The Outliers

Mon, Feb 24, 2014 - 8:31am

In any naturally occurring population there is some degree of variation between individuals within that group. When the variation is genetic, then the subtle differences between individuals can sometimes equip a few of them to survive better than others- for example, a small number of moths born with slightly more pigmentation of a color which makes them harder to spot by predators. If that difference has enough of an effect on their inclusive fitness to allow them to pass on their genes differentially, then that trait will be slightly more common in the next generation. If this happens for a long enough period of time, the entire nature of the population will change. This is what is familiarly known as natural selection.

This dynamic is not confined only to genetic inheritance, and in some cases can apply to variations in behavior as well. Within any large group of individuals there will be a wide range of differences in behaviors, values, goals, comportment, strategies, etc. Find something that people do, and if you study it closely enough you will quickly realize that there is great variety in how different individuals choose to go about doing that thing. Some may even choose not to “do that thing” at all! What is interesting is that, through the exceptional power of our brains, human beings do not have to wait for thousands of years for these differences to slowly work their way through the genetics of the population- if they can observe that behavior X is beneficial to those who have adopted it, they can also choose to adopt it, often with great rapidity. When large numbers of people suddenly start doing something that only a few had done previously, this is called a preference cascade.

A preference cascade is a uniquely human phenomenon. It happens, in part, because we are NOT purely rational actors, always weighing costs/benefits and choosing based on this analysis. Instead, we are intensely social creatures and tend to be influenced to a great degree by what others around us are doing. In normal times people look around, observe how most others are behaving, and copy that behavior themselves. This usually works fairly well as an adaptive strategy because the totality of individuals can usually be assumed to be doing just fine, so if we do what they do, we assume we will be just fine too. Additionally, activities that are perceived to be outside the mainstream often carry a degree of social or cultural stigma, thus imposing some costs on the people who adopt them – there are significant negatives to being perceived as the “weirdo” because you are behaving differently or deviating from the accepted. So most people just do the “usual” thing and don’t think much about it… right up until they observe their peers suddenly doing something differently. Then they quickly perceive not only that it is “OK” to do that thing but they also will not be acting alone if they do it, and a preference cascade ensues.

University of Tennessee Professor Glenn Reynolds has written about the phenomenon of the preference cascade over the years, and in this article he gives two interesting examples of it in action. Reynolds writes:

(Prior to 911), the people who didn't have flags on their cars weren't necessarily unpatriotic - but displaying a flag on one's car was associated with particular political and social categories that aren't especially popular on campuses. After 9/11,enough people started flying flags to make other people feel safe about doing it too. Now you can see a lot of flags on the cars in that garage. Have people become more patriotic? Maybe. But more likely they've just become more willing to show it. This illustrates, in a mild way, the reason why totalitarian regimes collapse so suddenly. Such regimes have little legitimacy, but they spend a lot of effort making sure that citizens don't realize the extent to which their fellow-citizens dislike the regime. If the secret police and the censors are doing their job, 99% of the populace can hate the regime and be ready to revolt against it - but no revolt will occur because no one realizes that everyone else feels the same way. This works until something breaks the spell, and the discontented realize that their feelings are widely shared, at which point the collapse of the regime may seem very sudden to outside observers - or even to the citizens themselves. Claims after the fact that many people who seemed like loyal apparatchiks really loathed the regime are often self-serving, of course. But they're also often true: Even if one loathes the regime, few people have the force of will to stage one-man revolutions, and when preferences are sufficiently falsified, each dissident may feel that he or she is the only one, or at least part of a minority too small to make any difference.

Understanding the dynamics behind the preference cascade is particularly important for gold and silver. If we think about the behavior that we call investing, we can quickly discern that at present, people who place a portion of their savings into physical gold and silver are “Outliers” in terms of investing behavior among the general public. The vast majority of people who invest do so in equities (through 401k’s, trading accounts, mutual funds, etc), and many own bonds or own funds that invest in bonds, as well. The idea of investing your saved wealth in physical gold and silver outside the system is still a practice that is comparatively rare. This makes all of us at TFMR unusual exceptions to the norm… we are the odd outliers within the larger population of investors.

