Refinements - 2021

Over the last several months, I have spoken with many subscribers about a few topics, including how they use the weekly publication and the recent practice of increasing Box #2 Cash.  This note summarizes the main points of these conversations and how the publications may change in response.  I hope to implement the changes before the next Plant season. Before discussing the refinements, I’d like to say that it is very helpful for me to hear your opinions of the portfolios; thank you.  My main objective is to make disciplined investing work for you.  The model portfolios and weekly publications are a means to that end.

A few main themes from subscribers and my comments:

·         Generally speaking, people are much more comfortable trading ETFs now than they were years ago.  When I first started over seven years ago, people wanted to trade just a few ETFs and were bothered when trades were clustered (meaning, for example, buying shares of UST one week and selling shares of UST the next).  I initially created model portfolios with one to four ETFs, and I intervened in the algorithms when I believed trades would soon be reversed.  Going forward, we will have portfolios with three to five or so ETFs, and I will not intervene to reduce clustered trades.  

·         Some people trade only a few of the ETFs in their selected portfolio.  In order to get the highest return with the lowest risk, one should trade all ETFs in the portfolio.  The only optional ETF is “SHY,” which has a cash-like return right now.  In a year or two, it may have a higher return, so I temporarily label it “optional holding,” and the corresponding amount of cash should be held as cash in your Schwab account. 

·         Some people have switched model portfolios a few times over the course of the last year.  Until the new refinements are fully implemented in a few weeks, the publications are not designed with switching in mind.  Especially in the early years of Focused 15 Investing, there was, by design, a wide range of portfolio structures in a single publication.  Some portfolios were aggressive.  Others were conservative.  Some rotated more aggressively. Others were stable. Some had more ETFs and some had fewer.  When I designed them, I thought it would be best to allow people to select the model portfolio right for them based on how many ETFs they wanted to trade, their risk tolerance, and how actively they wanted to rotate among the sleeves within the model portfolios.  Using the current and earlier portfolio lineups in the publications made switching based on recent performance problematic.  If one tried to improve returns by switching, one might switch TO a portfolio that has just finished its period of strong returns because of its structure.  Such switching is often too late.  To compound the losses, one could be switching FROM a portfolio that will soon begin its period of strong returns resulting because of its structure.  Going forward, all portfolios will have the same general structure and differ only in aggressiveness.  I’ll discuss this more in the future. 

·         People like the practice of increasing cash, which I discuss below.  Even those with long time horizons increased cash in 2021 and liked the practice. 

Box #2 Cash

The discipline of increasing cash is viewed favorably by virtually everyone.  As implemented over the last year or so, I suggested to people with short time horizons to increase the cash in their accounts when the MRI displayed what I consider a flash signal that has historically indicated a high risk of sharp but short declines that were difficult for the algorithms to respond to or navigate using our regular Friday trading schedule. These flashes occurred rarely, and one occurred just before the Covid crash in 2020. 

As luck would have it, in early 2021 there were several such flash signals.  However, NONE were followed by declines. By increasing the cash levels in response to these flash signals, our accounts had lower returns than the model portfolios we were following.  In 2021, the market moved higher consistently and any move out of the market hurt returns.  Very likely, the markets in 2021 were buoyed by various forms of pandemic stimulus, which probably made this practice unsuccessful. 

I discussed with subscribers the fact that increasing Box #2 Cash caused our accounts to underperform the model portfolio, yet most still liked the practice.  At the time of our conversations, they could recall the seemingly precarious nature of the markets at those times, and they liked my intervention. They also liked being able to take a psychological break.  I too have appreciated increasing cash levels during 2021.  I have slept better in 2021 than in 2020. 

Even so, I must be an advocate of getting the disciplines right and getting higher returns.  We need to have a better approach to making our accounts less aggressive in unusual situations. Increasing cash is a very blunt instrument. In most of the portfolios there are ETFs that should perform well during times of stress, such as UST and XLP, and increasing cash takes money away from these ETFs.  In addition, the amount by which to increase cash is subjective, which is a drawback.

Additional Option for Reducing Aggressiveness of Our Accounts

In the last few months, while researching forces that may drive the movement of the MRI, I identified additional signals that I believe will give us greater lead times in preparing for some vulnerable periods. While these signals are not currently strong enough to build into the algorithms themselves, they can be leveraged to implement an additional option for reducing the aggressiveness of our accounts, in addition to the current option of increasing cash levels. Both these options would be for those wishing to reduce risk of market declines (e.g., individuals with time horizons less than, say, 7 years).

Specifically, the new option is that I would instruct subscribers to switch to a model portfolio than the one they have selected for long-term use. This instruction could be gradual in the sense that I could suggest an addition switch later on to further reduce aggressiveness. My instruction would be informed by, among other things, the greater lead times in preparing for vulnerable periods (mentioned above). I expect that instructions to move to a less aggressive portfolio would be given within our regular Friday trading framework in most cases. This option is more methodical than the option of instructing subscribers to increase cash levels, which could occur at any time during the week,

The second option would be to give guidance to increase Box #2 Cash as we have done in 2021.  I would give this guidance in cases that require immediate action. 

We all must recognize that reducing aggressiveness may reduce our returns compared to staying with our selected portfolio.  But the mental health benefits of a switch may be worth that cost.  Again, those with long time horizons should generally avoid reducing the aggressiveness of their portfolios. 

On the surface, switching portfolios goes against the well-justified admonition to avoid switching portfolios that I espoused for many years. But the reality is that we need to manage our psychological health and be mentally ready to invest over the long periods ahead of us.  As investors, our risk tolerance does change over time especially we trade our own accounts.  The last few years have shown us the challenges of managing one’s own account. 

Current Period

Turning back to the projections of vulnerable periods that might not be navigated quickly enough by the algorithms, the present time is a key example of a period of projected vulnerability. While the MRI and computer models indicate that the market is still somewhat resilient, the projections have indicated that this time (early December of 2021) is likely to be the beginning of an especially vulnerable period – one that occurs every few years.  In similar conditions in the past, the algorithms responded but the response was a week or two late because the market had been especially strong just prior to the period.  The time from the projected beginning of the period of unusually high vulnerability to the actual strong stock market declines is from one to roughly seven weeks.  In addition, the higher the stock market valuations, the closer to the projected beginning of the period of vulnerability.  Both of these conditions appear to be present now. 

