ALTEGRIS MACRO STRATEGY FUND | MANAGER CONVERSATIONS

ALTEGRIS MACRO STRATEGY FUND MANAGER

Scott Ramsey

CEO and Portfolio Manager at

Denali Asset Management

Mr. Ramsey is the CEO and

Portfolio Manager of Denali Asset
Management, which he founded
in 1994. Before that, Mr. Ramsey
worked as a futures trader and
broker for 14 years, operating
primarily in the financial futures
markets with a variety of Futures
Commission Merchants.
ABOUT THE
SUB-STRATEGY

++ A short-term, discretionary
global macro trading strategy.
++ Draws upon the portfolio
managers experience of more
than 30 years in the markets.
++ Denali Asset Management, is
a commodity trading advisor
with more than $1 billion in
assets under management
as of Dec. 31, 2012.

Denali relies on risk management,

experience to guide short-term
discretionary macro strategy
Denali Asset Management is one of the managers accessed by the Altegris Macro Strategy
Fund. Following is a Q&A about Denalis philosophy and expertise managing a strategy
substantially similar to that which is accessed by the mutual fund.
ALTEGRIS: What is your background and the history of the strategy?
DENALI: I was a mechanical engineering major in college in the mid-to-late1970s, and I took an economics course as an elective that changed the course
of my life. I had a business in college, so I had a little extra money, and I found
myself trading a bit in gold, silver and copper. By the time I was a senior, I
was trading the futures markets pretty actively. During that time, Paul Volcker
came into office at the Fed and started raising rates, and all these bull markets
turned into bear markets. I found myself long silver at $50 an ounce and totally
locked out, and I couldnt get out until $26 an ounce. And it was that situation
that caught my attention. Prior to that, I really had no idea what I was doingI
just bought something and it would go up, then sold it and bought something
else that would go up. Then, when all things went down and I lost money, I
realized I needed to get a better understanding of this business.
So I left college and moved to Chicago in 1980, thinking thats the epicenter of
the futures markets. I started on the floor as a call clerk, then moved upstairs
and worked as a retail broker among other things, and then finally, in 1982, I
had enough money to lease a seat and go back down on the floor. But after
about six months, I realized that the trading floor wasnt the Holy Grail I
thought it was going to be. Standing on your feet yelling and screaming all
day wasnt a great way to make a living. Plus, you were in the middle of the
action, but it was also like putting blinders oninstead of seeing what all the
markets were doing, you could only see what that one market was doing. So I

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ALTEGRIS MACRO STRATEGY FUND | MANAGER CONVERSATIONS

went back upstairs, into the brokerage side of the business

while continuing to trade for myself, and doing business
with customers became a great learning experience for me.
In 1993, one of my clients who was himself a professional
trader asked me to manage some money for him. Id
never managed anyone elses money, so I said I would
try, and if it worked out after a year, then I would consider
registering and starting a business around it. Obviously,
it did work out, and in 1994, we founded Denali Asset
Management. For about the next six years, I was doing
traditional commodity trading advisor (CTA) business
managed accounts of various sizes and position weights
and in 2000, I made the decision that, rather than be in a
relatively small box as a CTA, the best way to go forward
was to be in the larger category of a hedge fund manager.
Today, we have a track record of more than 12 years, 12
employees, and our trading level is at more than $1 billion.

ALTEGRIS: What is the investment philosophy and trading

style for the strategy?

DENALI: If you were to put us in a box, were
discretionary macro traders who are short term relative
to our peersour trade duration is probably three to
five days. What we do is a combination of fundamental
analysis, technical analysis and market relationships.
Ultimately, we make our money when we catch a trend in
the market, and we try to stay with that trade as long as
we get paid to stay with it.
I think that our real strength is our risk management.
When the markets are choppy and were not catching
moves, or were just wrong in our fundamental analysis,
we try to limit the downside so we don't lose very much
money. And the flip side is when things do line up and our
fundamental analysis is correct and we make money, we
can do pretty well. Managing the downside is the most
important thing for us, and the upside typically takes care
of itself over time. Our philosophy is not to be right about
the markets, but to make money in the markets. Theres

a big difference. In trading, you sometimes have to leave

your ego at the door. As much research as we do, and as
much experience as we have, and much as we follow the
markets, were not always going to be right. We approach
everything with an open mind, and the ultimate scorecard
is our P&L (statement of profit and loss). Thats what we
really care about.

