As we mentioned in our January 14th email,

“...we believe the central banks recognize the need to coordinate to stabilize the markets or run the risk of economic armageddon.”

We were wrong and now economic armageddon is upon us.

On Friday, January 15th during a speech, New York Federal Reserve President William Dudley seemed unaware of the global deleveraging and called for further tightening later in the year. For whatever reason, the Fed has overlooked the mathematical impact of tightening at Near-Zero Monetary Policy. In short, when Fed Funds approach 0%, the impact of a change in Fed policy approaches infinity (Basis Point Move / Fed Funds Rate). For example, a 5bp move, near 0% is equivalent to a 25bp move at 1.25%. In short, the 25bp tightening at Near-Zero Monetary Policy has the unintended consequence of over tightening. The Fed’s move has caused the global markets to deleverage and the consequential selling is unable to be absorbed.

Now without the leadership from the Fed, global asset prices run the risk of going a lot lower. The Bank of Japan at 250:1 debt to GDP ratio is reluctant to add liquidity, the People’s Bank of China seems more concerned with weakening their currency rather than strengthen their asset prices and the European Central Bank is faced with new banking rules making much of their bad loans unable to be used for collateral. Consequently, unless the Fed dials back its hawkish tone the global equity markets run the risk of a global meltdown, economic armageddon.

Tuesday, January 19th on the close we sold our longs in the DJI and S&P at an equivalent index price of 16,020 and 1882. Currently, we long the Japanese Nikkei but a close below 16,800 would cause us to close our position. We are 25% invested.

In 2012 modeled performance (7 ˝ 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 72.02% with an 8% Hurdle rate
In 2016, modeled performance net of all fees is -5.65% with a Graduated 10% Hurdle Rate

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Disclaimer:

The Unicorn Macro Fund, LP (“Fund”) operates under the SEC rules of 506(c) of Regulation D. This rule allows general solicitation as long as all purchasers of the Fund are accredited investors and the Fund takes reasonable steps to verify that purchasers are accredited investors. The 506(c) rule benefits funds that perform better than their peers, because for the first time, Regulation D funds can post their results publicly.

The Fund trades both long and short positions in a variety of global markets and its performance is not correlated to any one market. Performance of the model of the Fund is measured by Net Asset Value (NAV) which is net of all fees, is unaudited, and may include the use of estimates. Individual results will vary based on the timing of an investment and past performance is no guarantee of future results and there is a possibility of loss.

The modeled results are based only on capital appreciation from macro style trades. The results do not include dividend reinvestment or any other form of cash flow and are taxed as ordinary income. All trades have a risk/reward objective of at least 3 to 1 and each full position risks no more than 2% of assets. There will be times when market conditions may alter these objectives. Since the inception of the model our trading of the methodology has become more precise.