Janet Yellen’s speech perfectly placed the Fed within the global marketplace. She reiterated how data dependent the Fed was threatening to tighten when necessary. The threat of tightening rather than actually tightening enables the asset markets to maintain relative value to bond yields, as bond yields remain low, as both the Bank of Japan and the European Central Bank pursue low yields through quantitative easing. The challenge for the central banks is both Asia and Europe need to reignite their economies before going into a recession and causing deflation to accelerate. The threat of Fed tightening and the continued easing from the BOJ and ECB has stabilized and begun strengthening the US dollar supporting both Asia and Europe as they fight deflation.
Janet Yellen’s speech also gave a transparent look into the thinking of the Federal Reserve to maneuver the federal funds rate when "reserves were no longer relatively scarce...Without sufficient sterilization capacity, the quantity of reserves increased to a point that the Federal Reserve had difficulty maintaining effective control over the federal funds rate." It is always dangerous for any central bank to try to maneuver a market where it does not naturally want to go. Currently, the Federal Reserve is using the interest on its $4 trillion balance sheet to pay interest on reserves to drive fed-funds above 0%. What the Fed has not yet adopted is the non-linear framework of Near-Zero Monetary policy and that in the 21st century, in a global economy, full employment does not create inflation.
In the framework of Near-Zero Monetary policy, cash trades near 0% stimulating finance. It creates a strong banking system which is able to borrow at 0% and lend out at higher rates. At 0% it enables the national debt to be financed cheaply and the consumer to have maximum purchasing power. Not until cash becomes scarce should yields on cash rise above 0%. Within this framework, the unwinding of the $4 trillion balance sheet, with fed funds near-zero, could be unwound successfully without disturbing the markets. Our fear is, there are no capital market traders on the FOMC and as such don’t fully realize how difficult it will be to sell a $4 trillion balance sheet when short term interest rates are rising.
Friday, August 26th, we sold our long in the US 10yr note at equivalent yield of 1.63% - yields move in opposite direction of price. Early Monday morning, August 29th, we bought back our short in the Japanese Nikkei at an equivalent price of 17,735. We are long $Yen and short Euro$.
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 +30.99% 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.