Them versus Us

Friday, 24 April 2020
Melbourne, Australia
By James Woodburn

The opposite of every truth is just as true…

‘…the world itself, what exists around us and inside of us, is never one-sided. A person or an act is never entirely Sansara or entirely Nirvana, a person is never entirely holy or entirely sinful. It does really seem like this, because we are subject to deception, as if time was something real. Time is not real…

‘…And if time is not real, then the gap which seems to be between the world and the eternity, between suffering and blissfulness, between evil and good, is also a deception.’

Hermann Hesse, Siddhartha

Dear Reader,

I’d bet that 70% of the population of any given country relies on mainstream media for the truth.

Don’t ask where that figure comes from. It’s not based on any source. Or any research. It’s purely gut feel.

But here’s the thing…

For every truth, there is an equal and opposite truth.

That’s the lesson from the German philosopher Hermann Hesse, quoted above.

And that’s really what our business tries to do.

Provide the ‘opposite truth’.

To explore predictions and ideas neglected by the mainstream media…and give insights, education and advice to those not satisfied with their narrative.

Newsletters began in this way centuries ago with infamous ‘pamphleteers’.

Before the advent of the printing press and abundant supply of paper, pamphlets were secretly distributed to shape public opinion and spread ideas in the lead up to the French Revolution.

Thomas Paine’s famous pamphlet Common Sense drummed up support to overthrow British rule for the American colonies.

The Insider

Thomas Paine’s original pamphlet Common Sense helped sow the seeds for the American Revolution


The ideas Jonathan Edwards and John Calvin explored in their pamphlets changed the course of Christianity.

There were many more.

After the Second World War the ‘new pamphleteers’…newsletter writers…took up the mantle. It was a small subset of the mainstream media at first.

Then, with the dawn of the internet, our world burst right open…

It splintered into thousands of groups, each with their own ideas about the world…their own instincts…and own preferences…

This is part of the reason I believe our business and network here in Australia has grown so much since 2005.

It’s also why our editors and analysts talk about their ideas in the direct way they do…and why we promote our ideas in the way we do.

But you won’t see our ads promoting our ideas in the newspaper.

That’s partly because we don’t sell what big newspapers sell.

When you look at mainstream mags, newspapers and even social media platforms, what do you see?

Every other page there are ads for perfume…watches…dishwashers…fitness gadgets.

That’s because the mainstream media has strict guidelines about what is and isn’t appropriate.

But they decide. Not you.

Because the masses are not going buy perfume and watches unless they’re feeling pretty good about themselves, the world and the economy.

So, most of the ethics and rules that developed around mainstream media have to do with accepting things the way they are…and being comfortable with the status quo.

But as I said, our job isn’t to make you comfortable. Rather, it is to give you the truth, as we see it. That means talking about ideas and telling stories that may make many in the mainstream decidedly uncomfortable.

I guess that’s the primary difference between them and us.

They’re not bringing you new ideas. They’re not questioning anything. They’re reinforcing conventional ideas.

That way their advertisers can continue to sell more perfume, watches and TVs…dishwashers…fitness gadgets.

But in our business, the only thing we have to sell is our ideas.

Below, I share another famous memo from our founder, Bill Bonner.

It follows nicely from the memo I shared last week, which you can read here if you missed it.

But before you get to that — watch this…your first ‘strategy session’ is ready

Last week, I said I wanted to record some chats with every one of our editors.

The idea behind these ‘strategy session conversations’ is pretty simple. We have a wealth of incredible talent and experience amongst our analysts and editors.

And each day they come to work and their job is simple: to think very hard on your behalf and figure out what’s going in the world of finance and money…and provide you with ideas and solutions that aim to give you an advantage over mainstream thinking.

Because most people don’t use the thing between our ears. It’s much easier (and more comfortable) to go along with conventional ideas and conventional thinking.

But it also doesn’t get you very far. Perhaps it can work for a while, like in a bull market. But as we’ve seen lately, things can change extremely quickly.

As you know, here we don’t have a ‘company line’.

All of our editors have different ideas and strategies for how you can get ahead…whether that be ahead of opportunities…or indeed market threats that pose potentially big risks to your wealth, savings and future plans.

The only requirement we stipulate is that these ideas are thoroughly researched and thought through, and offer you a genuinely different and valuable perspective.

