2 September 06
The declining Wilshire maximal growth extension fractal count is 28-29/71-72/71-72 of 71-72 days (x/2.5x/2.5x)
The 28-29 day base includes:
the third fractal 75th week of a maximal 30/75/75 week fractal series the 24 day of a 12/30/24 day fractal series the 62 day of a 31/77/62 day fractal series
A curvilinear declining Wilshire fractal of 17/43/34 days is identifiable whose first fractal 17 day base incorporates the 5 May 2006 closing high.
A terminal 6 plus/16/16 of 16 day Wilshire maximal growth fractal is identifiable.
After reaching its equity and real estate consumption saturation point in 1990, Japan, in order to prevent massive default on absurd real estate valuations and a banking collapse, rapidly lowered its long term interest rates to near- zero. For the last 16 years its macroeconomic marker, the NIKKEI, has experienced an undulating yet inexorable deflationary pattern. Its recent monthly fractal growth pattern of 8/19/16 :: x/2- 2.5x/2x months represents a large counter trend growth pattern fueled by both government deficit spending and foreign consumer (primarily American) deficit spending, and is contained within the trending parenthesis of its larger decade and a half plus devolution.
The driver of the global macroeconomy for the last twenty years, the US consumer, has taken America's valuation saturation marker, the Wilshire 5000, above the NIKKEI's 1990 high mark, first via over consumption and overinvestment of the personal computer, Internet, and associated 'new economy' online marketing industries reaching its highest saturation point in March 2000. The inevitable devolution from the overproduction overinvestment saturation in hardware and software related industries such as fiber optic cable and Internet companies are well represented by the greater than 96 percent collapses in the equity valuations of Global Crossing and Yahoo from 2000 to 2001.
In the recent over investment and overproduction credit cycle the Wilshire reached a lower saturation closing high on 5 May 2006, propelled by borrowed dollars from a more heavily leveraged and wider consumer based over participation in the housing industry. In the latter and greater debt driven echo bubble, lenders aggressively competed with each other trying to capture as much of the 'primary and second mortgage business' and 'borrower's market share' as possible taking on default risks that the old experienced banking loan officers from those mahogany desks of First National would never imagine. This unregulated Debt Industry, the real engine behind America's last hurrah pyramid scheme economy - facilitated by Internet marketing, phone telemarketing, and pooled money funds - provided loans and terms to very marginal credit risks who then transferred borrowed dollars to the building and developers' industry. These weakest link borrowers under the constraints of commodity inflation, adjustable mortgages, and wages that are not keeping pace, are increasingly becoming unable to make ends meet and are defaulting on their loans.
At the current level of US interest rates and housing cost, the population of credit worthy borrowers have become inadequate to maintain positivity in US money growth. At this point in US economic history not to maintain money expansion and asset valuation worth is to be subject to a causal deflationary implosion from the existing massive debt load and servicing requirements.
On the other side of the equation is the US dollar and the inflation ridden dollar-denominated commodities and CRB. With the exception of the Australian currency, the US dollar as compared to its sister international competitor currencies is supported by differentially higher interest rates. For the Federal Reserve, logic might dictate that any lowering of the Fed Funds rate would lower the value of the dollar vice other currencies and thereby exacerbate commodity inflation.
This Federal Reserve dilemma regarding lowering interest rates to maintain the forward momentum of the US borrowing dependent economy aptly characterizes the current US economic end game elements of overwhelming debt, commodity inflation, inadequate wage growth, over consumption, and overproduction, and oversupply.
It is the debt market, rather than the Federal Reserve, that is currently dictating both the long term and short term interest rates. Large flows of money entering the sphere of presumed safe debt instruments, are lowering the interest rates, just as occurred in the months antecedent to October 1998.
The US dollar is backed not only by differential higher interest rates compared to other major currencies, it is backed by the perceived security of American taxpayers; America's enormous land, building, natural and industrial assets; the considerable force of its organized military, nuclear weapons arsenal and delivery systems; its 220 year old constitution: and importantly by its defensible position with two large oceans and two militarily weak neighbors. The dollar is completing a basing 15-16/39/28 of 28-39 day fractal which is the quantitative reciprocal of other major currency fractals. The rise from this daily fractal series and the antecedent 11/26/22/18 weekly dollar growth fractal may be quite remarkable. Many valuable US assets may shortly be denominated in a much smaller supply of surviving dollars.
For the Wilshire a declining maximum extension fractal of 29/71-72/71 of 71-72 days is nearing completion.
The great devolution is peeking from the anteroom.
What lies beyond? Does Japan's zero interest rate model indicate the possibility of one last 3 year or so US credit cycle extension based on a likewise near zero percent US three month treasury bill and a 1 percent long bond - leaving the US consumer yet more encumbered with debt with a possible end game a few years hence and the inevitable generational collapse? Or is the US over supply, over consumption, excessive debt and default process simply too far along in its unwinding for the Federal Reserve pilots to pull the crashing plane out of its nose dive? Is the US at the conclusion of a 148 year US second credit fractal starting in 1858 with equal sub fractals of 74 years ending in 1932 and 2006? Time will soon tell.......