So far so good… but I think a key insight comes from understanding WHY there are a comparatively small number of gold and silver investors, and more precisely why such an outstanding, traditional investment vehicle is now considered so outside the mainstream. When one considers how precious metals are portrayed and discussed, however, it makes perfect sense, particularly when one thinks about who, precisely, controls that mainstream narrative. You can tell what a power structure fears most by observing the energy and resources they deploy against that thing, and the ‘thing’ the fiat currency regime fears most intensely is a preference cascade to real money.

Consider the vast array of resources deployed today against gold and silver investing. First, we see a regular drumbeat of negative articles, the full weight of the mainstream financial media and legions of writers on financial websites brought to bear to convince people NOT to buy gold and silver. We see variations of the same hackneyed articles year in and year out, regardless of the state of the markets or the price. These constant attempts at shaping opinion and sentiment employ misleading arguments, ignore contrary evidence, and use every rhetorical trick in the book to convince people that gold and silver are “risky” and “speculative” (Anatomy of an MSM Hit Piece on Gold), when the reality is that they the most historically stable stores of value known to man. We also see mainstream brokerage houses issuing sell recommendations year after year, for assets which ironically they never told their clients to buy in the first place (It’s Never a Good Time to Buy Gold). All of these operate within a conventional milieu of financial advisors emphasizing “traditional investments” (i.e. fiat based, fiat supporting) while going out of their way to dismiss gold and silver – think Berkshire Hathaway’s Charlie Munger claiming “Civilized people don’t invest in gold” for a fairly standard example. If you think about the totality of the effort used to try and manage the public perception of gold and silver, you start to get a sense of just how intensely these things are feared by the Fed/Finance/Political regime.

But wait, there’s more! Consider, too, the extraordinary energy and enormous wealth deployed against the price of gold and silver over time. Look at the long history of price suppression, from the known and historically established facts of the London Gold Pool (link) to the extraordinary actions of the last five years (The Golden Ostrich, Chris Powell speech on price suppression). I think people in the general public would be shocked at the sheer amount of effort, the degree of secrecy employed, and the vast amount of wealth expended towards suppressing PM prices over time. This, above virtually everything else, makes it crystal clear what an enormous threat that a large-scale adoption of gold and silver by the investing public would be to the current power structure.

Reality, and particularly mathematical reality, has a way of asserting itself. Inevitably, the truth of the real nature of the present system will become apparent to everyday investors. At some point the broader public will look around and grasp that the current system has been siphoning their productivity and labor for generations, and has been doing so well beyond the publicly acknowledged and democratically chosen practice of taxation. They will realize that the “value” of everything they have earned or saved has been remorselessly diminished by the hidden confiscation tax of currency devaluation over time. They will see that as the politicians spend the produce of their labor without limit and the enabling Fed prints to pay those bills, their paychecks buy less and less and the value of their pensions shrink. With every dollar printed and every TBTF bank bailed-out, in every investment they own they are slowly being bled dry. At some point people will wake up and understand that although they are following the rules (and following the herd when it comes to investing advice) they are swimming against the tide, and the tide is winning.

And when this becomes plain to them, people will look around and see that there is a small group of investors who have managed to protect their saved value through physical gold and silver in their possession, and that this has insulated them, over the long term, from wealth confiscation via inflation. And I firmly believe that when this happens, and when the obvious benefits of the behavior of these investing “outliers” becomes crystal clear to the broader population, we will see a preference cascade to end all preference cascades into the metals. That, I think, will really be something to behold.

Then and only then, when the awareness of these things has become so widespread that my idiot neighbor is talking about ASE’s and everyone and their brother is trying to buy gold and silver, will I start thinking about selling some of mine. I hope to do so at a healthy, and possibly ridiculous, profit.

Until that day comes, protect yourself and your wealth in the present. Keep stacking.

About the Author


Feb 24, 2014 - 8:47am

After 3 months of intensive

After 3 months of intensive study of what is going on and what is going to happen I became full scale pessimist:(

Nothing bright is visible, gold money is just a temporary slowdown in money supply contraction and backwards development from future to the past. As from certain point not so far in the future there will be permanent overhang of population over the ability of economy to support it, and increasingly militaristic antagonism in the fight for a shrinking pie in small and large scales.

