Category: zerohedge

Authored by Andrew Karybko via Oriental Review,

Saudi Arabia arrested between 16-30 people in a broad crackdown across the Kingdom.

According to reports, this is different than the many other times that it happened because the latest incident includes a wide variety of seemingly disparate individuals such as clerics, a journalist, and even a prince, and comes amid a flurry of speculation that King Salman is considering abdicating in favor of the young Crown Prince Mohammed Bin Salman.

Critics claim that this is being undertaken in order for Salman’s successor to preemptively consolidate power in staving off any unrest that might result from his possibly imminent ascent to the throne, while the government says that it was actually dismantling a foreign intelligence network linked to the Muslim Brotherhood and Houthis.

Riyadh’s assertions are a thinly veiled euphemism to suggest that Qatar and Iran are behind this shadowy regime change plot, but it’s very unlikely that either of them is involved, and Riyadh may have just said they were in order to diplomatically deflect attention from the true culprit.

Here’s why.

Iran and Qatar are close with Russia and China, and the latter two Great Powers are actually enjoying a renaissance of relations with Saudi Arabia right now.

While one might expect this to make Tehran and Doha jealous, the opposite is true – Moscow and Beijing’s developing high-level strategic partnerships with Riyadh are designed to bring balance to the Mideast by weaning the Kingdom away from Washington and slowly but surely integrating it into the emerging Multipolar World Order, which will never be perfect or without friction, but is still a step in the right direction. In order to appreciate what’s happening, one needs to be reminded of a few things that have happened this past year when it comes to Saudi Arabia’s relations with Russia and China.

Concerning Moscow, Riyadh agreed to an historic OPEC output deal with Russia last year and renewed it a few months ago after it expired.

The Saudis are also cooperating with the Russians in encouraging Syria’s so-called “opposition” to merge into a unified entity for facilitating peace talks with Damascus. Foreign Minister Lavrov was just in the Kingdom last week, and King Salman is expected to visit Moscow sometime next month.

As for China, Beijing signed a total of over $110 billion of deals with Saudi Arabia in the past six months alone in an effort to assist the Crown Prince’s ambitious Vision 2030 program of economic modernization. It’s that initiative more so than anything else which holds the danger of inadvertently destabilizing the country’s internal affairs because of the opposition that it’s come under from some of Saudi Arabia’s many radical clerics who are against the social consequences of its reforms.

Bearing all of this in mind, it’s worthwhile to revisit the question of who has an interest in destabilizing Saudi Arabia right at the moment that it’s turning away from the US and towards Russia and China, timing their subversive efforts to coincide with a prolonged leadership change and an economic transition.

By all indicators, those aren’t the hallmarks of an Iranian or Qatari operation, but the red flag for an American one.

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Authored by Paul Craig Roberts,

Do the Wall Street Journal’s editorial page editors read their own newspaper?

The frontpage headline story for the Labor Day weekend was “Low Wage Growth Challenges Fed.” Despite an alleged 4.4% unemployment rate, which is full employment, there is no real growth in wages. The front page story pointed out correctly that an economy alleged to be expanding at full employment, but absent any wage growth or inflation, is “a puzzle that complicates Federal Reserve policy decisions.”

On the editorial page itself, under “letters to the editor,” Professor Tony Lima of California State University points out what I have stressed for years: “The labor-force participation rate remains at historic lows. Much of the decrease is in the 18-34 age group, while participation rates have increased for those 55 and older.”

Professor Lima points out that more evidence that the American worker is not in good shape comes from the rising number of Americans who can only find part-time work, which leaves them with truncated incomes and no fringe benefits, such as health care.

Positioned right next to this factual letter is the lead editorial written by someone who read neither the front page story or the professor’s letter. The lead editorial declares: “The biggest labor story this Labor Day is the trouble that employers are having finding workers across the country.” The Journal’s editorial page editors believe the solution to the alleged labor shortage is Senator Ron Johnson’s (R.Wis.) bill to permit the states to give 500,000 work visas to foreigners.

In my day as a Wall Street Journal editor and columnist, questions would have been asked that would have nixed the editorial. For example, how is there a labor shortage when there is no upward pressure on wages? In tight labor markets wages are bid up as employers compete for workers. For example, how is the labor market tight when the labor force participation rate is at historical lows. When jobs are available, the participation rate rises as people enter the work force to take the jobs.

I have reported on a number of occasions that according to Federal Reserve studies, more Americans in the 24-34 age group live at home with parents than independently, and that it is those 55 and older who are taking the part time jobs. Why is this? The answer is that part time jobs do not pay enough to support an independent existence, and the Federal Reserve’s decade long zero interest rate policy forces retirees to enter the work force as their retirement savings produce no income. It is not only the manufacturing jobs of the middle class blue collar workers that have been given to foreigners in order to cut labor costs and thus maximize payouts to executives and shareholders, but also tradable professional skill jobs such as software engineering, design, accounting, and IT—jobs that Americans expected to get in order to pay off their student loans.

The Wall Street Journal editorial asserts that the young are not in the work force because they are on drugs, or on disability, or because of their poor education. However, all over the country there are college graduates with good educations who cannot find jobs because the jobs have been offshored. To worsen the crisis, a Republican Senator from Wisconsin wants to bring in more foreigners on work permits to drive US wages down lower so that no American can survive on the wage, and the Wall Street Journal editorial page editors endorse this travesty!

The foreigners on work visas are paid one-third less than the going US wage. They live together in groups in cramped quarters. They have no employee rights. They are exploited in order to raise executive bonuses and shareholder capital gains. I have exposed this scheme at length in my book, The Failure of Laissez Faire Capitalism (Clarity Press, 2013).

When Trump said he was going to bring the jobs home, he resonated, but, of course, he will not be permitted to bring them home, any more than he has been permitted to normalize relations with Russia.

In America Government is not in the hands of its people. Government is in the hands of a ruling oligarchy. Oligarchic rule prevails regardless of electoral outcomes. The American people are entering a world of slavery more severe than anything that previously existed. Without jobs, dependent on their masters for trickle-down benefits that are always subject to being cut, and without voice or representation, Americans, except for the One Percent, are becoming the most enslaved people in history.

Americans carry on by accumulating debt and becoming debt slaves. Many can only make the minimum payment on their credit card and thus accumulate debt. The Federal Reserve’s policy has exploded the prices of financial assets. The result is that the bulk of the population lacks discretionary income, and those with financial assets are wealthy until values adjust to reality.

As an economist I cannot identify in history any economy whose affairs have been so badly managed and prospects so severely damaged as the economy of the United States of America. In the short/intermediate run policies that damage the prospects for the American work force benefit what is called the One Percent as jobs offshoring reduces corporate costs and financialization transfers remaining discretionary income in interest and fees to the financial sector. But as consumer discretionary incomes disappear and debt burdens rise, aggregate demand falters, and there is nothing left to drive the economy.

