14 October 06
Overwhelming Debt Load And The X/2.5X/2.5X Quantum Fractal Natural Law
of Macroeconomic Investment Valuations - How the Macroeconomy Works
That there are natural laws and a simple ideal mathematical models or
'equations' to which the macroeconomy conforms as delineated by its
investment valuation patterns is as statistically certain as any
physical, chemical or biological natural law. Taken otherwise, the
probability that these precise quantum fractal valuation patterns
occur by chance alone is, or limitingly, approaches zero.
One of the illusive objectives of this web site has been an ongoing
attempt to delineate the precise terminal day of valuation growth for
the composite Wilshire's secondary growth pattern to its March 2000's
high, using the simple empirically-derived quantum fractal laws.
Multiple errant prognostications for the secondary saturation top have
been made but never within a completely consistent context of the
described quantum fractal natural laws for the macroeconomy's equity
valuations. This final deterministic saturation day correlates to the
necessary mechanistic saturation point where the totality of asset
valuations can no longer be further elevated in the context and under
the constraints of ongoing debt servicing, debt default rate and total
burden, and the necessary reentry of liquidated or to-be-liquidated
assets into the market as a result of debt servicing requirements or
debt default 'repossession'. This is the simplistic qualitative
descriptive limit for the money-debt-asset system where further growth
is exceeded by necessary decay.
This post serves to provide an answer to the final day of saturation
using the mathematical quantum model empirically determined and
relooking in detail at the whole fractal evolution of the Wilshire
from its low in October 20002.
As a brief summary, the natural fractal pattern of composite equity
valuations is composed of three sequential cycles of growth of the
following respective time lengths: X/2-2.5/2-2.5x followed by a decay
fractal of 1.5-1.6x. Toward the end of each growth cycle there is a
terminal decay - with the second growth fractal characterized by a
nonlinear drop between 2 and 2.5x. In the nonlinear phase of the
second growth fractal, a terminal day's opening and
intraday valuations is lower than any of the preceding day's closing
or intraday valuations.
Fractal patterns are seen at minutely, five minutely, fifteen
minutely, hourly, daily, weekly, yearly, 16-18 yearly, and about
seventy yearly patterns. Mr. Ralph Elliott formerly described these
patterns by watching the ticker tape on the a minutely, 5 minutely,
etc. bases. Chartists used the recurrent patterns before Mr. Elliott, and it is
likely that some of the most successful traders of the early 20th
century used them to their advantage.
Notable Elliotticians with backgrounds in psychology have errantly attributed
this these patterns into the spurious context of herd psychology rather than
the simple trading saturation and macroeconomic saturation curves that
they are. At the longer fractal unit lengths of 4 years, 18 years and 70
business, consumer, and generational consumer saturation, respectively
occurs with over borrowing, over consumption, over valuation, and a
high debt load that is increasingly magnified once saturation has
occurred and asset valuation decay occurs.
For the United States, an approximately 70 year first growth period
ended in 1858. The second growth period has occurred in two
generational sub fractal periods 1858 to 1932 and 1932 to 2006. The
first sub cycle was 74 years in length and the second subcycle is
currently in its 74 year. Taken as a whole the second 'grand' fractal
is 148 years in length with an expected nonlinear collapse between
year 140 and year 175. This 35 year window is falsely reassuring as
most of the longer cycle lengths end closer to the 2x time frame
rather than the
2.5x length. The 8 year fractal from 1982 to 1990 and the 16 year
fractal from 1990 to 2006 will serve to illustrate this point.
Since the high tech 32 month collapse from 2000-2003, fractal growth
has been under the constraints of an enormous growing debt burden.
Never before has so much debt generated so little GDP growth. Under
the constraint of overwhelming debt, the composite equity valuation of
the macroeconomy has 'self assimilated into' and is conforming and
operating according to a very precise recurring quantum fractal
X/2.5X/2.5X maximal growth pattern. The proof lies in the equity
The Japanese equity market, influenced by a near zero rate interest
rate monetary policy to stem 17 years of deflation serves as the model for the
world macroeconomic system. during the last 6 years all other nations'
composite equity markets have had some distortion of their major nodal
low valuations based on extreme variation of interest rate, monetary
policy, and creative new borrowing terms capturing subprime borrowers.
Money borrowed is money expansion. Long term fractal units, determined
by underlying slope lines that underscore and include all of the
intermediate values, have likewise had nodal valuation distortions,
albeit it minor, based on the interest rate variables, et. al..
