How to beat the many-armed bandit

Friday, January 5th, 2024

Laramie, Wyoming

First up this week is good news. We published two Private Briefings over the holiday break, one with our founder Bill Bonner and one with Rick Rule, our go-to man on natural resources. You can find the transcript for the Briefing with Bill here, and the transcript for the Briefing with Rick here. 

When you click on each link, just keep scrolling until you see the word ‘TRANSCRIPT’ and you can read from there. We also added a downloadable PDF of each Briefing if you prefer to print them out and read them.

Also a reminder that you can register for Rick’s Natural Resources Symposium here. I spoke at last year’s show and was happy to catch up with a few BPR readers. This year’s show is also at the Boca Raton Resort in Boca Raton, Florida, from July 7th to the 11th. Scroll down here to see who’s already locked in to speak. 

The Lockdown Diaries

One other project we finished over the holidays is now live in the Research Reports section of the website. It’s called The Lockdown Diaries. You can download and read the book at this link. 

If you’re a new reader, you may not be aware that Bill and his wife Elizabeth spent most of 2020–the Covid year–at their high-altitude ranch in remote Argentina. It was partly by choice and partly by necessity. The world shut down. And Argentina locked down harder than most.

What resulted was nine months of essays about the weird collective psychosis that gripped most of the world. From their unique perspective in the arid mountains of Argentina, Bill and Elizabeth wrote some of the most well-loved commentary we’ve published. 

Earlier last year, some readers asked where they could find a collection of Bill’s essays from that time. It didn’t exist. So we created it!

And we added pictures from daily life on the ranch, plus some of Elizabeth’s essays as well. Please enjoy it with our compliments. We hope to print a physical copy later this year. For now, it’s only available as an e-book and only to members of Bonner Private Research.

The good news for the market this week was that average hourly wages are up 4.1% year-over-year. That would be even better news if wages are growing faster than inflation. But there’s more anecdotal evidence this week that inflation is much higher than reported by the Bureau of Labor Statistics.

Homeowner’s insurance in Florida is up 103% in the last three years, according to the Insurance Information Institute. That rate of growth is three times the national average. State Farm just got approval from regulators in California to raise its homeowners insurance by 20% in 2024. And it’s not just services and insurance.

Chick-fil-A prices are up 21% in the last two years. The national average price for a gallon of gasoline is over three dollars, according to AAA. Meanwhile over in France, Carrefour has removed Doritos and Pepsi products from the shelves of its grocery stores to protest higher prices, according to the Washington Post.

Treasury Secretary Janet Yellen said earlier today that the jobs report shows a ‘soft landing’ has been achieved. Easy for her to say from the first class cabin or a private jet. Yellen has been wrong about everything that mattered for years.

The jobs report showed the highest-ever number of part time workers (762,000) and 8.5 million multiple job holders, great work, if you can get it twice. Also, 34% of the 216,000 jobs added were government jobs. You have to wonder what the jobs report would look like–and if the economy wouldn’t already be in recession–if the Federal government wasn’t running a deficit over 6% of GDP.

And by the way, the November jobs number was revised lower from 199,000 to 173,000. Ten out of the last eleven  monthly jobs numbers have been revised lower after the initial report, for a total of 443,000 jobs that disappeared with the revisions.

Does anyone take these numbers seriously anymore? 

And does anyone think the huge surge in global freight rates this week won’t translate into a second wave of inflation later this year? Shipping analyst firm Drewry issued its first report on rates in 2024 this week. It said its composite index is up 61% THIS WEEK for 40-foot box containers. Stay tuned for more on shipping from Tom next week. 

The Great Taking

How do you allocate limited resources over numerous options when you don't know what the benefits of each option are? This is a great way of looking at investment choices. But I want to finish this week by looking at this problem in the context of that book everyone’s been writing to us about. 

The book (and video) is called  'The Great Taking.'  It’s written by a man named  David Rogers Webb. If you haven’t read the book or seen the video, here’s a brief summary of it (from my perspective). 

1. Crisis. A worldwide banking crisis and stock market crash may be imminent. It’s a controlled demolition with a ‘great re-set’ of the world’s financial system AND the global economy.