These conditions cause me to be concerned about stock market losses over the short term, despite believing that past government stimulus and future spending will strongly support economic growth and support stock prices.  Our philosophy is to respond to the changes in resilience/vulnerability and not factors such as government spending. We may find that the stimulus again overwhelms the market’s vulnerability and stock prices may stay level or even move higher. If the Fed follows through on promise to allow interest rates to increase, it will cause investors to be less tolerant of high stock valuations, high real estate prices, and high commodity prices.  Since investors’ lower tolerance for these could be coming during a time of higher natural vulnerability, I believe it is prudent to be less aggressiveness with our accounts. 

Because I could not test, introduce, and answer any questions shifting model portfolios to reduce aggressiveness, I increased cash levels and took other measures to reduce risk during this period.  I believe it will be the last time I use this process to the current extent. 

Switching Model Portfolios to Reduce Aggressiveness

Going forward, I will indicate when we are coming to a vulnerable period that might not be navigated effectively by the algorithms.  Those with short investment horizons, can downshift to a less aggressive model portfolio.  This way, we can stay invested in the portfolios but reduce risk as we approach what I expect to be vulnerable periods.  I will maintain the option of increasing Box #2 Cash for more extreme cases. 

By refining the practice of switching portfolios, we may find other options for using it.  After a major market correction, some may want to temporarily use a more aggressive model portfolio.  I will indicate those times as well.  If you want to reduce aggressiveness for purely personal reasons, the publication and shares-to-trade worksheets will be set up for you to easily use a different model portfolio and stay invested.

I’ll provide more information over coming weeks. 

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After Near-Term Recalibration, Stock Market is Likely to Do Well

The markets are likely to go through a process of recalibrating stock and bond prices to accommodate higher inflation, higher interest rates, and a Fed that is less willing to step in with support when the economy or capital markets feel distress. Stock prices may experience downward pressure when faced with higher interest rates but upward pressure with stimulus-induced economic growth. All else equal, downward pressures will result in sharper market declines during a period of unusually low resilience that I expect to begin in December. 

We may find that stimulus-induced strong economic growth more than compensates for the lack of resilience - and we may miss some positive returns if this happens. But our philosophy is to reduce our exposure to stocks when the market is vulnerable. Moving in and out of stocks is cheap and easy to do. We need to be looking ahead to the period after the next Plant season when it is appropriate to be aggressive.

This post discusses the current situation and a possible future condition that will be more economically rational and, I believe, better for the economy, for stocks, and for our portfolios. I believe we need to adjust our thinking to this emerging new reality because parts of it have not been experienced for decades. 

Sharp Minds Expect a Deep Decline in Stock Prices

Jeremy Grantham is a well-respected investor thinks it will be big. Here is a Q and A he had with Reuters in July 2021 (https://www.reuters.com/business/bubbles-bubbles-everywhere-jeremy-grantham-bust-ahead-2021-07-20/):

·  Q: What is your take on equity valuations now?

·  A: Looking at most measures, the market is more expensive than in 2000, which was more expensive than anything that preceded it.

·  My favorite metric is price-to-sales: What you find is that even the cheapest parts of the market are way more expensive than in 2000.

·  Q: What might bring an end to this bubble?

·  A: Markets peak when you are as happy as you can get, and a near-perfect economy is extrapolated into the indefinite future. But around the corner are lurking serious issues like interest rates, inflation, labor and commodity prices. All of those are beginning to look less optimistic than they did just a week or two ago.

·  Q: How long until a bust?

·  A: A bust might take a few more months, and, in fact, I hope it does, because it will give us the opportunity to warn more people. The probabilities are that this will go into the fall: The stimulus, the economic recovery, and vaccinations have all allowed this thing to go on a few months longer than I would have initially guessed.

·  What pricks the bubble could be a virus problem, it could be an inflation problem, or it could be the most important category of all, which is everything else that is unexpected. One of 20 different things that you haven't even thought of will come out of the woodwork, and you had no idea it was even there.

·  Q: What might a bust look like?

·  A: There will be an enormous negative wealth effect, broader than it has ever been, compared to any other previous bubble breaking. It's the first time we have bubbled in so many different areas – interest rates, stocks, housing, non-energy commodities. On the way up, it gave us all a positive wealth effect, and on the way down it will retract, painfully.

 

I have met Jeremy a few times for one-on-one conversations and have a great deal of respect for him.  He has a strong interest in valuations and has often been early in prior calls for markets to decline.  

I believe it will be a shift in resilience that starts the bubbles to pop. Based on the MRI research, the timing of that period of low resilience is likely upon us now. My theory of what pops the bubble is different than his, and I will discuss it in a future post.

Inflation Is Now Increasing

Inflation has been in the news recently. This month’s inflation reading is expected to indicate that prices have moved up over 6% since last year, the highest rate since 1991.  (https://finance.yahoo.com/news/consumer-price-index-what-to-know-this-week-190934215.html)

I believe there will be higher inflation and that a good case can be made that there should be higher inflation for an extended period, and Powell would probably agree with me on this.

Powell as an Inflation Fighter

Many articles on Powell’s recent reappointment focused on the need to battle inflation, as indicated by headline: “Biden Picks Jerome Powell to Lead the Fed for a Second Term as the US Battles Covid and Inflation.”

(https://www.cnbc.com/2021/11/22/biden-picks-jerome-powell-to-lead-the-fed-for-a-second-term-as-the-us-battles-covid-and-inflation.html)

I believe that the Fed’s efforts to fight excessive inflation are important. They should strive to keep inflation from getting out control as it did in the 1970s. But I also believe the ultimate goal of the Fed and the policy makers around the world will not be extremely low inflation, such as the low levels of the 2008 to 2018 period - but instead a moderate level of inflation. A level of 2 to 4 percent might be more realistic for a protracted period.   

Global Economies Have Recently Confronted Something Worse than Inflation: Deflation

After the global financial crisis in 2008/9, inflation declined so much that the major concern among central banks around the world was not inflation but deflation – where prices decline over time. While this sounds good, it tends to harm economic growth. When consumers get a sense that prices will be lower in the future, they put off purchase to wait for better prices. When they do that, production declines and economic growth slows. Here is an article about deflation and I have included (below) the key passage (https://www.thebalance.com/what-is-deflation-definition-causes-and-why-it-s-bad-3306169):

·  Deflation slows economic growth. As prices fall, people put off purchases. They hope they can get a better deal later. You've probably experienced this yourself when thinking about getting a new cell phone, iPad, or TV. You might wait until next year to get this year's model for less.

