This month each of the advanced central banks in Japan, Europe and the US will all meet separately and determine their monetary policy moving forward. The market recognizes the Fed can not tighten as manufacturing and the US economy are slowing down. Though the Fed threatens a tightening, the US$ is weakening and US equity markets are firm as the expectation for a Fed tightening is low. Without a stable to firm US$, the exporting nations in Asia and Europe are under pressure. The question moving forward is, can the strength in the US equity market support Asia and Europe as the US$ weakens?
The Bank of Japan will continue to make capital available but as they realize negative interest rates are deflationary and unsustainable the BOJ is moving to the equity market to introduce additional capital. As negative interest rates move back to 0%, the central banks recognize the nonlinear effect of monetary policy and that it is parabolic at 0%. Consequently, we do not expect the European Central Bank tomorrow to push reserve requirement rates further negative as they too are beginning to realize negative interest rates are deflationary and unsustainable.
Our hope is the Fed begins to recognize that by paying interest on excess reserves is deflationary and unstable. Without their $4 trillion balance sheet to pay interest on the excess bank reserves the Fed could not sustain fed funds at 0.25% - 0.50%. Without Fed support fed funds would gravitate to equilibrium, currently at 0%, until excess bank reserves become scarce again. Therefore, we humbly suggest the Fed let fed funds trade at their equilibrium yield of 0% and begin to sell their balance sheet to to widen the yield curve to support the banking industry and to prepare their balance sheet for the next financial crisis. '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 interest rates are rising.'
On Tuesday, September 6th on the close we covered our short in the German Dax at equivalent index price of 10,685. Wednesday, September 7th early morning we sold the Japanese Nikkei at equivalent index price of 16,960. Later that morning we sold the German 10yr bund at an equivalent yield of -0.125% - yields move in opposite direction of price. We are currently long $Yen, short the Japanese Nikkei, short the German bund and hedged in a synthetic option in the Euro$.
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 +31.07% 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.