“True security lies in the unrestrained embrace of insecurity—in the recognition that we never really stand on solid ground, and never can.”

“Uncertainty is where things happen.”

Over the past two long-drawn-out years, we have discussed the idea that market participants swing between uncertainty and complacency. We have also observed that most investors believe asset prices will be protected by central banks, a phenomenon pundits call the “Fed put.” Investors have had good reason to become complacent and believe in the Fed put because the past two decades have trained them to look to the Fed whenever asset prices drop materially. However, that was during an environment of low inflation, or even deflation, when the Fed had the luxury of acting without igniting an inflationary fire.

The Federal Reserve Bank of the U.S., or the Fed, the dominant central bank in the world, has two mandates: (1) maintain a stable value of the U.S. dollar by fighting off inflationary pressures, and (2) maximum employment. As we have presented over the past few months, the Fed had 40 years of deflationary forces—the Non-Inflationary Consistently Expansionary (NICE) period—that allowed it to dampen economic volatility and reinvigorate a bullish spirit through lower interest rates. And as the next recessionary threat came along, the Fed continued to lower rates because it worked so well the previous time. Investors have been trained like Pavlov’s dogs to gobble up more speculative (riskier) assets when the Fed rings the lower rate bell, and with asset pricing being higher than at almost any time since World War II, the dogs have gotten fat.

The sustained lower rates have reduced investors’ sensitivity to “here and now” cash flows, pushing them into higher risk, more speculative investments. What happens if the next bell to be rung is for higher rates?

We now sit at zero interest rates. Even more importantly, we are experiencing high inflation that could be argued is structural in nature rather than transitory. As uncertainty continues to build with war in Ukraine and an ongoing pandemic, many prognosticators look at the playbook of the last 40 years and assume the Fed will continue down that same path of low rates to protect asset pricing and reinforce speculation, pushing inflation control to a much lower priority.

That assumption seems excessively complacent from our perspective and suggests an anchor bias that could present issues into the future. The anchoring of one’s economic view to only the last 40 years omits the stagflation of the 1970’s and it’s impacts on discretionary spending, economic growth, and the rising uncertainty that plagued the investment markets. We sit with conditions that are far different than those over the past four decades. An underinvestment in energy production along with rising tensions between economic and military parties is a clear deviation from the inclusionary tailwinds experienced since the early 1980’s.

To shake off that anchor bias, we recommend Nassim Taleb’s book Antifragile, written in 2012. Antifragile, very haphazardly summarized, posits that most systems exhibit swings or variations due to system stress, and it argues that such stress, although uncomfortable, can help build long-term resilience and strength into the system. Some will see the “swings” as flaws, or system bugs, and will look to limit the system’s negative feedback. When the Fed moves to dampen economic volatility via lower interest rates, it is doing just that. And we are concerned that such efforts could lead to increased economic instability (which would also surprise many) once rates start trending higher.

Reducing the natural variation that stresses a system prevents adaptation and protects inherent flaws, creating fragility under the appearance of everyday steadiness. The ultimate result is a more chaotic eventual path when larger stresses that can’t be “managed” present themselves. The changing attitude to forest fire prevention presents a wonderful analogy. Today we ignite small, localized fires as a means of controlling undergrowth. The small fires remove latent fuel so that accidental fires have less fuel and are therefore easier to control. Several decades ago, however, the idea was only to prevent all fire, which meant larger, more fierce fires when they did come, which were uncontrollable and devastating to the environment.

In his book, Taleb argues that when large, uncontrollable events occur, there are not only some actors within the system that can withstand the turmoil, there are some that benefit from the periods of increasing fragility. He calls them the antifragile. More on this is a second…

As mentioned above, we contend that the last 20 years of Fed increasing actions to thwart the natural volatility within the economy and the markets have led to a perception of lower uncertainty built into the valuation process of risk assets. It worked because they had the inflation headroom to adjust rates lower. A whole generation of investors have been trained to see lower rates as a solution to market turmoil. We are increasingly concerned that the NICE period is behind us, and the Fed will be forced to focus on inflation fighting.

We are not the only ones discussing this conundrum and what it means for the economy and asset prices. Incremental investors are more and more on the lookout for antifragile assets while distancing themselves from fragile assets. By fragile asset we mean those that have their value arriving in the distant future rather than ones that generate (and protect) value in the here and now. Some recent phenomena suggest a move away from fragility. For one thing, growth stocks have come under increasing pressure. Also, blockchain instruments have been halved since the beginning of the year. And innovation stocks are down 60% to 80% over the past year.

