This morning, U.S. Retail Sales in March rose 0.9%, less than the 1.1% expected and not quite making up for the lack of sales during a harsh winter. Also, the Producer Price Index as expected rose 0.2% after four straight months of declines. In the 12 months through March, producer prices fell 0.8%, the biggest year-on-year decline since the revamped series started in 2009. Low inflation and signs of a slowdown in economic growth in the first quarter have prompted most economists to push back their expectations for the first Fed rate hike. The market reaction was swift in the U.S. bonds and the dollar and U.S. equities continued to grind higher.

U.S. bonds rallied as expectations of Fed tightening were pushed back and the US$ sold off causing us to cover our Euro$ short for a small profit. We continue to watch the Japanese Nikkei and German Dax for market leadership. If the Nikkei can’t close above 20,000 and the Dax above 12,400, the U.S. equity markets are vulnerable unless the US$ continues to sell off. Therefore to hedge up some of our S&P position we sold the German Dax but we will cover it with a close above 12,400. We continue to believe the Fed will not tighten any time soon, making U.S. bonds and equities attractive when compared globally. In the short term, we expect the German, Japanese / U.S. 10yr spread to tighten, causing U.S. bonds to rally, and U.S. equities to catch up to Germany and Japan.

Today, April 14th, after the release of Retail Sales and PPI we sold a half position on the German Dax at 12,250 and on the close we covered our Euro$ short at 1.0655. We are currently long a full position in the S&P, long half a position synthetic option on U.S. 10yr notes and short a half position on the German Dax making us 90% invested.

Modeled performance since inception, May 2012, net of all fees is +122.10%
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 7.18% with a 8% Hurdle rate