Wednesday, October 31, 2007

On Bin Bu Dong

Of the numerous war strategies used by the ancient Chinese, perhaps the strategy of ‘On Bin Bu Dong’ or ‘Pacify the soldiers, not move’ is the least understood by the multitude.

The strategy, ‘On Bin Bu Dong’, was nonetheless put to good use by Li Mu of old, until the time was ripe for conquest:

“Li Mu was an able general on Chao’s northern frontier, who remained in Yenmen in the land of Tai to guard against the Huns. He appointed officers as he saw fit and had all the market taxes sent to his headquarters to meet army expenses. He slaughtered several oxen daily for his troops, trained his men in mounted archery, kept the beacons in readiness, made full use of spies and treated his soldiers handsomely. He enjoined on his men, ‘When the Huns make a raid, withdraw quickly to the ramparts. Whoever dares engage the enemy will lose his head.’

So whenever they were raided by the Huns, they lit the beacon fires and withdrew without fighting. This went on for several years, with no losses incurred. The Huns, of course, considered Li Mu a coward, while even his frontier troops thought him faint-hearted. But when the king of Chao reprimanded him, he carried on as before. Then the king angrily recalled Li Mu, sending someone else to take over the command.

For over a year the Chao troops gave battle every time the Huns raided, and were always defeated with heavy losses. The men of Chao could no longer farm or breed cattle on the frontier. But when asked to go back, Li Mu shut himself behind closed doors, pleading illness, till the king ordered him to get up and take command.

‘Very well, if your Majesty insists,’ he said. ‘But only if I can carry on as before.’

The king agreed to this. And Li Mu on his return used his old tactics.

For several years the Huns could get no advantage, yet still they thought him a coward. And the frontier troops, daily rewarded yet kept out of action, were spoiling for a fight. Then Li Mu chose thirteen hundred chariots, thirteen thousand horseman, fifty thousand brave fighters, and a hundred thousand archers. Having trained them well, he let cattle and men wander all over the plain. When the Huns made a small raid, he pretended to be defeated and abandoned several thousand men to the enemy.

The khan of the Huns, hearing this, attacked in full force. Then Li Mu, resorting to unconventional stratagems, deployed both wings of his army in attacks from right and left and routed and killed more than a hundred thousand of the Hun horsemen. He wiped out the tribes of Tanlan, defeated those of Tunghu, and subjugated those of Linhu. The khan fled and for ten years and more dared not approach the frontier again.”

[Records of the Historian – HY and Gladys Yang]

Saturday, October 27, 2007

Father of business management

“Pai Kuei, a native of Zhou, enjoyed looking out for seasonal changes. What others spurned he took, what others sought he supplied. At harvest time he bought in grain and sold silk and lacquer, when cocoons came on the market he bought in raw silk and sold grain.

When he wanted more money, Pai Kuei bought inferior grain; when he wanted to increase his stock, he bought good seeds. He spent little on food and drink, curbing his appetite and sharing the hardships and pleasures of his slaves, but seizing on any chance of gain as fiercely as some wild beast or bird of prey.

He said, ‘I do business in the same way that Yi Yin and Lu Shang planned their policies, Sunzi and Wu Chi made war, and Lord Shang applied the law. If men lack the intelligence to change with the times, the courage to make quick decisions, the magnanimity to give things away and the strength to hold what they have, though they want to learn my art I will not teach them.’

So all the world knows Pai Kuei as the father of business management. He set a standard for those who wanted to learn from him, and accepted only those who came up to this standard. He did not teach everyone.”
[Records of the Historian – HY and Gladys Yang]

Some trading tips from an ancient. Study them well, if you want to win. If we understand the underlying principles, they are no different from what real successful traders have done over the past two centuries on whom books have been written.

Though one has a head start of many years, I still fail to grasp the basics. After reading the trading strategies of Pai Kuei, the father of business management during ancient times, readers will have an equal opportunity to search for excellence in trades.