What we are witnessing in the United States is the first country to reverse the development process and to go backward by giving up industry, manufacturing, and tradable professional skill jobs. The labor force is becoming Third World with lowly paid domestic service jobs taking the place of high-productivity, high-value added jobs.

The initial response was to put wives and mothers into the work force, but now even many two-earner families experience stagnant or falling material living standards.

New university graduates are faced with substantial debts without jobs capable of producing sufficient income to pay off the debts.

Now the US is on a course of travelling backward at a faster rate. Robots are to take over more and more jobs, displacing more people. Robots don’t buy houses, furniture, appliances, cars, clothes, food, entertainment, medical services, etc. Unless Robots pay payroll taxes, the financing for Social Security and Medicare will collapse. And it goes on down from there. Consumer spending simply dries up, so who purchases the goods and services supplied by robots?

To find such important considerations absent in public debate suggests that the United States will continue on the country’s de-industrialization, de-manufacturing trajectory.

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Presented with no comment…

 

Source: Townhall.com

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Donald Trump’s feud with San Juan mayor Carmen Yulín Cruz got an unexpected reinforcement today, when Former Puerto Rico Attorney General Jose Fuentes, a Republican, on Sunday took aim at Cruz, accusing her of attacking President Trump and using hurricane relief efforts to lay the groundwork for a gubernatorial bid. Speaking on CNN’s “New Day”, Fuentes accused Cruz of making an about-face, saying she supported Trump until her political adviser suggested the idea of running for governor.

“The mayor of San Juan is a political hack,” Fuentes said. “She was singing the praises of the president until her political adviser, [Rep.] Luis Gutiérrez from Chicago, got there and brought her the t-shirts and said, ‘Hey you want to run for governor, if she wants to run…” at which point the CNN anchor cut him off, pointing to audio issues, and claiming he could no longer hear Fuentes, handing over the mic  to CNN’s Democratic Political Commentator Maria Cardona, who unleashed a scathing critique before somehow audio returned at which point Fuentes was once again given the platform, when he again repeated that any logistical problems were the result of political posturing by the San Juan mayor at which point both the CNN anchor and and Cardona doubled down their attack, and so on.

Watch CNN’s anchor shut down Fuentes 2 mins 38 seconds into the clip below.

Also on Sunday, FEMA administrator Brock Long defended the Trump administration’s response to the Puerto Rican humanitarian crisis, warning of a fragmented response if mayors do not take part in the relief effort.  “If mayors decided not to be apart of that [relief effort] then the response is fragmented,” Long told Chris Wallace on “Fox News Sunday” in response to criticism from the mayor of San Juan, Carmen Yulin Cruz.

“What I don’t have patience for is the fact that what we’re trying to do and we have successfully done is we’ve established a joint field office in San Juan. And you should go there, you should go see that operation, where we’re having daily conversations with all of the mayors, we’re working with the government and his leadership to create unified objectives,” Long said. “We can choose to look at what the mayor spouts off or what other people spout off or we can also choose to see what’s actually being done,” he continued.

For those who may have (blissfully) missed it, dominating the weekend newsflow (again), the Trump administration came under fire from critics who said it has failed to help Puerto Rico as it struggles with widespread power outages, collapsed infrastructure and ongoing shortages of water and supplies.

On Saturday, Trump launched a series of tweets attacking Cruz, and accusing the mayor of exhibiting poor leadership in the midst of the recovery efforts and claiming Puerto Rican leaders want the federal government to do everything for them. His tweets came one day after Cruz issued an emotional plea for help, saying people are dying on the American territory and blaming stalled recovery efforts on the federal government’s inefficiency and red tape.

“I will do what I never thought I was going to do. I am begging, begging anyone who can hear us to save us from dying. If anybody out there is listening to us, we are dying, and you are killing us with the inefficiency,” Cruz said during a Friday press conference, just days after praising Washington’s response.

The president is scheduled to travel to the Hurricane devastated Puerto Rico on Tuesday.

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Monty Hall, the genial host and co-creator of “Let’s Make a Deal,” the game show on which contestants in outlandish costumes shriek and leap at the chance to see if they will win the big prize or the booby prize behind door No. 3, died at his home in Beverly Hills, Calif., on Saturday. He was 96.

In memory of the great entertainer, we present:

The Time Everyone “Corrected” the World’s Smartest Woman

Authored by Zachart Crockett via Priceonomics.com,

By all accounts, Marilyn vos Savant was a child prodigy.

Born in St. Louis, Missouri in 1946, the young savant quickly developed an aptitude for math and science. At age 10, she was given two intelligence tests — the Stanford-Binet, and the Mega Test — both of which placed her mental capacity at that of a 23-year-old. She went on to be listed in the Guinness Book of World Records for having the “World’s Highest IQ,” and, as a result, gained international fame.

Despite her status as the "world’s smartest woman,” vos Savant maintained that attempts to measure intelligence were “useless,” and she rejected IQ tests as unreliable. In the mid-1980s, with free rein to choose a career path, she packed her bags and moved to New York City to be a writer.

Here, she caught a break: when Parade Magazine wrote a profile on her, readers responded with so many letters that the publication offered her a full-time job. Shortly thereafter, she established “Ask Marilyn,” a now-famous weekly column in which she answered (and continues to answer, to this day) a variety of academic questions and logic puzzles. It was in the body of one of these columns that vos Savant ignited one of the most heated statistical battles of the 21st century.

When vos Savant politely responded to a reader’s inquiry on the Monty Hall Problem, a then-relatively-unknown probability puzzle, she never could’ve imagined what would unfold: though her answer was correct, she received over 10,000 letters, many from noted scholars and Ph.Ds, informing her that she was a hare-brained idiot.

What ensued for vos Savant was a nightmarish journey, rife with name-calling, gender-based assumptions, and academic persecution.

The Monty Hall Problem: A Brief History

Imagine that you’re on a television game show and the host presents you with three closed doors. Behind one of them, sits a sparkling, brand-new Lincoln Continental; behind the other two, are smelly old goats. The host implores you to pick a door, and you select door #1. Then, the host, who is well-aware of what’s going on behind the scenes, opens door #3, revealing one of the goats.

“Now,” he says, turning toward you, “do you want to keep door #1, or do you want to switch to door #2?”

Statistically, which choice gets you the car: keeping your original door, or switching?

If you, like most people, posit that your odds are 50-50, you’re wrong — unless, of course, you like goats as much as you like new cars, in which case you'll win 100% of the time.

Loosely based on the famous television game show Let’s Make a Deal, the scenario presented above, better known as the “Monty Hall Problem,” is a rather famous probability question. Despite its deceptive simplicity, some of the world’s brightest minds — MIT professors, renowned mathematicians, and MacArthur “Genius” Fellows — have had trouble grasping its answer. For decades, it has sparked intense debates in classrooms and lecture halls.

