During our proof of concept we sent out emails after each of our trades to substantiate our modeled performance, it was useful to organize our thoughts and it gave full transparency to those who were following us. As we transition to actual trading for the Fund, we are questioning whether this transparency puts the Fund at a disadvantage and adds our ego into trading. However, as a macro fund we should have an opinion on the market, therefore moving forward we will attempt to articulate our opinion in hopes of providing transparency into our thinking.

The paradigm shift in the valuation of the markets happened after the financial crisis in 2008. What changed was, for the first time since the Great Depression, the supply of cash is greater than demand. This excess supply of cash causes short term interest rates to naturally be 0%. The central banks have distorted this rate by causing negative interest rates in Europe and Japan and positive rates in the US. Nevertheless, the valuation for both the bond and equity markets are affected by short term interest rates and the opportunity cost of where to invest capital. Academics would tell you long term interest rates reflect future inflation but as a practitioner, we would tell you, long term interest rates reflect the opportunity cost of where to receive the best return. Again, the central banks have distorted this opportunity cost curve making long term rates artificially low in Europe and Japan and artificially high in the US. Regardless, when there is more cash than demand, short term interest rates near 0% act as an anchor for the bond market and reduce the volatility for the equity markets as equities behave like perpetual bonds. As equities maintain equilibrium with historic low interest rates, this causes historic high PE’s and without growth this forces companies to buy back stock to keep their returns in equilibrium with bonds. As long as there is no deflation, while the supply of cash is greater than demand, the near zero interest rates will cause global equities to trade like perpetual bonds. In short, while US equities can return better than 2.5% annually, they are cheap to the US bond market and US bonds are cheap to European and Japanese bonds. The fair trade policy of the Trump administration will be achieved through a weaker US$ which will put additional pressure on Asia and Europe and will support US multinationals. Given our US$ outlook, we favor US equities.

Moving forward, the role of the central banks will be critical in maintaining financial stability. This month the Federal Open Market Committee (FOMC) will be debating whether to raise fed funds another 0.25%. Because there is more cash than demand, the Fed's tightening is achieved by paying 1.25% on over $2 trillion of excess bank reserves which costs the Federal Reserve Bank $25 billion/yr in interest and the US Treasury an additional $250 billion/yr overtime on the national debt. Fed tightening hinders the US economy and while there is more cash than demand, any additional tightening might be too much demand destruction for the US economy to withstand. Now that deflation is not a concern, the Federal Reserve Bank should focus on unwinding its balance sheet to help normalize interest rates. If the President and the Fed want to achieve full employment and 3% growth, economist need to stop ignoring the excess bank reserves, enabling the central banks to justify short term interest rates naturally at 0% and enabling businesses and consumers with near 0% interest rates. In sum, we are cautiously bullish on both US bonds and equities until the FOMC announcement. If the Fed tightens, we will stay bullish on bonds but will be cautiously negative on US equities as the US economy risks going into a recession. If the Fed waits for more inflation data before tightening further, and continues with its plan to normalize the balance sheet, we will stay bullish on US equities and become cautious on US bonds as the US economy strengthens.

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 +52.12% with a Graduated 10% Hurdle Rate
In 2017, Fund performance net of all fees is -7.07% 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.