Two weeks ago I decided to sell my shares of E*Trade (ETFC) after concluding it did not fit my investment criteria. It was one of my successful picks for 2010 and I made money having sold puts establishing a base price of $13.50. It closed Friday February 25 at $15.89.

I might not have chosen to post about this except for news that Ken Griffin's hedge fund Citadel Investment Group plans to sell much of its stake in E*Trade Financial. The largest shareholder selling out is news. Citadel will still hold valuable warrants, giving it the option of taking a very large position again, but for now there seems to be a change of heart for them as well.

Kenneth Griffin, who manages the massive Citadel Investment Group Inc. hedge fund, has produced a sterling record over the past 20 years. Actually, he's one of the world's top money managers.

But, in "Black September," Griffin's tracked record got trashed. Apparently, his flagship fund is down as much as 22% for 2008.

Interestingly enough, Wall Street has been abuzz with rumors that Citadel is dumping lots of shares – putting further pressure on the markets (and may have accounted for some of yesterday's losses on the Dow and S&P).

But Citadel is not alone. Other hedge fund operators have also suffered major losses.

One key issue has been the erratic regulatory response to short selling (essentially, the ban made it illegal for hedge funds to make profits). Of course, investors have also been requesting redemptions.

In fact, it looks like some key hedge fund managers are staying on the sidelines (can you really make money when the markets look irrational?)

As for Citadel, the fund had some other problems. For example, Griffin loaded up on convertible securities. While such things are okay in normal times, they can become illiquid during periods of crisis. Besides, the short-selling ban made it excruciatingly difficult to employ arbitrage strategies.

Something else: with the significant losses, hedge funds will have a hard to getting incentive fees. The reason is that they need to recoup the losses (this is known as the high-water mark). As a result, many hedge funds may decide to close shop.

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.

Hedge fund managers, most notably Steven Cohen (SAC Capital) and Ken Griffin (Citadel Investment Group), have become notorious buyers of expensive and trendy contemporary art. It would make sense, then, that the recent poor performance from many mighty hedge funds would have an effect on art prices because hedge fund managers stand to make less money (or perhaps even, gasp, lose money).

According to a recent Bloomberg article, "the art market will soften...but it may not happen for six months to a year." However, the article also quotes a Moody's analyst who testified that "we've seen record levels of consigning,..and lots of deals are being done." But I tend to agree with the first source -- the art market will inevitably soften as hedge fund managers have less disposable income to invest in their art collections.

This piece, like many others pieces of news, proves the 'domino effect' is unbelievably at-present in the world. News of poor earnings from an American company can effect foreign markets, credit issues in America have created a worldwide sell-off during the last month, increased volatility has hurt many large hedge funds, etc. As I've said before, "gone are the days when simple cause-and-effect can be used to analyze a news event."