Market Update + Q&A, February 2021

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?”

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Best regards,

The Willow Team
+1 413 236 2980