Yesterday, the US Treasury 10yr auction had the greatest foreign central bank participation in history at 59%. Because this confirmed our thesis that US long rates are cheap globally we added to our US bond position. We also feel, the the central banks are concerned about long term interests rates going negative due to quantitative easing and could be selling the Japanese and German 10yrs to buy the US 10yr without adding to their balance sheets. The net result is the central banks can add stimulus through QE and still keep long rates from going negative by buying US 10yrs on spread. Just today, we heard the Bank of Japan was concerned about how QE has weakened the Yen. Currently, the Japanese 10yr is 0.39%, the German 10yr is 0.29% and the US 10yr is +160 to 170bp higher at 1.99%. In sum, we expect US long rates come down while the German and Japanese 10yr rates try not to go negative.

If the central banks can keep long rates from going negative then concerns about global deflation can stay muted. We have clearly been out of rhythm with equities but see the strength in the Japanese Nikkei and German Dax as signs global equity markets can stay positive and US equity markets can remain firm near historic highs. On weakness, we will be looking to get long global equities.

The recent strength in the US$ has presented concerns for G20 members and we might find the US$ stabilizing at current levels. We are short the Euro$ but if we get close at 1.14 or better we will cover our short.

Thursday, February 12th, early this morning based on our methodology, we went long an additional half position in the US 10yr note at an equivalent yield of 2.045%, using the March futures. In our Tuesday, February 10th email, we indicated that if the S&P closed above 2057 we would get out of our S&P short. Rather than wait for the close, we got out at our hard stop at 2064. We are now long two half positions in the US 10yr and short a half position in the Euro$ and are 75% invested.

Modeled performance since inception, May 2012, net of all fees is +126.28%
In 2012 modeled performance (7 ½ mo.) net of all fees was +12.46% with a 10% Hurdle rate
In 2013, modeled performance net of all fees was +19.73% with a 10% Hurdle rate
In 2014, modeled performance net of all fees was +56.42% with a 10% Hurdle rate
In 2015, modeled performance net of all fees is +9.15% with a 8% Hurdle rate