One issue with defining anything as fragile or antifragile is that the definition will be dependent on the system one is looking at and the factors that drive it. What was once antifragile may turn out to be fragile under a different context. During the financial crisis, U.S. long-term sovereign debt was a safe haven. Can that be true in a rising rate environment? The jury is still out.

What we at Auour do know is that cash, the basis for valuing almost all assets, is likely to be antifragile if we see pricing of all assets needing to adjust to an inflation-fighting Fed. Our strategies currently hold roughly 25% cash as we continue to crave antifragility.

Let’s start with the idea that inflation is not fleeting, as hoped, but rather it’s becoming embedded in the economy. In our recent newsletter, we discussed the events leading to scarcity, and, we argued, they appear to be driven more by structural causes than by the money-supply. (Money supply has played a large role, but we think it merely amplified the underlying structural issues.) We sit in an unstable position, then, if you believe history is to be respected.

The chart above highlights this instability. The green line shows the long-term historical relationship between inflation and interest rates. The purple line depicts the same relation only for the period encompassing the pandemic. Even if you believe inflation (shown as “core CPI,” on the x axis) is only temporarily elevated, it still argues for a 200bps adjustment in the 10-year Treasury note—from its current 1.8% interest rate to something around 4%. (As an aside, interest rates on mortgages are traditionally tied to the 10-year Treasury interest rate. Could you imagine a world where mortgages were in the 5% to 6% range?)

The distortion is, as has been well-publicized, driven by the world’s central banks pushing down rates. They do so by purchasing government bonds as a means of propping up prices, which lowers interest rates. Their influence is demonstrated in the declining share of sovereign debt held in the hands of private investors, who traditionally are the natural buyers of fixed income instruments.

Global central banks outside the U.S. have been about the only buyers of sovereign debt for the past decade, blurring the distinction between central banks and political bodies. This suggests one of two paths: that central banks will stop buying sovereign debt, letting the private markets once again control the price of that debt and letting risk-free rates move to market-determined levels; or, that political will wins, central banks lose their independence, currencies risk their value retention and inflation continues to run hot.

Central banks, through their massive buying of debt, have created a blackhole in risk-free rates, drawing all income-producing vehicles into that hole. If central banks need to give up on an easy monetary environment to fight inflation, rates across all income-producing products will increase, leaving little opportunity for fixed-income instruments to appreciate. This has some market strategists arguing that more equity within a portfolio is necessary. However, in our view, that comes with its own set of risks.

The first among such risks is over-valuation.

No matter what metric you choose to measure equity values now, we are seeing historically high valuations. The above chart highlights the CAPE (cyclically adjusted price to earnings) ratio, which is horrible at predicting timing, but good at demonstrating severity when (not if) market participants return their focus to values-based investing. While it is true that the future might be different in unknowable respects from the past, the last 100 years of data should humble us all. The chart below looks at 10-year forward returns versus experienced CAPE. All 10-year forward returns from valuation levels near what we are seeing today have been negative. This is also true for 5-year forward returns. (These last two charts should look familiar because we have presented earlier versions before, and they continue to become even more extreme with updated data.) Extremes typically last longer than many expect, but that doesn’t make them any less extreme.

We are not arguing to avoid equities completely. Instead, we are highlighting the need for caution. The 10-year returns following high CAPE periods of the past come mostly from the dotcom bubble, and a few data points are from the late-1960’s. Many of us are not old enough to remember the 1970’s—the period that returned to valuation sensitivity, but a lot of us remember the 2000’s quite well. We do not see the same disparities in valuations as we did during the dotcom period. The dotcom bubble was localized in technology and communication companies, and during that period one could buy tobacco company stocks with double-digit dividend yields and industrial companies at single-digit earnings multiples (i.e., really, really cheap). Not today. The low interest rate environment and the central bank blackhole have brought almost every asset category to historically high valuations.

We sometimes hear that low interest rates drive a lower risk premium and therefore a higher normalized valuation level. But this has only been true over the past 40 years, in the presence of low inflation when rates were normalizing after the Volker period. If inflation persists and rates move higher, history suggests rather that valuations will drop, even for growth companies, a phenomenon the U.S. experienced in the 1970’s.

If inflation picks up, the graph below does not auger well for valuation levels. A negative relationship between P/E (price to earnings valuation) and inflation has existed for the last 100 years. The higher inflation is, the lower the valuation multiples are that the markets will pay for equities.