·  This puts pressure on manufacturers to constantly lower prices and develop new products. That's good for consumers like you. But constant cost-cutting means lower wages and less investment spending.

For much of the 10-plus years after the global financial crisis, central banks sought to induce inflation and the US Federal Reserve set an inflation target of 2%, annually, which it struggled to achieve. Here is a quote from one of many articles on the topic from 2015 (https://www.cnbc.com/2015/10/13/the-us-is-closer-to-deflation-than-you-think.html.):

·  Nonvoting member James Bullard, who heads the St. Louis Fed, is among those pushing for a rate increase, as he believes policy has helped make “cumulative progress toward committee goals,” as he said in a speech Tuesday.

·  Fed Gov. Lael Brainard, who does have a vote on the FOMC, countered that deflationary pressures argue against an increase.

·  Our economy has made good progress toward full employment, but sluggish wage growth suggests there is some room to go, and inflation has remained persistently below our target,” Brainard said in a speech Monday. “With equilibrium real interest rates likely to remain low for some time and policy options that are more limited if conditions deteriorate than if they accelerate, risk management considerations counsel a stance of waiting to see if the risks to the outlook diminish.

How Inflation Might Be Used to Address Our High Levels of Debt

Inflation is likely to be higher over the coming years not only because of Covid stimulus,  infrastructure, and climate spending, but also because higher inflation addresses a more fundamental problem the US and other countries have. The article below requires a subscription, but I have included key sections below (https://www.bloomberg.com/opinion/articles/2021-11-16/greenspan-s-bond-yield-conundrum-has-returned-to-haunt-markets):

The writer, John Authers, does a good job of laying out a few key points:

• This chart is from Deutsche Bank’s indefatigable financial historian Jim Reid and goes back to 1800. It compares debt/GDP ratio with real yields defined as the prevailing 10-year rate subtracting the five-year rolling average of inflation:

[Note from JHansen: The above chart focuses on just the US. I have added three big blue arrows to indicate the three earlier periods of low real yields (dark blue line labelled “SmoothRY”) and high Debt-to-GDP ratios (light blue line), plus, in yellow, the current period. The key thing to note is the high debt-to-GDP levels under the four arrows. Generally speaking, high levels are bad.]

·  On this view, real yields have been as low as this three times before in the last 200 years: during the U.S. Civil War, the Great Depression, and finally in the aftermath of the Second World War. In all cases, for obvious reasons, debt spiked. That has happened again [yellow arrow, JHansen], although not for reasons as horrific as a war or a depression.

·  The low real yields associated with the Second World War came during a period of explicit “financial repression” when the government held them [real bond yields] low to make it easier to pay off the debts incurred to finance the conflict, and the Fed had to surrender its independence for a matter of years. The Reid hypothesis is that with another epic debt pile to pay off, another episode of financial repression lies in our future. He also suggests that a combination of inflation (to reduce the value of the debt) and repressed yields (to make it cheaper to service) mean that real yields will stay negative for the rest of his career, and that this unenticing option is superior to the alternatives:

·  Financial repression has always won out. The previous debt spikes occurred around the Civil War, WWI and WWII. This latest climb had been steadier (but substantial) until Covid, which may explain why real yields have steadily but consistently declined. However, the economic response to Covid has been more akin to a war time response, with debt and spot real yields both spiking in opposite directions just like that seen around and after the wars discussed above.

·  [W]ithout financial repression, real yields would likely be consistently positive at the moment given the weight of global debt. But given this global debt pile, that would strongly increase the probability of financial crises across the world. So the risk to my “rest of my career” view is that something happens in the years ahead that prevents the authorities using financial repression. If this occurs then the global financial crisis may look like a dress rehearsal for a much bigger event. So the incentives for the authorities are there.

·  Beyond that, a world of financial repression would continue to be a world of TINA, where we are left grudgingly to buy stocks because There Is No Alternative [TINA = There is no alternative. Low yields mean that bonds deliver lower returns to investors. - JHansen]. It’s not appealing, and arguably it’s not really capitalism, but it might be the best way forward. It’s also a worryingly good explanation for the continued low long yields.“

Low “real yields” means that the yield on bonds is low compared to the inflation rate, and “long yields” are yields on long term bonds.

"Financial repression" is known to those at the Fed.  Here is quote from a Fed paper on the topic (https://www.richmondfed.org/publications/research/econ_focus/2021/q1/economic_history):

A Tool of Debt Liquidation: In many countries during 1945-1980, financial repression effectively lowered the real returns to government debt holders and helped governments reduce their debt-to-GDP ratios, according to research by Reinhart and M. Belen Sbrancia of the IMF. Based on their calculations, real returns on government debt were negative in many countries over 1945-1980. The real returns to bond holders averaged -0.3 percent in the United States, and real returns were even lower on the bonds of those European governments that had been particularly ardent practitioners of financial repression, coming in at -6.6 percent in France and -4.6 percent in Italy. ... Ever since McKinnon and Shaw, financial repression has been associated with inflation...

Given this discussion, we might expect 1) bond yields and interest rates to increase enough to introduce greater sensitivity to stock valuations over the short term and improve only slightly the long-term return to some bond sectors, 2) interest rates  still low enough to encourage economic growth despite there being elevated inflation. 3) some upward pressure on stock prices because stocks have pricing power and can pass on any their higher costs to their customers, If this does turn out to be the case, investing in stocks will be most beneficial because of TINA – there is no alternative.

One Final Opinion: Expect to “Muddle Through” as Opposed to Expecting a “Crisis to be a Cleanser”

When I started in the investment business years ago, I thought of the economic and stock market cycles as periodic waves of getting rid of the old, inefficient aspects of the economy and allowing new ones to grow. While this rhythm does indeed take place, the periodic purges and sprouting new ways have never been as big as I thought they should have been. It is true that when the housing crisis started in 2007, it seemed that financial leverage and novel ways of packaging investments had become excesses before the crash of 2008, and these excesses were addressed.

When the dot-com bubble inflated in the late 1990s, there was much talk about the extreme valuations of companies with little or no revenue, and the subsequent bust of the bubble addressed those excesses. After the run-away inflation of the 1970s, it was clear that inflation had to be addresses, and Paul Volker increased interest rates and inflation was tamed by the early 1980s.

To be sure, these were major adjustments, but it surprised me at those times just how much of the economy continued and absorbed these changes. It surprised me how much stayed the same.