2. Cause. It's being engineered by global bankers and the purpose is to maintain control over people physically since control through money has failed, partly due to unsustainable debt levels.

3. Depression. The closest analogy is the 1930s when the money supply AND the velocity of money collapsed at the same time. The power brokers of the time seized control of underlying collateral in the banking system (gold), closed many banks, and forced people to use new money and get into debt.

4. Robbery. During this next engineered crisis, you will realize that (too late) you don't own your stocks and bonds. Changes to the law in the last 50 years make secured creditors the legal owners of your assets. When depository trusts fail, ownership of ‘your’ assets will revert to these creditors.

5. Collapse. The Great Taking is the transfer of all financial wealth from the public to the banks through an engineered collapse. 

6. Coercion. To get back into 'the system' and enjoy the use of money again, you'll have to consent to all the terms and conditions of a Central Bank Digital Currency (CBDC). Your assets will be lost but your debt will not be forgiven.

7. Tyranny. A global economic collapse of this nature is the only way to preserve the subjugation and suppression of people by the powerful.

There's more to it. But the rest is mostly details. Webb says that central banking should be a public utility and that the tax system should be replaced with a small fee every time you make a financial transaction of any kind (a financial transaction tax). But his book is mostly about the risks ahead, not the ways to avoid it. 

What he describes is like a bail in, but for your portfolio. The 'dematerialization' of stock ownership means your claim on ownership, or assets, or cash flows, is tenuous. In fact, according to Webb, it's non-existent. 

You already own nothing. You just don't realize it yet. You will when they come to take it and there's nothing you can do about it.

He recommends people get debt free (he predicts deflation as the banking sector is allowed to collapse in order to force people into 'new money' a CBDC). He says you should 'get real.' This means owning stuff, like land, real estate, farms, and what we've called 'functional wealth.' 

And he says you should be able to grow your own food or live near people who can. And be friends with them. This is closely aligned with our American Bolt Hole Project. 

Has the Trigger Already Been Pulled?

Webb argues that higher interest rates will trigger the crisis. Higher rates equal (or should) lower asset prices. More importantly, higher rates should trigger the destruction of the underlying capital base of banks (bonds). This seemed to be true with the collapse of several banks last year. 

But now, everyone seems to think rates are headed lower in 2024 and the Fed has pivoted. Crisis averted. Just ask Janet Yellen!

Webb says the banking crisis of the Great Depression took place over months and years, not days and weeks. THIS crisis is not over, in other words. Because...that is THE PLAN: To gain global control over people by transferring ownership of all assets through the legal system and bankruptcy system.

It’s not a comforting thought. No assets. No money. No control. Like those thousands of people streaming across the southern border every day. Just the clothes on your back and the kids or grandkids in your arms. 

Is it THE PLAN? Is it inevitable? And if so, what should you do about it?

For starters, as Bill pointed out in his essay today, higher rates should have triggered lower stock prices in 2023. But they didn’t. Even if we get a second wave of inflation in 2024 and fewer rate cuts than expected (or maybe even the rogue rate rise) liquidity is supporting stock prices despite high valuations. That could remain true longer than we expect.

But really the question you’re probably wondering is why would the bankers crash their own system? Don’t they have the most to lose? Can this really be what they want?

Greed is a powerful force. It would be the greatest robbery in human history. And they wouldn’t even need guns to do it. Just laws and regulations that they wrote and that are already on the books. 

We talk about Covid being the cover for a giant wealth transfer between the Middle Class and the top 1%. What Webb is describing would make the Covid wealth transfer look like a summer cold. It would usher in something like a worldwide confiscation of Middle Class wealth and put every single free person under the boot of the State, controlled by a few large baking firms and billionaires.

Maybe that IS the plan. The globalists have always wanted to get rid of the Middle Class. Organized religion, the nuclear family, and an economically independent Middle Class that votes will always stand in the way of the agenda of trans-national elites. 

It IS possible they have a complicated and long-term plan to gut all the institutions of civil society and replace them with centralized control, surveillance, and oppression. I’ve written about the controlled demolition of the middle class before.

