After the first day of testimony, Chairman Yellen made it clear Fed policy was dependent on economic data and still sees the impact of monetary policy as linear. The past month and a half US markets have been forced to deleverage after the Fed tightening and are concerned about further tightening. Dovish Fed talk alleviates the markets’ concern about further Fed tightenings while Fed discussions of normalization and further tightening cause the markets to react poorly. The important point is, the market sells off after a tightening not because the market thinks a tightening is bad but rather reacts to the tightening by being forced to deleverage. At Near-Zero, the nonlinear impact of monetary policy is huge.
Since the impact of monetary policy is nonlinear, the negative interest rates that Europe and most recently Japan have moved to, have forced capital to evaporate. To be clear, at 0% interest rates there is near infinite amount of capital due to leverage so as the central banks move either positively or negatively off of 0%, capital evaporates very quickly. In other words, any interest rate off of 0% is deflationary.
It is clear after New York Fed President Dudley spoke about the US$, the Euro and Yen have appreciated. This movement in the US$ does not reflect the negative interest rates in Europe and Japan. Rather, we are witnessing the Fed talk the US$ down which we view as temporary, hence our purchase of $Yen. We are concern about global central banks moving off of 0% both positively and negatively. As capital evaporates, global asset prices will deflate. Deflation in the short run is positive for bonds, however, in the long run deflation causes debt not to be able to be paid. We think there is a possibility as the asset markets continue to deflate bonds will initially rally and then reverse as the markets become concerned about the central banks losing control. So we are looking to get short US 10yrs at below 1.65%, yield moves in opposite direction of price.
Wednesday night, February 10th we bought $Yen at 112.75 to partially hedge our Nikkei short. After the Swedish central bank moved interest rates further negative the markets further deflated and we bought the Japanese Nikkei at 15,225. We are currently in synthetic option on the Japanese Nikkei bias to the short side, short the German 10yr bund and long $Yen making us 67% 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 +72.68% with an 8% Hurdle rate
In 2016, modeled performance net of all fees is -0.65% 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.