26 July 2005

Near The Top With No Way Out

The world macroeconomy finds itself in a situation in which there is no
(good) way out. A terminal and final perfect fractal sequence has a high
probability of occurrence this trading week confined within the limits of a
22/54/54 maximum weekly growth fractal sequence. Many of the world's equity
indices' fractal patterns are following the identical or very slightly
different variations of the Wilshire 5000. They are synchronized for a final
lower order daily fractal top on or near Thursday 28 July 2005 to complete a
final x/2.5x/2x daily fractal growth sequence. This daily sequence is
contained within the potential terminal 103 daily growth fractal sequence of
the last 50 week fractal sequence beginning in August 2004. The ideal final
daily growth fractal pattern of 12/30/24 would represent the third and
terminal portion of a 51- 52/129-130/ x to 2x or 64 final day sequence.

Watch for a key reversal exhaustion gap day which is anticipated within the
next ten trading days, ideally occurring on July 28 2005. In an ideal
fractal sequence the Wilshire 5000, representing over 95 percent of US
collective equity worth, should gap to a new multiyear high ending on the
low of the day but above the exhaustion gap. If it gaps but does not end on
or near the low of the day, further lateral movement up to a maximum of
x/2.5x/2.5x or 12/30-31/30-1 days is possible.

Since August 2004 which the began third and final weekly growth fractal the
Wilshire and the major European indices are all following similar daily
terminal growth patterns. The first two daily growth fractal sequences
followed a 51-52/129-130 day (x /2.5x) pattern with a very characteristic
nonlinear trading gap drop near the end of the second fractal. Since the
finish of their second fractals, the indices have begun their third and
final fractal sequence with nearly identical 12/30-31/19-21 of an ideal 24
day pattern.

The German DAX like the the US real estate indices typified by IYR and the
US housing construction industries by $HGX Is showing classical blow-off
characteristics. For those doubting the validity of fractal analysis, a look
at $HGX is very instructive. The daily fractal count of $HGX, a leading
index in the US housing bubble economy, is exactly 12/30/20 of a probable 24
days. This fractal evolution is most elegant in its classical illustration
of a perfect x/2.5x/2x growth fractal evolution.

Importantly for timing purposes the Chinese stock market is following a
7/17/10 of 14 day growth pattern that places a perfect fractal apogee
contemporarily with the US and European indices on potentially the 28th of
July 2005. Two very different numerical x/2.5x/2x patterns arriving at the
same apogee suggest strong confirmation of a major global market peak.

The dollar index is following a growth pattern of 28-29/66 or 67 of 70-71.
Remembering that the end of second growth fractals are herald by nonlinear
decay, expect a gap to the low side in the next 3-4 trading days to a range
of 86.25 or lower for the dollar index. The Swiss Franc has an identical
inverted growth of decay pattern with an anticipated reciprocal rise in 3-4
trading days. Gold will follow the the Swiss Franc's rise.

The business news media will likely highlight and interpret the coming
dollar index fall over the next few days as an 'obvious' sign of favorable
Yuan currency readjustment. The natural occurring and expected fractal fall
in the US dollar index will be interpreted as a healthy indicator for
improvement in future US exports - exports something other than empty
trans-pacific metal containers and circa 'US civil war' greenbacks - to be
sold in the Chinese economy. Extrapolating beyond the data, commentators
will remark that this may be the turning point of the US current account
deficit. The high probability fractal sudden (and final) rise of Chinese,
US, and European equities over the next 4-10 days will be misinterpreted as
the international markets' response to the revalued Chinese Yuan, which at
present has been lowered only a miniscule percentage.

In reality there is no way out of the economic difficulties the US and the
leading economic countries find themselves in. Once America gave up its
protectionism for American manufacturing jobs by the embracement of NAFTA,
the horse was out of the barn, running further and faster away each day,
never to return. Foreign factories have been built, many times with the aid
of American corporations seeking higher profits from the low cost labor and
absence of ubiquitous lawyers and liability laws; foreign companies have
undergone organizational and export savvy maturation and sophistication, and
processes for automatic and efficient foreign governmental exchange of
domestic currency for export gained dollars has likewise matured. Exchanged
dollars have only one or two market places available for foreign government
investment. Foreign government owned dollars are invested in either the US
federal debt markets or in the oil and raw material commodity markets to
secure both present and future purchases. These limited investment areas and
the absence of significant wage related add on cost to finished foreign
products have provided an extended illusion that all was well with the
global economy which had a 'glut of savings'.

Economic realists recognize that this unbalanced arrangement can not last.
America can not in perpetuity borrow and consume. Items produced by American
labor with the added cost of transport and the American tort system can not
compete with the low cost of Chinese domestically produced items.
Reevaluation of the Yuan will eventually lead to inflationary prices of
Chinese products sold in American markets putting more pressure on the cash
strapped debt ridden saving-less American consumer. Congressmen and Senators
threatening import tariffs to protect American manufacturers do not have a
grasp of the dilemma at hand for the US economy and the debt ridden wage
earner. 15 years ago before NAFTA, tariffs would have protected American
manufacturing jobs and domestic commerce. Much more US federal debt would
have been owned by Americans. Because of the smaller profit margins and less
money supporting the debt market, interest rates would have been higher,
keeping housing valuations more in line with traditional or slightly higher
than average long term interest rates and ongoing wages. The debt-interest
rate-wage-asset overvaluation dynamics would have not been nearly so
seriously askew. At this point in history with interest rates 'artificially'
kept down by the great economic aberration that characterizes the Chinese-US
temporary symbiosis, rapid transitional shifts that are characterized by the
nonlinear collapses of second growth fractals become relevant.

Macroeconomic imbalances have always been and will be self correcting. The
various and integrative total of asset valuation curves tell the composite
macroeconomic story each day and each week. Asset valuations grow and decay,
evolving by discrete fractal units that represent an instantaneous
integration of the underlying money supply as applied to all available
assets. Today's stressed macroeconomic dynamics of countervailing forces
have been brewing and beginning to swirl like a tropical storm near the
beginnings of hurricane alley. The inevitable inflationary pressures of the
revaluation of the Yuan and/or the possibility of import tariffs are being
produced by the irritation and angst of massive and ongoing continued loss
of American manufacturing jobs. The huge and escalating current account
deficits that are required to grow and to support ever growing US debt and
to maintain low long term interest rates will be diminished by the
inflationary pressure of a valuating Yuan, import tariffs and dollar
diversification into other currencies.

The Chinese have recently discovered that having US dollars does not
necessarily assure purchasing power and acquisition of US assets and oil
companies even at a premium over other bids. They now understand the utility
of currency diversification. Global imbalances will self correct and self
correct in an optimal fractal manner. There is no (good) way out

 G. Lammert