4 July 2005

Major Equity Valuation Fractal Trends - Past and Present

The daily evolutions of equity, commodity, bond and real estate valuation
fractals represent a instantaneous composite integration of: money
circulating in the macroeconomic system including those dollar equivalent
assets held by foreign governments; credit available through interest rate
dependent borrowing - offset by ongoing and expected bad debt liquidation;
consumer saturation and forward durable goods buying; personal, corporate,
federal ongoing debt loads including future healthcare and pension
liabilities; savings as a base for fractional bank lending; and consumer
forward job sustainability.

The various markets' valuation fractals and importantly their ongoing
trends predict future economy activity. The prior sentence is worth
rereading. Incipient major fractal valuation decay patterns for every type
of recorded asset bubble in history, every one, preceded the actual major
economic contraction. While lenders of last resort can take interest rates
to nearly zero as they did throughout the 1930's and mid 40's, if the
consumer is saturated with both assets and debt, and if the consumer's job
is no longer needed because of systematic and widespread 'malignant'
forward consumption and debt, money will not be borrowed by the private
sector and entered into the economy.

Even in a predominantly state run economy where the majority of citizens
are employed by the state and can have their ongoing debt repudiated by
government driven currency hyperinflation, consumer forward saturation
will ultimately result in periodic consumption and economic contractions.
It is at the consumer saturation and debt level where major approximately
70 year turns in the global economy occur.

As the real economy runs into the wall of over consumption, peaked asset
overvaluation, and wage-limiting consumer debt, the markets' fractal
valuations instantaneously incorporate all of the underlying debt and
saturation parameters into their patterns and provide a clarity of forward
economic direction that is routinely obfuscated by the data noise traffic
and associated emotions that are generally accepted as the important
conventional economic news and causal elements of market valuations.
The decaying US market daily valuation fractals of late 1929 spoke a
simple and plain language clearer than any of the rosy and inaccurate
state-of-the-economic platitudes provided by Irving Fischer and the Hoover
administration in the winter of 1929. The declining fractals offered a
clearer direction of the future economy than did the reassurances of the
Federal Reserve which powered treasury rates to ultimately less than .05

The fractal growth in the equity market valuations after 32 rising to 1937
was merely a further low volume asset bubble for the rich, the only equity
players with chips left on the trading table and the only credit worthy
element -besides the federal government - in the economy left capable of
borrowing funds at near zero interest rates.

The capacitor-like primary decay pattern for the terminal portion of the
first half of the grand 140 year second fractal sequence starting in 1858
was about 32 months in length from 1929 to 1932. The terminal portion of
second half of the 140 year cycle began in March of 2000 and
mechanistically, non-stochastically, and non-coincidentally decayed in
fractal manner top to bottom in... 32 months.

Unlike the situation in 1932 where there were only the rich and the
federal government left to borrow, 2002 witnessed two dynamic, ongoing and
emerging powerful growth industries at the nadir of the first primary
fractal equity decay for the United States. These two industries
continued the credit cycle, the borrowing and debt expansion, and hence
the money supply growth.

The first US growth industry was an international enterprise: the new
profitable business of importing and distributing Asian goods - whose
labor and nonexistent legal product liability cost- essentially have
priced the higher wage and benefit receiving factory American worker out
of the global manufacturing arena and displaced him and her into the
service, financial, and housing construction industries. In spite of the
ailing auto and commercial airliner industries, the Dow Transports in 2003
led other industry sectors in their equity growth valuation fractals with
speculative money directed at import company equities and at equities
relating to container ships, distribution transportation systems, and
recipient retail behemoths such as Wal-Mart. The American consumer while
losing his manufacturing jobs, received the mixed blessing of acquisition
of relatively high quality and low cost Asian manufactured items.
Negligible Asian labor cost involved in the production of these
manufactured goods continuously dampened the US CPI and nominal inflation
rate, creating an ongoing, but transient, false sense of economic well
being.. Along with empty containers returning to China for refill came
electronically transferred US dollars, exchanged with domestic currencies
by foreign governments and invested in US debt instruments. American CEO's
were happy, global bankers were happy, and the Fed was happy. Only the
American factory worker was left scratching his head while Mr. Perot was
knowingly shaking his.

The second, even more dominant, debt generating growth industry erupting
at the bottom of the incipient 2000-2002 decay fractal was the dynamic
interactive collection of the financial, lending, housing, and real estate
industries fueled primarily by low interest rates and by both greed and
the lack of any adult banking and lending regulatory supervision. Most if
not all of the US's recent 3 years of GDP growth has occurred via mania
debt creation from primary or speculative secondary house acquisition and
home equity loans from grossly over-valuated relative-to-wages housing

After a basing period of 23 weeks beginning in 2002, a mature three cycle
22/54/44 week fractal growth sequence for the composite Wilshire,
representing over 95 percent of US equity worth, was completed about two
weeks ago. Potentially the markets are 2 weeks into a devaluation fractal
sequence that - by the empirical nature of ideal three cycle fractal
growth periods and the subsequent natural occurring decay cycle - follows
a x/2.5x/2x growth sequence. A three year equity saturation curve for the
Wilshire weekly valuation fractals is evident, as is the contrary
indicator of consumer optimism.