So, that’s how I’d like to use this time over the coming weeks. That is, showcasing the ideas of all our editors…and we begin today with the editor of Pivot Trader, Murray Dawes.

I also took the liberty of getting the conversation transcribed for those who prefer to read, rather than listen to the conversation.  

I hope you enjoy…


PS: Greg and I will start to address your emails next week. So, keep them coming in and don’t hold back. As I asked last week…

What’s on your mind? What do you want us to explore? How you do see this crisis ending? In a deflationary bust? Or an inflationary melt-up? What answers are you looking for?

Let us know here:

The Business of ‘Fat Tail’ Events

By Bill Bonner

Things happen.

Mother died last night. The old cow jumped over the blue moon. The Dow rose 200 points.

Despite all the progress in science, no one can predict the future. Even in areas thought to be 100% predictable, the future is never a sure thing.

When you heat water to 212 degrees Fahrenheit, for example, you can safely assume that it will boil. Even then, you don’t know for sure that it will begin to bubble up when it is supposed to. Scientific theories are never actually proven correct. They are just not yet proven incorrect.

It is like reaching into a jar of candies, says Nicholas Taleb. If you reach in one time and pull out a red candy, you presume that there are red candies in the jar. If you do it again, your presumption is reinforced. If you keep doing it time and time again you form a hypothesis: that there are only red candies in the jar. 

That hypothesis, or theory, is as good as any scientific theory. But it is never proven correct. Who knows? Maybe the next candy pulled from the jar will be black!

If, instead of an unbroken sequence of red candies a black one came out occasionally, an observer would conclude that there were fewer black ones than red ones. If a group of children were to each reach into the jar the results might be more or less predictable — not for any individual — but for the group. 

Most would pull out red candies; a few would pull out black ones. Taken all together, you’d expect about the same distribution of black and red candies as observed initially. 

And plotted out on a graph, the distribution of black or red candies per group would take the form of a bell. That’s called a ‘bell curve’. 

At the far-left hand side, for example, there might be zero groups that pulled out only black candies. At the far right would be the opposite phenomenon, groups that pulled out all red ones. At the centre, where the peak of the bell is located, you would expect the largest number of groups — those pulling out a proportion of black and red candies roughly corresponding to the balance in the jar. Most groups would fall into the big hump of the bell curve. Graded on a curve, the majority would be right.

That is the point of the book by James Surowiecki, the Wisdom of Crowds. Take the views of a number of people and put them together; the amalgamated views are likely to be closer to reality than any particular view. If you take a group of people and ask them how hot it is outdoors, some will guess that it is hotter than it actually is. Some will guess that it is cooler than it actually is. If you put the views together, you’re likely to come close to the actual temperature.

But it is a strange and wondrous world we live in. When scientists looked at many of the phenomena that were thought randomly distributed according to a regular bell curve pattern they noticed something funny. Out at the ends of the curve, where the rare events are registered, they found small bumps and bulges. Things that were not expected to happen very often actually happened more than they thought. 

‘Hundred-year floods’, for example, happened every 88 years. ‘One in a million’ shots hit their mark every 700,000 or so. Statisticians refer to these odd bulges on the extremities of bell-shaped curves as ‘fat tails’. Instead of tailing off as they are supposed to, the rare events seem to swell up, where you don’t expect them.

We don’t know what this tells us about nature. But we notice a related phenomenon in man; he tends to under-appreciate the extremes. He tends to exaggerate the ordinary. He sees today and guesses that tomorrow will be just the same. It probably will be, but there is always a chance that it will be different. And this chance is actually greater than he thinks.

Everything that happens in our world is not as simple as the temperature. If you had asked a group of investors, in August 1929, what was likely to happen on Wall Street, you’d have heard a range of views too. You might even have found a ‘crank’ or two who predicted a market crash. But the majority view was nothing like what happened. Most people thought stock prices would hold steady or go up. Few people anticipated ‘Black Monday’, with its 30% break in prices. It turned out the cranks were right.

Economists and the press were similarly complacent. Despite the pretensions of both professions, both economists and the financial press are driven by momentum. They reflect the common view, that what happened yesterday will probably happen again tomorrow. This is a psychological feature of human beings, based on what appears to be an accurate observation of nature. 

