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Wednesday, September 21, 2005


gary lammert

The quantative resolution of global imbalances - the current fractal perspective:

The macroeconomic world appears to operate and, operate exquisitely, according to three saturation fractal growth phases, followed by a saturation fractal decay phase. The idealized time unitsthat compose the three growth phases and decay phase, as delineated in the main page of the Economic Fractalist are x/2.5x/2x and 1.5x respectively.

Because equity valuation fractals exactly represent the complex
money-debt-asset system, the larger the equity index, the more
perfectly representative the index is of the underlying global
macroeconomy. This is why the Wilshire 5000 , TMWX, which represents the near summation US equity position is useful in fractal analysis. Even though other Euro-Asian equity markets have had better performance, it is the American economy represented by TMWX that has driven recent global economic growth.

Each day new valuation information is added and the consistent fractal patterns and overall fractal puzzle gains greater clarity.
Periodically review of the entire fractal evolution provides possible new insights. In this context a most remarkable balanced fractal picture has come into focus. It is a fine extension of the prior estimate of future fractal evolution rather than a departure. The echo housing bubble created by the lured debtor of last resort, the American consumer, has crested. This plateauing has been confirmed by such proxies as IYR and HGX and the greater TMWX index. US overconsumption, overvaluation, asset inflation,and servicing of debt
have become predominant factors over ongoing new debt and money creation in the complex money system.

Since 12 March 2003, the beginning of the current major three phase fractal growth period, the idealized fractal evolution has been simply exquisite. In general, major growth fractal units of significant length, e.g., weeks and months, are determined by low valuation points and the connecting underlying slope line which contain all interval points. The below data for TMWX can be easily confirmed by using 'Big Charts'.

First growth fractal (x): 103 days (12 Mar 2003 -6 August 2003)

Second growth fractal (2.5x) 258 days (6 Agust 2003 - 13 August 2004)(note nonlinear drop on August 6, 2004 denoting the hallmark of a second fractal)

(The exact idealized time frame is 103 x 2.5 = 257.5 days. Notice that the closing low is actually lower on 12 August 2004 with an intraday lower low on 13 August for exactly 257.5 days-exactly matching the idealized low).

The idealized expected third growth phase and the idealized decay cycle would be:

Third growth cycle idealized (2x) 206 days
Decay cycle idealized (1.5x) 154.5 days

Notice that the sum of the first and second growth cycle equals the sum of the third growth cycle and decay cycle: 103 + 257.5 = 206 + 154.5 = 359.5 (The first and last day are double counted requiring a subtraction of 1)

Now look what has happened in the real fractal evolution of the third growth cycle starting 12 August or 13 August 2004. It has been composed of three subfractals:

First subfractal: (y) 51-52 days 12/13 August - 25 October 2005

Second subfractal (2.5y) 129-130 days 25 October 2005 - 29 April 2005 (note nonlinear drop on April 15,2005 denoting hallmark nonlinear devaluation of the second fractal)

Third subfractal (2y) 103-104 days was ideally completed on Friday 23 September 2005.

Remembering that the sum of the first two growth fractals equal the the sum of the third growth fractal and the decay fractal, the decay fractal should be equal to:

Expected Decay Fractal: 51.5 +129.5 minus 103.5 (-1 for double counting) = 77.5 days.

Notice the sum 51.5 + 129.5 + 103.5 + 77.5 (-3 days for double counting) = 359 days.

This most remarkably agrees with the above idealized expected third growth cycle and idealized decay cycle within half a day.
Macroeconomically this might be explained by continued (excess) growth capacity to be had from ongoing debt creation and credit from existing asset valuation. The idealized third fractal incorporated this excess growth et, al. and rearranged itself into a new integrated sequence - with exactly the same number of days to the end of the idealized cycle.

This total cycle equivalent day fractal rearrangement potentially
provides a much better solution for the final decay fractal sequence. Retrospectively, using this solution, the recent fractal valuation behavior of the last 2-3 months becomes understandable and perfect in its evolution.

The base containing the 3 August 2005 Wilshire high starts on 18 July 2005 and is 16 days in length - vice 14 days. The evolution is 4/8/6 days. Rather than being the actual primary decay base, it appears to be a bridging intermediate base whose second fractal sequence contains the actual base for the primary devolution.The expected low of a second fractal with base of 16 days is on day 40(2.5x). This last Friday, September 23, was day 34 of this 40 day sequence. Using a 16 day base, there should be 6 more days to a low.

Likewise including the TMWX secondary peak(in reference to March 2000), 3 August 2005, is a potental interlocking confirmatory base sequence starting on 29 July 2005. This base sequence is following the classical x/2.5x/2x/1.5x and is 7/17/14/and 5(as of 23 September 2005) of 10-11 days. Noticed that the expected low occurs on the same 40th day(or one day earlier) of the 16/40 x/2.5x sequence as delineated
iin the preceding paragraph.

The potential real first decay fractal base is contained within these two above interlocking fractal patterns and appears to be 3/7/2 (as of September 23) of 7-8. The primary decay base would consist of 15-16 days starting on the lower high of 12 September 2005.

The idealized decay pattern would be either( for a total of 78 days from the 103-104 day third fractal third subfractal lower high):

15/37.5/37.5 x/2.5x/2.5x or
16/40/32-33 y/2.5y/2y.

By this fractal reckoning the first decay base low will be reached in 5-6 more days and the entire three phase fractal decay cycle will be reached in 77 more trading days. Considering the enormity of imbalances, entitlements, and outstanding debt, this devolution could potentially represent the 147 year nonlinear fall into the abyss. The collapsing financial picture will tax the American banking system with its inadequate fractional cash reserves in its ability to redeem deposits of concerned savers.

This is not investment advice. It is a rather specific prospectively identified potential pattern that can be tested. Again as the daily fractal valuations evolve, further prognostic refinements may be indicated.

However, the odds that the preceding identified daily Wilshire's fractals since March 2003, characterized by easily identifiable
valuation lows, are occurring by chance and randomness alone - resulting in exquisitely perfect quantum fractal patterns must, from a statistical point of view, approach zero. Based on this significant statistical improbability, the macroecomony may very well operate via its own predictable and scientific fractal law. Time will tell. Gary Lammert http://www.economicfractalist.com/

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