6 May  06

Nonlinear Occurrences in an ... Unsuspecting and  Assumed Linear World

A nonlinear blow-off of the composite Wilshire occurred on Friday
5 May 2006,  rocketing it in the first minutes of trading, albeit on lighter
volume to a 13377-13379.5 bypassed and gapped secondary March 2000
high of 13466.35. This occurred as the ten year note and 30 year bond
made the inevitable  low on day 23 of a 9/23 of 23/14-18 second daily growth
fractal. The news data is irrelevant to fractal growth and decline of
asset classes.

The 13 day base of the Wilshire 13/33/33 inverse growth fractal
hitting upon the upper money available asymptote, without
difficulty can be measured as 14 days, with an inverse  x/2.5x/2.5x
maximal sequence of 14/35/35 days with 5 May or 8 May the 35th day
of the third fractal defining the last day of further equity growth.

The world assumes linearity, but operates in nonlinear
fashion. Earthquakes, forest fires in aging 70  year old mature groves
replete with underbrush and decay, hurricanes, tsunamis, taxes due on
April 15, and even the greatest and most mysterious of them all for
the human condition - death - are all nonlinear occurrences in an
otherwise tranquil day-to-day, pleasantly monotonous, seemingly
continuous linear landscape.

The nature of fractals are likewise nonlinear. That the the complex
debt-money-asset-wage  system behaves and  travels in a quantum
fractal manner with saturation areas preceding nonlinear evolutions is
a testable hypothesis that  has been recurrently supported by
empirical retrospective and occasional prospective data from the
readily available equity, commodity, and bond valuation charts. In
this quantitative tradeable asset fractal world,
sudden drops occur at varying proportional time scales: minutes,
hours, days, weeks, and years-with  predictable periodicity. October
1987, in the clarity and ease of retrospective perfect vision, was a
recent example of longer time-unit fractal nonlinearity.

The nonlinear end of the US second equity valuation growth fractal
period beginning in 1858, will have a suddenness and unexpectedness
that will be proportional to the magnitude of the unprecedented string
of fifty to sixty years of successive, pleasantly monotonous, positive
annual US GDP growths. These lulling and comforting last fifty to
sixty years,  unprecedented in their continuity and magnitude  are in
the nth degree so antipodal to the balanced annual negative and
positive GDP growths that characterized the preceding
175 years of US economic  activity. The sixty year period  started
with American engineering greatness and manufacturing dominance.
Inflows of world currencies seeking US made exported products built
huge aggregates of US savings.

In the last twenty-five years, politicians and CEO profiteers have
placed the US in a near manufacturing less position. Perhaps using the
federal government as a model for fiscal responsibility the citizens
of this great country have buried themselves in debt: their major
production widget, a promise to repay at some point in the future
with wages from their progressively less globally relevant and more
tenuous service type of domestic jobs. In this new economic paradigm,
borrowed money for 800 billion dollars of imports and another 700
billion dollars of new federal governmental debt are responsible for
4.7 percent or 650 billion dollars of US GDP growth. While
corporations such as Enron might agree with this accounting
assessment, more fiscally responsible corporations such as GM
understand that this is a net negative growth with no ammunition in
the barrel to pay future obligations and entitlements. The thirty year
grace period before insolvency - by similar means of phony accounting,
- of the empty social security trust fund is entirely dependent on a
linear growth model.

The preceding 175 years before the late 1940's were tough but mostly
balanced years that efficiently took the excesses out of the system
and resulted in smaller periods and degrees of economic contractions.
The exception was the relatively brief run up of mostly positive GDP's
to 1929. This curiously occurred after the creation of the Federal
Reserve in 1913. The accumulative imbalances up to 29 , relatively
small compared to the present day imbalances, precipitated a
self-correcting and equilibrating 45 percent loss of US GDP during the
1930's globally severe economic contraction.

There are three Wilshire fractal interpretations that reflect the
underlying slope and the terminal growth of equity valuations since
October 2005 .. And all are telling the same story.

The first is elegant because it highlights the perfect growth pattern
defined in the main page of EF:

 The daily pattern from the October low is:

X/2.5X/2X/1.5X  ::12/30/24/18 days

The end of the third growth and 18 day decay fractal form a new 26 day
base with a 26/61 of 65 day operative pattern for the second 65 day
growth fractal.

The second interpretation is a 24/60/58 of 48-60 maximal growth pattern.
The third Wilshire interpretation begins in the peak 75th week of a 30/75/75
weekly pattern that exactly correlates to to peak 24th day  of the
third fractal in the previously cited 12/30/24/18 day pattern. Using
the base of the last 24 day third fractal a 13/32-33/32-33 day fractal is
defined whose 33rd day was on 2 May 2006. This daily x/2.5x/2.5x
extension step-laddered above the x/2.5x/2.5x 30/75/75 weekly maximum
pattern whose third fractal 75th week rested within the 13 day base of the
daily extension. The 33rd day of the third daily fractal now rests in the second
fractal of a yet smaller scale extension daily fractal: 3/7/7  days ::

All of the fractal growth patterns speak strongly to a probable conclusion of
maximal equity growth.  

Gary Lammert