2 September 2005

The Second Decay Fractal Secondary Top

As America's perhaps greatest natural disaster unfolds,
coincidentally and, for the most part - unrelated, as demonstrated by recent
equity valuation activity - so unfolds the second of three daily decay
fractals that will make up the primary 2005 equivalent of the 1929 drop.
The first decay fractal had a base of 11 days. Wednesday 31 August was the
18th day of a 27 to 28 day second fractal sequence. The ideal expected
secondary top of this fractal sequence will range from 1.62 x 11days or 18
days to 2 x 11 days or 22 days.

Smart money is flowing into the ten year notes and thirty year bonds just as
the waters are naturally flowing into the low areas through the disrupted
dikes. Even as equities rose yesterday there was an uncharacteristic abrupt
divergent lowering of the long term US interest rates (as previously
predicted) driving TNX sharply down to 40.20. Three month treasuries
likewise were driven down but to a lesser extent with IRX at 34.30 on August
31, 2005. The spread of 6.9 is the smallest in over three years. The spread
will most likely become temporarily negative within the next few months.

Just like in 1929 it will most likely be the third decay fractal of 27-28
days that will witness the profound drop that will be the equivalent of a
very slow moving category 5 hurricane moving across the entire nation
without benefit of a dissipating landfall. The civil and social chaos
witnessed in New Orleans may well be a representative microcosm of the
general unrest that could follow

Gary Lammert