18 July 2005

Replica Treasury Yield Fractal Patterns, Exhaustion Gaps, and Optimism

Prototypical of top fractal portions in saturated markets on the daily,
weekly, monthly, or yearly unit level is the 'exhaustion gap', which serves
as a high probability marker for a turning point. This near apex gap can be
seen in individual stocks, local housing price linear valuation curves and
in major summation equity indices.

Money wise the greatest of all world summation indices is the Wilshire 5000
(TMWX). 

On July 11, 2005 an exhaustion gap on a minutely basis occurred in the
Wilshire taking it to a four and one-half year high. With respect to its
predominant, thus far 'perfect', x/2.5x/2x terminal daily growth fractal
pattern beginning in August 2004, July 11 fell on day 50 or 51 of a
51-52/129-130/50 or 51 of 102 day pattern - for ideal fractal growth
completion. 

The Wilshire's daily fractal growth pattern is growing in the shadow of a
completed or nearly completed weekly fractal pattern of 22/54/49 of 44-54.
In the grand US saturation macroeconomic picture, these daily and weekly
fractal patterns are nested in a 70/147 year pattern whose second 147 year
growth fractal is decrepit and creaking with old age, excessive bad debt,
and consumer asset saturation. Poignantly and pointing the way the equity
market valuation of the world's new manufacturing powerhouse, China, is near
a 6 year low - in spite of its remarkable GDP growth.

July 2005 witnesses extreme optimism in the United States consumer and
equity trader. Recent governmental inflation figures which exclude long term
housing cost are nicely contained. Tax revenues based on a predominant
service and growing manufacturing-less non capital investment debt-driven
economy are projected to grow. Car shoppers are congratulating themselves on
their recent deals of a lifetime in forward consumption of their new fire
sale GM cars. They are spending the money they saved on the vehicles at
Wal-Mart boosting its retail sales. In July 2005 as saturation
macroeconomics approaches its endpoint asymptote, Optimism rules America.

Coincidentally in July 2005 the current treasury market fractal pattern
represented by IRX curiously matches the identical monthly treasury yield
growth pattern that started in October 1998. In 1998 the monthly pattern to
the top was 7/14/7 which is a replica of the current 7/14/7 monthly growth
pattern starting in June 2003. In 1998 IRX yields increased from a low of 35
to a high of 60 for an absolute increase of 25 or a 2.5 percent yield
increase. The identical monthly pattern starting in June 2003 has taken IRX
from a low of 8 to nearly 32 on 15 July 2005 for a gain of ... 25. While
IRX is Fed driven rather than market driven it is interesting that a 2.5
absolute percent increase in treasury yield was associated with the
beginning of the dotcom implosion in 2000/2001. Maybe the Fed will be able
to raise the yield a few more months, before the housing market becomes
saturated and depletes the pool of possible first time buyers and second
house buyers. Maybe the saturation and depletion timing will match the
completion of the ideal 102 day terminal Wilshire equity growth fractal. But
then again - maybe not. Under the longer fractal umbrella, expect the
unexpected.

G. Lammert