Historically, the Monty Hall Problem was predated by several very similar puzzles.

In Joseph Bertrand’s box paradox (1889), three boxes are presented — one containing two gold coins, one containing two silver coins, and the final containing one of each. Assuming the participant draws one gold coin from a box, the problem then asks what the probability is that the other coin in that box is gold. Bertrand, who concluded that the probability was ?, was lauded for his ability to look beyond the obvious.

A second iteration of this paradox, the Three Prisoners Problem (1959), presents a statistically identical scenario, with the same outcome. “[It’s] a wonderfully confusing little problem," its creator, Scientific American columnist Martin Gardner, later wrote, smugly. "In no other branch of mathematics is it so easy for experts to blunder as in probability theory."

First presented in a letter to the editor of The American Statistician in 1975, the Monty Hall Problem was also counterintuitive. In this letter, Steve Selvin, a University of California, Berkeley professor, splayed out the situation in the intro of this article, and contended that switching doors yields a ? chance of winning the car, whereas keeping the original door results in winning only ? of the time. 

Over the next decade or so, the Monty Hall Problem made several appearances, first in a Journal of Economics Perspectives puzzle by Barry Nalebuff, and subsequently in a 1989 issue of Bridge Today, by Phillip Martin. Neither man’s logic was refuted, and the problem generated relatively little attention.

Then, after 15 years without incident, the Monty Hall Problem was resurrected by Marilyn vos Savant — and an absolute shit-storm ensued.

Marilyn vos Savant’s Debacle

In September 1990, Marilyn vos Savant devoted one of her columns to a reader’s question, which presented a variation of the Monty Hall Problem:

“Suppose you’re on a game show, and you’re given the choice of three doors. Behind one door is a car, behind the others, goats. You pick a door, say #1, and the host, who knows what’s behind the doors, opens another door, say #3, which has a goat. He says to you, "Do you want to pick door #2?" Is it to your advantage to switch your choice of doors?”

“Yes; you should switch,” she replied. “The first door has a 1/3 chance of winning, but the second door has a 2/3 chance.”

Though her answer was correct, a vast swath of academics responded with outrage. In the proceeding months, vos Savant received more than 10,000 letters — including a pair from the Deputy Director of the Center for Defense Information, and a Research Mathematical Statistician from the National Institutes of Health — all of which contended that she was entirely incompetent:

You blew it, and you blew it big! Since you seem to have difficulty grasping the basic principle at work here, I’ll explain. After the host reveals a goat, you now have a one-in-two chance of being correct. Whether you change your selection or not, the odds are the same. There is enough mathematical illiteracy in this country, and we don’t need the world’s highest IQ propagating more. Shame!

Scott Smith, Ph.D.
University of Florida

 

May I suggest that you obtain and refer to a standard textbook on probability before you try to answer a question of this type again?

Charles Reid, Ph.D.
University of Florida

 

I am sure you will receive many letters on this topic from high school and college students. Perhaps you should keep a few addresses for help with future columns.
W. Robert Smith, Ph.D.
Georgia State University

 

You are utterly incorrect about the game show question, and I hope this controversy will call some public attention to the serious national crisis in mathematical education. If you can admit your error, you will have contributed constructively towards the solution of a deplorable situation. How many irate mathematicians are needed to get you to change your mind?
E. Ray Bobo, Ph.D.
Georgetown University

 

You made a mistake, but look at the positive side. If all those Ph.D.’s were wrong, the country would be in some very serious trouble.
Everett Harman, Ph.D.
U.S. Army Research Institute

 

You are the goat!
Glenn Calkins
Western State College

 

Maybe women look at math problems differently than men.
Don Edwards
Sunriver, Oregon

The outcry was so tremendous that vos Savant was forced to devote three subsequent columns to explaining why her logic was correct. Even in the wake of her well-stated, clear responses, she continued to be berated.

 “I still think you’re wrong,” wrote one man, nearly a year later.

 

“There is such a thing as female logic.”

Yet, the numbers behind vos Savant's conclusion don't lie.

Debunking the Monty Hall Problem

Since two doors (one containing a car, and the other a goat) remain after the host opens door #3, most would assume that the probability of selecting the car is ½. This is not the case.

“The winning odds of 1/3 on the first choice can’t go up to 1/2 just because the host opens a losing door,” writes vos Savant. Indeed, if you map out six games exploring all possible outcomes, it becomes clear that switching doors results in winning two-thirds (66.6%) of the time, and keeping your original door results in winning only one-third (33.3%) of the time:

Another way to look at this is to break down every door-switching possibility. As we’ve delineated below, 6 out of the 9 possible scenarios (two-thirds) result in winning the car: 

These results seem to go against our intuitive statistical impulses — so why does switching doors increase our odds of winning?

The short answer is that your initial odds of winning with door #1 (?) don’t change simply because the host reveals a goat behind door #3; instead, Hall’s action increases the odds to ? that you’ll win by switching.

Here’s another way to visualize this. Imagine that instead of three doors, Monty Hall presents you with 100 doors; behind 99 of them are goats, and behind one of them is the car. You select door #1, and your initial odds of winning the car are now 1/100:

Then, let’s suppose that Monty Hall opens 98 of the other doors, revealing a goat behind each one. Now you’re left with two choices: keep door #1, or switch to door #100:

When you select door #1, there is a 99/100 chance that the car is behind one of the other doors. The fact that Monty Hall reveals 98 goats does not change these initial odds — it merely "shifts" that 99/100 chance to door #100. You can either stick with your original 1/100 odds pick, or switch to door #100, with a much higher probability of winning the car.

Still, while the math and numbers back up vos Savant’s assertion — that the odds of winning increase to ? when you switch doors — one must consider other factors she doesn’t address in her answer.

The Psychology of Rationalization

Monty Hall, host of 'Let's Make a Deal'

In 1992, while the controversy over vos Savant’s answer brewed, Monty Hall — the game show host, and namesake of the problem — sat down for an interview with the New York Times.

Hall clarified that things worked a bit differently than the scenario presented by the Parade reader in vos Savant’s column. In the real show, for instance, he retained the authority to offer the contestant cash NOT to switch. Details like this, he said, altered the contestant's mindset:

"[After I opened a door with a goat], they'd think the odds on their door had now gone up to 1 in 2, so they hated to give up the door no matter how much money I offered…The higher I got, the more [they] thought the car was behind [the other door]. I wanted to con [them] into switching there. That's the kind of thing I can do when I'm in control of the game. You may think you have probability going for you when you follow the answer in her column, but there's the psychological factor to consider."

The “psychological factor” Hall mentions carries over from the show’s rules to the variation of the problem we’ve presented in this article. For contestants and problem-solvers alike, the Monty Hall Problem causes cognitive dissonance, a term psychologists use to describe the “mental stress experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time, or is confronted by new information that conflicts with existing beliefs, ideas, or values.” 

