8 August 2005

Within the Fractals of the Global Equity Summit Is the Beginnings of
Fractal Decay

The top for the global equities, that is, the secondary top to March
2000's primary summit, is - with high probability - in. For the US
Wilshire 5000 it very likely occurred on Wednesday August 3, 2005. For
the FTSE, with Britain's recent prime rate cut, it occurred today
on August 8,2005 at the maximum daily fractal length of x/2.5x/2.5x
or approximately 12.5/31/31. While there are potentially 1-2 weeks
left in a 22/54/53 of 54 maximum terminal weekly fractal pattern and
42 days left in a 51-52/130/70 of 103 maximum terminal daily fractal
pattern, both the global macroeconomic top and equity tops were very
probably logged in during this past week. A year's worth of turning up
the Fed's interest rate screws against the still growing but velocity
decelerating money supply has had its effects. Both the higher
interest rates and a related higher interest rate saturated housing
bubble whose ongoing high risk debt and loan practices parallel
1929's ten percent down marginal stock buying, has reduced the
possibility of the last full measure of weekly growth to the 54th week
and daily growth to the 103rd day.

The market tops in assets, commodities and equities represent
mechanistic nonstochastic saturation points; that's it in nutshell
concept. Whether on a minutely fractal basis or a 70 or 140 year
fractal basis, its the all the same phenomenon. At the lower time
units its merely buying or selling at money-in-the-market saturation
points, which occur repetitively at minutely, hourly, daily and weekly
fractal units. The higher order multi-yearly fractals represent very
fundamental and powerful macroeconomic consumer saturation levels- too
much debt, too much forward consumption, paying relatively too high a
price for assets based on weekly wages and no real long term job
guarantee in a world replete with overcapacity.

Why did the 1929 DJ IA and 2000 NASDAQ burst, seemingly unchecked in
their respective 32 month declines despite concentrated Federal
Reserve intervention? What caused them to peak and go no further to
those ever higher mirage levels that so many upturned eyes were
focused on? Why at top were so many so positive and so badly mistaken?
Why didn't the 29 and 2000 markets respond sooner to the Fed's
aggressive interest rate lowering? Rhetorically, was it only the last
people buying at the top who were burned in 1929 and 2000 ? Why did
these two major decay periods play out the way they did causing such
drastic changes of fortunes resulting in the depressed macro economy
in the 1930's and the vanishing acts of both the late 1990's projected
trillion dollar federal budget surpluses and of so many private
citizens' retirement plans?

A very similar current upwardly-looking, full-of-optimism scenario
exists in early August 2005. Likewise exists the current logic held by
the interest rate elite that only those who have recently bought into
real estate bubble areas are at risk. Ratcheting up interest rates,
the Fed once again hopes to establish a higher fulcrum point on which
to place its interest rate reduction lever when the housing bubble
crumbles.That old Fed stratagem of reducing interest rates to remedy a
faltering economy is using a fulcrum that has been continuously
shifted nearer and nearer to ground level over the last 25 years since
Mr. Volcker placed it up near the moon in the early eighties. It would
be prudent to review that respected sage's recent published thoughts
regarding the near to intermediate prospects for the economy.

When major consumer asset bubbles burst, selling begets selling. Bad
debt at the top, that could only be resolved favorably with continuous
asset inflation and appreciation, raises its ugly head and must be
dealt with. Mechanistically the bad debt sets in motion a selling and
liquidation phase that produces a capacitor-like and fractally
patterned devaluation of non-money assets.

Mechanistic consumer saturation-point reversals of the macroeconomy
occur at approximately 70 year intervals and determine major
political and social events. This is a historical time in the 70 year
consumer saturation cycles for two particular reasons.

First, there is widespread information and appreciation that a
housing bubble exists -a bubble of worldwide dimension and money
leverage. That is historically unusual - an informed public forewarned
- yet, nonchalant and undaunted. The Federal Chairman in early 2000
could not help his need for recognition of his intellectual prowess
by suggesting that bubbles - to paraphrase - 'could many times only be
recognized in retrospect'. This time around the Chairman's ambiguity
was completely absent and he was uncharacteristically direct. In late
2004 he stated that only people wishing to lose money would go against
the expected winds created by the inexorable telegraphed interest rate
increases. Later in the spring of this year he went further and used
the well selected and pejorative term 'froth' with reference to
certain regional housing real estate markets. Is there any remote
possibility that the Federal Chairman is any less aware than is Mr.
Volcker of the economic difficulties that lie directly ahead.?

The second reason that this is a historical event is the probability
of a major nonlinear devaluation lying immediately ahead. This phase
transition decay event typically characterizes the terminal portions
of second fractals whereby a primary peak is made and then a secondary
peak of lower magnitude is made- the latter often with multiple
exhaustion gaps - leading to an unanticipated, and remarkable, sudden
devaluation. A slow and manageable lowering-of-the-interest-rate
responsive correction and recession would be so very preferable.

 G. Lammert