ALTEGRIS: How would a typical trade idea be generated,

evaluated and executed?

DENALI: We start out with a fundamental backdrop.
Were trying to gauge whether were in a growth phase
or not, and what that means for aggregate demand at the
margins. So if we have a positive fundamental backdrop
if we think that the economy is going to growyou can
typically express that through various sectors. Then were
looking for the technical analysis to validate the backdrop.
The most important thing is what is leading the moveif
the backdrop is fundamentally positive, were going to
have a list of things that should perform according to that
backdrop. And then whichever ones start to perform first
are the leaders, and those are the ones we want to try to
position ourselves in first and with probably the biggest
positions, and then as the dominoes fall, we tend to start
putting on those trades as well. Thats the process, and the
things that are really important to us during that process
are the leaders and the laggards. If one sector breaks
out and its not validated by another sector, that gives us
information. We want to see a consistent story being told
by the markets versus just a story in one market.
ALTEGRIS: What are some examples of trades youve

implemented?
DENALI: I want to flash back a little bit, to when we were
approaching Y2K. What was interesting in the late-90s,
of course, was that it was all about the equity market.
In addition, the unemployment rate was below 5%, and
yet, we werent generating inflation. So, if were hitting
on all cylinders and were not generating inflation, what

Managing the downside is the most important thing for us, and the upside
typically takes care of itself. Our philosophy is not to be right about the markets,
but to make money in the markets. Theres a big difference.
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ALTEGRIS ADVISORS

DENALI ASSET MANAGEMENT | SCOTT RAMSEY

would happen to inflation if the economy happened to

slow down? It seemed very clear to me that there was
only one way that this market was going to go after the
millenniumwe were going to see a slowdown. We had
all this fear and spending around Y2K, and once that
spending subsided, we were going to have a letdown in
the markets. Aggregate demand was going to fall a little
bit, and President Clinton started running a budget surplus
and thats contractionaryso the writing was on the wall
that things were going to slow down. That created the
fundamental backdrop where, once it was confirmed, we
started positioning ourselves long fixed income, betting
on lower yields, and we rode that trade for a long time.
Another trade example took place during the financial
crisis. What was interesting about 2008 was early in the
year, Bear Stearns was the first hedge fund to blow up, but
the market didnt really react very much to that. Initially,
you had a downdraft and then stocks started coming
back. We were still debating into June or July whether
we were having a recession, even though this steamroller
had started to hit the economy. It wasnt until President
Bush and Secretary of the Treasury Paulson got on TV and
said, if we dont bail out the banks then you might not get
a paycheck on Mondayvirtually from that moment on,
spending in the entire economy halted. And that created
a great tradeshort equities, long fixed income, long
dollarsand led to another nice run for us in the market.

ALTEGRIS: What are your primary competitive edges?

DENALI: I think disciplined risk management on top
of many years of experience in the markets is an edge
for us. Its hard to duplicate somebody thats traded for
more than 30 years through recessions, inflations, crises,
etc. On top of that, our risk management is probably our
greatest strength. Im the single largest investor in the
program, and I dont like to lose money. Were not always
going to be right; we understand that. Our results in 2012
were a great example of thatwe made money in May
and gave it back in June, and then asked ourselves: From
a macro standpoint, everything that we thought was going
to happen did happen, and yet we had nothing to show for
it. You had Greece implode, you had Spain about to go,
Italy was nextyou had all these things happen that if you
were bearish, you shouldve made money. But we didnt
make money. So what did we learn?

