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Mr. Market's Assault On Trend Followers

Mr. Market is a cruel taskmaster and he has been especially cruel on those who earn their living following market trends over these past five years. He has provided so many mixed signals that about the only thing investors can agree upon is that eventual this is probably all going to end very badly!

Mr. Market strength has been amazing! Time and again he has saved the stock markets from any kind of corrective action, just as trend following models flash sell or short. He has been vindictive as he has then hits the accelerator on his powerful market tools to speed away from those poor trend followers who must now wait on their models to reset to get with the new trend.

Always one step ahead, he allows them to get in sync, just in time to slam them with another fast corrective move. So frustrating! So managed!

Is it any wonder the trend follower is Mr. Market's target? During the 2007-2009 Financial Crisis, the trend followers were the "belle of the ball", many gaining 50%+ returns in 2008. (see blue box in chart below) So it will be again someday soon one would think, but when Mr. Market?

In Mr. Market's mind, if he is to take from the rich (i.e. every investor), he must make sure no one profits from the next melt down. This extended drought for the trend follower is no doubt Mr. Market's attempt to make sure that not one survives.

Well I've got news for you Mr. Market, we will survive and we will profit and protect client assets in the next major meltdown. A meltdown I think grows closer everyday!

Until that day, here is how the sample model portfolios have done versus the trend followers and Mr. Market (as measured by the S&P 500): (little kids may want to cover their eyes!!)

You can also clearly see the outperformance in the past financial meltdown. You can also clearly see the market under performance since.

They say markets are mean reverting. So where are you going to put your money with the current bull now running longer than the average bull market in terms of months? At this point, I think the safest place to be is right here!

Disclosures:PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE performance is proforma based on the signals generated from our trend following models and does not take into consideration the cost of commissions, slippage or exchange fees. Neither the Equal Weight Stock-Signal Strategy nor Global Opportunities Stock-Signal Strategy are generating actual performance, just back-tested performance.The Equal Weight Stock-Signal Strategy is a portfolio equally weighting trend following signal positions in the Nasdaq Composite, S&P 500, High Yield and EAFE Indexes. Each position has a separate trend following model and can be either long or short at any given time.The Global Opportunities Stock-Signal Strategy is a portfolio that is composed of 15% S&P 500, 15% Nasdaq Composite, 15% EAFE, 15% High Yield, 15% DB Commodities, 15% Gold and 10% U.S. dollar. Each position has a separate trend following model and can be either long or short at any given time.The Newedge CTA Trend Follower Sub-Index is equal-weighted and reconstituted annually, and has become recognized as the key managed futures performance benchmark. The index calculates the daily rate of return for a pool of trend following CTAs selected from the largest managers open to new investment. The index is designed to accurately reflect the performance on the managed futures space.The Nasdaq Composite index is a market capitalization weighted index of more than 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks. The index includes all Nasdaq listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debentures.The S&P 500 is a capitalization weighted index of the 500 leading companies from leading industries of the U.S. economy. It represents a broad cross-section of the U.S. equity market, including stocks traded on the NYSE, Amex and Nasdaq.The MSCI EAFE Index is a benchmark of international equity performance. It represents 21 MSCI country indexes, representing the developed markets outside of North America: Europe, Australasia and the Far East.The High Yield index is really the iBoxx USD Liquid High Yield Capped Index which consists of liquid USD high yield bonds, selected to provide a balanced representation of the broad USD high yield corporate bond universe.The Deutsche Bank (NYSE:DB) Liquid Commodity Index (DBLCI) was launched in February 2003. It tracks the performance of six commodities in the energy, precious metals, industrial metals and grain sectors. The DBLCI has constant weightings for each of the six commodities and the index is rebalanced annually in the first week of November. Consequently the weights fluctuate during the year according to the price movement of the underlying commodity futures.The London Gold Index is an index of daily price fixings of gold as determined by the the five members of the London Gold Pool (Scotia-Mocatta, Barclays Capital, Deutsche Bank, HSBC and Société Générale). The London spot fix price is the price fixed at the moment when the conference call terminates.The U.S. Dollar Index is a measure of value of the U.S. dollar relative to majority of its most significant trading partners. This index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies. Currently, this index is calculated by factoring in the exchange rates of six major world currencies: the euro, Japanese yen, Canadian dollar, British pound, Swedish krona and Swiss franc. This index started in 1973 with a base of 100 and is relative to this base. This means that a value of 120 would suggest that the U.S. dollar experienced a 20% increase in value over the time period.