The NIKKEI on a monthly basis is 8/18/17 of 17-18 months. Noting that
the operative pattern since 2003 has been a x/2.5x/2.5x maximal growth
pattern, the NIKKEI will most likely end on a high or lower high on
the 18th month of its third fractal by a maximal 8/18/18 month
fractal. This would place the terminal high or lower high in November
The Wilshire's long term pattern must be reexamined in the context of
the NIKKEI zero interest rate influenced fractal pattern. When a
determination is made to use the empirically derived x/2.5x/2.5x
quantum growth model, something very extraordinary becomes evident -
and that is ....a perfect long term X/2.5X/2.5X daily fractal for the
Wilshire exists. If its completes its ideal growth in 27-28 trading
days, the validity of simple and naturally occurring
fractal quantum operating laws of the macroeconomy should be resolved.
The next 28 trading days and what lies after that final 28th
saturation day thereafter may provide a fundamental change in the
way the macroeconomy is viewed.
From 2000 to 2004, the Wilshire was under the influence of the Federal
Reserves' sequential interest rate drops. Had the Federal Reserve
maintained treasuries at 6 percent, there is little doubt that the
Wilshire would have dropped below its 2002 valuation low of about
7280. The Federal Reserve further lowered rates to below 1 percent during the
last 6 months of 2003. In reality it was both the Federal Reserve and investors
who acted together in lower treasuries as money exiting the tech and
stock market and competed for the safe and relatively high yielding
The ideal cycle bottom for the Wilshire occurred on 10 October 2002 at about
7280 and was followed by 23 lateral trading weeks that ended 12 March
2003 at 7500. During this time the Reserve lowered rates from 1.5 to 1
percent and subsequently lowered them further for the next 6-9 months.
Most would agree intuitively that the Wilshire natural valuations were
influenced by the Reserve's monetary policy.
But Fractals are integration patterns. Empirically, portions of a
preceding decay pattern may be included in the time element of the
follow on growth fractal. This especially occurs at major transition
areas were decay is ending and and sustained growth is beginning. The 23
week period between 10 October 2003 and 12 March 2003 characterizes
such a period.
This laterally progressing 23 week cycle was characterized by a
4/10/7/5 weekly fractal pattern. The last 19 days starting on 13
February 2003 and ending on 12 march 2003 compose the last 5 week
subfractal (the outlying days begin in late portion of week 1 and end
early in week 5) and 'belong' to the oncoming 30 week growth fractal
that ends on 30 September 2003. The first base starting 13 Feburary 2003
is a 'bent' pattern of 8/18/8 days or 32 days.The daily fractal
pattern constituting the first major growth fractal for the Wilshire
is therafter from 13 Feburary to 30 September 2003 : 32/65/64 days or
Using the proportionality law of ideal quantum growth fractal
x/2.5x/2.5x which has been derived empirically by the recurrent and
pervasive x/2.5x/2.5x patterns throughout the March 2000 Wilshire's
debt propelled echo growth, a theoretically ideal 159/397.5/397.5 day
fractal pattern is projected.
Exactly on day 398 on 29 April 2005, an intraday low was hit with a
reversal to the high... making 29 April 2005 exactly 397.5 days, the
exact day - to the half day- or within 0.5/397.5 x 100 or within less
than 0.1 percent variance of its predicted quantum fractal hypotheis
target day. The expected nonlinear gap characterizing the 397.5 day
second fractal occurred on 15 April 2005 or day 388 of the second
fractal sequence. Itis best seen on a daily
basis using NDX.
Since 29 April 2005, the fractal progression from nodal lows have been
117/56/113/24/19/21/11/7/and ending last Friday 13 october 2006 - 9
days for a total of 369 days of an ideal 397.5 days of the third
growth fractal. This leaves 27.5 days until the final 2.5x terminal
days. Using the the last 2 fractal sequences of 11/7+9 or 11/15, an
ideal laterally and upwarding advancing 11/15 of25-27/16-18 day would
be appropriate. commodities will be competing for equity investment
money during this time frame and will temper the continuation of the
recent equity blow-off
Fractals are fascinating entities because they can be grouped by the
human mind in a variety of ways. In contrast to the fallible human
mind, the infallible macroeconomy 'self assembles' or otherwise
'groups' the fractals in the necessary quantum mathematical fashion
based on the ideal distribution of investment money into generally
five investment areas: equities, debt instruments, commodities, real
estate, and lastly capital investment in factories, R and D, and
machines for production of sellable and consumable items. The latter
two useful investment areas are difficult to quantitate.
Once again... enter the GM continuing but very solvable conundrum. The
base upslope weekly fractal starting in December 2005 was 16-17 weeks in length.
the 2x length for the expected second fractal would be 32 to 34 weeks in
length. GM is currently on week 27 of the second fractal's expected
32-34 week period. Note the 6 week's remaining expected growth agrees
with the Wilshire's expected 27.5 day remaining growth and the Nikkei
1-2 month remaining growth of 8/18/17 of 18 months.