When people are confronted with evidence that is “inconsistent with their beliefs” (ie. the odds of winning by switching doors being ?, instead of ½), they first respond by refuting the information, then band together with like-minded dissenters and champion their own hard-set opinion.

This is precisely the mentality of vos Savant’s thousands of naysayers.

***

More than 25 years later, arguments over the Monty Hall Problem’s semantics and vos Savant’s response still pervade — mainly centering around the intricacies of the host’s actions. 

“Our brains are just not wired to do probability problems very well, so I'm not surprised there were mistakes,” Stanford stats professor Persi Diaconis told a reporter, years ago. “[But] the strict argument would be that the question cannot be answered without knowing the motivation of the host."

Eventually though, many of those who’d written in to correct vos Savant’s math backpedaled and ceded that they were in error.

An exercise proposed by vos Savant to better understand the problem was soon integrated in thousands of classrooms across the nation. Computer models were built that corroborated her logic, and support for her intellect was gradually restored. Whereas only 8% of readers had previously believed her logic to be true, this number had risen to 56% by the end of 1992, writes vos Savant; among academics, 35% initial support rose to 71%.

Among the new believers was Robert Sachs, a math professor at George Mason University, who’d originally written a nasty letter to vos Savant, telling her that she “blew it,” and offering to help "explain.” After realizing that he was, in fact, incorrect, he felt compelled to send her another letter — this time, repenting his self-righteousness.

“After removing my foot from my mouth I'm now eating humble pie,” he wrote. “I vowed as penance to answer all the people who wrote to castigate me. It's been an intense professional embarrassment.”

 

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Bitcoin just topped $4400 for the first time since in over 3 weeks and has now erased all of the plunge losses from Jamie Dimon's "it's a fraud" and China's shuttering of all local exchanges.

It didn't take long for the world of crypto-currencies to shrug off Jamie Dimon's self-tighteous denigration of the decentralized currency that could directly 'disrupt' his cash cow businesses; and furthermore, as The South China Morning Post reports, China's bitcoin market alive and well as traders defy crackdown.

As SCMP reports, weeks after Beijing banned fundraising through token launches and ordered some bitcoin exchanges to shut, casting a chill over the cryptocurrency industry, traders say that the market is far from dead.

While several exchanges have announced that they will close by the end of this month, traders have now moved to buy and sell bitcoin directly with each other on peer-to-peer marketplaces and messenger apps.

Although the crackdown has dissuaded large swathes of less-experienced investors from participating in the trade, market participants point to the limits Chinese regulators ultimately face in controlling the industry, where many users are anonymous and difficult to track.

In the short-run, the crackdown has also created an arbitrage opportunity for investors, with the price of bitcoin in China now trading at a discount to overseas exchanges.

“They can’t set rules to stop me from investing in what I want to invest in. They say you are protecting me, but as long as I think this is good, they have no way to intervene,” said a Chinese bitcoin investor named Victor, who declined to give his full name citing current sensitivities.

 

“I can do over-the-counter trades or I’ll go offshore … My wallet is my wallet. I’ve never registered my identification card.”

Over 15 exchanges, including the three largest players OkCoin, Huobi and BTCChina, have since announced that they will close their mainland businesses by the end of September.

Trading has spiked generally on peer-to-peer marketplaces, according to data website Coindance. On OTC platform LocalBitcoins, China trading volumes more than doubled in the week starting September 16 from the previous week to 74 million yuan.

It hit an all-time-high in the week starting September 23, reaching 115 million yuan in trades.

“The fact that bitcoin is still being traded is an indication that China isn’t looking to eliminate them, but reposition things in a way to have better control over them,” said Marshall Swatt, the founder of New York-based Coinsetter, a bitcoin exchange acquired by larger peer San Francisco-based Kraken in 2016.

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Legendary investor Jim Rogers, who in 1973 founded the Quantum Funds, a prominent family of hedge funds, with then-unknown Hungarian-born financier named George Soros, joined RealVision’s Steve Diggle for a wide-ranging interview where the legendary financier, who moved to Singapore in 2007 with his family because he wanted his children to be immersed in Asian culture, discusses his views on gold, bitcoin, and what makes a good investor – along with his belief that a major correction in financial markets is about to begin.

The interview, which was filmed two weeks ago in Singapore, begins with a discussion of a theme in finance that’s been at the forefront of discussions about the market outlook. Many investors believe that, with volatility at record lows and valuations at record highs, a major shock is imminent. However, these same investors have been burned by uncooperative markets, as an expected selloff has yet to materialize.

Rogers said he stumbled into his first job on Wall Street, but ended up falling in love with it because it allowed him to “follow the world and know about things.”

He added that, over his investing career, Roger's has learned that he has a tendency for his calls to be early. So now when he makes an investment decision, he waits six months before buying.

SD: How do you know the difference between being early and being wrong? Because –

 

JR: You teach me that, OK? I'd like to know. I'm still trying to learn.

 

SD: I really don't know, either. I mean, one of the things that has confounded, I think, all of us in this most recent unprecedented rally – I mean, it's not unprecedented in history, but the sort of things that have gone up and the level of volatility we've had that's been unprecedented. The only period that I can compare it to are the late 90s, where just everything in a certain area went up. Now it was almost– at least in the States, it's almost everything across the board. And there have been plenty of people who've wanted to short the FANGs, to short some of the tech stocks, to short some of these very expensive blue chips. And they've been very badly punched.

 

And then even in the face of very good mutual fund investors, people with tremendous track records like Grantham Mayo, who have moved to a higher cash position – they've seen massive reductions, because their own investors don't seem inclined to stick around and see how it plays out. So both on a personal and professional level, being early seems to be incredibly painful and destructive to your business.

 

JR: Sure can.

 

SD: So if you've got a conviction, do you wait for a change in momentum? Do you use moving averages, which is something that I know people have been used, and I've used something myself, which is to wait until the 5 and 20-day diverge, and that gives you a signal that momentum's coming out of a trade? Or do you just need to size it to a degree which you can be persistent?

 

JR: Well, I usually – since I know I'm always early, I make a decision and then wait, and just make myself wait a month, six months, whatever it happens to be. And I'm still too early. I'm still too early nearly always, because I make the decision too soon, I realize. So maybe I better start making the decision later in life. Sometimes, you just have to throw in the towel. Especially on the short side, you have no choice. If they're just racing against you all the time, you can sit there and meet the margin calls all day long, but one of the old adages is, never beat a margin call, which you may have heard from old-time traders. If you've got a margin call, just don't meet it, because that means something is very seriously wrong.

 

SD: Right, that's your stop loss.

 

JR: Yeah, well, stop losses are usually before a margin call comes. But I want to go back to something you said. You're not as experienced as I am, obviously, because you're not as old as I am, is what I'm saying. But I remember in the early 70s, there was something called the Nifty 50, and they were 50 stocks that everybody – the JP Morgan bought everyday. Didn't matter. Avon, Xerox, IBM – they were stocks that always were eternal growth stocks.

