5 March 06
From the Recent Global Macroeconomic Want
Help Wanted: New Borrower Of Last Resort....
At the peak areas - at the true generational asset saturation highs where the
top most asymptotic lines to the composite asset and equity valuation
curve are presumptively no further crossed, a simple rhetorical
question must be asked and answered in the affirmative mode. The answer
should be made with a real and reasonable assessment of the true
state of the ongoing global economy. Is this the point, the valuation
the finite time frame - where there are no more able borrowers to
propel valuations? Are there no more borrowers of last resort to further
the global money supply via debt creation and hence grow the global GDP?
The borrowers of last resort query was relevant at the saturation apex
of the March 2000 Wilshire and global indices. Indices of most major
countries are nominally now 10-20 percent below their 2000 values.
Double that loss for the composite US equity Wilshire when comparing
the 2006 dollar's deteriorating house buying power as compared to its
purchase power in 2000. In March 2000 and notably again in Sept 2000
there were simply no more able and willing debtors to further expand
the internet bubble given its saturation, overvaluation, and
prevailing interest rates.
At the devolution nadir of the high tech bubble was the powerful and
ready American consumer coupled with the federal government, the
federal reserve, and the great American smokestack-replacement
industry ...the debt creation and lending industry. Though relatively
small in number from a global perspective, these elements combined
forces to produce better than 60 percent of the recent half decade of
global GDP expansion.
Last year, enough money was borrowed and created to send 7-800
billion dollars of paper in exchange for foreign goods and services.
This borrowed money represented more than the total national GDP
produced in every country but 17 of the world's wealthiest countries.
Even Australia's GDP is no match to the wealth represented by
America's exported paper. The majority of the money creation
paralleled the money borrowed and created via speculative inflationary
housing valuations and the resultant stepchild second mortgages on
overvalued US homes. Money creation from Federal borrowing for primarily
service and entitlement funding, after finding its way into foreign made
autos and ubiquitous WalMarts, accounted for another significant portion
of global GDP growth.
Excess global money has sloshed it way around into basic commodities.
Added to the force of excess global money was and is the shrinking
growth rate of energy production in the face of the crossing of the
critical Rubicon of world consumption above that limited production.
Growth of US jobs has been in the lower paying service sectors. Growth
of composite wages are falling well short of inflation. Accumulated
debt of entry level US workers from educational cost is stretching
thin the salaries of even those with higher paying entry level service
jobs. Even with low interest rates and non principal payment loans;
the preexistent debt load, property taxes on over valuated housing,
and the inflated base price of housing are becoming limiting factors
on new property acquisition.
At the true generational top of equity and asset saturation curves,
the borrowers of last resort have been depleted. They either have had
their fill of the overvalued and overproduced desired asset or their
debt load relative to their wages is too high to acquire additional
items. Global money creation slows and global GDP slows. A slowing of
consumption of the leading asset is telltale - whether it be tulips,
South Sea equity issues, Model A's, Enron and Intel stock, or ...
houses. Who currently is left to step up to the plate as an immediate
hitter and replace the American consumer as the world's needed
borrower of last resort?
Asset valuation saturation fractals exactly correlate to the slowing
of borrowing and hence to the slowing of money creation, the slowing
of GDP growth, and the slowing in the rate of consumption of the
generationally-prized asset. Fractally, the global equities appear to
be at such a saturation point.
The last of the money created in the housing sector has made its final
rotation into the equity sector. Whereas the US Wilshire has remained
within 0.5 percent of its 11 January 2006 apogee, those global equity
indices representing countries with better capital positions have
shown remarkable blow-off activity. In the last two to three months,
selected Asian and European composite equity valuations have
increased greater than 10 percent.
For the US equities, GM, America's greatest smokestack industry with
a debt load equivalent to the Canadian national debt, is leading the way into
the asset devolution abyss. The ongoing grinding down of GM's junk bonds
will eventually lead to a position equivalent with that the formerly great
Delta Airlines - but.. on an order of magnitude of greater import.
Will the inevitable nationalization of the America Automobile industry
and American Airline industry be expected to produce business
efficiencies equivalent with that of the Department of
Homeland Security? A study of GM's equity valuation fractals illustrate
of the rules of fractal growth and decay progression.
For the great Wilshire, there are two fractal patterns that are intertwined
and dominant. The first is a top fractal pattern along the crest of the current
Wilshire peak starting with the apex on 11 January 2006 - day 62 of a 31/77/62
daily fractal (X/2.5X/2X) and contained in the 75 week of a 30/75/75
weekly fractal sequence. Using the apex portion of day 62 as
the beginning of a small echo curvilinear x/2.5x/2.5x blow off growth
sequence, the following fractal sequence is discernible:
6-7/16/16 of 16 where day 16 of the second fractal is up going and
double counted as the initiating day of the third blow-off fractal.
And day16 of the third fractal represents last Friday's activity with
minutely exhaustion gaps to a new high: 13099.41 and with a subsequent
reversal to close 95 points lower and below the 11 January closing
A possible decay sequence has the first decay fractal base containing
day 77 of the 31/77/77 day sequence. A reasonable decay sequence for
the Wilshire which parallels a matching one for COMEX gold would be: 10-11/18 of