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

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

• Our volatility risk indicator, which is a measure of the implied move in markets over the next 30 days, has shown a slight uptick, a little bit above the recent average, but overall, this is not a red flag for us. 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 which is saying to us that there is not a high probability of default in many publicly traded companies. High yield bonds have moved up since the beginning of April, but it is a very small movement, which doesn’t signal a massive risk warning, just that we need to continue paying attention. Bond spreads have historically been in a very tight range, and that trend is continuing to hold.
• Our treasury chart, which shows the constant maturity or what different time frames of treasuries are paying out in terms of yield, continue to be on the downward trend that started in the 80s. In 2020, the rates came up and caused some increased volatility in markets, but the long-term trend is still pointing to lower rates, potentially negative interest rates, down the road unless we see a breakout of that channel.
• Manufacturing has recovered from the dip due to COVID. All in all, US Manufacturing looks good.
• For consumer health, overall the trend is okay. There are some mixed signals around the consumer. We’re about 10% higher than pre-COVID levels in terms of consumer spending, which could be due to pent up demand or inflation.
• About 87% of S&P 500 companies have reported positive, or had beat their earnings projections for Q1, which is significantly high. This was mostly expected because of the previous quarter’s low numbers. We’re also experiencing a sector rotation where there has been this massive run-up in tech companies, or high beta companies, and now we’re seeing a lot of rotation out of those companies. This signaled to us to pull back on our positions in this sector.

Questions from Q&A

1. There’s been some uptick in volatility recently and some broad negative chatter in the news. Could to speak to what some of the volatility and sentiment-driven discussions might be geared toward and how that would affect things?”
2. “Why haven’t Trump’s tariffs been lifted and do you expect that they will be?”
3. “Do you believe the Fed is right, given the soaring prices in everything from lumber to labor, that prices will drop once COVID 19 fades away?”
4. “Are natural resource stocks a good inflation play given their positive correlation to inflation?”
5. “There are many in the investment community that have predicted the death of the 60/40 structured portfolio. Do you believe, given record low interest rates, a bear market, high multiples, and constant uncertainty, that the 60/40 portfolio will continue to be recommended by some asset managers?”

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Best regards,

The Willow Team
+1 413 236 2980

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

• Our volatility risk indicator, which is a measure of the implied move in markets over the next 30 days, continues to be benign after having come down considerably since COVID. 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 which is saying to us that there is not a high probability of default in many publicly traded companies. However, we are concerned about the amount of debt we’re taking on and the amount of money that’s being printed and put into the system, we think that is ultimately going to be a problem. Bond spreads have historically been in a very tight range, and that trend is continuing to hold.
• There’s been a lot of talk in the news lately about Government bond interest rates. When you zoom in and look, you can see a little tick up in yields, but when you zoom out and look at the longer-term trends, it’s still very much in that downward channel that has been going on for decades. We are continuing to monitor this metric.
• • Another chart we are looking at is M2, or money supply, which is the supply of dollars that are believed to be floating out there in the world, versus the velocity of money, which measures how often a dollar is exchanged between parties before it ends up back at a bank. A sign of a very healthy economy is a very high velocity rate because that means that people are actually out there exchanging, spending, and buying and not just hoarding or saving wealth. Because of monetary and fiscal responses to COVID, the supply of money increased considerably, while the velocity of money decreased. This is not a trend that is healthy long-term. We think this could lead to secular inflation, and we will continue watching this metric.
• Another good indicator we watch is the TED Spread, which is another way to look at overnight lending between banks, currently this metric is relatively flat so that is a positive sign, signaling a lack of stress in these markets. Our manufacturing health index shows that we have recovered to back where we were before COVID, which is a healthy sign.
• As for the markets, technically, the S&P500 broke above a key resistance level, so there is no point of resistance above us at the moment. Individual sectors are also breaking out to multi-year highs. The current areas of interest are energy, financials, communication services and discretionary. Technology and industrials are under performing after going through a cycle of outperformance, but the entertainment and travel industries are also breaking out to new highs. We believe markets are a discount mechanism that predict conditions ahead by about six months and the data follows. What we are seeing in markets now is signaling to us that perhaps the recovery here is stronger than most people would expect.

Questions from Q&A

1. “Is Coinbase a finance company, tech company, or a discretionary company?”