 

And they just kept – we would short them, and they just kept going up. They never stopped. Polaroid– that was another. And they just never stopped going up. Everything else stopped going up but those Nifty 50, which would be something like the FANGs today, or maybe in the late 90s, some of the other kinds of stocks. So this has happened before in market history. They eventually crack, there's no question.

 

And to today, if you look at the S&P 500, for instance, in the US, I think there are only 40 or 45 stocks that are above their 50-day moving average, to use technician's kind of talk. Everything else is in a downtrend. And yet the market is making all-time highs.

 

SD: And so there's a lack of breadth in the market.

 

JR: Definitely that lack of breadth. What is that – over 90% of the stocks are in downtrends. 10% are in uptrends, but they're big companies. And since the S&P is capitalization weighted, those 50 stocks, 40 stocks, whatever it is, dragged the average to all-time highs.

Diggles' questions soon veered toward the subject of what makes a good investor. Some believe, Diggle says, that to have conviction, you need to know more than 98% of people who follow a stock.

Rogers said he was never a very disciplined investor, so it’s difficult for him to say how one develops skills like timing and good judgment.

Knowing more than your rivals is a major advantage, he says. But there’s something to be said for judgment that just can’t be taught.

SD: So what was different about your analysis? Had you gone deeper into this company? Because one of the things that you've said on a number of occasions, and I think it's very impactful, is if you want to have conviction, you have to know more than not just 90% of the people, but 98% of the people who follow the stock. Is it that you've gone deeper? You've read the annual report, you've looked at what would now be the 14k. Or was it that you'd seen something with a greater level of skepticism or objectivity which other people had missed?

 

JR: Well, it's both. If read the annual report, you've done more than 90% of investors. If you read the notes to the annual report, you've done more than nearly everybody, including the CEO of the company. So it is certainly knowing more than other people. But then it takes more than that. You also have to know more, but then you have to figure out what does it mean? Just because you know more, you have to then analyze it.

If 100 people go into a room and hear a presentation, Steve, they'll all come out – most of them will come out with the same view. Seven or eight of those people will come out and say, aha, what this really means is it's going down the tubes, or whatever you come out with. Or seven or eight will come out and say, this is the best thing since sliced bread.

 

They will realize. They will analyze it and understand it better than the others. It's judgment. I don't know how to teach judgment. I wish I knew how to teach judgment. Facts are wonderful. Knowing more than everybody else is a big, big, big leg up. But then judgment – how you get judgment? And that's certainly what I didn't have. I certainly didn't have timing. Not that I do now, but I have a little better judgment than I used to, and a little better timing than I used to, because I learned to wait.

 

SD: So your prescription to be an above average investor, to go back to my original question, is be independent-minded, do your work. Don't try and perfect the timing, but if you develop a high enough level of conviction around it, see it through.

 

JR: Yeah, that's what I always do. And sometimes, I get it right. But I've certainly made plenty of mistakes in my life.

With stock and bond valuations hopelessly inflated, Rogers says investors hoping to lock in the highest risk-adjusted returns should consider buying gold coins. Barring that, gold futures are the next best market. Rogers says trading gold futures is a great strategy for traders because it’s a market where speculators have easy access to leverage.

Furthermore, investors who have time to conduct the due diligence should consider investing in a gold mine – but it needs to be the right gold mine.

SD: Going back to gold, so gold coins –

 

JR: Gold coins are the best way. And you should have physical possession of some gold coins. After that, gold futures are the best way if you want to make money and you're a good trader. Gold futures, that's where you can get the most leverage of any, unless you can find the right gold mine. But there are hundreds of gold mines. If you're smart enough and have the time to find the right two or three gold mines, then, yeah, then you'll make huge amounts of money in the right to – but, you know, there are hundreds of gold mines.

The conversation soon turned to a discussion of the ETF space, a market about which Rogers has many reservations.

SD: And investors do seem to be becoming more short-term, despite the fact that everything we know tells us that finding good people and backing them for the long-term is the most successful thing you can do. Investors seem to be becoming more and more influenced by very short-term records. And that's one of the things that's savaging the mutual fund industry right now. One of the things that I wanted to touch on is this ETF phenomena. I mean, it's probably the equivalent of the Nifty Fifty of the day, which is buy everything in its weight, don't do any research. Don't take any views. Don't even take a view on a manager let alone a stock, but just own a basket. And a lot of people feel great disquiet about this. I think your commodity index has a few ETFs on it, does it? So perhaps you're not the guy to ask if you're in the ETF industry.

 

JR: No, no, no, I certainly see what's happening in ETFs. I mean I pay enough attention to know what's going on. First of all, ETFs are very efficient, very easy, very simple. There's no question about that.

 

Therein lies part of the problem, of course, with ETFs is that they are easy, simple, et cetera and that makes it easy for somebody to say oh, I want to buy Germany, buy the German ETF, and don't even look to see what's in the German ETF or whether it's a good ETF to own. And maybe it should be a terrible ETF, but nobody looks anymore.

 

So there are excesses developing in the ETF business.

 

There's no question about that. But don't worry Steve, we're going to have a bear market. And when we have the bear market, a lot of people are going to find that, oh my God, I own an ETF and they collapsed. It went down more than anything else. And the reason it will go down more than anything else is because that's what everybody owns.

And it is this bear market that looms over the market that Rogers is most fearful of as the level of debt that has built across the globe makes a disaster inevitable…

JR: Steve, in America as you know, we've had bear markets every few years.

 

SD: We used to.

 

JR: Well done. And Janet Yellen will tell you we're never going to have a bear market again because she's smarter than we are, she's smarter than the markets, and the central bank has things under control now. She publicly stated this. Do not worry. We will not have financial calamities again. Head of the central bank in America has said that out loud officially, Mrs. Yellen– yeah, Mrs. Yellen.

 

I happen to have a different view. Now if you believe the American central bank, you shouldn't be talking to me at all. But we've had, we used to have bear markets every several years. We always, always since the beginning of the republic. In my view we will have them again.

 

And the next one is going to be horrendous, the worst– you came in the business in '86. It will be the worst in your lifetime, in your financial experience.

 

And the reason, in 2008 we had a bear market because of too much debt, staggering amounts of debt. Steve, since 2008 the debt has gone through the roof. Every country in the world talks about austerity. Nobody has reduced their debt in the last few years.

 

Everybody has increased their debt in the last few years. And so the next time we have a bear market, it's going to be horrendous because of this.

 

Even China– in 2008, the Chinese had a lot of money saved for a rainy day. It started raining in Singapore. They had a lot of money saved for a rainy day. It started raining.

 

They started spending and helped save the world. But even China has a lot of debt now.

