8 August  06 

8 August 06 postscript to the 11 June  06  Final Update

 The Third and Final Postscript to the 6 May 2006 Nonlinear Posting

 The Nonlinear  Decay Portion of Generationally Saturated Markets -
 Its Utility As A Leading Economic and Macro Social-Political Indicator

Looking from afar at the qualitative decay valuation curve of the great
 British South Sea Bubble's two year 96 plus percent collapse which
 fooled even the great mind of a subsequently poorer Sir Issac Newton,
 valuation decay with a 70 percent loss of value is apparent over less
than a month or  so of its primary nonlinearity devolution phase. Newton,
 who ironically had a unique understanding and perception of the
small-to-great-mass-coupled -with-short distance apple-to-earth nonlinearity
produced within a greater field of lulling linear (curvilinear) relationships of
 circling heavily bodies, failed to anticipate a comparable nonlinear
force occurring in economic systems.

The mathematically well described - but still as of yet only
 empirically known - force of the earth's gravity causing the accelerated
 nonlinear drop of the apple is similar to the immutable and empirical
macroeconomic saturation forces producing periodic nonlinear drops in market
systems -operating by simple quantum mathematical  fractal patterns
composed of serially smaller fractal time units. A ten day chart of
any tradable asset will reveal these recurring fractal patterns and
the nonlinearities of devaluation. All of these nonlinear drops at
smaller order time units, are occurring within a system that appears
from a human longevity time frame and adult market interest time frame
to be reassuringly linear.

 At generational macroeconomic saturation points where the population of
 speculators, consumers, and borrowers have been exhausted limited by the
 constraints of ongoing wages, the accumulative cost of borrowing,
over production of assets, and the over valuation or inflationary costs of those
 assets- at these points- the nonlinear drops are proportionally
 greater with greater follow-on consequences. A slowing forward
 velocity of Mercury at some critical point in its long term future
 may 'rapidly' and 'nonlinearly' spiral this sky lab -  earth
 equivalent heavenly body into the sun. Perhaps this has already
 occurred for ancient unnamed planets a,b, and c which were a billion,
2 billion, and 4 billion years or so ago very proximate to the sun.

 While the generational economic saturation and maturation of the
 complex debt-wage-asset system occurs with regular periodicity, the
 follow-on nonlinear phase of value devolutions of leading asset
 classes may represent a consistent marker for macro economic,
 macrosocial, and macropolitical dislocations and turmoil that
 thereafter ensue. The magnitude of severity of these follow-on
 disruptions may be in proportion to the degree of leading asset
 nonlinear absolute devolution or fractal decline which is in turn proportional
 to the degree of credit expansion  via the preceding debt creation cycle.

 The US cold war economy, transitioning to the 1990's new
 paradigm IT economy (and collapse), and thereafter the coexistent new
 global dollar debt for low cost Asian goods economy and the
 new housing bubble economy via low interest and ARM housing credit
 expansion have occurred in rapid order over the last 55 years
 with never a declining year of GDP growth.  This  continuous US GDP
 growth is unparalleled in its 230 year history. The US accumulative
 and accelerating yearly international debt imbalances in trading IOU's
 for foreign products are likewise unparalleled.  The economic growth
 of IOU receiver and producing countries has never before been so
 dependent on a foreign consumer willing to take on so much debt. The
 10 percent 1929 margin equivalent leveraged debt expansion has been
 eclipsed by the current unregulated and predatory US lending industry
targeting a much larger population in their pursuit of the 'traditional American
 Dream'. Like all 70 or so year economic cycles the current
 generational nonlinear devolution will end with a new cycle of growth,
 but not before a terrible price is likely extracted in terms of
 follow-on macro social political dislocations.

 Just as with growth, assets decay appears to occur in discrete fractal
 patterns, as the liquidation phase of overproduced and /or overvalued
 assets 'grows' or accelerates in discrete quantitative units.  While
 the nonlinear phase of 1720 was quite efficient, computerized trading
 as shown in 1987 has the potential for unparalleled liquidation
 efficiency. The computer's efficiency in 87 brought about regulations
 with trading breaker rules dependent on hourly and daily percentage
 decays within the market. Even without the efficiency of the computer,
 because this generational macroeconomic saturation point lies at the
 end of a 148 year second fractal sequence, nonlinearity will be
 limited only by these paradoxically 'computer  enforced' artificial

 Back to quantitative fractal analysis. The first fractal decay pattern
 for the Wilshire starting on 11 May or in the final trading hours of
 the preceding trading day and ending at the low on 24 May was a
 y/2.5y/2.5y or 2/5/5 daily classical curvi-linear capacitor-like
 Gompertz-like decay fractal. The European markets were stronger with
 day 3 of the 5 day US Wilshire third decay subfractal marking their
 lows. Thereafter, there were 7 additional days of growth. The first
 completed inverse growth decay fractal was a
 4/10/9-10 fractal x/2.5x/2.5x. for a probable inverse growth decay
 base of 17 days using the second and third subfractals for a primary base.

