Saturday, August 25, 2007

Confucius says in the Zhouyi

Danger arises when a man feels secure in his position. Destruction threatens when a man seeks to preserve his worldly estate. Confusion develops when a man has put everything in order. Therefore the superior man does not forget danger in his security, nor ruin when he is well established, nor confusion when his affairs are in order. In this way he gains personal safety and is able to protect the empire. [Hexagram 12 Pi Standstill -W/B]

In times of Standstill, following the example of heaven, the Junzi hides his worth and withdraws into seclusion, not allowing specious talk or dazzling temptations to expose his person to danger. Since evil people do not further the perseverance of the superior man.

With words well spoken more than two millennia ago, yet applicable to many an investor in this time of turmoil in the world equity, debt, and currency markets, where mutual mistrust prevails even among global banks, and where bankruptcies and retrenchment are fast rising (in the US, UK and NZ, probably contagiously spreading to the greater part of Europe and Australia), can later sages measured up to Confucius?

The largesse of past easy credit and imprudent lending have just as quickly evaporated as each global bank assess their own damage and exposure to the sub prime mortgage market, its various ingenious derivatives, and the Yen carry trades. As usual the man in the street and those with better credit standing get hit for past excesses (read mistakes) of these financial institutions.

At the time of writing, the US banks have already raised interest rates on higher grade loans, credit cards, recalling loans lent out to weaker borrowers and scaling down on lending to recoup or minimize their losses, notwithstanding the pumping in of more liquidity into the financial systems by Central Banks.

Whether or not, this credit crunch contagion will spread to Asia and panic already nervous Asian bankers to withdraw or limit credit to the markets remains to be seen. There could be another round of pandemonium (remember the ghost festival month?) if an affected large bank or a major hedge fund ever fails.

In times of Standstill and amid such uncertainty, one has been slowly selling shares into the expected rebounds to reduce the level of margin financing and raise cash levels. By Friday all the margin accounts were in positive cash territory helped by the quick recovery of the particular stock bought in bulk which rebounded more than 70% from its previous week lows.

If its stock price climbs higher next week, one will sell the balance of shares investments (think rear guard), to preserve more available ‘foreign capital’ (think soldiers) to fight another day. This is what I meant, in previous entries, by orderly retreat in the face of adversity, and not to allow the army be put to rout by the enemy (read evil people, which include the Xiao Ren).

When hearts of soldiers turn towards home, the supreme commander recalls the army, and contemplates. Like what the great sage Confucius said, ‘In this way he gains personal safety and is able to protect the empire.’

Whether or not, investors want to heed his or the Yi’s advice in times of Standstill is another thing altogether.


If your own original or translated copy of the Yi does not contain the wise sayings or interpretations of Confucius and Mencius applicable to humanity and timing, you could miss out on various ancient Chinese wisdoms. If Yi aficionados still insist that derivative systems teach more about timing than the Zhouyi or that the Book of Changes is only meant for divinations, so be it.

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