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The Willow Team
+1 413 236 2980

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

• The volatility risk indicator, which is a measure of the implied move in markets over the next 30 days, has come down considerably since COVID. Right now, fixed income is trending higher than equities, which is something we are watching. The credit default swap spreads, which show the price of insurance on a company going bankrupt, are looking pretty good to us. The three different areas these spreads cover, from high yields to investment grade and emerging markets, have all pulled back considerably since March of last year. We will continue watching it, but this isn’t signaling anything that would raise our eyebrows at this point. Bond spreads, which shows true trades, are historically very tight which is signaling improving economic conditions, according to this metric.
• Consumer spending has been trending positive and it is only, according to this metric, down one percent from pre-COVID levels, which is a good sign for the consumer. COVID rates are continuing to drop. At the national level, it’s down to 19.2 cases per hundred thousand. Though Europe is seeing an uptick, as a whole it has been trending down. People are spending much more time outside of the home. The group that’s been moving the most since November/December has been airlines, hotels, the leisure space a whole.
• Manufacturing is back to where it was pre-COVID, we are continuing to watch to see if this trend holds. Though interest rates have been trending downwards for decades, we are starting to see yields back up. The Fed has not yet moved to raise interest rates, but the market is naturally going in that direction. After 40+ years of interest rates trending down, seeing a bounce from the bottom is not that surprising, but it is something to watch.
• In the markets, we are seeing small and medium sized companies outperforming larger companies over the last several months, which is a trend that we think is going to continue forward. We decided to start dipping our toe into global markets. After significantly underperforming the US market for at least a decade now, we finally think it’s time to gain exposure in that area. The market S&P500 looks good, it has broadened out which is a healthy sign. We are continuing to watch interest rates, but this broadening means there are more participants in the market, which is also a healthy sign.

Questions from Q&A

1. “How do we know if the interest rates rising recently is just a little bounce before the 40-year downfall continues or if it’s something different?”
2. “Are we vulnerable in the cryptocurrency space because of some of the countries that own bitcoin mining?”
3. “Can you explain more about the different stocks shown on the Markets – Sectors slide?”
4. “Which commodities could be invested in as a necessary staple given what’s happening now and, I imagine, a lot of the fear that’s going to continue?”
5. “Any idea when we’ll know if rates will continue to go up, and then in the meantime, is there a good place to put short-term cash while waiting for some transparency there or some resolution?”
6. “Do you believe the safe high-yielding bonds that have traditionally served as a portfolio shock absorber have become scarce?”
7. “Do you have concerns about rising inflation given the rising costs for things such as labor, freight, energy, commodities, corn, soybeans, etc. Economists are saying that they’re predicting 3.5-4%, do you have any predictions for consumer inflation by 2023?”
8. “How do you get exposure to global markets?”
9. “You said you were making a shift more toward the industrials and financials, what about utilities?”
10. “I’d like to find out, how do I contact you to have a private meeting and consultation?”
11. “Do you believe the administration’s tolerance of higher long-term interest rates is all but certain to arrest the stock market advance, and share prices lower?”
12. “What would your opinion be to consider a portfolio asset allocation that embraces the following, given the current economic environment and rising rates: would you select stocks that pay dividends consistently? Would you be looking at defensives like healthcare, telecom, utilities, and companies with pricing power? Hard assets like rental housing? Gold mining?”
13. “Do you think the value of the dollar going to stay somewhat stable? Are we still going to be strong?”

To set up a meeting to discuss your portfolio, please click here or give us a call.

Best regards,

The Willow Team
+1 413 236 2980

Market Update & Video Summary (February 2021):

• Our proprietary volatility index, which includes all of the indicators Alexandra has looked at for 33+ years, as well as a few new ones, continues to show low level volatility. Not a lot has changed since our last update, most of the risk indicators are generally in the same area.
• CDS spreads have come down considerably since the COVID scare. This means that the risk of default for many companies is considerably low. Bond spreads were the first indicators that showed us there was a problem back in 2007. If we see spikes in this chart, it is a sign to pay attention, but now they have been generally flat. We also look at these spreads for individual bonds that we hold in your portfolios daily.
• As for the economy, interest rates are slowly starting to back up, and that could sometimes be a signal that this liquidity boom that we’ve had for a number of months, years really, is starting to slow down. This is something we’ve been continually watching. Manufacturing and industrial productions have had a massive recovery. We’re looking to see if this levels out or continues to turn positive. The more this pushes into positive territory, the more encouraged we are that the economy is going to continue on as it has been.
• Many of your positions have run up exponentially and we’ve taken profits where appropriate. With COVID coming down at a much stepper velocity than previous downtrends, we are very encouraged.
• Our markets are hitting all-time highs and we’ve added things to your portfolios that we haven’t looked at in years. We’ve recently added some positions in energy and financials, which we’ve been underweight in for a while. The valuations look very compelling and it appears cycles are shifting. We also took some positions in industrials, consumer discretionary, and technology.
• We continue to pay attention to the cryptocurrency space, some smaller positions we opened awhile back have been doing fairly well. We believe cryptocurrencies, Bitcoin and Ethereum for example, have very strong tailwinds behind them. It is an entirely new asset class, it’s emerging, being adopted, and we believe they’re going to continue being adopted, but we do we expect significant volatility here.