I think I had in mind the experience of the Great Depression when the stock market dropped about 80-plus percent, the economy in the 1930 was indeed a shambles, and it took years (and probably WWII) to get back on its feet. After that collapse, the economy and the country were completely different in many ways. I think I was expecting change of similar magnitude. But now, I realize that this expectation was unrealistic.

The economic collapse after the 1929 stock market crash was different. At the time the Fed and the government responded with a tough-love approach. There were government and business leaders who expected and maybe even welcomed a cleansing crisis that would abolish the excesses and provide fertile soil for new economic growth. This is a quote from a very interesting Federal Reserve history piece (https://www.federalreservehistory.org/essays/great-depression):

·  A few governors subscribed to an extreme version of the real-bills doctrine labeled “liquidationist.” This doctrine indicated that during financial panics, central banks should stand aside so that troubled financial institutions would fail. This pruning of weak institutions would accelerate the evolution of a healthier economic system. Herbert Hoover’s secretary of treasury, Andrew Mellon, who served on the Federal Reserve Board, advocated this approach.

However, as the article indicates, this view is now considered by the Fed to be a mistake. Instead, during a crisis the Fed should be very benevolent so the economy does not collapse and gets back to growth quickly – economic growth addresses many problems. One need only look at the response to the Covid crisis to see that this mindset still prevails at the Fed and in our broader government, which have been excruciatingly benevolent. But the Fed has concluded, rightly I believe, that addressing the subsequent excesses resulting from benevolence when the economy is stronger is much better than not being benevolent during a crisis.

This means that we will muddle through each crisis and muddle through the effects of the remedies used to prevent economic collapse during each crisis. At present, this means addressing inflation while promoting economic growth and allowing the debt level to shrink in proportion to the growing economy.

I expect the Fed to allow the economy to run “hot,” which means that it will encourage economic growth and allow a moderate level of inflation to take place. Stocks will be likely be the main investment that produces a strong return in these future conditions. Thus, after an initial period of recalibration and potential decline, I expect stocks and to be influenced by the natural cycles of resilience.  

I always pay attention to what Jeremy Grantham says. He may be right about a big decline that results in lower stock valuations.  But even during the collapse of the internet bubble in the early 2000s, the natural cycles of resilience still allowed the MRI-based process to generate good returns. The same was true in the 1970s with its high inflation and the 1980s when inflation was fought. The same was true before and after the stock market peak in 1929.  I expect our portfolios to do well in the environment described above and in other environments that are used to muddle through. The natural cycles persist.  

Again, the implication for us is to get out of the stock market when it is vulnerable and to be ready to participate later in the growing economy, to earn high returns in our portfolios, and to keep well ahead of inflation when markets are resilient.

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Weekly Note - August 4, 2021 - Valuation of the DJIA - Part Two

Last week’s post discussed the current valuation of the DJIA compared to valuations over the last 20+ years (https://marketresilience.blogspot.com/2021/07/weekly-note-july-28-2021-perspective-on.html).

This week’s post discusses alternative interpretation [or interpretations] of today’s high PE valuation. It also points out how our focus on resilience cycles reduces the importance of which view of valuations proves to be most accurate.

Recap of Last Week’s Post

I mentioned last week that valuation ratios have declined since March of 2021, and this might give some investors hope for higher stock prices. The graph below shows the PE ratio for the DJIA in yellow (calculated by Bloomberg using recent 12 months earnings). Price is shown by the black line on a log scale. In general, we want to buy assets – in this case earnings – when price is low and sell when high. Note that the PE ratio has declined since the beginning of April 2021. As the DJIA PE ratio descends from its high level, prices can move higher, all else equal, to approach a PE valuation level that the market has already tolerated.



We are in a period of low interest rates and there is a reasonable expectation for high corporate earnings growth because of massive economic stimulus. These factors allow PE ratio levels to be higher than they otherwise would be. At the moment, investors globally are voting with their dollars and saying that current PE ratios are not a concern and stock prices can continue to move higher as corporate earnings increase. This is an optimistic case for stock prices.

An Alternative View of the Same Chart

A contrary view is that the market – reflecting the collective wisdom of investors globally – believes that earnings will not continue to grow in the future at the same high rate that they have in the recent past – that we are now seeing peak earnings. Therefore, stocks do not justify as high a PE Ratio even though interest rates are still at an extremely low level. Prices may decline as earnings fail to grow as expected and move the PE ratio to a more normal level compared to the last 20+ years. This is a pessimistic case for stock prices.

Thus, multiple conclusions can be drawn from a given PE valuation level or trend in levels. In the context of the Focused 15 Investing approach, we focus on the tug of war between optimistic and pessimistic investor perspectives through the Market Resilience Indexes. When optimism prevails, the MRI tend to be in the uplegs of their cycles, and we tend to be buying stocks. When pessimism prevails, the MRI tend to be in the downlegs of their cycles and we move out of stocks.

A Regular Pattern of Cycles

The cycles between collective optimism and pessimism are regular. The cycles, especially the shortest cycle we discuss, the Micro MRI, are regular like the tides. When the tide comes in it will lift all boats. When it goes out, all boats will drop. With tides, we know pretty accurately when the next tide will be and how high or low it will be. A severe storm can flood coastal areas and push tides higher or lower, but the tidal forces occur at regular intervals. Humans observed these patterns long before they knew what caused the tides.

The Micro and Macro MRI are both in the uplegs of their cycles as of when the Micro switched to its upleg at the end of July. The Macro has been in the upleg of its cycle since early December 2020. At the moment, tidal forces are lifting all boats. Thus, the optimistic view of stock valuations is currently prevailing.

Based on historical norms, the optimistic view should last into September. I project upleg of the short-term cycle (Micro MRI) to end in September. At that time, a more pessimistic view will likely prevail and perhaps high valuations will be the focus of that pessimism. I review what the MRI are saying about the tug-of-war between the optimists and the pessimists, approaching storms, and if the upleg of the Micro MRI cycle might occur earlier or later than expected. At this time, September appears to the next period of reduced resilience (and heightened vulnerability) for stock prices.

Bull Market Climb a Wall of Worry

Our current situation reminds me of a common investment industry adage, “a bull market climbs a wall of worry.” This means that during a bull market, the path to higher stock prices is a slow climb up and is never free from worry about company growth, stock valuations, the US dollar, trade wars, Washington, etc. If one were to wait until the market is worry-free, one would miss an entire bull market. This may describe the current environment. 