Usually, what happened yesterday will happen tomorrow. And usually, the great majorities — whose views are reflected in the calculations of economists as well as the newspaper headlines — are right about it; usually nothing extraordinary happens. Usually, you make about 3–5% on your investments. Usually, it is warm in the summer and cold in the winter. Usually, it rains just enough to maintain current levels of vegetation, neither more nor less. Usually, the stock market goes up and down — but in neither way very fast.

If an investor could live forever, he could probably make a lot of money betting on snow in July. True, it doesn’t happen often. But it does happen. And most people are so sure that it will never happen, they’re willing to give exceptionally favourable odds to the fellow who bets that it will. 

That is the secret to successful investing, as it is to successful poker playing. You play the hand you are dealt; you have no choice. You cannot control when you will get four aces or when it will snow. But knowing how to play the odds is what makes you money.

Unless the ‘fat tail’ event has been widely discussed, it is probably under-priced. After the terrorist attack of 9/11, Americans rated the odds of being a victim far, far higher than was actually likely. In the run-up to the year 2000, they rated the odds of a system-wide computer failure first at zero…and then, after a Y2K failure had been widely discussed in the media, as high as 50%. We don’t know what the actual odds were, but they were probably never zero and never 50%.

Naturally and normally, most people spend most of their time in the comfortable and familiar embrace of the ordinary. Floods that last for 40 days and 40 nights nor by fire and brimstone nor by market crashes or world wars rarely bother them. They watch television. They read the newspaper. Except when they are entertained by ‘War of the Worlds’ style fantasies, nothing in their usual media disturbs their sleep.

But in some part of their brain, they know that the future may not go so smoothly and predictably. They know that sometimes things go terribly wrong or wonderfully right. People really do lose all their money…or make 1,000% profit. 

It happens, just not very often. 

And while they believe that it probably won’t happen — why should it? It is so extraordinary — they know it could happen to them. They feel they should at least consider it. Who knows, maybe they will get lucky and make 1,000% on their investments…or avoid a horrible loss?

Well, we’re in the business of exploring the ‘fat tails’ for you. Our role, and our relationship with you, is not as a news provider. We do provide ‘news’, but it is of a special sort; it is the news you find out on the extreme ends of the bell curve.

The usual news is delivered by the mainstream media — in vast quantities. It’s the news that tells readers that the world is as they have imagined it. It’s the news that tells them that today will be much like yesterday and tomorrow will be much like today. It is like a mainstream economists’ projection for the year ahead; it is just what you’d expect.

We are the alternative press. We present views, news, and ideas that are an alternative to those you find in the mainstream media.

We recall the mid-1980s… 

Huge changes were taking place in the world — particularly in the Soviet Union and its satellite states. Our newsletter, Strategic Investment, predicted that the Soviet Union would fall apart and that the Berlin Wall would come down. We don’t recall a single mainstream magazine, newspaper, or TV station that saw it coming. But our newsletter editors had an idea about the way the world worked…and an opinion that was, at the time, way out on the extreme ‘fat tail’ of the bell curve.

Likewise, in the 1990s, a newsletter we published saw a revolution coming in American eating patterns. Dr Robert Atkins said the diet recommended by the American medical establishment was unhealthy. Instead of eating so much starch and sugar, Americans should eat more meat and fat, he said. At the time, this view was far from the centre of the bell curve. Instead, it was out in the fat tail area; Dr Atkins was labelled a ‘nut’ for having such a kooky opinion.

Dr Atkins did not live to see it, but the New York Times eventually came around to seeing things his way — about 10 years later. Now, the Atkins Diet has become mainstream.

This does not mean that our newsletters, emails, books and other publications are always ‘way out there’, nor that they are always right. But what we publish is distinctly, tenaciously not mainstream. We charge some of the highest prices per-word in the entire industry. People do not need to pay those prices to find out what everyone else thinks. They can get the mainstream view much more cheaply. They pay our prices because they value the ‘fat tail’ opinion, the research and the recommendations.

Investors, for example, are not likely to make more than 3–5% on their money. That is the average return of mainstream investors over hundreds of years. But our editors and researchers work hard to find ways that they could make much more. That’s why our financial advertising seems so daring or ‘in your face’ to many people. It offers our readers a chance to do something that most people know is unlikely. Most investors will continue to make 3–5% on their money. Only a few will do better — by taking a bet on a ‘fat tail’ event.

