We entered the month long US equities, the German Bund and the EuroYen. In early August, the Bank of China devalued their currency and we took the opportunity to hedge up our German Bund with a synthetic option. As the Greek Debt crisis diminished, causing European debt markets to move into higher yielding paper, our Methodology executed our synthetic option on the German Bund leaving us short. After the Fed minutes were released on the 19th, it became obvious the Fed was not going to tighten in September due to their concern with the world’s second largest economy and our methodology had us sell our long in US equities. What followed was global markets deleveraging causing “carry trades” to be unwound. Both US equities and the US$ suffered but as we wrote in a previous email, “Though we are not confident yet on US equities we are confident in the US dollar. The US economy is on the other side of quantitative easing and therefore as the US economy strengthens so will the US$...” During the market sell-off, we went long the US$ by going long the $Yen and short the Euro$. In addition, we hedged up our German Bund short by going long US 10yrs as we felt, “US bonds are cheap globally and view US bonds as a safe haven against possible further sell-offs in equity markets.”

As markets stabilized, Monday, July 31s our Methodology had us sell our US 10yr long at an equivalent yield of 2.19% for a small loss. This trade leaves us short the German Bund and the Euro$ and long the $Yen making us 75% invested.

Moving forward, we think the de-leveraging is slowing however the global equity markets are still under pressure and might retest their recent lows where we will take the opportunity to go long the S&P. Interestingly, we are watching global interest rates inching higher as deleveraging is reducing demand. We continue to expect the Fed will not to tighten until evidence of a robust economy with full employment and inflation nearing 2%. In sum, we expect the US equity markets to bottom first, stabilizing the Japanese Nikkei and then the German Dax and expect the US$ to resume its strength.

Modeled performance since inception, May 2012, net of all fees is +168.97%
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 30.34% with an 8% Hurdle rate