06: 42%
07: 26%
08: 19%
09: 7%

That’s with a Sortino ratio of 2.1 and max drawdown of 12%. Clearly, I remained far too bearish in 2009, but that’s on the back of my greatest investing achievement ever – a total outperformance of 60%+ in 2008.

Of course, I do not run a global macro only portfolio (as you might assume from reading TPC). My specialty is not even what I primarily discuss here so it’s difficult to gauge whether my analysis here would actually lead to good performance in a global macro portfolio.

I would be interested to hear, if you are willing to publish it, the results of the backtesting of your prop model?
Similarly, again if you are willing, would you or could you publish performance stats for the portfolio you run as a result of all your work?

This is my first post but i’ve been a reader for about 4 months – great website, thanks.

Look at the balance sheet of the United States of America. If you were looking at a company with a similar balance sheet (and similar off-balance sheet liabilities, which are huge btw) would you invest in that business?

Easy answer. NO

But the reason I remain bearish today, aside from deteriorating technicals that once mattered like volume, is b/c Mr. Market hasn’t even figured all this out yet. Mr. Market is focused on money printing as the Holy Grail of Macro Economics. Can you explain to me why Japan’s interest rates are now entering a third decade of being near 0%? Isn’t that the foundation upon which your long position rests upon, that QE is/was the magic bullet?

When you talk about Koo and stimulus, remember that he is only talking about fiscal stimulus. His exact word for describing QE during a balance sheet recession? Impotent. In other words, your long position, especially if you continue to hold for another six months, rests upon a policy widely celebrated yet one that the premier expert on balance sheet recessions finds useless given Japan’s experience.

I’ll also offer a prediction that’s so crazy you’ll probably think I’m out of my mind. When you ring in New Years 2020, the fed interest rate will still be at or near 0%. Take that one to the bank.

In one sentence you say Koo is right, now you’re saying he is wrong? We are not Japan because we are implementing the plan that Koo himself said Japan made the mistake of NOT implementing – continued stimulus.

Care to argue that one?

How exactly are we not Japan? Huge asset bubble rise and sudden fall? Check. Massive exposure left behind by banks and property owners? Check. Zombie corporations (in Japan) / Zombie consumers (in US) / Zombie banks all the way around? Check. Deflation? Check. Applied stimulus? Check. Printed a massive amount of money? Check. 80% peak to trough drop in the equity market? That’s only happened in Japan thus far. Take a look at the Nikkei from 1985-2009 for some perspective on the effects of a debilitating deflationary spiral. But you’re right, we’re probably better and different in some undefined way, most likely b/c of our govt brain trust.

You may also want to brush up on how Soros made his money. The idea that prices change our perspective of the underlying fundamentals, that idea is the only way I can see a justification for this rally continuing like “the govt won’t allow us to go back down.” By definition, bubbles arise unexpectedly. It sure wouldn’t be a “major market top” and epic bubble if you saw it coming now, would it?

If you stay long over the next six months, one of us is sure to get hit by an unexpected freight train. I assure you it won’t be me.

That’s what my research says anyhow.

As for the ER, yes, the trend is important. It’s a leading indicator not a coincident indicator. I mentioned this back in January 09 when I made my 09 investment predictions and I said long-term investors should add to positions. http://pragcap.com/light-at-the-end-of-the-tunnel

For now, the near-term trend is down, but I still believe the current earnings season will be better than investors believe.