20 September 2005
The Final Few Lower High Days of Distribution
(written 19 September)
This Friday will be day 104 completing an ideal daily growth fractal
sequence of 52/130/104
(x/2.5x/2x) dating from August 2004. This sequence represents the
completion of a third fractal of a larger weekly growth fractal
sequence beginning in the early spring of 2003. It is still possible
that some or all of these next trading days from Monday through Friday
of this week will represent the final distribution days where the
final lower high saturation buying occurs, where the final euphoric
traders buy from the willinglyselling economic realists. The
realists, who have made up the smarter half of the recent trades, are
surveying the economic landscape and appreciate the awful ledge that
the wary, as judged by recent sentiment, American consumer finds
himself and herself on.
The six major economic parameters that result in money growth and
contraction and hence valuation fractal growth and contraction are:
assets and their relative valuations; ongoing wages (including new
wages funded by governmental planned and unplanned spending, the
latter of which Katrina is an example); total debt, including pension
obligations and entitlements; cash and savings; prevalent interest
rates; and amplifying(or contracting) lending practices. These major
macroeconomic factors have, within limits, a degree of fluidity and
can and do change the lengths of asset valuation fractal growth which
are directly dependent upon them. But, unless nearly everyone is on
the governmental payroll  negating the realities of a private
enterprise and a real market economy where private business ownership
requires a profit and owners cannot arbitrarily double, triple,and
quadruple wages  boundaries to unlimited growth do exist. With a
significant private sector economy , the capacity for the government
to hyper inflate and cause asset appreciation via governmental
printing presses to increase base wages of all of its citizenry is at
least transiently cumbersome and becomes a less likely immediate
scenario.
Annual money growth represents such a very very small fraction of the
totality of value of  cumulative value of all noncash or cash
equivalent assets, massive collective debt and entitlements as defined
above, ongoing wages, and cash and cash equivalent reserves. The near
perfection in the evolution of the valuation growth fractals dating
from early 2003 suggests both  that relative to the Mount Everest of
cumulative worth of the preceding four entities the Federal Reserve's
and government's ability to control the economy via money growth is
significantly limited and ultimately unsustainable and that the US
second fractal credit cycle(with a base of about 70 years ending in
1858), now in its 147 year, is near its nonlinear and early end of a
potentially 35 year range: 140175 years, ideally ranging from
19982033.
Since early 2003 the weekly growth fractal sequence has been:
1st fractal (x) 22 weeks
2nd fractal (2.5x) 54 weeks (a little short of the 55 ideal
but ending with a hallmark nonlinear gap lower.)
3rd fractal (2X2.5X). This fractal consists of a 11/2728/2122
of (currently) 22 to 23 week period.
This is the 59th week of the third weekly growth fractal. Notice the
last third and final fractal goes beyond the ideal 2.5x or 5455
weekly limit, but is within its own idealized y/2.5y/2y weekly limit.
The lowering of the fed funds rates and the new lending practices
with no principal payments, 40 year loans, and large amount of
adjustable mortgages have had an identifiable effect on money growth
and hence fractal evolution; albeit a modest one. The new weekly
growth pattern with a base of 11 weeks starting in August 2004
captured and exactly represents the ongoing integration of the six
determining economic elements resulting in a consistent but very
slightly changed (extended length) fractal pattern of the terminal
third growth fractal.
This combination of initially lowered fed fund rates with most
probably the even greater factor of imprudently unregulated lending
practices was the primary cause of the US and world economic growth,
money expansion, and debt expansion  ballooning the
valuation(overvaluation relative to traditional wages) of the high
tech replacement bubble asset represented by the housing industry.
Credit from overvaluation in the housing bubble has been greatly
amplified by the secondary effects of the second mortgage and
refinance industry luring the ready American consumer to further use
this mirage credit and further overextend personal debt in the
purchase of low cost Chinese goods( whose recirculated dollars have
been invested symbiotically in US government debt), inefficient SUV's
and trucks, furniture, durable goods, vacations, college educations,
et.al. The baited American consumer has been the debtor of last
resort, who has been primarily responsible for increasing global
economic activity after the NASDAQ implosion and for continuing the
eking out of a possible small real US GDP  if governmental inflation
figures are accepted as valid.
While this changing and integrative money growth activity has
slightly deformed (lengthened) the ideal long term weekly growth
fractals dating from early 2003, as of Monday 19 September 2005 the
Wilshire 5000, the largest of the world's equity indices has not
exceeded its 3 August 2005 summit and is still contained within the
ideal 22/54/5455 maximal weekly growth fractal pattern. Possible
terminal saturation buying this week will determine if there has been
enough money expansion in the last 28 weeks for the Wilshire to best
its 3 August peak.
The first daily decay fractal which includes the Wilshire 3 August
2005 top now appears to be 1315 days (vice 11 days)in length with a
maximum 3/67/7 daily pattern. The second decay fractal should
ideally contain all the trading valuations above the slope line drawn
from the first day to the last day of the second daily decay fractal.
While the originally proposed 11 day fractal decay base (first
fractal)did end at a lower point at the expected 2728 day range, the
slope line containing the first and 28th day of this possible second
decay fractal was not under the inclusive set of the 28 days. The
idealized three sequential dacay fractal pattern is x/2.5/1.6x2x2.5.
The coming major nonlinear valuation readjustment will both occur in
a defined fractal manner and decay pattern and will ultimately reorder
the six economic parameters into a new beginning growth fractal.
Because of the severe imbalances contained within the internal
compositions of each of the six primary determinant economic elements,
the realignment will be necessarily severe.
Gary Lammert