I do not find so far any occupation in this struggle towards the bottom that would please me; perhaps I will change with environment. Fast forward to some Tibetan monk with 0 demands on consumption and safe location high above sea level seems to be a preferable place to forget the nice feeling of material development once and for ever.

Humanity as whole except some Amazon tribes will go back in time as debts will be repaid. That concerns not only material and scientific but also moral directions. Harsh conditions will eliminate morally weak and self indulgent.

But of course it will take some time..though some populations like in India or Bangladesh might start their move after first missed monsoon season. Or too much of monsoon. Where would they go?

Feb 24, 2014 - 8:48am



Feb 24, 2014 - 8:52am

Great Article Pining!

My only question would be: What will you be selling those ASE's to your neighbor's in exchange for? A ridiculously huge profit in dollars?

I am still torn on this issue. Do I ever want to exchange PM's for US Dollars? I guess if I could exchange PM's for dollars and pay my house off, then this would be a good thing, but something tells me the bankster's that hold my mortgage will be running away from people trying to pay off their debt at that point.

I am beginning to think that the thing to do is to just play the GSR back and forth, while adding with all of the fiat I can, and waiting for the replacement of the dollar, or buying income producing land with dollars once that ridiculous profit comes.

Like the pervasive thinking preceding a preference cascade, I guess I will cross that bridge when I come to it.

Edit: Fourth, as in "The Fourth Estate", as in the group of whores that lies to us everyday of our lives to delay the preference cascade. Yep! Fourth!

Feb 24, 2014 - 9:02am

AG - good question

Chances are, I wouldn't be selling to my idiot neighbor at all! But I get what you are saying, and FWIW I wouldn't be just trying to accumulate dollars at that point, they would only be a short-term (as in, I would get back out as fast as possible) medium of exchange to diversity into other things- could be land, could be stocks of companies that produce tangible assets, could be other hard assets themselves from oil and gas leases to timberland. Basically, I wouldn't merely sell for dollars, I would need something I could purchase with the proceeds almost immediately, and the dollars would only be there to facilitate the transaction.

Heck, at that point you might be able to take PM's down to the local brokerage and trade them directly for stocks, etc... who knows? All I am saying is that if we see a preference cascade into the metals, it will be time to diversity to protect your gains.

Feb 24, 2014 - 9:03am

Good one Pining

Back in the civilized World after 5 years in the jungle.

All rosy here in down under, with no hint of a World sliding toward the abyss!

To ensure I still have some cognitive function after my tropics "walkabout", I am studying an MBA for "enjoyment".

My fellow students are a couple of decades younger and possibly a couple standard deviations smarter, but none have the faintest perception of currency crisis or declining EROEI of energy supplies or future food issues.

Silver and gold! "Bah humbug"!

If you think there is not much awareness in good ole USA, then here, in the land of plenty, there is virtually no comprehension of the approaching disaster that is our World's monetary system.

Financial calamity may indeed be many years away, but 2008 is a distant memory of a minor blip in every one's affairs here, and the fact that nothing got resolved is not understood.

Very surreal for me-from jungle isolation to major city University study! I am in Alice's Wonderland!

Feb 24, 2014 - 9:05am

G'day Ivars!

Been reading your in depth analysis, even though not commenting much.

I grab a few minutes here and there to read, then have to get on reestablishing!

4 oz
Feb 24, 2014 - 9:12am

An Injection of Optimism

A fine read. As well as a needed injection of optimism moving into a new week--and the end of another month. Thank you!

Feb 24, 2014 - 9:15am

exchanging pms

ag1969 the way I see it is precious metals and fiat are money, ( fiat is not good money to store value over long periods of time which is reason number 1, why we all try to accumulate gold and silver). But you don't accumulate all that money (precious metal) so you can admire your hoard of treasure, one day you want to spend some of it, maybe you decide to buy a car, or a painting, or some farmland or whatever. If the person you want to buy from accepts gold or silver then great. If they accept only US dollars then you exchange the gold and silver for US dollars and then trade for the item you are purchasing. In this way you are only exposed to fiat devaluation for a short time. In fact fiat would normally be stable for short time periods. So really there is no problem.

edit. Of course most of us here are betting our sound money will dramatically increase in value in the near future so putting off spending today to get more value tomorrow.

