We bought the German 10yr bund because of increased deflationary pressures coming from the Brussels attack and Fed Governor Lockhart's comments on an April tightening. After this trade, we are in a synthetic option on the S&P bias to the long side, long the Japanese Nikkei, long the German bund and short US 10yr notes.
The deflationary - inflation balance is affected by the velocity of money. The Brussels attack is not only tragic as a loss of human life but it is also tragic on how it affects the day-to-day behavior of the people. The terrorists win when fear causes us to change our way of life and to be less active in public space. In economics this would be quantified as the velocity of money. Europe not only is faced with more terrorist attacks but it also faces the governmental burden of increase refugees coming from the middle-east. The European Central Bank is faced with a slowing economy and rising debt. We believe the ECB's zero monetary policy will generate capital to stimulate growth and negative interest rates on reserve requirements will cause European long rates to continue lower.
Our outlook on US long rates is not tied to the eurozone but rather how the Fed communicates their policy objective to the markets. Lockhart believes the Fed did not tightened because of global pressures and is expecting the FOMC to tighten this April based on the US economy’s strength. To reiterate, the deflationary - inflation balance is affected by the velocity of money and since the impact of monetary policy is nonlinear, any tightening by the Fed before velocity picks up will be deflationary. Consequently, if the Fed continues to communicate a tightening before the velocity picks up, we expect the yield curve to flatten causing the bond market to rally and asset prices to sell-off.
Our Nikkei position is dependent upon the weakness of the Yen. If the US dollars continues to remain weak we expect both Asia and Europe to be under pressure.
Wednesday, March 23rd, early morning we bought the German bund at an equivalent yield at 0.23%, yields move in opposite direction to price, Currently, we are in a synthetic option on the S&P bias to the long side, long the Japanese Nikkei, long the German bund and short US 10yr notes and 89% 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 +16.30% 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.