Sunday, October 21, 2007

Watching the signs

1) Global banks are trying to fix their problems in unsold Special Investment Vehicles (SIVs) with new repackaging of damage goods. Total outstanding of the so called ‘toxic’ loans amount to approximately USD 320 billion give or take tens of billions since no one really know the figure. Three top US banks – Citibank, Bank of America and JP Morgan Chase - upon the urging of the US Treasury, will set up a USD 80 billion fund to prevent the forced sale of hard-to-value securities. The funding will be by way of new commercial paper issued by the banks to buy better quality assets from some existing SIVs.

Comment: It is not a government bailout. But the sum is not enough to save the entire market, therefore there will still be a few hundred billions worth of distressed sale of SIVs out there, somewhere. Already a British fund holding a few billions worth of SIVs is in receivership and the receivers have informed the market that the fund will default in its repayments. A valid question remains whether the new commercial paper will be well received or not – since many fixed income investors are skeptical. After all, it is a mere shuffling of papers, with ‘monopoly money’.

2) The recent credit crunch is also hurting the British. UK Reuters reported that many thousands of youths are paying their rent or mortgages with credit cards. Real pain will be felt if credit card holders have to continue to roll their card balances. Card interest rates and cash withdrawal charges are exorbitant, to say the least. If there is no way out, it could be better to default rather than vomit blood or kill yourself. And according to recent news media, more and more people in the US are defaulting on their auto (car) loans and credit cards payments.

Comment: It is a worrying trend. When the public consumer has no savings and no excess money to spend, who will continue to buy products and pay for services? (Think of previous recessions in Malaysia.)

3) With a continual rise in interest rates and the numerous measures taken by the Chinese Government to prevent excessive assets speculation and to dampen inflation, Shenzhen property agents are finding it difficult to sell expensive properties since August. The agents now have to resort to waving cardboard signs at passing motorists trying to entice them to stop to view luxurious apartments costing up to a million dollars. The same housing units had previously sold like hot cakes. Now thirty to forty percent of units remain unsold.

Comment: Property prices have been rising for several years in many countries because of easy credit and hot money. Will property prices around the world see an end to the uptrend, remain stagnant or start falling with the US property market taking the lead?

4) Warren Buffet has recently sold all his investments in a Chinese company for a few fold profits, raising at least three billion dollars of cash for his investment company.

Comment: People do not call him sage of Omaha for nothing. He has foresight. Also remember that the global investment funds are collectively sitting on their trillion of cash.

5) The global and investment banks have yet to come clean. Maybe they do not know what the damage is, what with investments marked-to-model and marked-to-make believe, or are apparently in denial.

Comment: If the banks hold onto these difficult to sell investments too long and have not made sufficient loss provisions, their auditors may qualify the financial statements and quantify the losses. A double whammy, perhaps.

6) Investors in US stock market feeling jittery sold down their stockholdings and shifted money to the short term two year US Bonds on Friday the 19th, the 20th anniversary of the 1987 October crash. The unrelenting sell down was stopped by the closing bell. The Dow Jones index fell 367 points or 2.6%.

Comment: Asian investors will also be jittery when their stock markets reopen on Monday October 22, 2007. Will there be a rebound at the close of trade? It is anyone’s guess. It could be safer to wade into the waters on Tuesday after watching Dow Jones Monday’s performance, unless investors decide to punt.

Meanwhile the big obstacles still remain for the Chinese ninth month.


Thursday, October 18, 2007

How ancients interpret time?

In Chapter II of the Shuo Gua / Discussion of the Trigrams, it is said:

Heaven and earth determine the direction. The forces of mountain and lake are united. Thunder and wind arouse each other. Water and fire do not combat each other. Thus are the eight trigrams intermingled.

Counting that which is going into the past depends on the forward movement. Knowing that which is to come depends on the backward movement. This is why the Book of Changes has backward-moving numbers.