Feb 24, 2014 - 9:18am


Amen, brother!

Feb 24, 2014 - 9:20am

Outliers Indeed.

That's a fantastic article Pining. The subject is one of those memes that I find myself reflecting on from time to time. I wonder what it will take for the public to awaken - what will the spark-point be?

I know in my own case it took months of research, reading and re-discovery for me to awaken to the reality - but - that was, of course, while the rest of the herd was fully intoxicated by the Kool-Aid.

I do believe that the "preference cascade" could take place very, very rapidly. A series of events over the span of just a few days could move the herd to begin cascading in the opposite direction. It would be at that point that traffic to TFMR, SilverDoctors, KWN, Jesses Cafe, etc, etc would literally explode in an exponential fashion as the middle group of the distribution curve relocate to the leading edge and seek to learn what we have been discussing in detail for years.

We truly are the outliers - but - we lie on the leading edge of what is yet to come.

Feb 24, 2014 - 9:26am

For anyone wondering where Turd is this morning...

What happened in Vegas stayed in Vegas. Unfortunately, Turd did too... at least until he makes bail.

Feb 24, 2014 - 9:27am

Good Morning…


nice article, by the way.

The only disagreement I have with it is the assertion that taxation was democratically chosen. Not so sure about that.

Seeing that bell chart made me think of something a statistics professor said to me years ago. If you analyze it in terms of standard deviation, a person who is more than one standard deviation point from the norm in just about any easily observable characteristic can never be elected president, no matter how qualified they are, which is why we don't have bald, short, or ugly presidents, characteristics that have absolutely nothing to do with their ability to do a good job, and why we continue to elect one psychopath after the next, because that undoubtedly IS the norm these days. Before the advent of media people could hide undesirable characteristics, such as being wheelchair bound, from the public, but not any more. The best example he gave was when Adlai Stevenson ran for the office of the president against Eisenhower. One of the arguments used against him was his intelligence in that "you don't want an egghead to be president do you?", was a prevailing opinion. The fact that he was bald, another standard deviation from the norm, didn't help. Regardless of what you may think of his qualifications, most people would consider higher than average intelligence to be an asset and baldness to be a non issue, but the egghead label made many correlate him with mad scientists who came up with "The Bomb", and he never stood a chance.

The "You Are Here" in the bell chart should probably be scooted quite a bit to the right. PM investors are definitely more than one, probably more than two standard deviation points from the norm, which has to be considerably less than 1%.

Feb 24, 2014 - 9:32am

Pining, LMAO

Hangover Part III. I can't tell, does he still have all of his teeth? Any new tattoos? Is Mike Tyson's Lion missing?

Feb 24, 2014 - 9:44am

Indeed, rumor has it that he DOES have a new tatoo

Several in fact, but sadly Turd doesn't quite seem to remember how he got them. Something about a carnival, Jack Daniels, and an underground cockfighting ring... unfortunately, from there it gets hazy.

Feb 24, 2014 - 9:49am

New name

Listen up, Turd's got a new name in Vegas. Greg Hunter has christened him:

Craig Ferguson

Makes sense to me if people were charging drinks to his other names

Feb 24, 2014 - 10:02am

Well Written Pining

"Such regimes have little legitimacy, but they spend a lot of effort making sure that citizens don't realize the extent to which their fellow-citizens dislike the regime."

This is why it's important for all of us to talk to other people across normal lines like race, religion, ethnicity, income. Be frank, open, honest and fair, but speak your mind. Don't self censor. Don't give into fear. Don't state things in an angry way...people won't listen. Don't assume that you can't cross a social boundry and effect some small change in perspective.

Feb 24, 2014 - 10:11am

Anyone read Norcinis Saturday comments?

Every chance he gets he disparages the gold community based on their belief in the gold cartels manipulation in the metals.

I really think he got the boot off KWN for the Saturday weekly report.