The investment markets deserve our special attention. They illustrate why and how, over time, an investor can only make above-average gains by doing something ‘outrageous’. That is, he can only hope to make more money than other investors by doing something other investors are not doing. Thus, does he find the ‘fat tail’ investments, the only ones thought unlikely to give him better odds.

In a typical bull market, all stock market investors make money. As prices rise, more and more investors are attracted. They buy stocks at higher and higher prices and become more and more confident that they will continue to go up. All investments go up and down in irregular, but guaranteed, cycles. Riding the cycles up and down an investor ends up with about 3–5% over the very long term. The only way he can make more is by going along on the upside, but getting off before the downside move is too far advanced. But that means he has to do something that seems alarmingly out-of-style, out of the ordinary, and just far out. He has to wander out to the extremity of the bell curve…to where investors are few and where they are regarded as a little strange. He has to do something all his friends, neighbours and family will think is foolish; he has to drop stocks at the very moment when practically everyone is most sure they’ll continue to go up. He has to believe we’re right when we warn of a ‘Financial Meltdown!’

Will the financial world really meltdown? We can never know. But we know most ‘fat tail’ bets cannot pay off, simply because they don’t happen often. That’s what makes them fat tails.

This is also why our industry is little appreciated by the mainstream media. Not only are we competition, we are aggressive competitors. We tell people that the world’s mainstream media doesn’t know what it is talking about. 

Tomorrow may not be like today at all, we say. The medical establishment is wrong, we point out. Most economic models are nonsense, we charge. Here’s a way you could make a lot more money, we promise.

It requires a certain amount of audacity to say such things. Especially when we know we will be wrong most of the time. 

Several years ago, we wrote a direct mail package with the headline, ‘When the Lights Go Out in Paris’, urging readers to buy uranium stocks. So far as we know, the lights are still on — though uranium stocks have soared. 

We warned about a ‘Financial Meltdown’ practically every year since 1985. So far, no meltdown. (But stay tuned…we still think it is coming.) Hardly a week goes by that we don’t tell readers how they could double their money. And yet, if all of these ‘fat tail’ opportunities had gone the way we hoped our readers would be as rich as Warren Buffett. And how many of our readers still suffer from arthritis, bad vision, muscle fatigue, and back pain…despite all the ‘miracle cures’ offered by the alternative health press for so many years?

Of course, we can’t know ‘what works’ in health, finance, business, love, sex, or economics any more than anyone else. But that doesn’t mean we should give up trying. 

Readers know perfectly well that the things we describe are in the realm of the ‘fat tails’. They know that it’s difficult to double your money and to lose weight, too. Still, they are happy to have someone studying the possibilities on their behalf…getting excited about them…and reporting them in a lively and engaging way. 

That’s our business. That’s our role. Customers expect that from us; it’s what they pay us to do. That’s our relationship with them. They expect us to look at the lights going out in Paris or the financial meltdown of 2005 or a little-known herb that eliminates back pain. They know that these things may or may not come to pass. But they have the mainstream media to tell them what is likely. Our job is to tell them what is unlikely, but important. Our job is to keep our eyes on the ‘fat tails’. And if ever our output is ‘ordinary’ or ‘mainstream’ we are failing to do our job.

Why are the ‘fat tails’ so important?

We mentioned earlier that the ‘fat tails’ tend to be under-priced. There’s a certain momentum in favour of the ordinary that causes people to underestimate the unusual. If it has not rained in a long time, people begin to feel that it will never rain. Here we make a distinction between what they think and what they feel. If you put the question to them directly, they will surely reply that, yes, of course it will rain sometime. But emotionally, sentimentally, subconsciously they throw out their umbrellas. It just doesn’t feel like rain. And if they had to bet…they’d give long odds against it.

This is significant from several viewpoints… 

First, it means that the ‘fat tail’ will be generally ignored by the mainstream press. It sounds ‘over the top’ or just bizarre. Bring it up and people may think you’re a flake or a kook. Consequently, it is rarely mentioned. Since it is neglected, it is never fully discounted by the financial markets. They simply do not notice. It’s as if they lived in glass houses but never thought of stones.