Some in the industry add on, “A bear market jumps out the window.” This means that once a bear market begins, the market moves down quickly and without regard for the specifics of the situation. Historical data validate this; bull markets tend to last much longer than bear markets.

Others in the industry add on, “Valuation tells you what floor the bear is on when it jumps.” A high stock valuation means the bear is on a high floor and has farther to fall. My concern is that we are currently on a high floor. If the bear jumps soon, the declines could be large.

I will add, “the cycles of resilience tell you when the bull and bear will start and end their journeys.” Timing is everything. At the moment, we do not have the conditions typical of when the bears jump.

This is way of saying that while I am concerned about high valuations, perhaps my concerns are simply part of the wall of worry. The best way to know where the market is going near term is to track the tug-of-war using the MRI. At the moment, it appears that the optimists will prevail into September.

The broader market dynamics suggest that the next decline will not be a sharp decline for stocks like March 2020, 2008, or 1987. Instead, they suggest a long decline like the that occurred from the beginning of 2000 to the end of 2002. This coincided with the deflating of the Dotcom bubble of the late 1990s, which also was a period of high valuations.

Disciplines are Important

An expected part of managing money – either for institutions, other individuals, oneself – is that one must contend with all the usual fear and greed, plus climbing bulls and jumping bears, and tides and storms. Making investment decisions is challenging at most times. But if one has a disciplined investment approach based on measurable and meaningful dynamics in the markets, one can do well longer term. I believe we have this in the MRI-based investment approach. Through the challenges, adhering to process and discipline will help us deliver attractive returns.

We don’t buy low and sell high on prices or valuations measures. Valuation measures are driven by stock prices, which are greatly influenced by the news of the day. Valuation ratios are also difficult interpret. We take what I believe is a more reliable path; we buy low and sell high on the naturally occurring cycles of resilience tracked by the MRI.

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Weekly Note - July 28, 2021 - Perspective on DJIA Valuation - Part One

With the stock market at all-time high price levels, it is a good time to review a common valuation measure to get perspective on the recent past and how the DJIA may move higher from this level. This note covers the average Price-to-Earnings (PE) ratio of the DJIA currently and compared to the 20+ years since the Dotcom boom of the late 1990s.

While still at historically high levels, the PE ratio of the DJIA has declined recently as company earnings have increased. This shift has made the stock market less expensive by this measure and may support the higher market resilience that the MRI are implying for the upcoming several weeks.

All else equal, one wants to buy assets at low prices and sell them at high prices. Consistent with this idea, one wants to buy stocks when the PE ratio is low and sell when it is high. A low PE ratio means that stocks are relatively inexpensive and you are paying less for the company’s earnings, all else equal. A high PE ratio means that stocks are expensive and you are paying more for the company’s earnings.

The diagram below shows the price level of the DJIA (black, on the right log scale) and the PE ratio (yellow, on the left scale, which is calculated by Bloomberg) for the period 8/29/2012 to 7/28/2021. One can see at the far right of the chart that the PE ratio has actually moved down recently as the price of the DJIA has moved higher. The current PE level is 22.19, which is lower than its peak of 26.9 at the end of March 2021 (red arrow). By this measure, the DJIA is getting less expensive and more attractive to buy because corporate earnings are growing more quickly compared to the price of the DJIA.



The recent peak of the PE ratio was very high compared to the last 20+ years. The last time the market had a PE valuation as high as it was in March 2021 was back in the late 1990s, on 8/20/1999. That date is shown in the figure below (yellow arrow) and was at the height of the Dotcom boom, just before the Dotcom bust of the early 2000s. Since the end of 1999, all PE readings for the DJIA have been lower – even through the peak of the DJIA just before the Global Financial Crisis of 2007 to 2009. The figure below shows the PE ratios and DJIA prices beginning in 1997.

Thus, compared to the PE ratio levels since 1999, the March 2021 reading was high. The recent reading of 22.19 is also high compared to the time period shown (Bloomberg does not have comparable PE ratios for earlier periods). That said, the decline of PE ratios since March (due to earnings growth) may help convince investors that current or even higher prices can be sustained.

Other factors influence PE ratios, including expected earnings growth and interest rates. We are experiencing very low interest rates now and there is also a high level of economic stimulus, both of which may accelerate the growth of corporate earnings. These factors are justifying higher valuation ratios for many investors. Although not shown in the figures, investment professionals tracked by Bloomberg expect high earnings growth to continue for companies in the DJIA, potentially leading to even cheaper valuation levels and or higher prices.

The PE ratio and other valuation measures do not directly affect our investment models or algorithms. Instead, investors globally consider PE, many other valuation measures, and expectations for future growth and interest rates in their decisions to buy or sell stocks. The price movements resulting from their decisions in turn affects our resilience measures. An expectation of an increase in interest rates or deceleration of corporate earnings growth would cause investors to be less tolerant of high valuations. Many investors globally are keenly focused on these issues and should they shift to a more pessimistic stance, we should see a shift in the market resilience measures. Based on historical norms for the cycles of resilience, I expect the market to be resilient for several weeks. A period of lower resilience is more likely to occur in the fall (late September).  

end

Weekly Note - June 30, 2021 - Increasing Box #2 Cash

This post covers:

• Why we increased Box #2 Cash this week
• Why increasing cash was done outside of our regular Friday trading schedule
• Why I selected 70%
• The magnitude of the potential decline
• Factors that might affect the magnitude of decline
• How this event affects a longer-term market outlook

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Why we increased Box #2 Cash this week…

I gave guidance this week to increase Box #2 Cash because of a shift in one of the Market Resilience Indexes for the DJIA. The event that caused this change is that the Exceptional Macro MRI ended and ceased to provide resilience last week. This and other market conditions fit the criteria I established for signaling that we should increase the amount of cash in our accounts outside the regular Friday trading schedule.

The Exceptional Macro provides resilience infrequently. Over most periods it is absent. It is designed to appear at the beginning of a strong market rally, which typically occurs just after a major market decline. The appearance of the Exceptional Macro MRI indicates that the Macro MRI is likely to shift to a more positive trend. In many cases, this marks the beginning of a strong and long-lasting period of high returns that last roughly a year for the DJIA. Our algorithms are designed to shift money into the stock market when the Exceptional Macro begins.