The question comes down to the path investors take to get to those lower valuations. In some cases, it is through companies growing their earnings into a more reasonable valuation. In others, it will be a resetting of prices to reflect a more modest growth in earnings. The latter is already showing itself in those companies that benefited from the pandemic as some of the benefactors have seen drops of 50-80% from their highs. No matter which, history suggests that the path taken will not be without volatility.

Conclusion

Though valuations can become anchored, making any normalization to historical averages take time, we suspect we will see periods that resemble the shorter corrections (i.e., one- to three-quarter long corrections, not multi-year ones) we have experienced over the past 10 years. Our suspicion lies in the complacency within the investment markets. This complacency has led to high leverage as many believe that central banks will defend assets prices rather than follow their overarching mandate to protect price stability.

If that is not the case and central banks prioritize price stability above all else, it will put significant pressure on those that have leveraged bets to the contrary with the result being margin calls. Correlations of all assets drive towards one when margin is called, fear takes hold, and people run for the exits.

We sit with a 20% allocation to cash across our strategies, expecting better opportunities to move back into a fully invested position.

In this tale of cartographers unintentionally helping to create a landmark, we see an interesting analogy to today’s global economy.

The Federal Reserve and its central bank brethren have moved interest rates to nearly zero as a means of reigniting economic activity. In so doing, they have unintentionally built an ecosystem dependent on low financing rates, which has caused some to claim they have given up on their main mission of price stability.

This newsletter will highlight one example of this low-rate dependency, as well as a potential change in the environment we should all watch, and last, it will touch on an unintended consequence resulting from the low-rate environment.

Evergrande: China’s Lehman Moment?

Headlines have been filled with the news that the largest property developer in China, Evergrande, is struggling with very significant debt and low liquidity. In 2021, Evergrande’s stock price has declined 85% as the markets fear an eventual default. With more than $300 billion in liabilities, should there be a bankruptcy, it would be one of the largest on record.

To put such a default in context, Lehman’s bankruptcy resulted in a bond default of $150 billion. Now, Evergrande’s potential corporate bond default would likely come to less—approximately $200 billion of their liabilities are in buyer deposits and supplier payables—but no matter, the bond default would still approximate $90 billion, almost four times the largest default experienced since 2011.

Currently, Evergrande has missed their September payments on U.S.-dollar denominated bonds. Looking at what’s due in future monthly payments suggests the problem will only get worse.

Many are asking if this is China’s “Lehman moment.” Is this the domino that falls and topples other fragile institutions causing greater value destruction and liquidity constraints? We don’t think this is quite that bad. Lehman was uniquely situated to cause collateral damage because, as a global investment bank, it served as a middleman in transactions amounting to trillions of dollars across the globe. Their default spread across large swaths of global GDP. Lehman’s downfall also happened very quickly, and the U.S. regulators lacked the authority to thwart the collapse.

Evergrande’s troubles are not as far-reaching as Lehman’s, and they have been known for years. Also, China, with its controlled economy, can likely address the property developer’s liquidity issues through its state-owned enterprises.

Just because it is not likely a Lehman moment doesn’t mean the boomtown mentality will hold up within China. Asian property developers, such as Sunac and Greenland (no relation to the country), are experiencing funding shortages while there is concurrently a slowdown in home sales in China. If sales wane, prices likely will fall, too, and the results could be uncomfortable for many.

China’s economy and the wealth derived from it are highly tied to the real estate market. Unlike in the U.S., where housing assets represent about a quarter of household wealth, in China they represent more than 60% of wealth. Housing and the industries tied to it represent about a quarter of China’s GDP. We have discussed the implications of the wealth effect on U.S. consumption, where declining wealth leads to declining consumption. One should assume the same is true for China’s consumers.

With respect to pricing, China’s housing market looks fragile. We were young when it burst, but we still remember the many justifications given for the bubble in Japanese real estate in the late 1980’s, and we hear the same reasons today being used to describe the property situation in China. Economic activity and low rates can create a nice backdrop for optimism, but long-term reality may lead to some sorrow. Chinese home prices as a percent of income are the highest in the world. Low rates allow buyers to think about how much in monthly payments they can afford. However, if rates start to move up, householders’ attention may well move to how much debt they have tied to an expensive asset.

Interest Rates

The push for lower and lower interest rates appears to be in the rearview mirror. The rapid rise in inflation and concerns that it will linger has contributed to global central banks taking the foot off the accelerator and at least modestly tapping the breaks.