Like his fellow hedge-fund luminary Ray Dalio, Jim Rogers is a cryptocurrency skeptic. However, his outlook is somewhat more nuanced. While Rogers says he doesn’t know enough about the market to have a view on which coins might prosper and which might die on the vine, he suggested that people shouldn’t assume that bitcoin will dominate the market forever.

After all, Rogers says, most people have never heard of the company that invented the automobile – it disappeared long ago, he said. There once were hundreds of companies manufacturing cars around the world. Now, he says, there are only 25.

SD: Well, there's been plenty of commentary on cryptocurrencies or cybercurrencies on RealVision and in the mainstream. We're trading them. it's an extraordinary financial experiment. If you're a libertarian, I guess you mind find it inspiring that this has happened with absolutely no regulation. But where do we go with these things? Are you a true believer?

 

JR: Well, Steve–

 

SD: Are you an enormous skeptic?

 

JR: I don't own one, nor am I short one. So I am neutral in that sense. I do know that there are over 2,000 now in just a few years. And anything that booms like that usually has a reason – there's reason for skepticism. You do know that some of them are already zero.

 

I think the Wall Street Journal had an article yesterday maybe that 30% of the ones that have been launched in the last year or two are at zero because they have not traded. Now, there are some that have been skyrocketing. They've gone up 30 or 40, 100 times. So if you own the ones that have gone up 30 times, you think these are wonderful. If you own the ones that have gone to zero – or some have already gone bankrupt.

 

Somebody offered me a lot of them recently. And while I was doing my homework, it turned out to be a sham, a fraud. Fortunately, I was doing my homework so I never got around to taking them.

 

There's no question that the world has money problems. There's no question that all of our lives are being changed by the internet. My kids will never go to a bank when they're adults. My kids will never go to a post office.

 

They may rarely go to a doctor when they're adults. And so money's going to change on the internet too.

 

Which one? I don't know. You've heard of IBM in the computer business? IBM did not invent computers. The company that invented computers you never heard of, likewise with automobiles. I mean, there were hundreds of automobile companies 100 years ago. There are only 25 now.

Rogers, who chafes at being called a contrarian, says one sure-fire strategy for strong investing returns is investing in assets that are "hated" by the broader investing community, for example his Russian-stock investments are making all time highs, he said.

SD: I want to turn to a few specific sectors now rather than the general outlook of the world. It's clear that you're very concerned about that, though not so concerned that you want to actually be fighting it with aggressive shorts right now. One thing that you've spoken about in the past and one thing that we are exposed to is agriculture. It's an area that's generating quite a lot of comment. But from our experience, very few people have actually done anything about it. Very few pension funds, very few individuals have exposure to it. It's hard to get through the stock market. There are very few agriculture companies, certainly on land-owning companies. You can get exposure through the food industry. But you became very positive about the agriculture a while ago. Where are you know on that?

 

JR: I'm extremely bullish on agriculture. That hasn't made me any money yet. Well it has a little bit because one of my largest shareholdings – a large – well, it's not one of my largest, but I am a director of a Russian fertilizer company which is making all-time highs or near all-time highs, which is pretty astonishing given that it's Russia and everybody hates Russia, as you well know. In fact I'm startled that all of my Russian stocks making all-time highs.

 

And this is a hated market. So it's something I have learned. If you buy something that's hated, chances are you're going to make a lot of money down the road.

In one of his last questions, Diggle pointed out that Rogers, who began working on Wall Street during the first half of the twentieth century, has often expressed a disdain for young people working in finance.

Diggle says he first noticed this about Rogers while reading a piece he wrote for Barron’s Magazine in the late 1980s.

Rogers says he doesn’t trust young people for one simple reason: They’re often cocky. But the Darwinian nature of Wall Street quickly separates the wheat from the chaff, making those who survive far more tolerable.

SD: I think you have something against guys in their 20s because the first time I became aware of you as an investor was a Barron's article written in the summer of 1987, and it's a very impressive article. I was very young on Wall Street. And there was this guy, Jim Rogers, and they said, what do are you bearish on, Jim? And you said, the world. There are all these 20-something guys that are thinking that they deserve six figures just because they work on Wall Street and they know how to buy stocks. And three, four months later, you turned out to be absolutely right.

 

But as a 20-something at the time, I thought you were being very unfair on 20-something guys. Now that I'm 53, I share your view of these 20-year-old guys. You've got to stay away from them.

 

JR: Well, but see, you made it. You survived. You're a 26-year-old or 20-year-old who made it and survived, and so it's OK. Many of them don't and don't know why. They make a lot of money. They don't know why they made money.

 

So they don't know why they lose money. They don't know what happened.

 

You, at least, something happened. You're still here. You still have a job. You're still in the investment world.

 

SD: I'm self-employed like you.

 

JR: Right.

Rogers has recently been vocal about his bearish outlook on the markets. In an interview during the summer, he claimed that the largest financial crisis of his lifetime is still to come.

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Nearly two years after we first observed that Vancouver‘s soaring real estate market is nothing but a bubbling melange of criminal Chinese oligarch “hot money”, desperate to get parked offshore in any piece of real estate, but mostly in British Columbia regardless of price, a new multi-year investigation has uncovered extensive links – including money laundering and underground banking – between China’s criminal underworld and British Columbia drug and casino cash and VIPs, and their connections to China, Macau and the norotious triads.

Here is Postmedia’s real estate reporter Sam Cooper reporting on and explaining how British Columbia casinos are used to launder millions in drug cash.

* * *

On Oct. 15, 2015, a Mountie burst through the front door of an office in Richmond, carrying a battering ram and with a rifle slung on his back. The door swung shut behind him, locking him inside. He was in the lobby of Silver International Investment, a high-end money transfer business, surrounded by bulletproof glass. Behind a second glass door, a woman rushed to make a call while hiding several cellphones. Under her desk was a safe stuffed with bundles of cash. The Mountie, a large man, counted seconds anxiously, wondering if the woman would unlock the interior door.

It was one of 10 police raids in Richmond that day — part of a major investigation that has uncovered massive money laundering and underground banking networks with links to Mainland China, Macau and B.C. casinos, allege the RCMP’s federal organized crime unit and China’s national police service.

Postmedia has spent six months looking into the case, involving freedom of information requests for thousands of documents and dozens of interviews with government and law enforcement sources that were not authorized to be identified. Now, the inside story can be told of the investigations that led B.C.’s attorney general last week to order an independent review of casinos overseen by the B.C. Lottery Corp.

In late August, at a Vancouver conference attended by U.S. and Canadian law enforcement officials, RCMP Insp. Bruce Ward outlined the details of E-Pirate, the investigation into Silver International, Asian organized crime groups, and an alleged $500-million-plus international money laundering service run from Richmond. Central to the money laundering probe, allege B.C. government documents, is suspect Paul King Jin, a 50-year-old Richmond spa owner.