After about a year, however, the Exceptional Macro ends and the market often makes an abrupt but brief decline. It is this dip that we hope to avoid at this time.

Why done outside of regular Friday trading schedule…

The end of the Exceptional Macro has been a very good signal for near-term price declines over the last 100 years, but its key drawback is that we must respond to it quickly. Historically, if we wait to trade the following Friday, the losses are not avoided in many cases. Thus, we need to trade early in the week – earlier than Friday - to benefit from this signal.

The historical simulations that I show do not reflect acting on this signal. The performance of the algorithms is strong without responding to this signal. But for those with short time horizons (say, less than 7 years) responding to these circumstances can reduce losses and increase returns.

Another point that favors responding to the signal is that small declines can increase investor anxiety. Anxious investors tend to sell and selling pressure can lead to further declines. Thus, avoiding smaller losses can help us avoid potentially larger losses.

Why I selected 70%...

I suggested increasing Box #2 Cash by an additional 70 percentage points. The 70% is a large move and I decided to make a large move out of the stock market early and move gradually back in the market on our Friday trading schedule, as appropriate.

An alternative to this approach would be to reduce our allocation to stocks more gradually, say, increasing Box #2 Cash by 20% each week. This approach is suited to when there is ambiguity about the signal and the declines are not abrupt, neither of which is not the case in this situation. The signal is clear and the declines associated with these conditions are typically abrupt - taking place over a few weeks. After the decline, the stock market is likely to resume an upward trend, all else equal.

We could start moving back into the market on our regular Friday schedule as early as next week.

The magnitude of the potential decline…

The end of the Exceptional Macro MRI alone could precipitate a decline of about 15%. I mention below other factors that might lead to deeper and shallower declines.

From a purely resilience perspective, the situation as it stands today is not commonly associated with the biggest stock market declines (those down more than 20%). The stock market decline of 2011 is the most recent good example of how quickly the declines can occur.

In 2011, there was a decline of about 15% from July 1 through early August. The recovery began at the end of September. The time of year is similar to today but I see the situations as different and do not look to 2011 as an exact model for how the current situation will play out.

The key point of 2011 is that the decline was sharp – most of the decline took place in about a month – and was big enough to try to avoid. Based on dozens of similar situations over 100 years, my expectation is that the decline, if it occurs, will be abrupt.

Factors that may affect the magnitude of decline…

A factor that may result in a deep decline is currently high stock valuations in the context of rising interest rates. High current stock prices compared to corporate earnings and the book value of company assets may be justified by historically low interest rates. Yet, interest rates are likely to experience more upward pressure over the next few weeks (based on the MRI readings for the US 10-year Treasury bond index). As interest rates rise, the high valuations of stocks may be less justified.

Factors that may result in a shallow decline are, first, ample government stimulus underway contributing to strong post-pandemic economic growth. Since April of 2020 the stock markets have been supported by the expectation of stimulus and high post-pandemic growth. Strong economic growth could more than compensate for higher interest rates, which are likely to remain low by historical norms.

Second, the Micro MRI, indicating the shortest cycle of resilience I typically discuss, is toward the lower end of its normal cycle. As of last week, it was at the 24th percentile of levels since 1918. While it is still in the downleg of its cycle, it may move to the upleg of its cycle in a few weeks.

How this event affects a longer-term market outlook...

Over the last 100 years, the stock market often continues an upward trend after experiencing the abrupt decline associated with this signal. It a few cases, the market has begun a more negative trend. Both paths are reliably managed by the algorithms. Thus, by itself, this event has little bearing on a long-term outlook for the market.

Weekly Note - March 17, 2021

All major stock markets around the world have strong Macro resilience, indicating that their longer-term price trends are positive.  I expect 2021 to be a year of good stock returns.  The following comments focus on where the different sleeves are in their Micro MRI cycles.  Recall that the Micro MRI indicates the short bursts of resilience lasting 5 to 15 weeks. For a reminder of how I describe the MRI conditions: https://focused15investing.com/language.

The different model portfolios have different positions in their Micro MRI cycles based on their dominant sleeves.  The positions are:

I provide more detailed notes about each below, but a key point is that while the Onyx mix portfolios have not performed as well as the DJIA-focused portfolios so far this year, the Onyx sleeve will soon get its burst of resilience and make up some of this deficit. In 2020, the reverse was true - the Onyx mixes did better than the DJIA-focused portfolios.  While one could switch to a DJIA-focused portfolio at this time (because it is a Plant season for these portfolios), I expect the Onyx mixes to move higher in the next few weeks.  I do not believe the Onyx mixes are broken – they are simply pausing after a strong 2020. 

Detailed Notes (Optional Reading)

1. The DJIA-focused model portfolio’s such as Diamond 70-30 (MAIN) (sg131) and Sapphire (MAIN) 70-30 (sg188): These portfolios are primarily invested in DJIA-linked ETFs. The DJIA is mid-level and moving higher in its Micro MRI cycle. It is at the 46th percentile. I expect the Micro MRI for the DJIA to be providing resilience well into May. Since it is at the mid-level of its cycle, this week will be its last in the current “Plant” season.
2. Portfolios incorporating the Onyx sleeve of four low volatility ETFs: This sleeve had a very good year in 2020, but has not produced strong returns this year through last Friday. Thus, the Onyx mix model portfolios look weak compared to the DJIA-focused portfolios. But the Onyx sleeve is just now at the lower end of its Micro MRI cycle. It is at the 12th percentile and started moving higher this last week. From this perspective, the Onyx sleeve should start to have better performance. If you are using one of the Onyx mixes (e.g. sg218, sg118) and are happy with the long-term performance profile of the portfolio, it is appropriate to stay with it. It is likely to produce higher returns over the next few weeks.
3. 2020 Recovery (sg20.2). This add-in sleeve is at the 36th percentile of its Micro cycle. From this perspective, it is likely to produce good returns over the next several weeks, most likely into May. I will wait until this sleeve is higher in its Micro cycle to update it for 2021 (tentatively called “2021 Themes”).
4. Emerald (sg30.2). This add-in sleeve is at the 13th percentile and moving lower. Given its low position, I expect it to turn and start moving higher over the next few weeks. The current target weights of this sleeve are defensive and we have avoided some of the recent losses. But I believe the target weights will be more aggressive over the coming weeks and that the returns will be higher.