Rate hikes are now outpacing cuts (albeit off a low number). Some will see this as a tepid move to a more normal rate environment, but we believe it warrants attention because the global investment markets have become accustomed to easy money. The incremental tightening of money availability may be considered by some to be a radical change. Financial leverage is high and modest shifts in cost of debt and its availability could bring about dislocations to global markets.

The chart above looks at liquidity as defined as the Federal Reserve balanced sheet minus the money that is being placed back with them as a means of finding a safe place to store it. The continued growth in the Fed balance sheet is well known; less publicized is the amount of money going back to the Fed for safe keeping. The purple line is the net liquidity offered by the U.S. central bank. It peaked in April of this year, and we have been experiencing a declining liquidity environment with the rate of decline accelerating.

Keep in mind that the Evergrande troubles were showing themselves long before the modest U.S. liquidity drain shown above and before rate increases were becoming significant.

Blockchains and Digital Assets

The Agloe analogy really hit us as it pertains to the blockchain ecosystem. The unintended consequence of a few cartographers brought about the birth of a real place on the map.

Central banks, in their attempt to stabilize economies, have caused some to create a new town that is independent of central bank dictates. The low-rate environment has brought about concern that governments are in a race to debase their currencies to placate their populaces. The fear has generated a desire by some for an asset that has finite units and therefore a hope that it would retain its value relative to fiat currencies. Bitcoin is the poster child. We are not believers in this fear, at this point, as central banks are still independent institutions that continue to state their main objective of providing price stability. We will see if they can regain trust.

However, the bitcoin phenomenon has birthed a technology idea (blockchain) that has gathered adopters for purposes other than dollar-replacement assets. Blockchain, as a technology, intrigues us as we witness the development of new business models because of it. As personal computers moved computing power to the individual and away from the glass walled mainframes, we see an opportunity for blockchain technologies to drive a continued evolution to decentralization.

The caveat to this intrigue is that we are early, and history has not been kind to the first movers. In the late 1990’s, the internet was promising but nascent. We remember the pitch of many brokers that one should buy a basket of names to participate in the long-term theme of the internet. The idea was to build a portfolio of internet leader that included companies such as JDS Uniphase, Worldcom, Corning, Sun Microsystems, AOL, Yahoo, Cisco, Intel, VerticalNet, Pets.com, Netscape, etc. Many of these were monsters in their respective spaces yet went on to become lackluster performers or outright value destroyers. The returns did not match the enthusiasm and the benefits did not accrue to many of those companies.

We offer this up as an example that optimism on an idea does not always reflect positive future returns to current players. Yet, the optimism is real and some new things are here to stay. Optimism can bring about a new order upon which life is lived. We will continue to investigate the opportunities and threats that may result from blockchain technologies.

The chart above attempts to rebuild a history of U.S. interest rates over the span of the country’s independence. Two items stick out to us from the chart. The first is the low levels of interest rate volatility since the U.S. went off the gold standard. It begs the questions, has the U.S. Federal Reserve mastered the financial engineering of our economy so that past episodes of rate volatility will not repeat? Or are we becoming complacent in future rate movements?

The second item is real interest rates (meaning the yield one can obtain from owning a U.S. 10-year bond minus the inflation currently being experienced) have gone negative and hit a level not seen since 1980 with the chart below offering the more recent history.

Negative real rates have been short-lived throughout history which suggests something needs to change. Either inflation subsides or rates move up. Or a combination of the two. The Federal Reserve governors have recently been communicating a desire to return to a higher and more normal interest rate environment. We fully admit there is a difference between wishes and reality, but the increasing level of communications suggest the stimulative environment may be nearing its end. The dot plot above shows their expectations for future rates through 2023 and beyond.

This upward bias in central bank policy rates is not just a U.S. phenomenon. The number of interest rate rises around the global has been picking up after years of monetary easing as illustrated in the chart below.

There is ample concern within the financial community regarding investing in a rising interest rate environment. And those concerns will only grow if inflation becomes sticky while central banks walk slowly away from low interest rates. The result would be negative real interest rate lasting longer. This is unwelcomed as negative real interest rates are a form of money destruction. For every year inflation grows faster than the risk-free growth of your savings, you will experience a reduction in future purchasing power.

To illustrate the concern, the chart above shows the impact of higher inflation on low-earning government bonds. The chart demonstrates the real value of a long-term government bond (using a German 30-year bond as an extreme example) over the holding period. With a 3% long-term inflation rate, the bond’s value is cut in half over the 30 years. Investors have benefitted the past 35 years from ever lower interest rates and inflation allowing bond values to appreciate. That is likely coming to an end.

