The Economic Fr...'s  Instablog

24 February 2012 and 11 October 2007 :: The Wilshire's identical x/2.5x/2x reflexic Peak Fractal Patterns And Valuation Days?

Validation of Nonstochastic Stauration Macroeconomics

http://www.economicfractalist.com/

From monthly nodal low to nodal low the Wilshire's March 2009 to October 2011 fractal pattern conformed to the x/2.5x/2x/1.5-1.6x pattern :: 5/13/10/7 months as described in the 2005 Main Page of the Economic Fractalist.

The composite Wilshire's decline to the March 2009 low was a pre-event to the nonlinear event predicted in the first paragraph of the 2005 Main Page of the Economic Fractalist.

From 2008 through 2012 the US and the world have reached a debt saturation asymptote and have reached a depletion condition in the pool of potential borrowers.

Is there a relationship between the equity, commodity, and debt markets to the total accumulated debt of the system?

The short answer is yes in terms of absolute quantitative valuation gains during asset valuation growth periods and losses during decay periods.

Is there a timing relationship between the market's asset valuation progression and total accumulated debt?

The interesting answer is, empirically, likely not.

The United State's can be used as a proxy for the world.

How big is the US's debt; how fast has it grown, and how big and has fast has Wall Street's money changer slice of the pie grown?

Total US corporate, private, and governmental debt has doubled about every 9 years from 1980: 4 trillion, 8 trillion, 16trillion, and 32 trillion by 2007.

For the system to continue in a linear fashion with stable job and GDP growth, the accumulated debt by the end of 2012 should be about 48 trillion and 64 trillion by 2016. At the present rate of debt the 2012 amount of cumulative debt will be about 9 trillion below the 48 trillion target. And 90 percent of the new subpar debt growth over the last 4 and 1/2 years has been created by the federal government. Without federal government borrowing, the system would have imploded.

In 1979 US financial sector total debt was 500 billion compared to a total corporate, private, and governmental debt of 3.6 trillion. The financial sector received 1/8th of all US loans. While the total corporate, private, and governmental accumulative debt increased to 34 trillion in 2008, a ten fold increase - financial sector debt grew to 17T in 2007 - a 34 fold increase, representing one third of all accumulated US borrowing.

Total US debt including financial debt has reached an asymptote at 51.5 trillion from 2008 thru the 3rd quarter of 2011.

The financial industry is the huge winner in this new unfair paradigm of a money churning trading speculation driven economy.

Since 2008 the industry has shed 3.3 trillion of debt as compared to the common citizens shedding 450 billion of their debt.

The financial industry is the rule maker and wins regardless of the direction of the market. It will be interesting to see the reduction in their debt load during the coming nonlinearity in equity, commodity, and bond markets. (US debt instruments will appreciate, reaching 150 year historical lows.)

The US housing market represents the average US citizen's large denominator of unit wealth. While it is the pivotal asset class of the GDP dependent consumer nation, it has odd sizes, shapes, and locality valuation variations and extreme low frequency trading, Housing asset valuation changes can be represented by valuation saturation curves but only in a mixed average fashion.

On the other hand, the equity, commodity, and bond markets have discrete dollar/unit ratios and are traded with high frequency and on the average of 4.92 days a week. Their time dependent valuation curves can be easily quantified in a minutely, hourly, daily, ... yearly fashion.

Reflexic Asset Valuation Saturation Fractal Patterns...

The Wilshire's nominal peak on 11 October 2007 was prospectively predicted by the patterned science of Saturation macroeconomics and characterized b a reflexic 20/50/40 day :: x/2.5x/2x fractal.

On 24 February 2012 the Wilshire's 2 May 2011 lower peak of 14500 may be approached or bested by a reflexic 31/77/62 of 62 day :: x/2.5x/2x fractal.

The 31 day base fractal is a 5/11/10/8 day :: x/2-2.5x/2x/1.5x fractal and includes the 2 May 2011 secondary high.

Looking retrospectively and empirically asset valuations within the debt-money-asset macroeconomic system grow and decay to maximum limits. The degree of asset absolute valuation growth are ultimately based on system money creation via debt creation and accumulation.

In 2008 a debt limit was reached marked by the system's collective inability to expand debt further at the historical 9 percentage rate to maintain asset valuations, jobs, and system ongoing linear demand.

The central hypothesis of Saturation Macroeconomics is that the debt-limited growth and decay of asset valuations occurs via self assembly ideal mathematical pathways to time dependent saturation areas. The time dependent saturation areas are due to the exhaustion of the pool of speculative money following the asset. These pathways and regular patterns occurring in a time dependent quantum fractal manner confer on the debt-money-asset collective system the qualities of a science.

Nonlinearity at peak valuation saturation areas correspond to a time period where the the pool of interested speculators are completely in the market - there are no buyers left. It is the patterned time periodicity of the percentage involvement of the speculator group that correlates and creates the time dependent growth and decay saturation curves and the system's expected nonlinearities.

