Both Japan and Europe are artificially using negative interest rates to keep bond yields low to enable sovereign debt servicing at the cost of deflation. Contrastly, the Federal Reserve is artificially pushing yields higher by paying interest on the excess bank reserves in the name of normalization, also at the cost of deflation. To reiterate the mathematics of the Impact of Monetary Policy is deflationary when the Natural Equilibrium of Interest Rates is 0% when excess bank reserves are positive.
If the Trump administration is going to be successful in funding their infrastructure growth the Fed should allow fed funds to naturally settle at 0%. A wider yield curve will support the banking system, consumer credit and keep debt financing low. When excess bank reserves are positive rather than 0, the central banks have the opportunity to allow short term interest rates to be 0% to drive growth. Not until demand matches supply in bank reserves will the central banks need to be concerned about inflation. Lastly, a stronger US$ is deflationary for the US giving the Fed time before inflation becomes a problem, when excess bank reserves return to a supply and demand equilibrium of 0.
Clearly, the Fed has not embraced Monetary Policy in a Global Economy and any tightening would be shock for the US and global economy and the central banks in Asia and Europe would be at risk of losing control of their bond markets. A further rise in yields due to a tightening by the Federal Reserve could cause a global sell-off of both bonds and equities creating a negative loop as the markets reprice for higher yields. In sum, the Fed should wait until the US economy uses up all its excess bank reserves which will naturally raise interest rates with the increased demand. Legally, Unicorn Funds closes all their positions at the end of November if our returns are greater than 20% net of fees to avoid any illiquidity during the holidays, therefore we are less concerned moving forward as we will have no positions until January 2017.
Wednesday, November 16th we bought the Euro$ at 1.0680 to hedge our short in a synthetic option. Currently, we are long the German Dax and hedged in a synthetic option in both the $Yen and Euro$.
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 +46.59% 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.