Paul King Jin, from a 2011 CTV News Vancouver video

BCLC and B.C. gaming policy enforcement branch documents say that information revealed by the RCMP’s investigation into Jin and Silver led them to suspect the funds are tied to “transnational drug trafficking … (that) could have a potentially devastating impact on the casino industry.” Jin allegedly helped ultra-wealthy Mainland China “whale” gamblers, recruited in Macau, to gamble in B.C., the investigation documents allege.

The Macau whales were able to gamble with suspected drug cash supplied by Jin’s network, especially at River Rock Casino, the investigation documents allege. With those funds borrowed from Jin and “private lenders,” they were not only able to gamble, but to develop real estate in B.C.

Without naming names, a paragraph in the confidential MNP LLP audit of B.C. Lottery Corp. that the attorney general released last week describes underground banking channels that allowed “Chinese nationals” to evade China’s tight capital controls and transfer wealth into B.C.

Investigators learned the Chinese whale gamblers were “provided with a contact in Vancouver, either locally or prior to arriving in Vancouver,” the MNP report says. Next, the gamblers would “contact the person via phone for cash delivery,” which they use to buy chips at a casino. The gamblers would repay these funds “through cash holdings in China.” When the gamblers cash out, they are left with money available for use in Canada.

At the anti-money-laundering conference in late August, the RCMP’s Ward used security videos seized from Silver International’s office, in a multi-storey business complex in the 5800-block of Cooney Road, to explain Silver’s operations. Ward walked conference attendees through a security video that showed the Mountie attempting to enter Silver’s office.

“This lady is the primary target, she returns to her desk, she is hiding her three cellphones and calls someone,” Ward said. “Meanwhile there is a very anxious police officer counting the seconds, waiting to be let in.”

The woman allowed the Mountie and additional officers to enter Silver’s inner sanctum, and what they found could lead to one of the most significant money laundering cases ever in Canada, police say. Ward said Silver was so diligent in recording transactions, and its security system videos are so revealing that Mounties believe they are able to clear a difficult hurdle for Canadian law enforcement: proving that laundered money is directly connected to a “predicate” crime, in this case, drug-trafficking.

In the E-Pirate raids, RCMP seized 132 computers and cellphones, yielding 30 terabytes in data. If all that digital evidence were printed on paper, it would fill almost three million thick telephone books. And ledgers suggest that in only one year, Silver laundered $220 million in cash in B.C., and sent over $300 million offshore, according to Ward.

“This is huge,” one police officer, who was not authorized to be identified, said of the case’s expected impact. “This could change money laundering in B.C.”

In the raid on Silver International’s office on Cooney Road, civil forfeiture documents allege, Mounties seized over $2 million in mostly $20 bills, plus ledgers and daily transaction records. The claim also alleges that two people identified entering the Silver office were later stopped by Mounties on Highway 5 in Merritt, driving a car with $1 million in suspected drug cash stuffed into two suitcases in the trunk.

On Wednesday, Zachary Ng, a lawyer for Jin, told Postmedia he would “convey” requests for comment on E-Pirate allegations to Jin. But Ng said he could not immediately comment. Matthew Nathanson, lawyer for Silver International Investments, said: “I don’t have any comment on this matter.”

To understand Silver’s network, law enforcement had to understand the nature of organized crime in Richmond and Mainland China, which operates “parallel” to the Chinese business community, according to Ward.

“Any given gangster, if you want to call them that, businessman, will have many schemes and thus many networks, and this networking is what facilitated the business,” Ward said. “Because they were able to start a profession of money laundering … to all their friends in drug dealing, who needed the service of converting cash into bankable instruments.”

Ward said Silver International and Jin’s alleged network had many facets, but the main business stemmed from funding the “whale” gamblers, who gambled both in B.C. legal casinos, and illegal gaming houses set up in rural Richmond.

“Part of what we found, is they had two ongoing illegal casinos where the same businessmen who are part of the conspiracy were able to provide non-legal gambling for these offshore gamblers,” Ward told conference attendees. Describing the unimaginable wealth of these Chinese gamblers, Ward said that each man typically gambled between $100,000 and $1 million on a weekend visit to the Lower Mainland. The RCMP’s investigation started with surveillance of gambling and cash drops at River Rock Casino, which led to Silver International’s cash house.

“The primary target that led us there, was a person that is involved in generating ‘whales’ … these high-end gamblers,” Ward said. “His expertise is going over and working in Macau, identifying rich Chinese businessmen that would go to Macau, and he was attracting them to Canada, to gamble. He would use Silver International as a bank account.”

Describing a typical delivery, Ward said: “They would put $100,000 into a hockey bag, show up at the casino, and give (the VIP gambler) $100,000 … the loaning out would go to Chinese offshore gamblers coming into Canada.” Ward said Canadian residents were also loaned cash from Silver in “loan sharking” operations. And Lower Mainland wire transfer businesses were also funded with suspected drug money.

“The extra cash they had would end up in money exchanges, to wire money around the world.”

According to B.C. Lottery Corp. documents, anti-money-laundering investigators identified Paul King Jin in 2012, and these investigators collaborated with B.C. law enforcement to identify Jin’s alleged network, and about 36 gamblers believed to have received criminal cash to buy chips in B.C. casinos.

A suspicious-transaction report filed in 2014 by B.C. Lottery Corp. to Fintrac, Canada’s anti-money laundering agency, says Jin “has been identified as one of the main cash facilitators in the Lower Mainland for casino VIP patrons.” From 2012 to 2014 Jin logged 50 large cash transactions and at least $1.24 million in cash buy-ins, the report says. Jin has been banned from all B.C. casinos for five years, according to the Fintrac report, because of an “extensive history of suspicious incidents.”

BCLC investigators found that Jin and “numerous other people” believed to be working for him were discovered delivering “large amounts of bundled $20 bills” to “known VIP players with … considerable wealth with mostly Asian-based businesses.”

When Jin was barred from casino properties, he continued delivering cash to VIPs, but in parking lots outside or nearby casinos, the Fintrac report alleges.

“Jin was also recently brought to the attention of BCLC by law enforcement agencies that are working with BCLC to identify patrons that are involved in known criminal organizations in B.C.,” the 2014 Fintrac report says. “BCLC is actively working with the RCMP gang unit.”

Jin does not have a criminal record, but has been found guilty of a number of city bylaw infractions. In 2011, Richmond cancelled the licence for Jin’s spa, The Water Club, after RCMP visits. Directors of the club were from Mainland China, Mayor Malcolm Brodie’s council was told. Brodie’s council had access to a report from a Richmond RCMP officer, who noted that in police visits to Jin’s club: “Members later confirmed that high level drug traffickers were inside getting ‘foot massages’ … it is suspected that Jin was meeting with members who are associated to drugs and violence.”

