Japan has been at Near-Zero interest rates since the year 2000. The country has a debt to GDP ratio of 250:1 and during the last two decades has moved its manufacturing jobs abroad to counter-balance its weakening currency. Consequently, Japan needs economic growth and low interest rates to pay off its enormous national debt.
After the Bank of Japan adopted a negative interest rate policy on Friday, it became evident that the BOJ had run out options to stimulate the economy and felt the need to join the European Central Bank to counterbalance the Fed tightening to protect asset prices. The problem is as the centrals banks move +/- off of 0% they cause the markets to deleverage, see chart.
We view the greatest challenge for the central banks is deflation. So unless the Fed’s tightening is meant to be deflationary, which would cause US treasuries to rally to historic levels enabling the Fed to reduce its $4 trillion balance sheet, the Fed needs to be more dovish. Otherwise, global assets prices will continue to deleverage. So unless the Fed indicates they are ready to sell their bonds they should no longer discuss further tightenings. Until that time we are negative on global equities and believe US bonds have the greatest opportunity to rally. We think ECB and BOJ need and will move back to 0% interest rates and so we are looking to sell the German 10yr Bund.
On Tuesday, February 2nd we sold the Japanese Nikkei index futures at an equivalent index price of 17,750. We are currently long the German Dax and short the Japanese Nikkei and are 50% 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 -5.11% with a Graduated 10% Hurdle Rate
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.