Rules have been developed by those who make the rules to favor speculation in equity assets with notions such as tax free dividends and tax advantaged capital gains. Debt instruments with the exception of low interest treasuries are taxed equivalent to wage income as is interest from banked money. The financial industry who understand the rules and the speculator saturation cycles, take advantage in every way possible during asset valuation growth and expected asset valuation decay. The United States, US taxpayers, US wage earners, large pension funds, and private small speculators serve as the financial industries' wildebeest. The wildebeests continually eat the dry grass and serve as the targeted meals by the Wall Street and London lions and crocodiles.

The microcosm of one specific pool of speculators for one specific asset class correlates to a larger collective pool of speculators for a collective composite class, e.g. the Wilshire, the CRB, or the ten year note.

Most of the small speculators and pension funds use money vice debt to trade for the asset. The industry uses debt, calls, puts, leveraged futures when the pool is nearing depletion and abrupt market changes are anticipated.

The countervailing element of assets and money in the debt-money-asset system is debt and the concept of saturation of debt accumulation within the collective pool of debtors.

Composite debt accumulation and creation has a population pool that uses its future wages and earning power to trade for assets in the near term. Banks acting as the intermediary trade money against the debtor's future earnings, collateral asset, and probability of asset valuation appreciation. That money is given to an asset producer-supplier and the debtor is given the use of the encumbered asset with the promise of ownership after a 15-40 year period of principal and interest repayment.

Banks view debtor's obligations as an asset class which provide ongoing interest income.

The money-debt-asset system is interconnected and continuous system linear total valuation growth is intermittently impeded by the saturation within the pool of potential new debtors. This is the primary source of the business cycle.

Prudent rules of debt creation have been established over 500 years. A responsible bank reviewing individual credit worthiness, reviewing the asset collateral appraisal, reviewing the likelihood of continued wages, a 10-20 percent down payment, and an 8-13 percent interest rate - all keep the money-asset-debt creation system in check.

Easy credit departures from this formula create an excessive-debt-creation/time derivative with over production of assets, overvaluation of assets, and accelerated depletion and saturation of the debtor population pool.

Housing is the common citizen's primary denominator of wealth. Common citizens, corporations, and governments compose the pool of debtors. Corporations have no need to increase debt in a housing saturated debt-money-asset system. Governments can and should increase debt, but are becoming increasingly frozen in inaction with the have's who make the rules in a bitter battle with the have nots who have promised system IOU entitlements based on past labor and services. This leaves the citizen pool of potential debtors who are saturated with a trillion dollars of college debt, credit card debt, and housing debt with housing - the unit of citizen wealth- oversupplied, and over valued. As the debt-money-asset system's primary asset for citizens, housing in growth valuation periods produces a multiplier effect on all asset classes with increased demand and employment. In an overvalued oversupplied situation created by departure from the prudent rules of system debt creation, a contracting de multiplier effect occurs.

In the housing oversupplied, overvalued demultiplier environment of a saturated pool of citizen debtors, a corporate pool that has no reason to increase debt, and a polarized frozen governmental pool composed of have's and have-nots playing the weary game of contesting every tax raise and every extra dollar of debt - housing valuation in the debt-money-asset must and will decline further.

All elements of the debt-money-asset system are interconnected. Because of the variations in the size and internal element of housing units in different geographical areas and the lack of hourly and daily trading of individual units , housing as a unit asset valuation, unlike for instance for Apple shares, is difficult to follow.

But other asset classes are traded in dollars per unit denomination and in high volume on a minutely basis. Their saturation valuation curves over the last fifty are easily accessed and observable to all who wish to observe.

It is from these valuations curves that the x/2.5x/2x/1.5-1.6x four phase debt-money-asset system ideal growth and decay quantum fractal are derived. The quantum patterns represent how speculator buyer pools are progressively depleted, reach a euphoric saturation point with a gap to high and ending near the low, where thereafter nonlinearity occurs, and thereafter where speculator seller pools are progressively depleted, reach a total depletion and saturation point usually with a daily low valuation ending on a high and thereafter long term valuation growth begins.

Valuation growth and decay are integrative, interpolative, and continuous processes. Fractal valuation growth incorporates terminal valuation decay. The larger the time units, for instance, years verses months, the more accurate the fractal pattern as, for instance, the nodal low for a year will often incorporate several of months of declining valuation.

From monthly nodal low to nodal low the Wilshire's March 2009 to October 2011 fractal pattern conformed to the x/2.5x/2x/1.5-1.6x pattern :: 5/13/10/7 months described in the 2005 Main Page of the Economic Fractalist.

The hallmark of the patterned science of saturation macroeconomics is second fractal sudden nonlinearity. The Wilshire flash crash of 6 May 2010 was a second fractal nonlinear event of a March 2009 - August 2011 19/47/38/27 week :: x/2.5x/2x/1.5x. Second fractal nonlinearity occurred near the terminal portion of the second fractal between 2x and 2.5x and on the 44th week of the 47 week second fractal. The second fractal 47 weeks had a lower low on week 52.

