Where they are not fraudulent, they are just not very good at what they do. Alpha, in the case of the industry, if not in the case of certain managers, is apparently a myth.
Private Equity buyers strike.
Private Equity relies on committed capital which may be invested over significant time periods before they make money. As many investors are currently becoming reticent to throw good money after potentially bad money, this makes private equity problems a self-fulfilling prophecy, as young firms will not be getting the necessary cash to grow in to viable ones.
That mutual funds are crap is a well known fact.
Deflationary trends across the board. The credit crisis appears to be winning the battle with monetary authorities in the short term. If this goes on, we might end up in a rather unfortunate situation. Well, it's not as if recent history does not have a good example of what deflation looks like .
So, INflation or DEflation. Which will prevail?
In the long term, cheap money will lead to hyperinflation and a probable reflating of the credit bubble. The reason for this is that central bankers like inflation. Indeed, inflation is the only scenario they can deal with so they will always aim for it. In fact, so desperate are they to produce inflation that their efforts will likely lead to hyperinflation somewhere along the way.
Investing in an inflationary environment is quite easy. As prices will tend to go up, most investments are likely to yield positive returns relative to cash, the value of which is constantly eroded. Indeed, in an expected hyperinflationary environment it may be advisable to get a lot of debt and invest it, by for example buying real estate on margin (standard mortgage deal).
Deflation, on the other hand, is another beast altogether. Deflation of course means prices across asset classes trend down. Therefore, a wise investment is generally perceived to be cash "cash is king". Why buy a house today if I can live in this cardboard box for a bit longer and then get a nicer, bigger (not more expensive!) house tomorrow for what I would pay for an inferior property today?
Unfortunately, macroeconomic conditions are eroding substantially. Unwise policy decisions by central bankers and short sighted political systems have led to a credit bubble. This credit bubble is being brought on to the balance sheets of Central banks and governments due to short sighted bailout mentality. Some currencies are indeed starting to resemble Ponzi schemes themselves. Yes, I am talking about currencies backed by toxic credit. We used to be able to go to cash and let those private risk takers go poor. Nowadays, our immensely wise monetary authorities have decided to bail out the private risk takers, with potentially drastic effects for the economy as a whole (an interesting writeup from the inflationist camp here).
Therefore, in the short term, it may be advisable to hold a diversified basket of currencies, as it is not feasible that they will all fail simultaneously due to the fact that currency values are always relative to each other. When you feel that monetary authorities are winning the battle against deflation, go leveraged long.
After all, hyperinflation makes some investments appear fantastic (and they are relative to currency holders!).
Due to the negative value usually generated by stock picking, and the excessive fees paid for it, a broad based etf is probably a good option.
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