WARNING: I’m About To Cause A Recession And Stock Market Crash

It’s that time of year again…

The time when I re-balance my portfolio of index funds.

There’s nothing fancy about this re-balancing process.

Jim Chanos At Invest For Kids: Short This Tech Company As Profits Slump

Jim ChanosAt this year's Invest For Kids conference, hedge fund manager Jim Chanos pitched a tech giant as his favorite short idea. Jim Chanos is a Wall Street legend. The president and founder of Kynikos Associates made his name shorting Enron in the 1990s. He has since identified some of the most profitable shorts in the Read More

It’s not about stock picking (After a decade on Wall Street and several years off, it has become abundantly clear to me that casual stock-picking is a loser’s game).

It’s also not about market timing: I’m not making the changes because I’m expecting some huge short-term market moves (except for the one I describe below).

What it is about is balancing the portfolio to achieve the right balance of risk and expected return — for me, given my risk-tolerance, age, and other specific circumstances.

On this “expected return,” I should say up front that I’m not expecting much, at least not at these price levels.

  • Stocks are priced to produce relatively lousy returns over the next decade (~5% or so annually, far below the long-term average of ~10%).
  • Bonds are priced to produce almost nothing (and could be quite negative if inflation takes hold).
  • And cash isn’t earning much of anything, at least today.

So, all-in, I expect the next decade will be another crappy one for basic investment returns.

But, still, I don’t want to hide completely in cash and bonds and get wiped out by accelerating inflation if the economy ever recovers. And I also don’t want to bet the farm on stocks and get creamed if valuations regress to their long-term means (about 25% below today’s levels).

Read More: http://www.businessinsider.com/warning-im-about-to-cause-a-recession-and-stock-market-crash-2012-1