Observe the integrative function of the larger fractal time units i.e. months verse weeks using the the March 2009 to October 2011 low to low. A 5/13/10/7 month fractal x/2.5x/2x/1.5x is observed and has its 13 month second fractal low on week 52 cited in the paragraph above.

Finally a further monthly interpolation is observed with the Wilshire 31 August 2010 second fractal nodal low. The March 2009 5/13/10/7 month Wilshire fractal is interpolated in a February 2009 6/15/12/8 of 9 to 10 month fractal which can be observed easily in the Nikkei composite. This correlates to a 24/60-61/48-49/30-31 of 36-40 week fractal for the Wilshire.

The ideal daily 2009 to 2012 interpolated 4 phase Wilshire fractal daily series (defined by the length of the second fractal) is:

1st interpolated fractal 23 Jan 09 31 + 86 days = 116 days (ideal 2.5x = 290 days)

2nd fractal fractal 2.5 x = 1-3 + 221 + 69 = 289-291 days (8-10 July 2009 to 31 August 2010)

3rd fractal fractal 2x = 232 days = ending 1 August 2011

4th decay fractal 1.5-1.6x = 174 -187 days expected starting from 1 August 2011

7 days to 9 August 2011 low 168-181 days remaining

and as of 19 February 2012

9 August 2011 series: 40/38/17/42 of 42-43/x (30-39) days = or 134 of 168 - 177 days (with 34 to 43 trading days to an ideal and nonlinear low for the Wilshire)

European and American bank's have only a small fraction 1-6 percent of cash on hand to meet depositor total potential withdrawal requirement. These not-in-the-vault deposits are backed by overvalued and illiquid collateral assets and by the (declining collective)wages of a saturated debtor population pool. While insured to a capped amount by the FDIC, money in the bank is actually a relatively weak asset as compared to a long term debt instrument back by the collective future wages and taxes of the citizenry and the government ability to print currency notes.

In the context of the money in bank as a relatively unsafe prospect as compared to US notes and bonds, the selling population of US notes and US bond's is depleted. TNX and TYX have reached a reverse fractal (see future charts)of 13 and 34 weeks with a nonlinear daily gap on week 32 and a higher double bottom ending on the low on 17 February 2012. For TNX and TYX there have reached a 9/21/14 of 18 day x/2.5x/2x selling saturation point on 17 February 2012 which is the terminal portion of a 6/14/10 of 11week :: x/2.5x/2x curvilinear terminal buying to transitional selling saturation area.

The 18 February TNX 9/21/14 of 18 day selling saturation fractal corresponds to a Wilshire 9/20-21/14-15 of18-19 day blow-off buying saturation fractal.

On 17 February 2012, the Wilshire gapped at the opening to 14362, a new multi monthly high, second to the 2 May 2011 14500 high.

Synchronized second fractals: The Wilshire

1789-1858 = 70years = x and 1858-2012 = 2-2.5x 164 years

1892-1990 = 9 years = x and 1990-2012 = 2-2.5x 23 years

9 Aug - 4 Oct 2011 = 40 days = x and 4Oct-18 Feb = 2-2.5x 95 days (4 more days to 99...one less than 100 2.5x...)

Saturation Macroeconomy aphorisms

1. Ongoing new debt creation (denominated percentage wise of GDP and over an average of 3-5 years) creates the absolute heights of Wilshire and Commodity valuations.

1a. If the Rossi ECAT fails to make a market appearance, saturation peak oil extraction from the ground will cause this particular commodity to have relatively more value even in global debt contraction.

2. An asset speculator interested money population and the depletion thereof serve as the substrate for the self assembly timing process of the asset valuation markets reaching an absolute saturation asymptote both at peak and at nadir valuations.

3. New debt creation increases absolute heights of asset valuations.

4. Debt default and money destruction accentuate the naturally timed nonlinearities in asset devaluations and nadir low valuations.

4a. Naturally occurring asset valuation nonlinearities may cause a disproportional reaction in monetary, fiscal, and political policy - a good thing as even the have's will understand the system's continuation is threatened if governmental spending is not appropriately deployed.

5. The United States and its citizens must decide whether to pay the labor-wage related 70 year old social contract IOU retirement promises for which taxes have been specifically earmarked or pay the US bond and ten year note debt holder promises. They can do both only through accounting fraud and money printing which being the easy way will likely occur. Both the labor related and tax based social contract and the US formal debt instruments are national IOU's, debt obligations. Which debt obligation has more validity and which will sustain the US system and young citizens going forward?

6. The degree of perfection of the time dependent quantum fractal growth and decay of asset valuation evolution is dependent on the enormous debt load in the whole macroeconomic system.

7. The system needs the creation of a better rule set to curtail the gaming of the system. A few of the wealthiness people in the United States understand theat the unfairness in the system will ultimately lead to the system's demise.