Our investment thesis is, ‘low long term interest rates with moderate growth make US equities attractive’. We have been concerned that a weaker US$ would eventually affect exporting economies in Asia and Europe and that US equity strength would no longer be unable to support these equity markets. We believe we are coming to that point.

The Bank of Japan and European Central Bank are faced with deflation and are further adding to their deflation by supporting negative interest rates. To reiterate, the effect of monetary policy is non-linear and parabolic at 0%. Since the BOJ and ECB are adding to deflation with negative interest rates, it is up to the Fed to support the US$. We suspect NY Fed Dudley’s remarks yesterday was meant to support the US$. However, when you read the FOMC minutes, they believe the lack of inflation is due impart to “earlier declines in energy prices” and that “net exports made a near-neutral contribution to the growth of real GDP in the first half of 2016.” Consequently, the Fed believes a weak US$ will add to inflation and support exports. In addition, when you read the FOMC minutes, there is a concern of slow economic growth so the likelihood of tightening is remote.

So what is the Fed to do? Interestingly, the FOMC researched their ‘Long-Run Monetary Policy Implementation Framework’ which “should have the capacity to supplement conventional policy accommodation with other measures when short-term nominal interest rates are near zero.” And found “the Federal Reserve's balance sheet--may both be influenced by, and themselves influence, incentives and activity in financial markets.” Therefore, to support the US$ and remain accommodative to further strengthen the US economy, the Fed should begin to reduce their balance sheet.

The justification of quantitative easing is, it leads to economic growth so the central banks no longer need to support their sovereign debt. However, without economic growth, eventually the sovereign nation will no longer be able to support their growing debt. Therefore, if the Asian and European economies begin to slow down due to lack of exports, the ability of the BOJ and ECB to keep long term interest rates low will be in question. Without low long term interest rates and any sort of economic growth, global asset prices will be under pressure.

On Wednesday, August 17th, we sold the Euro$ at 1.13. Our trade on the Euro$ was a bit aggressive as we were trying to buy $Yen near 99. Currently, we are short the Japanese Nikkei, long US 10yrs and short the Euro$.

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 +29.84% 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.