  

Comment of the Day - US 10-year Treasury Yield – Will be less resilient over the next 5 to 15 weeks

As of last Friday (2/26/2021), the Micro Market Resilience Index^© for the US 10-year Treasury Yield was very high in its normal cycle.  Projections of the Micro MRI for the 10-year yield suggest that we are probably seeing the strongest resilience of this series at this time.  Thus, the strong move higher last week was not surprising. 

The projections also suggest that yields will have less resilience over the next several weeks.  The Micro MRI indicates a short cycle of resilience lasting 10 to 20 weeks. When the index is in the upleg of its cycle, the series - the 10-year yield in this case - is more resilient and is less likely to decline, all else equal.

The Micro MRI for the 10-year yield is just now completing its upleg.  Based on projections of the MRI from 1962 to 2010, the upleg will be completed March 12 (plus or minus a few weeks). 

When the upleg is completed, the Micro MRI will shift to its downleg.  After that inflection point, yields may decline, not move higher, or move higher much more slowly – based on current economic conditions.  But they are not likely to continue to move higher at the recent pace. 

$IEF $DIA  $UST

Weekly Note - February 24, 2021

I discuss in this post the MRI conditions of the sleeves used in the various model portfolios. I believe that the current target weights adequately reflect the MRI conditions described.

The algorithms for the DJIA and also the MRI conditions for a number of markets in general indicate it is time to reduce Box #2 Cash for the model portfolios. Please note the new suggested amount on the detail page for each model portfolio in the attached pdf.

See this link for a reminder of the language we use to discuss MRI conditions: https://focused15investing.com/language

The Onyx Sleeve

The Onyx sleeve is a major component of many portfolios. It consists of four low-variability ETFs (consumer staples stocks, utility stocks, US 7-10-year bonds, and US 1-3-year bonds). Each of these ETFs is at the lower end of its Micro MRI cycle and continued to move lower as of last Friday. The Micro MRI levels of these ETFs range from the 15th to the 28th percentiles. These ETFs could easily reach the troughs in their Micro MRI cycles in the next week or so. They will then move to the upleg of their Micro MRI cycles and experience higher resilience and support higher prices.

The DJIA-Focused Loss-Avoiding Sleeve

The DJIA-focused loss-avoiding sleeves are important sleeves in many model portfolios. Model portfolios using these sleeves are listed first in the weekly publications.

As of last Friday, the Micro MRI for the DJIA was at the 40th percentile and still moving lower. At the moment, it looks like it may reach its low point over the next few weeks. After reaching its low point, the Micro MRI will enter its upleg, and thus we can expect the DJIA to be more resilient over the short term, which will support higher prices.

Accordingly, the algorithms have set higher target weights for the DJIA for this Friday. Thus, despite stock prices being at all-time highs and stock valuations being high as well, support for higher prices is likely to increase.

I would feel better about the stock markets globally if there had been large price declines during the current downleg in the Micro MRI cycle. Yet the current economic stimulus intended to overcome the negative effects of the pandemic are massive by historical standards, and a significant price drop has not yet materialized. The time for significant declines rooted in a lack of short-term resilience is passing.

The Exceptional Macro is again present for the DJIA. My guidance for holding extra Box #2 Cash for people sensitive to losses has been driven by the off-and-on nature of the Exceptional Macro over the last several weeks. This pattern is highly unusual by historical standards—but it is understandable, considering high stock valuations and the market’s dependence on the government’s life-support measures.

An important condition to keep in mind is that the Macro MRI for the DJIA is moving higher (i.e., it is in the upleg of its cycle), indicating that the current longer-term trend for DJIA prices is positive. The Macro has declined from an extremely high level at the beginning of 2018 to a low point in late-2020. It is now at the 43rd percentile of levels since 1918 and moving higher, which suggests there is ample room to accommodate further price increases. The returns of the stock market since 2018 have been remarkably good considering the headwind introduced by the negative Macro trend. This condition has been psychologically challenging – at least for me – because we were investing in a stock market that lacks a key component of resilience, its long-term or “Macro” resilience. Because the Macro MRI is now in its upleg (which it has been since December 2020), we are no longer in that situation.

As additional background, while stocks moving higher in a negative Macro MRI environment seems counterintuitive, it has happened before. In the late 1990s, the Macro MRI peaked in early 1997 and declined in an almost uninterrupted fashion until late 1999. However, DJIA prices continued to move higher despite the negative Macro trend and peaked two-and-a-half years later, at the beginning of 2000.

The late 1990s had similar features to what has occurred since 2018. In the late 1990s and now, government stimulus has been an important factor. In the late 1990s, governments made rescue efforts to support the markets and economy related to the Asian and Russian debt crises and the Long-Term Capital Management implosion. The rescue efforts created a benevolent environment for stocks, especially high-tech stocks. The pandemic and residual issues from the 2008 Global Financial Crisis and trade tensions are currently driving even larger rescue efforts.

If we continue with the same pattern of the late 1990s and early 2000s, the NASDAQ might experience losses (after its large gains in both periods) while the DJIA continues to make gains. This potential decline in the NASDAQ (based on this historical precedent) is a key reason that the NASDAQ is not a permanent part of the main model portfolios at this time.

2020 Recovery and Emerald Sleeves

The important ETFs in these sleeves have been moving lower in their Micro MRI cycles for several weeks and are nearing the lower ends of their normal ranges. Specifically, as of last Friday:

      PBD Green Energy was at the 11th percentile in the downleg of its Micro MRI cycle
      ARKK: was at the 30th percentile in the downleg of its Micro MRI cycle.

The Micro MRIs for both are close to their troughs and can be expected to move to the upleg of their cycles over the coming weeks, a move which will provide greater resilience and support for higher prices.

Focusing on the longer price trend for these two ETFs, the Macro MRI (indicating the long-term trends for prices) continues to be in the upleg of its cycle. Thus, it appears that these ETFs will experience support for higher prices for the time being.

In contrast, the NASDAQ’s Micro MRI is at a higher level in its Micro (shorter-term) cycle. Its Micro MRI is at the 64th percentile and continues to move lower. While currently positive and providing resilience, the Macro MRI and Exceptional Macro are historically less reliable for the NASDAQ than they are for the DJIA. The algorithms currently call for a less-than-maximum weight for the NASDAQ ETFs in the sleeves.