I dont knock him for his trading skills since he is a chartist. They dont care who is behind the action in the charts, since it does not matter to a trader why they go up or down.

any thoughts on his non stop campaign against those who believe in manipulation?

Feb 24, 2014 - 10:11am

PM,s Exchange

How about exchange for food and passage out of the country.

Thanks Pining

Feb 24, 2014 - 10:17am

Asia, and Ezuro equities slump. Tuesday?

Can't hold up all the global ponzi mkts and save dry powder to support the USDinker dollar airless wonder. Must be more than a Tsunami of bonzi debt washing up on US shores and it will not abate. Surprised gold and silver held up so good, so far today after the G20. Tuesday maybe a complete opposite as G20 thugs travel back to roach motels to pull the orchestrated switch. Just when you don't think the EEE want's all those contracts standing for delivery to effect silvers paper price; it will. There's no thump on silver, with a take down in fear factoring contracts standing for March delivery you may know the cartel absolutely losing and needs step back on paper pricing illusion of metals. Tomorrow key!

Feb 24, 2014 - 10:19am

well done pining

i like the idea of outliers, and i like the idea of being one.

...but there's a nagging part of me that keeps thinking about the theory behind hedge clippers.

...and cops

...and armies

Motley Fool
Feb 24, 2014 - 10:31am


"And I firmly believe that when this happens, and when the obvious benefits of the behavior of these investing “outliers” becomes crystal clear to the broader population, we will see a preference cascade to end all preference cascades into the metals. That, I think, will really be something to behold."

It occurs to me that one of the other things that is often err complained about here is the vast disparity in wealth holdings between the many and the few. Statistics such as (thumbsucking but doubt I will be far off the mark) 10% of the population hold 90% of the wealth come to mind.

It is kinda astounding then to assume that this 90%, who barely have any savings to speak of will be the driving force that breaks the gold market.

I am of the opinion that essentially all gold will be spoken for before J6P wakes up, and he will only come to realize his mistake once it is too late( as is uhhm always? the case in history).

That day is not far off, yet J6P still slumbers happily... and I do not think we will see him awake...and even if he does awaken...well he does not matter much...thinking on wealth disparity....cute as this preference cascade concept is. ^^

Feb 24, 2014 - 10:40am


The gold market is already broken, with the daily spot price having not much to do with actual physical gold. I probably don't need to explain this to you. J6P is not needed to break the gold market, just to discover it is broken. Every one of the hundred people that have a claim to each physical ounce will be the preference cascade, as everyone tries to take possession of what they thought they owned.

Even though the 1% crowd holds a significant amount of the wealth, there are still a lot of those paper dollars sloshing around. I am not wealthy by any stretch, but I have found ways to stack metal on my shoestring budget. I am one of those J^P's without a lot of money that you speak of. Surely I am not the only one.

Feb 24, 2014 - 10:41am

Great post, Pining !

There is an old saying about investing, "When you see it on the cover of Time magazine, it's already too late."

Inversely, if everything you see, hear and read about gold is negative, it's time to buy. Stack on.

"Outliers" sound a lot like what were once called "contrarians". Contrarians watched the direction of the herd and promptly went the opposite way. In all fairness, the bell curve chart is incomplete. We stackers would be as shown if we are right. If we are wrong, we would be at the same distance from the center but on the left side instead of the right. As in IQ's, smart on the right, as dumb as a box of rocks on the left, average and dull normal, in the center.

Feb 24, 2014 - 11:03am


I am struck by something after reading the post today.

Every day those of us who haunt this house are treated to an excellent article, relevant to our interests, that is well-researched and worth reading. I consider myself fairly smart (mostly), but I gain something from every article posted here and just as much from the intelligent discussion that follows. When you add to this the vault membership that provides daily commentary and podcasts, for less fiat that an subscription to the Atlantic Monthly, then the value of this site become immeasurable. Not only that, but we have folks here who will respond to most questions posted in the forums and we have the privelege the ability to PM one another. While other blogs may provide articles that are as useful, they lack in frequency. No one person will have the ability to write about the breadth of topics that we find here, with the level of depth and research links to back it up, day after day after day.