ALTEGRIS: What are the primary risks involved in pursuing

the strategy?
DENALI: Theres always event risk, where you go home
with certain positions and overnight something happens.
Thats been there throughout our 12-year track record,
and itll be there for the next 12 years. But when we lose
money, its generally in one of two ways. One is death by
a thousand cuts. And the second is, after weve made a lot
of money, were subject to big trend reversals and we give
some back. Its extremely rare for us from a standing start
to say: Weve got an idea, now lets put on 4-5% of risk and
hope that it works. Thats just not how we do it. The times
that we lose money, its either were trying to understand
the markets and getting into things and getting stopped
out, or weve had a nice run and then something changes
that we didnt anticipate soon enough, and we give back a
portion of what weve made.

ALTEGRIS: What role can your strategy potentially play in

a diversified portfolio for an investor?

DENALI: If you look at our record, in virtually every
major crisis, weve done well. Now I cant say that we
always will, given that past performance is no guarantee
of future results. But the way we look at the markets is that
different sectors have to validate our expectationsand
that really keeps us out of trouble and hopefully keeps us
on the leading edge of these moves. Were macro, were
a trend follower, but were short term, so we dont really
correlate with anybody. We dont correlate very much,
if at all, with other macro managers. We dont correlate
with the CTA community very much. We certainly dont
correlate with long-only equity or fixed income strategies
either. So youve got this non-correlated component of
a portfolio that has the potential to act as a great hedge
in times of turmoil, and if we dont perform that role, we
generally wont hurt you either. In our opinion, were not
the guy thats going to hurt you in a crisisand we might
be the guy that helps you a lot.

There is no guarantee that any investment will achieve its objectives, generate profits or avoid losses.
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RISKS AND IMPORTANT CONSIDERATIONS

It is important to remember that there are risks inherent in any investment and there can be no assurance that any investment product or
strategy will achieve its objectives, generate profits or avoid losses. The statements contained herein reflect the opinions of Scott Ramsey
and Denali Asset Management, and are not necessarily those of Altegris Advisors, LLC. Certain statements are forward-looking and/or based
on market conditions at the time of writing, manager expectations, projections, and information available only to Denali Asset Management.
Such statements may or may not be accurate over the long-term and are subject to change without notice.
The strategy discussed is only one component of the overall strategy utilized in the Altegris Macro Strategy Fund, and should not be the only
consideration for investment. Any securities or sectors identified do not represent all of the past or current holdings in the fund or strategy of
the manager. Although a certain type of security or sector may have been featured as a top performer, there are other securities that were not
mentioned that may have been underperformers. The reader should not assume that any sectors or types of securities discussed were or will
be profitable and reference to such sectors should not be construed as a recommendation or investment advice of any kind.
Mutual fund investing involves risk including the possible loss of principal. The investment expertise of the portfolio manager may prove to
be inaccurate and may not produce the desired results. The managers judgments about the attractiveness, value and potential appreciation
or depreciation of a particular security in which the fund invests may prove to be inaccurate and may not produce the desired results. The
risks specific to the Altegris Macro Strategy Fund include commodity risk, credit risk, derivatives risk, fixed income risk, foreign currency risk,
foreign investment risk, issuer-specific risk, leverage risk, liquidity risk, management risk, market risk, non-diversification risk, short position
risk, structured notes risk, taxation risk, underlying pool risk, and wholly-owned subsidiary risk.
Altegris Advisors LLC is an SEC-registered investment adviser that advises alternative strategy mutual funds that may pursue
investment returns through a combination of global macro and/or other investment strategies.
Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund. This and other
important information about a Fund is contained in a Funds Prospectus, which can be obtained by calling (888) 524-9441.
The Prospectus should be read carefully before investing. Funds are distributed by Northern Lights Distributors, LLC member
FINRA. Altegris Advisors, Denali Asset Management and Northern Lights Distributors are not affiliated.

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best alternative investments for our clients. For more information about efficient solutions for financial professionals and individual
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