 Another major 2-2.5x daily Wilshire break point  approaches. The first 45
 day fractal sequence of the October based  45/ (30/60 or 26/65) had as
 a starting base a 5-12 day sequence.This occurred in concert with the
 previously identified 11/27/22-27 day decay sequence starting in August
 2005.  The resulting 56-57 day non dominant base fractal is easily
 identifiable and has as its starting day the intraday  low on 13 October
 2005.  A line drawn from the end of the above cited 45 day sequence
 does not touch upon the low of 13 October, defining the 5-12 days as
 an initiating base for the subsequent primary 45 day dominant base

 13 October for the secondary non dominant base of 56-57 days is double
 counted because it starts at a low and ends on a high. Friday 9 June
 2006 was day 111 of an expected 111-113 day maximum 2x second
 fractal sequence sequence. Because day 111 is occurring near or as the
 potentially lower lower high; is contained  near the end of the first
 inverse growth subfractal of a second inverse growth fractal(with 17 days
 being the primary inverse growth fractal base), and is occurring
 in a technically weakening market, the next 27-28 trading days or 6
 weeks ( ie,, x/2-2.5x :: 56/112 of 140days )may well contain the expected
 nonlinearity befitting of the terminal portion of the US's dual
 generational,  debt saturated, consumer saturated, and production
 saturated macroeconomic-148 year old Grand Second Fractal.

 While generationally analogous  to the nonlinear ends of the 16th
 century Spanish debt expansion, the 17th century Dutch tulip
 asset-debt mania, the 18th century British Southsea stock- debt mania,
 the relatively greater percentage of  population
 participating in asset overvaluation  enabled by a systematic
 pervasive US lending industry - whose telemarketed, computerized, and
 aggressive primary business and sole goal is maximizing debt expansion
 - has resulted in a collective US debt burden and overvaluation of
 assets relative to wages proportionally greater than any preceding
 historical macroeconomic saturation points.

 The nonlinearity at the terminal portion of  the current second 148
 year US grand fractal cycle,  reasonably can be expected as having the
 potential for the greatest percentage drop  in the shortest period of time.
 The sudden devolution of current asset valuations likewise could potentially
 have greater and more vexing- social-political ramifications and dislocations
 as compared to prior historical periods of turmoil following collapses
 from generational macroeconomic saturation areas of debt and
 consumption. Large scale political and social turmoil are the carts
 that are pulled(or overturned) by the antecedent macroeconomic horse
 stumbling into the unexpected very deep and low viscosity quicksand
 found atop generational asset saturation areas.

 Announcing a New Academic Interest Alcove Website:

 'Bioutilities of the Cellular High Energy State Metabolic Pathway'

.... On day 140  of the 56/140 sequence the underperforming NDX hit a
closing low......

An argument for a final x/2.5x/2.5x terminal decaying growth fractal
ending on 4 August was made on 5 August 06 on the third page of the
comment's section in a Huffington's Post Gary Hart 5 August article
'An October Surprise.'
"Is it possible that the macroeconomy operates according to near ideal
noncomplex mathematical laws? Would this really be so surprising?
Mightn't one expect natural laws as part and integral to a very
nonrandom process that is ultimately quantified in the integers 0
through 9?

The alcove of the Economic Fractalist has posed such a hypothesis -
that the global macroeconomy with its integrative money growth, money
growth cresting, and ultimately money decline, that is, its credit
cycle, is exactly represented by simple quantum fractal growth and
decline natural laws directly reflected in the daily and weekly and
yearly trading valuations of its great composite equity, bond, and
commodity markets. In a prospective fashion a mathematical x/2.5x/2.5x
discontinuous fractal growth has been identified that appears to
represent the limits of the global credit cycle system.

While the integrative process is a complex mixture of facilitated debt
and money creation, resultant asset and commodity inflation,
ultimately limited by ongoing wages, consumption saturation, and
increasing debt obligations via accelerating debt instruments, e.g.,
ARMS -the predictable evolution of the summation quantum simple
patterns strongly appear to herald major directional changes.

Such a change occurred for the Wilshire 5000, the composite US equity
proxy marker, on 5 May 2006. That day represented the secondary
closing high for the Wilshire after its a 142 year credit growth cycle
from its predecessor stock summation proxy indicators starting in 1858
and ending in March of 2000. 5 May 2006, the secondary high to March
2000, was marked by a minutely exhaustion gap with a closing high for
the last 6 years.

Now on 4 August 2006, another possible minutely high exhaustion gap
high has occurred accompanied by a very curious sequential exhaustion
gap to the low side - covering the same trading valuation territory -
all within the same day.

The x/2.5x/2.5x extended fractal evolution from the Wilshire's lows in
2002 and 2003 to its 5 May 2006 closing high has been well described
in the serial posting of EF. From the October 2005 low, the daily
fractal pattern has been:

x/2.5x/2x/1.5x or 12/30/24/18 days.

Day 18 initiated a new fractal sequence with a 21-22 day base.:

21/53/53 or x/2.5x/2.5x with day 53 of the third fractal growth
sequence 4 August 2006.

Interestingly day 42 - exactly 2X of the 21 day base - of the second
fractal growth sequence was .... 5 May 2006.

Was 4 August 2006 the final x/2.5x/2.5x extended lower high
representing the second shoulder of the 5 May 2006 second shoulder to
the March 2000 high?

The US ten-year note has ominously inverted below the 3-month treasury
for the last two trading days. Ten-year treasuries at near 5 percent
in a massive deflationary environment would seem the prudent
investment - and expected natural money flow move.

As always expect the discontinuous and the nonlinear ... unexpected.

Gary Lamme