In his E-Pirate presentation in late August, Ward said RCMP surveillance identified 40 different organizations linked to Asian organized groups dealing cocaine, heroin and methamphetamine. Gangsters or their couriers were delivering “suitcases laden with cash” to Silver International’s cash house, allegedly at an average rate of $1.5 million a day.

At Silver, dealers could drop off $100,000 in cash in a suitcase, Ward said, and within minutes a credit for $95,000 would appear in a Chinese bank, after a five per cent fee taken for the laundering and transfer service. Using an alleged transaction from Silver’s security tapes as an example, Ward explained.

“This is a typical event, of a drug dealer bringing in cash. She receives a call, and she goes out to receive a trusted customer … the vast majority is $20s,” Ward said. “The relationship is such, and trusted, that the phone call is made, ‘I’m coming in with $1.4 million,’ and the staff will wire transfer the credit for that in China, before the cash even comes in the door.”

Ward alleged Silver got so sophisticated that it evolved into an operation that could wire funds to Mexico and Peru, allowing drug dealers to buy narcotics without carrying cash outside Canada, and cover up the international money transfers with fake trade invoices from China.

“They facilitated drug trafficking and moved money from it around the world,” Ward said, pointing to slides of transaction records captured in the E-Pirate raids. “This is a typical request, a direction from Silver International to move money from their own account to a drug dealer’s account. We saw evidence of over 600 (bank) accounts in China that were controlled or fed by Silver International. Chinese police have followed up, and they have labelled this a massive underground banking system.” RCMP seized over $9 million, including millions in cash during E-Pirate, and are trying to seize about $4 million in assets, Ward said.

Mountie lab technicians considered themselves lucky the cash seizures in 2015 took place before B.C.’s deadly fentanyl crisis hit, Ward said, since drug cash handled in Vancouver now is often dangerous, covered in traces of fentanyl dust.

Sources in B.C. government and federal law enforcement say it is believed Jin’s network and the Chinese VIP gamblers allegedly funded by Silver International own many luxury properties in the Lower Mainland. But it’s difficult for Canadian governments to seize assets believed to be directly connected to crime.

“It is very difficult nowadays to say, ‘OK, that house that is being used as a casino is an illegal residence, so let’s seize it,” Ward said. “But who owns it? We are finding now, not only one layer of nominees, but two, three and four. And some of those nominees live in China. And they are either related to you, or they don’t even know they are owners. So for many of the properties, we just had to walk away.”

CIVIL ACTION LAUNCHED

A civil forfeiture action against Silver International Investment and two men, Andy Kai Wai Cheung and Yong Li Chen, was launched in August 2015. The action states the men were witnessed by RCMP surveillance among a number of the people entering Silver’s office with suitcases.

RCMP later stopped a rented Chevrolet Malibu with Alberta plates on Highway 5 in Merritt. In the car were Cheung, who has a criminal record in the United States for conspiring to import ecstasy, and Chen. In the trunk, the claim alleges, was a black suitcase holding $349,950 split into 35 bundles of $10,000. And in a hard shell suitcase was $649,560 in vacuum-sealed bags. The cash indicated ‘positive’ for drug residue, the claim states, and was “bundled in elastic bands and shrink-wrapped in a manner consistent with drug trafficking.”

Silver International has stated it has no connection to the cash, and Cheung and Chen deny any wrongdoing. The action continues.

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In his September 2017 paper entitled 'Where Have All the Workers Gone? An Inquiry into the Decline of the U.S. Labor Force Participation Rate', Alan B. Krueger of Princeton University explores the dramatic fall in labor force participation in the U.S. from 1997 to 2017.

As Statista's Martin Armstrong shows in the infographic below, over the last twenty years, the rate has fallen the most for the under 20's, with the share of 16 to 17 year olds in work dropping by 18.4 and 16.2 percentage points for men and women, respectively.

You will find more statistics at Statista

As Krueger reports, last year, Italy was the only OECD country which had a lower participation rate of prime age men than the United States. One of the reasons posited by the research is the opioid crisis currently ravaging the country. Labor force participation rates have fallen more in areas where more opioid pain medication is prescribed. According to the Centers for Disease Control and Prevention, the amount of opioids prescribed in 2015 was three times higher than it was in 1999.

As noted in the paper, while the direction of causality is not clear, a 2017 report by David Mericle entitled 'The Opioid Epidemic and the U.S. Economy' states that “the opioid epidemic is intertwined with the story of declining prime-age participation, especially for men, and this reinforces our doubts about a rebound in the participation rate.”

But as we pointed out previously, after spending months, or maybe even years, running very complicated regressions that your simple mind could never possibly understand, Krueger would like for you to believe that it's the growing opioid epidemic that is forcing men to sit on their couches all day rather than look for work.  Here's a summary of his findings from the Brookings Institute:

The increase in opioid prescriptions from 1999 to 2015 could account for about 20 percent of the observed decline in men’s labor force participation (LFP) during that same period.

 

In “Where have all the workers gone? An inquiry into the decline of the U.S. labor force participation rate” (PDF), Princeton University’s Alan Krueger examines the labor force implications of the opioid epidemic on a local and national level.

 

Among other findings, the research suggests that:

 

• Regional variation in opioid prescription rates across the U.S. is due in large part to differences in medical practices, rather than varying health conditions. Pain medication is more widely used in counties where health care professionals prescribe greater quantities of opioid medication, with a 10 percent increase in opioid prescriptions per capita is associated with a 2 percent increase in the share of individuals who report taking a pain medication on any given day. When accounting for individuals’ disability status, self-reported health, and demographic characteristics, the effect is cut roughly in half, but remains statistically significant.

 

• Over the last 15 years, LFP fell more in counties where more opioids were prescribed. Krueger reaches this conclusion by linking 2015 county-level opioid prescription rates to individual level labor force data in 1999-2001 and 2014-16. For more on the relationship between prescription rates and labor force participation rate on the county-level.

Krueger also provided this very helpful map proving that opioid abuse is highly correlated to unemployment.  Of course, it couldn't possibly be the case that opioid abuse is the result of high unemployment and the associated depression that goes along with it…no, the opioid abuse definitely came first.

 

So, what is Krueger's solution to help reverse the seemingly perpetual decline in labor force participation rates?  If you guessed 'Obamacare' then you're absolutely right…and unfortunately, no, that is not a joke…here is the excerpt from page 38 of Krueger's paper:

Third, addressing the decades-long slide in labor force participation by prime age men should be a national priority. This group expresses low levels of SWB and reports finding relatively little meaning in their daily activities. Because nearly half of this group reported being in poor health, it may be possible for expanded health insurance coverage and preventative care under the Affordable Care Act to positively affect the health of prime age men going forward.

And while we would never presume to be smart enough to question the very thorough, impartial research of a Princeton economist, we do wonder whether it's in any way relevant that labor force participation rates seemingly started to decline in 1965…

 

…at exactly the same time that welfare spending started to surge?

 

It's probably just a coincidence.

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