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swmnfarmer2878522
Frequent Contributor

80-20 rule

If you look at the dollar chart you would notice the 80-20 rule is in play.  That is, once price has passed through the mL 80 percent of the time it will retrace back to the ML before continuing its current path

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11 Replies
sdholloway56
Senior Advisor

Re: 80-20 rule

An ABC flat correction should ideally be a 3-3-5 affair. That has now potentially been met.

While I continue to not see the fundamental reason for new lows, I could obviously be surprised. In either direction.

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sdholloway56
Senior Advisor

Re: 80-20 rule

Long rates appear to be on pause, taking away the reason behind the rising dollar, at least for now.

But I don’t think they can stay this low forever if we have 6-8% growth.

Funny how the financial press can make breaking out of an 11 year stagnation of sub 3% growth sound like an awful thing. Inflation!!!!!

Although it is a double edged sword in a world dependent on asset inflation.

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timetippingpt
Honored Advisor

Re: 80-20 rule

Dave are you becoming a MMT disciple? 

Just as someone who has planned their whole life to capitalize on "inflation" or more accurately described. "declining purchasing power of the currency", trust me, there is a ton of inflation happening. The CPI is silly as anyone trying to buy a home,  or college, or even a dividend paying stock (not in the cpi intentionally) will assure you. :-)  

 

 

BA Deere
Honored Advisor

Re: 80-20 rule

Well, "6% 8% growth!!!" is easily achievable when you start counting from the basement of a shut down.  A restaurant that had 25% occupancy finally goes to 100% occupancy and people that forgone their vacation for the past year now have a pocket full of stimulus money and chomping at the bit to spend...of course there`ll be 8% or easily more "growth".   What Trump did PRE Covid with 3% unemployment ect and had that kind of growth while standing on the roof of the house, now that was incredible!

The "Infrastructure Bill" wants to do away with "stepped up basis" for inheritances.  80 acres is 80 acres and house is a house.  The same house and same 80  that cost $80,000 30 yrs ago now cost $1 million due to government mismanagement/inflation and now the government wants a reward for their mismanagement in the form of death taxes.

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sdholloway56
Senior Advisor

Re: 80-20 rule

BA- why are you worried about stepped up basis on the Family Farm?

Ken- one of the few things I’m relatively certain of is that the current blip of inflation isn’t monetary in nature. It is a function of historic disruption in supply chains and shifts in consumer spending. That part will sort itself out although the Fed definitely wants some inflation beyond that. If it begins to get out of hand they have the tools to stop it. The question of whether they have the will is open.

Right now we do have huge asset inflation- stocks, junk bonds, houses are at extremes of historical valuations. That’s what would keep me up at night. But as you know from many cycles in your lifetime, the SS Oblivious will plow heedlessly through the seas until it hits something, and I don’t currently see any objects.

Maybe the burgeoning market in digital pixie dust? I don’t know.

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sdholloway56
Senior Advisor

Re: 80-20 rule

Whatever a stock is worth, it is less when interest rates are 3% than it is at 0%, all things being equal.

All 0% interest rates do is ensure that everything gets bid to, or beyond, the point where a 0% return over a long horizon is certain from there.

Not unusual- most recently the total return on the SP500 from 2000-12 was less that t-bills.

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sdholloway56
Senior Advisor

Re: 80-20 rule

The not so neat trick is that the Fed adds $5T to the money stock and stock market cap goes up $10T. What’s not to like is that eventually, and usually pretty violently, it drops $20T.

The actual transmission of asset inflation to the real economy is very weak- it isn’t like everybody can get their money out at that price.

But it is very popular with the political minders as when the Fed did an about face and then flooded the market with repo cash in ‘18–‘19 following a midterm shellacking and with an election coming.

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sdholloway56
Senior Advisor

Re: 80-20 rule

I could be wrong but I don’t think so.

The nice cold water that us fishes have been swimming in for 40 years- a continuous downtrend in interest rates, resulting asset inflation, continued diversion of income and wealth to the top tier- is about to get warmer.

A perilous time both politically and for economic policy makers. But nobody but shills, fools and grifters still believe the former was a sustainable path any longer.

sdholloway56
Senior Advisor

Re: 80-20 rule

BA- of course we've had many discussions over at Forum about the Kraft Plan. You are, like everything, agin' it if you think it might not help you and fer it if it will, no matter how much contortion it requires.

But the policy that best fits the principles of equitable taxation is to simply tax untaxed capital gains upon the death of the second spouse, but with the basis indexed to inflation. Not worth messing with most estates, so give it a $1M exclusion.

That way you don't double tax- retained earnings/savings would not be taxed. Most fortunes are not primarily previously taxed income- they are in appreciated assets that haven't been taxed.

The Capital Gains rate should be the same as earned income except the indexing at least the indexing partially or full alleviates the inflation tax- depending on the asset. There is a public purpose in at least not penalizing long term investment. There is no purpose in giving a break to somebody who flips a stock or property in a year.

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