This conversation is very much dependent on the stickiness of inflation and central banks’ need to react to it. We are still in a wait-and-see mode when it comes to inflation, but we have modified our Very Crude Inflation Index to include labor costs. The VCII focused on prices of goods (e.g., trade, food, and shelter). The new version (humbly named the Fairly Crude Inflation Index or FCII for short) builds in the change of wages. In a services-dominant economy such as the U.S., the cost of labor will play a role on the durability of the currently high inflation readings.

We are firm believers that inflation can not become a runaway issue until wage growth anticipates inflation rather than reacts to it. At this point, the combination of our measures does not suggest that runaway inflation is a near-term threat. However, as the previous chart shows, even in a low inflation environment, bonds exhibit a negative return profile.

Inflation is an important factor when thinking of the appropriate government interest rate. But it is not the only factor. We want to highlight the chart below which shows the historical association of economic growth and interest rates and where we currently sit within history. The title of this newsletter came to us as we built this graph. We see this as an unstable equilibrium where markets are calm, but the current setting is not likely to withstand a shock.

Lastly, since 2019, our portfolios have favored large, U.S. equities, represented by the S&P 500 index, while limiting our exposure to international equities. Though our cash position has prevented us from fully participating in the current risk-on environment, our favoring of S&P 500 companies over international companies has benefited our clients. Specifically, the S&P 500 has risen 54% over the past 2 years compared to the U.K. equity index (as one example) losing 1% over that same time. Many factors have driven the disparity of returns such as underlying earnings growth and quality of companies. However, the polling results below may suggest other items are contributing to U.S. market optimism.

If you think you could take on a kangaroo and win, maybe you are willing to buy into stretched equity valuations and a tenuous bond market. Our money is on the kangaroo…

“The market always does what is least convenient for the most participants at that time.” – David King, portfolio manager at Columbia Threadneedle

Investing in financial markets brings on many uncertainties. Valuations, a critical element to our investment positions, are built on expectations of the future potential profits. We spend a large part of the day reflecting on the resulting expectations built into global markets, looking for those areas where the gap between expectation and reality move to extreme levels.

Prior to listing them, we thought it important to review the various stages of bubbles as the gap between expectations and reality can drive markets there. Probably the most important item to remember; bubbles spend more time expanding than they do deflating. The cynic may be right in the end but those on the positive side can typically look right longer. Be careful as it can breed over-confidence. So, be warned, in the end, bubbles pop.

Bubbles can impact many aspects of life but those impacting the financial markets grab our attention. We found the graph from Credit Suisse (shown below) interesting. Looking back across many historical asset peaks, today’s global equity markets appear tame. One should not take this as a reason to be bullish, yet it does seem at odds with those signaling imminent doom.

Mind the Gap: Bitcoin

According to the Financial Times “The Japanese exchange at the heart of bitcoin’s recent surge has said its investors are fueling the cryptocurrency’s feeding frenzy as they buy in with leverage up to 15 times their cash deposit”.

We cannot recommend anyone look to Bitcoin as an investment.  We realize that we are on the older side and may not ‘get it’ (the only defense we have heard from proponents), but we would like to think that our relatively deep understanding of technology, company business models, and asset valuation methodologies have built up our understanding of the potential of it and its crypto-currency offspring (tether, ether, etc).

A few facts…

• Up until the last few months, Bitcoin trading was dominated in Japan (30%), Korea (21%), and China (30%+).  (bitcoinity.org)
• The jumps in Bitcoin appeared to be aligned with when China restricted assets from crossing their borders.  Bitcoin offers a method of circumventing country borders, perfect for those wanting out or those wanting to hide acts that may be less-than-legal.
• There is no inherent value that lies beneath Bitcoin that we can see.  It has been proven hackable (not scarce as proposed).  It can take days to complete a trade (low conversion liquidity). And has no defense against quantum computers as that technology matures (expected over next 2-3 years) making it very easy to steal. Article discussing this.
• All currencies that we can think of convey some inherent value.  Typically, the tax revenues of the citizens within a country’s borders can support its currency. Bitcoin does not.  In the case of Bitcoin, there is no claim on some current or future asset.  No tax revenues collected.  No basic materials that can be mined.  The perceived value is in what you think you can sell it for to someone else.  That is the greater fool theory.  The only way we know of not becoming the greater fool is to not play the game.