Questions from Q&A

1. “With Bitcoin and Ethereum being priced so high, is there anything else in this space that you see as a rising star?”
2. “Can you explain a little more about the tailwinds and the smart contracts associated with Bitcoin?”
3. “How does the transaction happen in Bitcoin, or what is Bitcoin denominated in?”
4. “Do you believe inflationary pressure will increase interest rates and the need to seek income out of stocks?”
5. “Does your research look for small cap companies with executives who act as owner-operators, meaning those with large insider ownership?”
6. “If the COVID 19 relief bill goes through, what are the long term and short term impacts?”
7. “What are the implications of the GameStop situation going forward?”
8. “If you could advise the government, what is it that they’re supposed to be doing regarding COVID 19 relief?”
9. “Do you think that the large cap banks have been too complacent in the FinTech race?”

To set up a meeting to discuss your portfolio, please click here or give us a call.

Best regards,

The Willow Team
+1 413 236 2980

Market Update Summary (December 2020):

• Our proprietary risk algorithm looks at 14 points of economic volatility. Risk levels have come down significantly and continue to do so. The economic volatility has returned to pre-pandemic rates. The markets are holding steady and there is no warnings flashing.
• We’ve had a large-cap-based market advance over the last several years. We are beginning to see mid- and small-cap positions breaking out. This is typical for January time frame in an annual cycle, but this is encouraging that recovery may be trickling down to middle and smaller companies.
• Pre-COVID we were operating at the best economy we have seen. The market is beginning to show a more distributed recovery, meaning additional health in the overall economy.
• We are right at the point of potential breakout for some international positions. Some regions are reaching new highs. We haven’t liked the look of international markets for a while, but now we are ready to begin taking on some strategic international exposure. 
• Markets can always be propelled higher – easy money and near-zero interest rates can trump everything in the economy. We are seeing this in the S&P 500 and other charts that continue to grow despite other factors like high poverty and unemployment rates.
• The technology sector looks strong and shows no sign of waning. We continue to hold positions here and take on new strategic positions. We have also added strategic positions in consumer staples and industrials to reduce risk in the portfolio.
• The cryptocurrency sector is gaining broader adoption from large companies and even mid-size companies. We liken this disruptive technology to the emergence of the Internet. We believe 98% of the cryptocurrency market does not have viability, but we are taking small positions strategically in the areas that are showing longer-term sustainability.
• We look at trends and what those indicate. One trend we are planning for is Millennials coming into a massive transfer of wealth and the changes that will come with that: cryptocurrency, socially-responsible investing, etc
• Another trend we see is the US dollar losing its position as the reserve currency. We may see this replaced by a basket of world currencies or digital currencies.
• SPACs are coming back into popularity. SPACs are a way to have exposure in private companies, often focused on disruptive technology. SPACs provide a safer way to invest in disruptive technology. We have taken strategic positions in two of these and have to plans to add any more unless we see a strong manager.
• We exited REITs (real estate holdings) a few years ago when our indicators let us know it was time. They have since performed badly. Our current small real estate positions are in the Class B space focused on the technology space, such as warehouses that house servers, etc.

As always, we continue to diligently track current market conditions and future economic outlooks so we can position our clients as strategically as possible.

We wish everyone a holiday season of peace and gratitude. See you in 2021!

To set up a meeting to discuss your portfolio, please click here or give us a call.
 

Best regards,

The Willow Team
+1 413 236 2980

Market Update Summary (November 2020):

• • Our proprietary algorithm looking at 14 points volatility are pointing to a low expectation that markets will be unstable. Risk levels are generally slightly elevated, but the trend is going in the right way and measures point to a relatively settled market for the next 30 days.
  • We love watching bond spreads because they don’t lie. We’re seeing a good trend here pointing in the direction of less risk in the market, coming down significantly since February.
  • Another leading indicator we watch, credit default swaps, is also trending in a good direction.
  • Consumer health data is showing a remarkable recovery. It’s possible this data shows a recovered consumer because lower-income buyers, who have been disproportionately affected by the pandemic, are not reflected strongly in consumer buying habits like home buying, etc.
  • The manufacturing sector has rebounded well from earlier this year.
  • The US market still looks exceptionally stronger than the rest of the global market, especially Europe and Emerging Markets. It is the US tech sector that continues to keep US markets high. We don’t see this changing anytime soon, although we are making selective, strategic purchases in the global market.
  • Value stocks tend to do well with a Democratic president, and we did see a bounce in energy and finance sectors once the election results were announced. Those are the only sectors in the value camp that have made our watch list. Growth stocks are still outperforming values stocks because of the tech sector. We are seeing some patterns in growth vs value stock performance looking a lot like the 90s.

So in light of these assessments, we continue to diligently track current market conditions and future economic outlooks so we can position our clients as strategically as possible.

We wish everyone a holiday season of peace and gratitude.

To set up a meeting to discuss your portfolio, please click here or give us a call.

Best regards,

The Willow Team
+1 413 236 2980