Skip to main content

Pareto Principle Prices and Game Changers

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.

1)  A major low in price.

2)  An important high in price.

3)  Regaining that high after a correction.

4)  Final high price.

image-20200813222444-13

 

image-20200813222444-14

 

image-20200813222444-15

 

image-20200813222444-16

 

image-20200813222444-17

 

image-20200813222444-18

 

image-20200813222444-19

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 run-up 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.

Tesla stock prices experienced a larger blow-off rally than Apple. The percentage move was larger and occurred in a similar amount of time.

For the NASDAQ 100 runup in 1999 – 2000:

 The NASDAQ 100 Index achieved 75% of its 1999—2000 bubble rally in 27% of the time. And then fell 80+% in a crash…

SO WHAT?

 Prices for silver and gold rose rapidly for several months during 2020, a mild version of their December—January 1980 bubble rally, and their 2011 rallies.

 Their prices will rally much further but are likely to correct first. Technically, gold and silver prices have moved too far, too fast. They are over-bought and due for a correction. Might happen soon, might not.

 But suppose gold prices peaked at $2,058 and silver prices peaked at $28.40 in August 2020. Suppose they correct, as markets must correct, back to lower support. Assume after correction, they surpass their August highs around April 2021. This is speculative, but the disastrous consequences of election year politics, pandemic shutdown, Federal Reserve “printing” under their QE4ever policies, and dollar devaluations are not speculative.

 Suppose that gold and silver prices rally substantially in 2021 and 2022, after more Fed “printing” and a panic into real money when hedge funds, investors, and central banks tire of perpetual dollar devaluations, inflationary policies, and monetary nonsense.

Suppose gold rallies to $6,000 in August of 2022 and silver rallies to $90 at the same time. Given that speculation, the gold rally, after regaining its $2,058 high, would create 79% of the rally in 22% of the time.

 Suppose silver rallies to $90 in August of 2022. That rally would be 82% in 22% of the time.

 Will gold prices rally to $6,000 and silver prices rally to $90? Yes, they will, unless the Fed stops “printing,” crashes the economy into a deflationary depression, and the U.S. government balances the budget. Winning the Powerball Lottery is more likely. The issue is WHEN gold and silver reach higher highs, not will they reach higher prices.

 

image-20200813222444-20

 

  • Who predicted over 50,000,000 Americans would apply for unemployment benefits within a few months?
  • Who predicted the Fed would add $3 trillion to its balance sheet in a few months?

image-20200813222444-21

 

  • Who predicted Mayors and Governors would “lock-down” citizens and crash their own economies? Are they hoping to create a Democratic sweep in the November elections so they can collect multi-trillion-dollar bailouts to fix their budgets and pension funds?
  • Who predicted a $5 trillion deficit (or more) in 2020?
  • Given those unlikely occurrences, does $6,000 gold seem unlikely?

image-20200813222444-22

 

image-20200813222444-23

 

image-20200813222444-24

 

Thoughts from H. L. Mencken:

“There is no idea so stupid that you can’t find a professor [or politician] who will believe it.”

Read: Martenson on the Endgame.

GAME CHANGERS:

Per David Schectman, the following are game changers regarding the prices for gold and silver.

a)  The BIS reclassified gold as a Tier 1 asset as of March 29, 2019. (Central banks are buying gold.)

 b)  The U.S. dollar is [slowly] losing its status as the global reserve currency.

c)  COMEX gold and silver longs are standing for delivery instead of rolling over positions.

d)  JPMorgan is no longer short gold or silver.

Those “game changers” will boost the prices for gold and silver. Add the hyper-inflationary consequences of massive dollar “printing” and $6,000 to $10,000 gold should be easy to comprehend.

If those hyper-inflationary actions occur, Apple stock might sell for $1,000 or more and Tesla stock… well who knows?

CONCLUSIONS:

  • Markets blow-off higher and often make most of their price moves in a short time.
  • Commodities, individual stocks, Indexes, and real estate prices, when they bubble higher, follow this pattern. The crashes, after the unsustainable blow-off rallies, often experience 80% of the correction in 20% of the time.
  • Stocks rallied for over a decade. Tech stocks are extreme examples. Gold and silver are inexpensive compared to total debt, national debt, M2, the S&P 500 Index, and the NASDAQ 100 index (see earlier articles).
  • Gold and silver have big rallies ahead. Tesla and Apple… maybe not.
  • Unless you trust congress, the administration, and the Federal Reserve to “have your back” and trust they will “take care of you” more than congress will pay off corporations that have “contributed,” buy gold and silver.

Miles Franklin sells gold and silver. Be advised that the supply is diminishing, and premiums have risen. Call 1-800-822-8080.

Average: 5 (2 votes)