A strong bias exists that this devaluation will occur in concert with an
expected secondary - but, by far, much more substantial, decay fractal
period- concluding the 140 year Second Grand Fractal Cycle for the United
States economy - now in its 147th year. An empirical bias exists that the
decay will be unexpectedly abrupt - and not nearly as slow as the 32 month
evolutionary primary decay fractal patterns that occurred at the end of
its first half cycle in 1929 and during the primary decay fractal sequence
of the second half of the 140 year cycle from March 2000 to October 2002.
The long term note and bond markets have incorporated the coming economic
retreat in their fractal valuations. Locking in the current long term
interest rate of four to five per cent in a potentially deflationary
environment is a great bargain. In late 2000 for four or so months, the US
ten year notes inverted in yield below the 3 month treasuries as the long
term bond market received relatively greater money inflow and competition
than the short term debt market. In the last four months of 2000, smart
money representing market valuation and fractal efficiency competed for
and locked in 5 and 3/4 percent long term yields. Those 5 and 3/4 percent
long term yields did very well in comparison to the subsequent three years
of the declining general performance of the equity markets.

At the current market juncture it is reasonable to expect the competition
for long term US debt to once again be fierce, fueled by an ample supply
Asian government held US dollars and the motivation to lock in, deja vu,
as in late 2000, a ten year 4 percent, 30 year 5 percent annual return.
With the scramble for dollars for long term US debt investment, dollar
valuation relative to other currencies is expected temporarily be
enhanced. This expected macroeconomic phenomena is supported by the long
term fractal patterns for the dollar index and the reciprocal fractals for
competing foreign currencies. An inversion of the short term and the long
term interest rate spreads should occur in concert with the ongoing
fractal decay of equities.

While the prior fractal predictions made two weeks ago for the expected
terminal Wilshire top of 2002-2006, is, thus far, (exactly) correct with
regard to day 17 or 18 of a second fractal sequence with an interpolated
slightly less than 9 day first base fractal sequence, specifically, on 17
June and 20 June 2005(x/2x), respectively - and also (exactly) correct
with regard to the expected second fractal sequence low on day 23, 27
June, ( x/2.5x) - constant recalibration of the high probability
subsequent unfolding decay fractal sequence (and further possible minor
growth fractals) is reasonable. The completed weekly growth fractal
pattern of 22/54/44 is competing with an interpolated
51-52/129-130/potential 2x(103) daily growth cycle which has formed the
terminal 44 week cycle. A breakdown in this terminal daily 2x growth cycle
before completion of the potential of 103
days is expected - leading to a major decay cycle as determined by the
prior conclusion of the dominant weekly pattern. The ensuing evolving
fractal decay pattern will represent the complex mechanistic Monetary
System's most efficient destruction of over valuated assets which are being
mal-supported by an ongoing excessive debt-wage earnings' decoupling.

While there are a plethora of individual equity fractal valuation examples
indicating a major near term secondary top, GM will do. GM has
disencumbered its sales parking lots of 2005 models by offering deals
normally given only to GM production family members. While the US python
consumer has ingested a small pig of GM cars over the last few weeks,
sating his appetite for further consumption in the near term of both GM
cars and other competing US auto manufacturers, GM will make little profit
on its fire yard discounted sale. Sales numbers will be all the good news
that will be forthcoming to support GM's fractal valuations throughout the
rest of the summer and autumn. Pension problems, junk bond problems,
Canadian equivalent total national debt problems, health care cost
sentimental makes will be the order of news.

GM's growth fractals from its low on April 19, 2005 are quite elegant in
their conformation to the idealized three cycle growth fractal pattern
x/2.5x/2x. At Friday morning's 1 July 2005 valuation and with a first
fractal daily base of ten days:

the evolving pattern for GM is 10/25/19 of an expected 20-25 days to top.
One or two days to day 20-21 will probably do.

This week's drop in oil valuations are in concert with last week's daily
fractal observations and guidance. Last week's piece may be worth another

The final 103 day fractal growth sequence of the FTSE, DAX, and CAC European
markets starting on April 29 are outperforming the US Wilshire with recent
newer highs. These three Euro indices (and the US Wilshire - in caricature
form) are following two possible growth fractal patterns starting on April
29, 2005. One possibility is a 12-13/30-31/day 5 of potentially a 20-31 day
blow off to a final top with expected daily or hourly exhaustion gaps above
the current highs...(the range of 20-21 days to the top is 1.6 (fibonacci
number) to 2.5 times the base of 12 days). Will the indices break down or
continue to their final ideal blow-off peaks? Is there enough ongoing credit
creation and money in the market to support the potential final 103 day
fractal growth sequence? Interestingly, GM's recent fire sale and the
ongoing US housing mania may provide the additional money growth boost to
propel the US equities for a few more weeks. Even with the additional 15-26
days of this maximal daily terminal growth, the weekly fractals would still
be appropriately contained within a 22/54/54 maximum weekly growth cycle.
The other possibility for the Euro equity indices and Wilshire is a rolling
interpolated 9/22/17 daily sequence best seen using the NASDAQ as a
template. The evolution the two possible pathways will be both interesting
and determined within the next several trading days.

The bias from inductive fractal analysis is that the conclusion of the 140
plus year grand second fractal cycle will end both dramatically, suddenly,
and nonlinearly.

G. Lammert