Since 2001 US asset prices have been pushed by debt expansion to what would currently appear to be a limit. The Federal Reserve inflated residential prices by over 14 trillion dollars with between March of 2020 and March 2022 with Federal Reserve MBS’s and 2.5-3.5 % inflation rates. Blue collar and US service workers have been priced out of the American dream.
Under the umbrella of US debt expansion, Chinese property overvaluation, and a US service sector based economy encumbered with debt, gold in US dollars has progressed in a x/2.5x/2x :: 51/127/102 monthly fractal fashion since 2001, peaking on the 102nd month of the 102 month third fractal in April 2024
1 May 2024: The March 2020 to April 2024 Global Equity 8/24/20 Month Fractal Growth Series; Why the 24 Month Second Fractal Had An Extended length: A 1929-like Three Phase Series Daily Fractal Collapse Ongoing and Ahead?
Historically large US annual percentage deficit federal spending /GDP ratios in 2020 and 2021 caused a prolonged 24 month second fractal in the March 2020 to April 2024 8/24/20 month three phase QE/QT three phase fractal growth series for global equities.
The annual new US debt/GDP deficit ratio in 1942 post Pearl Harbor was 13.88%. This was only exceeded in 1943-45 until President’s Trump’s last year in office in 2020 at 14.71%. In President Biden’s first year the ratio was 12.1 % with the last two years at 5.4% and 6.3%. In addition to the 2020 and 2021 large % GDP/deficit spending, March 2020 fed funds interest rates were rapidly lowered to near zero with 2.7-3.5 % mortgage rates. The Federal Reserve bought an additional March 2020 to June 2022 1.4 trillion dollars of MBS’s. This facilitation inflated real estate prices which created an additional wealth effect among homeowners and the owners of rental residentials, which contributed to the inflation of other asset classes. Offsetting the accelerated QT rate increases to combat this inflation and initiated in early 2022, was another smaller Federal Reserve QE program instituted in March 2023 to prop up the banking system after Silicon Valley Bank et. al. failures.
The massive US QE program and historic federal deficit spending in 2020 and 2021 (matched by Western and Eastern central banks) prolonged the 8 month March 2020 global composite equities’ second fractals, which started in October 2020 and ended in Sept 2022 with a duration of 24 months: 4/9/8/6 months :: x/2-2.5x/2x/1.5x or two combined fractal series: 2/5/4/3 months and 3/6/7 months :: a/2x/2.5x/1.5x and x/2x/2-2.5x, respectively. (see below) The current fractal series from March 2020 to April 2024 is 8/24/20 months with the 20 month April 2024 peak valuation occurring in a 5/10/7 month :: x/2x/1.5x fashion.
The March 2020 to April 2024 STOXX Europe 600 Index XX:SXPP and Nikkei monthly fractal series best exemplifies this 8-9/24/20 monthly three phase fractal growth pattern marked by nadir valuations between the first and second and the second and third fractals.
A potential 1929-like SPX primary daily decay fractal series of 11+/27-29/27-29 days is observable starting 20 March 2024. First fractal: 2/4/5/3 days (11 +days) ending 4 April. Second fractal (starting 4 April 2024)8 (2/4/4 days) //(5/8 of 10-12/7-8) (27-30 days) // and third fractal of 27-30 days. A significant drop in US global equity valuations could precipitate an expected fed funds rate cut. A lower high rebound might then extend beyond the US 2024 November elections.
US March 2020 to March 2024 Unprecedented QE followed by Unprecedented QT
In early 2020 at the beginning and during the more lethal covid variant phases, the Central Bank and governmental response of unprecedented QE/low interest rate/MBS/money creation and distribution resulted in historical price inflation and misallocation of bank lending for speculative enterprises. The central bank then pivoted to an unprecedented acceleration of QT, shearing bond holders and causing Silicon Valley, Signature, First Republic and Heartland bank failures in 2023. These banks had the double whammy of both providing unperforming ‘speculative loans’ combined with paper losses on federal securities. In 2023 the Federal Reserve initiated the BTF program which injected liquidity and propped up banks owning US debt instruments which suffered paper losses. The termination of this QE program on 12 March 2024, will have an additional QT effect on bank lending.
American consumers, which had acquired 2.5 trillion in savings during the paychecks from the last part of the Trump administration and the first part of the Biden administration have depleted that savings in Jan 2024.
China, the World’s Second Greatest Economy
For China, the second largest economy, citizen speculative malinvestment in real estate with an overproduction of 2 times the amount of units needed combined with a grossly inadequate replacement younger population has placed a double whammy on citizen consumption and ongoing construction which had been about 7 percent of China’s GDP. Chinese construction giant Evergrande is undergoing bankruptcy proceedings and corporate giant Country Garden has lost 95% of its stock value over the last three years.
It is the hypothesis of this website that composite equity valuations, even under the most radical of central bank and governmental manipulative conditions of QE and Q, grow and decay in a deterministic very simple time-based fractal-patterned manner following the most efficient mathematical self- assembly process possible.
The March 2020 NIKKEI 38/95/76 Week :: x/2.5x/2x Peak Valuation Fractal Growth Pattern(with an expected nadir in about 1.5x or 54-57 weeks)
The March 2020 Interpolated SPX 38/95/76 Week :: x/2.5x/2x Peak Valuation Fractal Growth Pattern(with an expected nadir in about 1.5x or 54-57 weeks)
