Market Update & Q&A Video Summary (July 2021):

• Our volatility risk indicator, which is a measure of the implied move in markets over the next 30 days, has shown a small spike recently, but overall, this is not a red flag for us because levels have come down considerably. The CDS spreads, which essentially show the price of insurance on a company going bankrupt, have all tightened or come down over the past year, but we have seen a tiny uptick in high yield credit default swaps. Generally, the rates being lower than they have been in the past doesn’t signal too much stress of default at this time. Bond spreads have historically been in a very tight range, and that trend is continuing to hold, which signals to us at this point.
• Manufacturing has recovered from the dip due to COVID. All in all, US Manufacturing looks good.
• Our treasury chart, which shows the constant maturity or what different time frames of treasuries are paying out in terms of yield, is showing an uptick as people which coincides with concerns about inflation. For decades now we’ve been in this continual downtrend in rates, and now it seems like we may be testing the upper range of this downward channel. A break above could be a big inflation confirmation signal. We will keep watching this indicator.
• There was a recent uptick in overnight reverse repo purchases which could be a sign of liquidity issues. Financial media is mostly playing this off as an arbitrage opportunity being taken advantage of by those needing overnight lending, squeezing a few more basis points of out near zero yield, but we aren’t convinced. This is something we will continue to watch.
• Housing markets still look good. If anything, prices are probably going to continue to rise.
• A recent spike in wages coincides with some of the inflation data that we like to watch.
• Markets keep hitting new highs. Overall, our risk signals and indicators are signaling to us to stay invested. There has been a major cycle shift with value fighting against growth, and sectors like energy making big advances. It seems cycles are moving at much quicker pace than in the past (cycle compression) so the question is, is it going to shift again soon?

Questions from Q&A

1. “What do you think Wells Fargo shutting down credit lines indicates?”
2. “Please comment on the impact of liquidity and surge of new retail investors and valuations across asset classes.”
3. “What does this all mean in terms of current and long-term safe investing?”
4. “Where does crypto go from here, do you favor crypto for investment or the blockchain infrastructure that supports it with multiple applications?”
5. “Can you address gold and crypto trends in general?”
6. “Do you have concerns about investors with such platforms as Robinhood driving up stock prices like what happened with Hertz?”
7. “Isn’t cryptocurrency very energy demanding and not sustainable?”
8. “I am interested in green investing, how do you approach that?”

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Best regards,

The Willow Team
+1 413 236 2980