Thanks for yet another great article Pining. And my thanks to JY, Argentus, Stephanie, CA Law and all those who post regularly in the comments section.

Oh yeah, and my thanks to Turd who comes up with something creative and useful every day--often twice or three times per day (and that is not easy), to keep me interested and returning to the site.

Feb 24, 2014 - 11:24am

Home Run Pining!

Excellent, simply excellent.

This is a fantastic concept, so brilliant, so clear, and it explains so much:

"You can tell what a power structure fears most by observing the energy and resources they deploy against that thing, and the ‘thing’ the fiat currency regime fears most intensely is a preference cascade to real money."

Why did I not think of that? Sheesh, maybe that is why you are the professor!

Feb 24, 2014 - 12:41pm

Typical leader--Presidents palace Ukraine

It's good to see how the other half lives. No wonder they flee, the commoners would throw a rope over a lamp post if they caught him Silver66

Feb 24, 2014 - 12:47pm


Excellent post Pining and a bunch of fantastic responses. A lot of the posts contain subjects that I think about quite often.

One thing that in this thread hasn't been touched on yet is the usage of stored funds (PM's) when converting to other forms of tangible items. Mainly what will the tax's be like then, that is of great importance as well and has to be considered. While I have seen this talked about in other posts it is something we all need to think about. It may be best to use it as collateral on a loan so as not to incur the dreaded siphoning of part of your life's work. The best plan I have come up with is to test the winds at the time to see which direction is most beneficial. There may be several ways to go about this ( as there already are as in different type markets etc ). Stay agile in your thinking here as it may have a very big impact.

Stack'em High
Feb 24, 2014 - 12:58pm

What happen to all of our cake bakers?

P.S. Thanks pining, great read as always.

bullion only
Feb 24, 2014 - 2:27pm

Tax ramifications

I think this is a possible way for the government to get your physical.

First the government imposes a very high tax for capital gains on gold like %70

This could easily be justified if gold price is reset to $10,000

JPM and other extensions of the government will then allow you to use your gold a collateral for a loan and when you pay off your loan you will be given fiat back and because it is sold you will be taxed %70.

Nope. I won't ever trust them.

Here, Ukraine, EU, China, Russia..........They are all the same.


Motley Fool
Feb 24, 2014 - 2:32pm

I would think it would be redundant to point out

"I am one of those J^P's without a lot of money that you speak of. Surely I am not the only one."

But if you are holding gold you are not J6P.

Pining also said as much in his article.

Besides thinking on more statistics something like 40% of US retirees have less than $10k for retirement. If we consider both that the US is considered relatively rich and that retirement is supposed to be the peak of one's savings, I daresay there is not a lot of money there to keep em fed much less buy gold, which as I will keep insisting will only happen after they wake up at which point it will be too late.

Ps. Since it is related to the concept of preference cascade, let me link an old FOFOA post. :)


Donate Shop

Get Your Subscriber Benefits

Exclusive discount for silver purchases, and a private iTunes feed for TF Metals Report podcasts!

Key Economic Events Week of 5/20

5/20 7:00 pm ET CGP speech
5/21 10:00 ET Existing Home Sales
5/22 2:00 ET FOMC minutes
5/23 9:45 ET Markit PMIs
5/24 8:30 ET Durable Goods

Key Economic Events Week of 5/13

TWELVE Goon speeches through the week
5/14 8:30 ET Import Price Index
5/15 8:30 ET Retail Sales and Empire State Manu. Idx.
5/15 9:15 ET Cap. Ute. and Ind. Prod.
5/15 10:00 ET Business Inventories
5/16 10:00 ET Housing Starts and Philly Fed
5/17 10:00 ET Consumer Sentiment

Key Economic Events Week of 5/6

5/9 8:30 ET US Trade Deficit
5/9 8:30 ET Producer Price Index (PPI)
5/9 10:00 ET Wholesale Inventories
5/10 8:30 ET Consumer Price Index (CPI)

Recent Comments

by lakedweller2, 0 sec ago
by chudson, 7 min 55 sec ago
by Clarki Stomias, 40 min 7 sec ago
by indiana rod, 48 min 9 sec ago
by, 59 min 16 sec ago