Select date
Pareto Principle Prices and Game Changers
by Gary Christianson, Miles Franklin:
Breaking News:
- Silver (COMEX) fell $0.86 on Friday, August 7, but still finished the week up $3.32.
- Gold fell $40 on Friday but finished the week up $55.
- The NASDAQ hit another new high at 11,010.
- Democrats and Republicans continued fighting about spending dollars they don’t have on giveaways to Wall Street, corporations, cities, states, and individuals. The Federal Reserve will create the giveaway dollars from “thin air” in their successful efforts to transfer assets from the many to the few.
- Grocery prices rose. More workers filed for unemployment benefits. GDP fell a record amount. Official national debt rose to $26.5 trillion, not quite $100,000 per person. The US government will default on that debt or will repay with hyper-inflated dollars. The Fed prefers hyper-inflation but will not say so. Good times ahead…
The Pareto Principle:
The Pareto Principle is an observation, not a mathematical theorem. It rose from the perception that 80% of Italy’s wealth belonged to 20% of the population.
The 80/20 rule applies in other areas where the distribution of wealth, income, assets, mischief, and nonsense are not equal.
Examples:
- 20% of workers create 80% of production.
- 20% of bureaucrats create 80% of the “red tape.”
- A market often takes 20% of time to achieve 80% of the price increase.
- 20% of congress receives 80% of the payoffs.
The Pareto Principle as applied to markets:
Examine the charts of Gold, Silver, Apple, Tesla, and the NASDAQ 100, and note the positions marked 1 – 4.
- A major low in price.
- An important high in price.
- Regaining that high after a correction.
- Final high price.
Gold’s bubble ending January 1980:
From low to initial high, gold prices rose $160 in 1,234 days. After regaining that high, gold prices moved $673 in 546 days. 81% of the price rise occurred in 31% of the time. It was an unequal distribution.
Gold’s rally ending August 2011:
From low to initial high, gold prices rose $764 in 3,164 days. After regaining that high, gold prices moved $906 in 693 days. 54% of the price rise occurred in 18% of the time.
Silver’s bubble ending January 1980:
From low to initial high, silver prices rose $5.04 in 1,234 days. After regaining that high, silver prices moved $43.57 in 364 days. 89% of the price rise occurred in 28% of the time. Silver rallies faster than gold, so the larger percentage rise makes sense.
Silver’s rally ending April 2011:
From low to initial high, silver prices rose $16.93 in 2,303 days. After regaining that high, silver prices moved $27.56 in 224 days. 62% of the price rise occurred in 9% of the time.
Thoughts: A blow-off rally in gold or silver will follow, more or less, the 80/20 principle. Expect most of the final price rise in a short time – boring, boring, boring, and then heart-attack exciting.
WHAT ABOUT STOCKS IN A BLOW-OFF RALLY?
Apple stock sold for less than a buck in 2003. It began a blow-off rally in May 2016 from $84 and reached $456 in August 2020. Tesla stock sold for $35 in 2013. It began a blow-off rally in February 2016 at $141 and reached $1,795 on July 17, 2020.
True believers think these rallies in tech stocks have much further to go—new highs are coming, and prices can’t fall much. Count me OUT of that group.
Apple’s runup ending (so far) August 2020:
From low to initial high, Apple stock prices rose $143 in 875 days. After regaining that high, Apple prices moved $229 in 308 days. 62% of the price rise occurred in 26% of the time.
Tesla’s runup ending (so far) July 2020:
From low to initial high, Tesla stock prices rose $246 in 504 days. After regaining that high, Tesla prices moved $1,408 in 210 days. 85% of the price rise occurred in 29% of the time.