We would suggest reading this article as an indication of the lack of transparency and risk involved with Bitcoin and its brethren.

As it pertains to block chain, it is a technology that many can build around. Opportunities exist to utilize it for new products and services. However, we suggest leaving that to the venture capitalists at this point. Just our two bitcents…

Mind the Gap: China

China’s banking sector has become the largest in the world, with assets surpassing $34 trillion. At that level, China’s banking sector assets are three times the size of China’s economic output, at $11.2 trillion. Within this article, Eswar Prasad, former China head of the International Monetary Fund states, “The massive size of China’s banking system is less a cause for celebration than a sign of an economy overly dependent on bank-financed investment, beset by inefficient resource allocation, and subject to enormous credit risks.” We would add the mismatch of assets (long-term and illiquid) and liabilities (shorter term and with a high expectation of instant liquidity).

One needs to ask if the low rate environment driven by the US and Europe allowed China’s unstable asset build-up. As monetary accommodation is removed in the US and Europe, it will be interesting to see the impact on China.

Mind the Gap: Interest Rates

We all have been living the last decade in an environment of downward pressure on interest rates. (Some may argue that it has been going on for well over 30+ years and the last decade is the icing on the cake!) As depicted in the chart below, the central bank’s around the world are taking their foot off the pedal with the US slightly tapping the brakes.

We have been discussing the disconnect we continue to see between actual economic readings and interest rates.

Ample evidence suggests as central banks move away from accommodative stances, interest rates around the world can see a material move up. Who can absorb those increases is in question. We continue to think the US and the corporations within it are more likely to sustain growth in a rising rate environment given the large cash levels and healthy profit levels. China and the weaker European companies are our prime concern.

Mind the Gap: Municipal Debt

Outside of death, the only certain thing is taxes. It is this claim on taxes that gives a currency value, funds common services, and allows municipalities of all sorts to take on debt at low rates.

Though the historical default rate of municipal debt is only 0.1%, the trend as shown above is not in the right direction. Jefferson County, AL in 2008, Detroit in 2013, Puerto Rico in 2017. Chicago is in trouble, and Connecticut also. There are ample examples of poor fiscal governance across all levels of government. Unlike the federal government where they can follow you (and collect from you) no matter where you live, states and municipalities lack that luxury.

To add salt to the wound, municipal pension funding is lackluster at best. Current unfunded obligations are $2 trillion. Not only are they underfunded, they have been progressively taking on more risk. As stated in this Bloomberg article, “Federal Reserve data show that in 1952, the average public pension had 96 percent of its portfolio invested in bonds and cash equivalents. Assets matched future liabilities. But a loosening of state laws in the 1980s opened the door to riskier investments. In 1992, fixed income and cash had fallen to an average of 47 percent of holdings. By 2016, these safe investments had declined to 27 percent.”

And if you were hoping to sleep well tonight because you have municipal bonds in your portfolio, you should note that while 55% of municipal bonds had insurance in 2008, only 8% had such insurance in 2016 according to the NY Times.

Conclusion

The global equity markets have experienced a nice year so far. We see reasons to maintain a fully-invested stance. However, there are a plethora of reasons to warrant cynicism and caution. We feel that our algorithms are designed appropriately given the concerns we raised. Time will tell.

Current Model Positioning

Our current stance is to be fully invested yet defensively positioned. Our momentum signals, typically a strong signal for the bulk of a cycle, continue to be positive across most global markets and sectors. Our credit market signals are flirting with a cautionary zone though the credit markets continue to be liquid and stable. Valuation is high though not at extreme levels relative to history. Lastly, our interaction signals, measuring the propensity for a localized disturbance to become a global issue, are stable and constructive. The combination of these signals brings us to a fully invested stance yet defensively positioned.

IMPORTANT DISCLOSURES

This report is for informational purposes only and does not constitute a solicitation or an offer to buy or sell any securities mentioned herein. This material has been prepared or is distributed solely for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. All of the recommendations and assumptions included in this presentation are based upon current market conditions as of the date of this presentation and are subject to change. Past performance is no guarantee of future results. All investments involve risk including the loss of principal.
 
All material presented is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. The information contained in this report has been obtained from sources believed to be reliable, Auour Investments LLC makes no representation as to its accuracy or completeness, except with respect to the Disclosure Section of the report. Any opinions expressed herein reflect our judgment as of the date of the materials and are subject to change without notice. The securities discussed in this report may not be suitable for all investors and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. Investors must make their own investment decisions based on their financial situations and investment objectives.