Even when the event is obvious — say, the risk of a stock market crash — the emotional tendency to over-rate recent history leads to systematic under-pricing of things from more remote history. There has been no stock crash since 1987. And the ‘87 crash proved benign. As a result, investors have stopped worrying about crashes altogether. The odds of a stock market crash may be low, but they’re probably not as low as investors think. The average investor probably rates the odds of a crash at scarcely more than zero. In fact, they are probably much more substantial.

Knowing that ‘fat tails’ are more common than thought, and that investors commonly under-price them, leads to a very simple speculative approach — take the extreme, out of the money bets. You will be wrong most of the time. But when you are right, your speculation will more than make up for all the times you were wrong.

And there’s another sense in which ‘fat tails’ are important; they could save your life.

When we first went to England to begin doing business there, we went with a cloud over our heads. This is nothing unusual for London; there are always clouds overhead. But this cloud was of a different, heavier sort; it yielded no life-rain. We had done a mailing from the US for the Oxford Club. The UK authorities impounded the mail on the grounds that the Oxford Club was ‘unregistered’. We hadn’t known you had to register to have opinions, but we took the thing in good grace and went before the English equivalent of the SEC in order to find out how we could get this cloud dispersed.

You may not use hyperbole or fear in your direct mail promotions,’ said the official.

For a moment, we thought we were out of business. In a sense, ‘hyperbole’ is what we publish. Hyperbole is what you find out in the ‘fat tails’. It concerns the events that happen so rarely, it sounds like exaggeration to mention them.

‘Stocks will fall 50%!’ might be considered hyperbole. ‘Stocks will fall 15%’, would probably be acceptable.

But how can you know what is hyperbolic and what is not, we wanted to know? It seems only possible to make the distinction after the fact. 

If you had advertised in 1999 ‘Tech stocks will rise 50% next year’, it wouldn’t have seemed an exaggeration. After all, they went up 80% the year before. Everyone seemed to think they’d keep going up. 

If you had predicted, ‘Techs Will Collapse more the 50%’, on the other hand, the financial wardens would have accused you of using hyperbole and fear. But as the year 2000 developed, instead of going up, tech stocks crashed. As it turned out, the mainstream view was the hyperbole; the ‘fat tail’ view turned out to be moderate.

Should investors not be warned? What public good was achieved by banning the ‘fat tail’ view — which, as it happened, was the correct one? What is the purpose of pretending that the future is always like the immediate past?

In a moment of inspiration, we posed the following question to our English inquisitor:

What if it were 1938. Then, as now, the Fleet Street Letter commented on world events. Well, what if we told readers that the worst world war in history was coming? And that in just two years, German warplanes would be over London, dropping bombs on the city? 

What if we warned them that stocks would crash…and that England would be practically bankrupt, forced to rely on America for its money and its war materiel? 

What if we told them about the horrible things that would happen on the continent…about the biggest land battles of history in Russia…and about a theatre of war that stretched from the deserts of Africa to the jungles of the South Pacific, and about attempts by the Germans to wipe out the entire race of Jews from Europe…and about a new weapon, created by the United States, that was so powerful that a single bomb could incinerate entire cities…and that hundreds of thousands of people would die in the firestorms in German cities…while hundreds of thousands more would perish in Japan’s cities when the Americans dropped these new bombs?

An awkward silence fell. 

The Second World War was a ‘fat tail’ event. 

Almost no one in the mainstream saw it coming. Hitler had practically told the world what he planned to do, but emotionally and sentimentally people couldn’t quite believe it. They bet against it. Millions of Jews stayed in Europe, guessing that the whole thing would ‘blow over’. Leaders in France and England bet on ‘peace in our time’.

Who could know that there would be no peace? Should the press not bother to think about things? Should the Fleet Street Letter keep silent, even if it were to see these things coming? Should we hold back what we really think, or try to soften our views so they fit more comfortably into the mainstream mould and do not trouble the sensibilities of delicate regulators? Should there be no place in the publishing world for people who try to imagine the fat tail events that might happen…even if they are unlikely and disagreeable?

Ah hem…’ began the reply finally. ‘I guess all I can say is that we expect you to conduct yourselves as gentlemen.’

‘Yes’, we might have replied if we had thought about it. ‘We are in that league of extraordinary gentlemen…writing about extraordinary, “fat tail” events.’