We don’t expect the Fed to tighten next week but without a threat of a Fed tightening the US$ will continue to weaken. Ever since the Plaza Accord in 1985, which marked the beginning of globalization, the US$ was devalued to level the playing field for US workers and US products to compete globally. Without a strengthening US$, the exporting nations in Asia and Europe will be under pressure to generate growth without a US consumer purchasing cheap goods. That is why we like US equities over global equities.
The European Central Bank chose not to push short term interest further negative and we suspect the ECB will introduce capital in the equity markets. We believe the ECB recognizes that negative interest rates are deflationary because the effect of monetary policy is nonlinear and parabolic at 0%. As interest rates gravitate back to 0%, we expect the yield curve to widen. Again we like US bonds over global bonds.
As both the Federal Reserve and Bank of Japan hold their monetary policy meetings next week, it will be the Fed that communicates first. We believe the Fed will not pay more for excess bank reserves but will wait for the US economy to naturally use up bank reserves before driving interest rates higher. The wild card is the BOJ which is quickly running out of ammunition to stimulate domestic growth. The Japanese treasury in debt 250% of GDP is keeping interest rates low to allow the treasury to pay its debt but needs economic growth to sustain itself. We believe the only course of action is a weaker Yen until the Japanese economy can right itself. Our fear is, the central banks are all applying different tools to solve the same problem, deflation and the lack of coordination puts the global economy at risk.
On Wednesday, September 14th on the close, we sold our short in the synthetic option in the Euro$ at 1.240 leaving us long and sold our long in $Yen 102.40. Currently, we are long the S&P and short the Japanese Nikkei, long Euro$ and short the German 10yr bund.
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 +37.33% 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.