9 May 2005
A Fractal and Macroeconomic Quick View of Wal-Mart Equity Valuations.
In the recent years the axiom "as GM goes so goes America" while still
completely true from the long term US equity valuation fractal perspective,
has been replaced by the post NAFTA US-manufacturing less paradigm-shifting
axiom, as goes Wal-Mart, so goes the US and global economies. Moreover, the
long and short-term fractal analysis of Wal-Mart?s plateauing equity
valuations since 1998 supports the utility of equity fractal analysis as a
Wal-Mart (WMT) is the prototypical globally-link industry in the United
States. It is a major microcosm that most closely represents the near term
economic future of the United States. Growth of profit in the Wal-Mart industry
depends primarily on five cost elements. Profit growth requires a
continuous stream of low cost products manufactured, to a great degree, in Asia and
the Asian subcontinent. That stream of products secondarily depends on oceanic
transport, loading and unloading at port of calls, and a statewide
transport distribution system to its warehouses and stores. As an aside, this vibrant
conveyer belt activity has propelled US transportation stocks to much
higher valuations giving Dow theory a new wrinkle. Wal-Mart Corporation profit
growth further depends on near minimum wage employees staffing their stores
and warehouses. And in a very large way, profitability depends on masses of
consumers continuing to buy Wal-Mart wares at a steadily increasing pace
and price. Finally growth requires the ongoing establishment of new stores in
new locales to capture new consumers.
The historically ultra low interest rates of the last three years have
increased borrowing and thereby money expansion. Increased money supply
created through borrowing has produced cause and effect inflationary
pressures on raw materials, commodities, land prices, and in particular,
the rising cost of oil.
This inflationary scenario is particularly problematic for sustained
profitability on all five fronts factored in Wal-Mart's continuing growth
and profit margins.
Many folks using Wal-Mart are living paycheck to paycheck burdened with
heavy credit card liability. Higher cost for raw commodities used to
produce goods, higher transportation cost of those commodities and their
crafted finished goods, employee demand for higher wages to compensate both
for higher to and from work travel cost and higher cost for energy
dependent basic necessities, and the post energy expenditure decreased dollars of
consumers are all heavily weighing on Wal-Mart's future profitability. Cost
for the land, construction, and property taxes for new merchandising
centers likewise figure negatively in the profitability formula.
How do Wal-Mart's valuation fractals stack up against the multiple and
dynamic inflationary pressures against its corporate bottom-line? Just like
scanning an EKG can quickly determine the presence of atrial fibrillation,
scanning the WMT fractal valuation trending from 1997 when Wal-Mart became
a DOW 30 stock shows not only an obvious long-term market valuation
saturation process but, over the last three years, which contains the third and final
long term plateau growth fractal, it clearly shows an expiring and falling
valuation trend. Qualitatively this ebbing valuation trend points the
direction for the future.
From the perspective of the long term 1998 plateau area, the fractal
quantitative cycles starting in the spring of 1998 in the ideal
X/2.5X/2X/1.5-1.6X sequential growth and decay fractal pattern are on a
monthly basis: 14-15/36/29/ 6 of 21 placing the ideal low in the fall of
2006. Notice the monthly valuation spike at month 29 during the third
fractal cycle is right on cue at 2 times the base of 14-15 months.
Likewise notice that this was a very similar monthly time pattern
elucidated earlier in January 2004 in George Ure's well frequented Urban Survival
website for the REIT index, RMS. RMS had its third cycle monthly peak
occurring precisely as predicted in January 2005.
In the context of a 140-year grand second fractal cycle, the final 1.5-1.6X
monthly decay cycle may merge with the last 2X growth cycle resulting in a
massive unexpected and sudden devaluation. From that long fractal point of
view, the monthly plateau cycles with a third cycle merging with the fourth
become: 14-15/36/35 of?? 36. On a weekly basis this third Emerged growth
and decay? cycle started in July 2002 and is elegantly consistent with
specific fractal sequential growth and decay cyclical patterns.
Of this last 35 month potentially merged third fractal cycle, the first
fractal sub cycle was 29 weeks in length ending in February 2003. The
second fractal sub cycle (which contains its own three separate sub-sub
cycle fractal sequence that can be easily seen), peaks as predicted on week
58(2X) in February 04 and ends in June 04 with a low on week 74(slightly
longer than the 73 (2.5X) weeks expected. Notice on the daily charts the
small nonlinear gap in week 73, which serves as the hallmark as the terminal
portion of nearly all second fractals. Interestingly in the second
sub-subcycle of the 73 week second subcycle, the nonlinear gap is very
apparent even on the weekly charts.
The 29/73/ current 46-7 of an ideal 58 weekly pattern is breaking down. The
last 46 weeks present a puzzle which knowing that nonlinear gaps occur at
the terminal portion of second fractals is solvable. The second
sub-subcycle terminating with its nonlinear gap is 20 weeks long. The first
sub-sub cycle, which appears to have only 6 weeks, is a 'rolling' fractal
with 2 additional weeks included from the preceding terminal portion of the
previous fractal. The ideal weekly sequence for the final decay fractal
would be 8/20/16/12. Notice the drop at the end of week 16. The valuation
pattern is currently on week 7 of the terminal ideal 12-week decay pattern.
Interestingly this 46-47th week would be a Fibonacci multiplier 1.62 of the
29 week first fractal base ? breakdowns in weak third growth fractals often
break down at this Fibonacci ratio time frame.