Omni Macro Fund continued its streak of negative returns – the fund was down 0.64% in November, trimming down the year-to-date return to -5.7%. The HFRX Macro/CTA Index rose 0.32% in November, whereas the HFRX Global HedgeFund Index was up 0.55% in the same period.
France, the weak link
Despite favorable results in other holdings, the fund’s returns were offset by the rebound in the euro, the monthly shareholder letter notes. The fund detracted in its short bets in euro, which were expressed through short position and short EURJPY positions. Omni Macro expects the euro area to experience deteriorating growth, specifically because of continuing weakness in France. In the manager’s words, “To our eyes as goes France, so goes the Euro Area, and as goes France, the prospects are not encouraging.”
Omni Macro is likely baffled by the resilience of the euro just as several others are. The currency just keeps going up irrespective of what the weaker links of the eurozone are facing. As Alen Mattich points out in his article published in the Wall Street Journal today, the key is deflation. Europe is looking at consistently lower inflation and is starting to look more and more like Japan. The eurozone is hampered by demographics as well; just like Japan, the proportion of older people is high in Europe.
Omni Macro also started a short in Oil after Iran’s nuclear deal was announced that now gives relief in some economic sanctions and allows it to export oil. Omni sees a gradual increase in supply of crude oil and coupled with the weak demand in the developed world, oil prices are expected to go down, in the fund’s analysis.
The fund holds a long Nikkei/ short Russell position as well as shorts in Japanese sovereign bonds.
Omni Macro: Obsession of central banks
The monthly letter comments on how central banks around the world have made interest rates the prime target of their monetary policies. These institutions are bent on keeping the volatility and rates at low levels and start an intervention whenever markets react in an unwanted fashion. At the current rate, the unemployment rate, which is watched to assess how much longer QE will be needed, are projected to achieve current targets in late 2014. The letter notes how much these central banks want to avoid taper, so much so that they have talked about lowering the unemployment threshold. Omni Macro thinks that anticipation of a policy shift moving the central banks from dovish to hawkish will be the major theme next year.