27 October 2005 (after close of trading)
A New Solution to the Simple Fractal Puzzle:
Second Decay Fractal Finished;
Eleven Days into the Third Fractal Decay 
367 Days to an Ideal Primary Bottom....
The ongoing fractal decay puzzle  which retrospectively will
epitomize maximum mathematical efficiency in the evolution of a three
phase fractal decay representing the primary decay process  must be
solved prior to its evolution in order to validate fractal analysis as
a fundamental 'science' of macroeconomics.
At its smallest time units, equity valuation growth to trading
saturation points and decay to selling saturation points makes
intuitive sense. At the longest time units, growth to the consumer
debt saturation point based both on collective limited wages and
overvaluation and overproduction of assets, which in turn are based
both on low interest rates and creative easy lending practices, is
followed by a contraction and decay process of asset values that
unmasks the surpluses in the system and results in job contraction and
lower wages based on those ongoing surpluses and contracting prices.
This longer perspective likewise makes intuitive sense.
Equity valuation fractals quantify, in the most efficient manner, this
qualitative intuitively reasonable process. The markets are not  they
are not random walks. The markets are defined by dollars, yen, yuan,
pounds, euros, et. al., available for investment; current total value
of investments and assets; ongoing wages; outstanding debt
obligations; and inflationary pressures of day to day living fueled by
low interest rates, imprudent lending practices, and inappropriate
money creation in relation to traditional debt to wage ratios. These
forces are oppositional, countervailing, and excesses within the
macroeconomy will inevitably self correct. The numbers 110 and
fractions and multiples thereof define the ongoing valuations, debt,
and money supply that is the market. That the market 'marches' and
otherwise evolves to the beat of efficient fractal patterns that
represents the total integration of these numbers into repetitive
maximum efficient patterns  is wholly reasonable.
The probability that the retrospectively identified recurrent fractals
patterns occur by chance alone approaches zero. The challenge remains
to decipher the non complex puzzle and to delineate the decay process
prior its real time evolution. If it can be done, it will be the first
time that quantification of the valuation decay process has been
accomplished before the event. Ludwig Von Mises and Joe Kennedy by
different methodologies in 1928 and 1929 intuitively sensed in a
qualitative way the lurking decay process and collapse and acted
accordingly.
Just as in 1929 and 1720, consumer saturation and/or asset
overvaluation relative to ongoing wages and debt load will be the
precipitating cause(s) of the mechanistic deterministic non stochastic
fractal decay process in 20052006. By lowering the fed fund rates
during 20022003 to extreme low levels and not controlling lending
practices, the Federal Reserve and government caused excess borrowing,
excess valuation, and excess production  with expected excess pain in
the subsequent natural and mechanistic devolution process. By its more
recent ongoing raising of fed fund rates the Fed has placed boron rods
into the uncontrolled reactor and decreased the highs of overvaluation
with an expected lessening of pain in the devolution. Hence the Euro
Nikkei markets with relatively less tightening by their central banks
have had higher recent terminal valuations. Regardless of the degree
of overvaluation, devolution will inevitably occur and will inevitably
occur on time according to the most efficient fractal decay
progression Just as the Federal government and the Federal Reserve
with its large check book and rapid lowering of interest rates,
respectively, could not change the course of the devolution in
19291932 and 20002003, so will they be powerless to change the
course of the present devolution.
The perfect, often stated, fractal growth pattern is x/2.5x/2x
followed by an idealized decay of 1.5x. This last 1.5x can be
subdivided into an idealized decay fractal pattern of y/2.5y/2.5y.
TNX, the ten year note, had an exhaustion gap on Wednesday 26 October
2005, day 38 of a 19/48/38 of 38 perfect growth sequence. What is
possibility that this perfect x/2.5x/2x growth fractal with an
exhaustion gap on the last day of the third growth fractal evolved via
this perfect fractal growth evolution by chance? Had there been a key
reversal on 26 October, it would have been a completely perfect
pattern in concert with a possible major reversal point for the
Wilshire. 27 October 2005 will be a most interesting trading day in
this context.
An intriguing and very high probability possibility exists that the
second fractal for the equity composite Wilshire has already been
completed. A 19/48/ 11 of 4548 fractal decay pattern is now evident
to this myopic fractalist. In this fractal solution 3538 more trading
days exist to a primary bottom with nonlinear devaluations of
potentially massive proportions contained within those 3538 days.
A slope taken from the first day of the second fractal to the last day
of the second fractal contains all of the lowest values for the
intermediate days  except 23 days. And even those days touch the
underlying slope line at the bottom most areas of their daily
valuations. This meets the necessary idealized underlying slope
precept that defines and separates the discrete fractal units.
By repetitive inductive and retrospective fractal analysis,
macroeconomics appears to be a recurrent cyclical process of natural
growth, saturation , and inevitable natural decay flowing in
recurrent, nearly quantum, maximally efficient fractals of a
multiplicity of incremental time proportionalities. Growth and
saturation represents the bulk of time of the long term 6080 year
economic life cycles. The terminal devolutions are a very small part
of these total economic life cycles; they are nonlinear; they are
maximally and numerically efficient containing small countertrend
growth cycles within the relatively short devolution period, and the
absolute declines in asset valuation from top to bottom are
proportional to the antecedent excesses in growth, debt, and
overvaluations at the summit saturation levels.
Addendum: At the end of the trading day, the Wilshire was down 1.25
percent .This day may well serve as the beginning base day for the
first fractal of a final smaller fractal series to the bottom. With
3738 days as the targeted number of days to a low and using the most
efficient fractal decay cycle of y/2.5y/2.5y, a daily series of 6
plus/16/16 days(2 for double counting) would achieve the targeted 38
days to the primary low. This means that for the next few days there
could be fractal growth with highs above the 27 October close with
retracement of all or a portion of the 1.25 percent drop.
Interestingly the daily count on the growth fractal series from the
August 2004 lows is 52 minus/130/127128 of potentially 130 for an
ideal maximum growth fractal of x/2.5x/2.5x. If this is the case there
may be likewise 13 more days of growth or lateral movement in TNX.
Gary Lammert