Final Comment

There are two potentially related aspects of current market conditions that cause me to be cautious over the mid-term horizon (beginning in roughly May). First, stock valuations are still high by historical standards. I expect that investor concerns about valuations will be first indicated by a deterioration in the Macro MRI, which has not taken place yet. I infer from the current status that government stimulus and a low interest rate environment currently overwhelm investor concerns about valuation. Second, is the on-and-off behavior of the Exceptional Macro. This behavior over the last few months is not typical and may reflect concerns about valuations or other factors. I believe the upcoming period of resilience from the Micro MRI will temporarily reduce these concerns.

Despite these concerns, I believe the major market indexes like the DJIA are performing as expected given their MRI conditions. I also believe that the algorithms are adjusting the target weights in an appropriate manner.

Weekly Note - February 10, 2021

Micro MRI Projections

Our portfolios have been defensive for several weeks and I’d like to show support for why we have that position.  This is important to understand because the fear of missing out on a strong market often compels people to invest at the END of strong markets, only to experience the market declines. 

One can see factors that could lead to a stock price decline, including currently high valuations of stocks in the context of rising interest rates, and any pandemic-related surprises.  Factors that could lead to continued price increases include unprecedented government stimulus, historically low interest rates, and pent-up demand from the pandemic period. 

 Forecasting how these factors will play out in the future is a challenging effort. Few people can make successful forecasts of these types of forces over time.  With Focused 15 Investing we make investment decisions based on the comparatively predictable force of the inherent resilience of the market.  As I show below, some elements of resilience display reliable cycles that we can take advantage of.  We don’t want to put our money back in a market lacking resilience only to have the sentiment of the market change and experience abrupt losses.  Thus, it is best to make decisions based on resilience.    

For a reminder of the language I use, please see this webpage: 

      https://focused15investing.com/language

Projections for the Micro MRI

Figure 1 shows a projection of the Micro MRI (indicating short-term resilience) through this coming June.

Figure 1.  Project and Actual Micro MRI Levels, Plus recent Price Change for DJIA

 

This chart shows the period from July 2020 through July 2021.  The brown line shows the actual price level of the DJIA from July 2020 to last Friday (February 5, 2021), where the line stops.  The green line shows the actual Micro MRI used in the investment approach. All my communications in the past relate to the green line.  The orange line is the projected Micro MRI. 

Note that the projections align particularly well with the actual MRI during the recent period, lending credence to the projection analysis.  The clear similarity supports the near-term validity of the projection for the future.  There are deviations, but they are small.  These deviations were caused by current events, which I describe in the Review of 2020 Performance:

         https://marketresilience.blogspot.com/2021/02/review-of-2020-performance.html

This Micro MRI projection (orange line) is based on data from 1940 to 2011.  From other work, I have found that pricing dynamics of the market since the financial crisis in 2007-9 do not contribute a great deal to making forecasts.  I therefore often exclude recent data from analyses.  The 2011 end date is arbitrary; it is 10 years ago.    

If we look at the projection for the next several weeks, we can see that the Micro MRI is likely to continue to move lower, meaning a period of low resilience.[1]  Based on this projection, the Micro MRI will move lower into March.  After it reaches a low point, it will begin the upleg of its cycle and the market will be more resilient.  Since we rotate ETFs based on resilience as indicated by the movement of the MRI, it is not yet time to get back in the market in a major way.  If the market does make a big drop, it will likely do so before the end of March.  Thus, I am not making any change in the level of Box #2 Cash being held. 

As you know the algorithms consider all MRI (Macro, Exceptional Macro, and Micro), plus other factors.  The Macro MRI remain positive and seems to be supporting the market.  The algorithms may respond sooner than the trough in the Micro MRI because of the other factors considered.    

Prices Currently Hugging a Trend Line

Current price action of the DJIA is hugging what I consider to be an important trend line.  The line is formed using Fibonacci analysis.  This condition reinforces being patient right now as a reasonable course of action.  The details of this analysis are not important to cover here, but the main points are:

• Prices move between and along trend lines that follow consistent rates of return (associated with Fibonacci numbers) over long periods of time. 
• When prices move closely along (hug) a trend line for several weeks, they are challenging or “testing” that trend line, and may move above or below the line in the next few weeks.
• When prices break through one of the trend lines (either up or down), they can often make dramatic moves over the next few weeks. 

Please keep in mind that these trend lines are not considered in the algorithms.  Nonetheless, it is relevant to our investment approach. I have found that the prices break through these important trend lines when MRI-related resilience changes.  Figure 2 below adds the trend line to Figure 1. 

Figure 2. Projected Current Resilience and Fibonacci Fan Trend Line

 

The trend line is blue.  Note how it relates to the DJIA price line (brown).  In late 2020, prices shifted above the trend line after the announcement of an effective vaccine in early November.  Point 1 corresponds to the recent GameStop decline, and prices dropped to the trend line.  While prices (brown line) have rebounded over the last week, bouncing up from the trendline, we still have a few weeks to before getting to higher Micro resilience.  Until then, there is a higher possibility of breaking through the trend line and dropping, say, 10 to 15 %.  

The GameStop drop produced a sharp decline that precipitated, or at least, corresponded to, the end of a period of Exceptional Macro resilience – which I describe in last week’s post:

             https://marketresilience.blogspot.com/2021/02/weekly-note-february-3-2021.html

Historically, once the Exceptional Macro has ceased, it has been better to wait for the trough of the next Micro MRI cycle (the beginning of its upleg) before getting back into the market – EVEN if it reappears a few weeks later.  The Exceptional Macro has returned for the DJIA, but it has ceased for several indexes, which makes me cautious.  At the moment, I believe it is best to keep Box #2 Cash levels where they are right now, and wait for the upcoming trough of the Macro MRI. 

Thus, while the market seems strong right now, it is too soon to become fully invested in the stock market.  I don’t want my subscribers to get in the market just as it decides to be concerned about other factors, such as valuation.  Below is a link to the December research note on valuation.  Valuations are still high by historical standards. 

           https://marketresilience.blogspot.com/2020/12/research-note-stock-market-valuations.html

We may look back and see that being conservative and holding cash caused us to miss out on returns.  But when resilience is higher, we will be much more aggressive.  You do not need to know the information I have presented in last week’s post and this week’s.  But know that I am doing these types of analyses to monitor and assess the reasonableness of the MRI conditions and the actions of the algorithms.   

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[1] The picture is consistent with the percentile level I often use to describe the current level of the MRI.  As of last week, the actual Micro MRI was at the 49th percentile of actual levels since 1918, which is visually similar to where it is compared to the upcoming trough of the projected Micro MRI.