The Wall Street Journal's "Fund Track" reported that some banks struggling to raise capital may sell their money management units. National City Corporation (NYSE: NCC) is selling its Allegiant Funds, Fifth Third Bancorp (NASDAQ: FITB) is considering selling its Fifth Third Asset Management, and KeyCorp (NYSE: KEY) will possibly sell its Victory Capital Management unit.
• The Wall Street Journal also reported that Andrew Cuomo, the New York state Attorney General, is preparing to file civil securities-fraud charges against UBS AG (NYSE: UBS), possibly as early as this week. Sources said the lawsuit may include allegations of malfeasance by senior UBS executives.

WEB SITES:

• Bloomberg reported that money manager John Paulson, the owner of Paulson & Co., is launching a hedge fund that will provide capital to financial firms which have been damaged by the housing crisis. Paulson, who wants to open the fund by December, used bets against the U.S. housing market to help him earn $3.7B in 2007.
• After U.S. lawmakers reached a deal on legislation to alleviate the housing recession, the House of Representatives will today vote on a rescue plan for Fannie Mae -- Federal National Mortgage Association (NYSE: FNM) -- and Freddie Mac -- Federal Home Loan Mortgage Corporation (NYSE: FRE). Representative Barney Frank said that the package, which increases the likelihood Treasury Secretary Henry Paulson will get the authority to inject capital into the two, is "fully acceptable," Bloomberg reported.
• Oil trading losses forced SemGroup LP, which used to be America's 12th largest private company, to declare bankruptcy yesterday. Reuters noted that SemGroup LP's parent company is SemGroup Energy Partners LP (NASDAQ: SGLP).