And readers of our previous publication, The Bonner-Denning Letter, might recall our 2021 discussion of KGB defector Yuri Bezmenov and the four states of ideological subversion, designed to demoralize free people, provoke a crisis, and normalize a tyrannical ‘new normal.’

We’re talking to friends and colleagues who are securities lawyers about Webb’s scenario. Taking custody of your equities through an IRA is one option. But there are tax implications for any big decision you make. Stay tuned for more on this in the coming weeks. In the meantime, one last thought.

The Multi-Armed Bandit Problem

How much should you worry about what Webb describes?

One useful way to think about it is what economists and behavioral scientists call the multi armed bandit problem. It’s about how to maintain optimism in the face of uncertainty. It’s also about how to spend less time exploring the bad things that could happen to you and more time exploiting the opportunities you identify. I’ll explain briefly…

The Bandit problem starts with you standing in front of a row of slot machines. You’ve got a bunch of arms to pull. But in this case, each machine has multiple arms. Multiple arms. And multiple bandits!

You don’t know which machine is going to pay out. And you don’t know how many times it will pay out. You have limited time. You have limited capital. Your aim is to try to maximize your winnings by pulling the right arm on the right bandit the right number of times.

To make a long story short, solving this problem comes down to knowing when to explore a potential direction that could be profitable and when to stop exploring and exploit something you’ve learned. Exploring means pulling lots of arms.

Exploiting means spending more time pulling the arms of the bandits that pay off. The heart of the problem is that there's a trade off between exploring possibilities that might be better and exploiting (maximizing) the ones you know already work.

In our work at BPR, we do a lot of work exploring. A lot of that exploring is on the risk side (don't go down that path). But the rest of our work is on the exploitation side....go down these well trod paths of how to make money...because that's what we're here to do....first not lose money...and then put the rest to work for us.

With Webb’s work, I think it’s exploring in a direction we can't exploit anymore than we already have. If it's true, it's true. If it's not true, it doesn't matter. And as Tom has pointed out, we’re as hedged as we can reasonably be expected to be with our asset allocation strategy and our stock election. 

In the bandit analogy, we haven’t pulled the stock lever much. After much exploring, Tom found a few good arms to pull (energy, shipping, etc.) and exploited them. We never bothered pulling the bond market arm. You could hit a jackpot in distressed credit or directional trades. But that kind of exploring takes us in a direction away from where we (and you) want to be: Maximum Safety. 

By the way, this calculation of when to explore and when to exploit is a constant process. Markets change every day. So do the possibilities and probabilities. It’s why this is a full time job for all of us. It’s a massive challenge. Nothing in Webb’s book has caused to think of selling everything and heading for the hills (not yet).

You’d never get out of bed if all you were focused on was the worst things that could happen to you.  You would conclude life is full of dangers, many of which you can do absolutely nothing about. The truth is, life IS full of those dangers. 

But it's still life. It’s the only one we have. And there are many levers we can pull that not only exploit what we know (and compound the knowledge we've accumulated) but, in a financial sense, compound our returns over time.

Compounding and time: the most productive marriage of individual resources since Adam and Eve. 

For different reasons, it turns out we’ve already exploited what Webb has identified. By hedging our risk from equities and 'dematerialized' wealth as much as we reasonably should (a 25% allocation to stocks and a 40% allocation to gold). Any more exploration of how the system could be destroyed or used against us--other than knowing it's possible--is not productive right now. It’s time to explore in a different direction (pull another arm).

To that end, I’m headed to Baltimore next week to visit with Bill in person. It will be the first time we’ve worked from the same office in over two years. I’ll let you know how it goes.

I’m also making a quick trip to New York City to visit an old friend. I’ll take the Amtrak. I want to see for myself how bad the immigration problem is…and see if it’s something we need to factor into our economic and political forecasts  for 2024.

In the meantime, enjoy the transcripts of the Private Briefings I linked to above. And for something more relaxing, download your private copy of The Lockdown Diaries by Bill and Elizabeth Bonner. We’ll be back next week with all the news that’s fit to worry about.

Until then,

Dan 

PS I asked the AI to generate a couple of multi-armed bandit images. The one below was the weirdest by far.