A newly recognized daily fractal pattern of GM becomes telling with a
28-29/72-73/30-31 of 58 expected days. The 27-28 days of remaining
growth to its expected final high matches the 27.5 days expected by
the Wilshire's ideal 159/397.5/397.5 final high.
The upgoing daily fractal pattern for GM starting on 29 December is
13/32/28 or 71 days with a second fractal of 28-29/72-73/30-31 of 58
days or 130-131 of an expected 158 days with resultant 71/130-131 of
158 to a high using the 29/73/58 day pattern and 177 days to a low
using the 71 day base (2.5x of 71 is 177.)
The final rotation of investment money that is highly probable in this
terminal 27.5 day period of asset valuation -will be out of bonds and
into equities and commodities - much like during the pre and post
presidential election period of 2004. As the housing market silently
implodes and housing speculators and new home owners meet each day
with the terrible reality of mortgage payments, high real estate
taxes, and lowering asset value, the previously churning available
real estate money continues to rotate away from further real estate
develpement and into the other three main big investment venues. The
recent blow-off in the equities has been ,the new home' for real
estate investment money.
Since the end of June until about mid September terminal real estate
developer money has likewise flowed into the bond market, driving bond prices
higher and the interest rates lower. Since May until near the end of
September, money exited the commodity markets with the CRB loosing ten
percent of its value. Since June until present available investment
money has flowed into the equity market driving the composite
Wilshire above its May high. The recent 11 day selling of the bond
market has added further money fuel for the equity
blow-off of the last several days.
All three investment areas: equities, commodities, and debt
instruments are following ideal fractal patterns. IRX, TNX, and TYX
are inverse growth fractals: their higher valuations are equivalent
with higher interest rates and falling bond prices. In the next 27.5
trading days the quantum mathematical linkage at the end of the
investment trail will show a perfect interconnectivity of terminal
investment money, flowing into primarily commodities and secondarily
equities and out of bonds. There is simply not enough money to support
all three investment areas, and lurking in anteroom is the liquidity
trapdoor of the housing bubble.
First the commodity market. The commodity market with oil, grains, and
gold will likely be competing with the equities for the investment
money during the next 27-28 days. On Friday 13 October 2006 all
future contracts for the CRB had but one level trade - limit up. The
next several day of trading will likely also have a single level of
trading - limit up. The CRB, oil, and gold all reached a selling
driving force comes in the complementary story that grain storage
levels are at 20 year lows. Grains are in a very defined period of
fractal growth. The current fractal growth sequence for the CRB is:
8/6 of 20/13-20 days.
Some of the investment money for the commodities will come from the
bond market, some from the equity markets 'which will become worried
about the ongoing CRB and 'grain -driven inflation' and some will be
borrowed at low interests and on margin for speculation. The best
fractal pattern for the equities is 11/15 of 26/17-18.
The debt market fractals are following ideal patterns. From the low
on 13 June 2006 the pattern has been 23/51/12 days with secondary
peaks of the secondary declining fractal at day (x) 23 and day (2x) 46
with a characteristic nonlinear break on day 50. the pattern now is
one of 'growth' looking at the inverse TNX or TYX. The bond market
will probably continue to be sold as investors sell and rotate bond
money into the growing commodity market. The explanation for the
sell-off in the bonds representing the debt market will be the rising
inflation in the commodity market which ironically will be propelled
by money exiting the debt market. The daily fractal (inverse) growth
patterns of notes and bonds TNX, TYX, are fittingly similar to those
of the composite CRB.
Will the Wilshire 2000's high be matched? It is extremely unlikely. It
gives pause to realize the amount of debt that has been taken on in
the last 6 years without the Wilshire reaching its March 2000 value.
But ideally there are only 27-28 days left for competing equity and
commodity growth ... and the Wilshire's 2000 high was nearly a
trillion dollars higher than 13 October 2006 value. Nevertheless money
should be exiting bonds and like the during the 2004 presidential
election, equities may have some paradoxical growth during a falling bond
market and higher commodity prices..
27.5 days to a final ideal x/2.5x/2.5x commodity/equity high. For
macroeconomists, scientists, and 'economic fractalists' the next
final 28 trading days and what lies thereafter may provide a
fundamental change in the way the macroeconomy is viewed. The next 28
trading days and what lies thereafter may provide the basis for a new
macroeconomic saturation paradigm and macroeconomic science of 'how
things really work'.....