Commentary (extracts):
Here, in what is probably a very ancient saying, the eight primary trigrams are named in a sequence of pairs that, according to tradition, goes back to Fu Xi – that is to say, it was already in existence at the time of the compilation of the Book of Changes under the Zhou dynasty. It is called the Sequence of Earlier Heaven (Xian Tian), or the Primal Arrangement.

When the trigrams intermingle, that is, when they are in motion, a double movement is observable: first, the usual clockwise movement, cumulative and expanding as time goes on, and determining the events that are passing; second, an opposite, backward movement, folding up and contracting as time goes on, through which the seeds of the future take form. To know this movement is to know the future. In figurative terms, if we understand how a tree is contracted into a seed, we understand the future unfolding of the seed into a tree.

The Great Learning (Da Hsiao) exhorts students to investigate things to enable knowledge to be complete. In the course of an extended Yi studies, we would have come across the above saying in the Shou Gua. Either students do not understand what it meant or we had better things to do at the time. Yet, the saying could be on how the ancients interpret the timing of future events and that of Yi oracles. Interested?

The ancient Chinese probably understood the wisdom depicted in the Shou Gua well enough from extended experience to invent the calendar to determine the dates and months of a year for the common good.

If we wish to predict the timing of future events, we need to be familiar with timing in the past, which explain the advent of tables, charts, and records to determine patterns, going forward. (Think of my annual Yi charts and hexagram table; and the Tung Shu.)

If we understand the real meanings and attributes of each trigram, there are only eight trigrams, perhaps our chances of determining time in Yi oracles can be greatly enhanced.

Therefore one has always said that the timing in Yi prognostications is determined in the lines, trigrams, and hexagrams through awareness (obtained through extended divination experience) with no derivative methods required. Only earnestness and sincerity is required in our studies. I am sure Yi aficionados can afford that.

For a start, perhaps it is time for those who have ten years or more of Yi studies to really dig deep into the Ten Wings. Where there are more wisdoms and methods on Yi oracle interpretations to be uncovered than many may realize. Just leave behind your ‘misinformed’ bias, if any, when you investigate into things.

The Great Learning urges the student –
“Things being investigated, knowledge became complete. Their knowledge being complete, their thoughts were sincere. Their thoughts being sincere, their hearts were rectified. Their hearts being rectified, their persons were cultivated.”

Therefore you still have to do your own homework, if you want to improve your own understanding of timing in Yi studies, and to become cultivated, just like the sages and the wise that happened to read the Book of Changes.

Saturday, October 13, 2007

Stand not in the middle of the mountain

This entry could be of interest to a variety of students be they Daoist, Buddhist or Confucian. Yi aficionados may learn something of use and investors in the KLSE should seriously consider the various hints given.

We have to start somewhere to learn something of value; otherwise elementary Yi students may think that the Book of Changes is only good for divinations and could continue to do so unabated in the East as well as in the West – which often lead to dropouts denouncing the Yi as ‘hocus pocus’ like the recent example of a Korean Yi student in public. Without proper guidance and deep thinking, many students probably cannot comprehend the great wisdoms or truths hidden in the Zhouyi.

One will spend more time on the aspect of wisdom than that of Yi divination today.

Fourteen years ago, in reading my fortune and in teaching how to improve upon my study of the Book of Changes, a Quanzhen heavenly immortal advised me ‘not to stand in the middle of the mountain (or hill)’. He gave other cryptic messages as well but what has this particular message got to do with wisdom, my fortune, and help to improve my Yi studies? Read on.

It took me six months to figure out the cryptic message – ‘not to stand in the middle of the mountain’. In case, regular readers cannot recall the relevant October 2005 post of a similar title, it refers to Hexagram 23 Po / Splitting Apart where the mountain rests on the earth. The hexagram comprise of five lower broken lines with a sole unbroken line resting at the top.

This is one of the rare occasions where I do not quite agree with the commentary to the great image of Po in the Wilhelm translation which says: “When it (the mountain) is steep and narrow, lacking a broad base, it must topple over.”

To this student, the mountain implodes instead of toppling over. Since there is only one unbroken light line resting at the top of the entire hexagram which is undermined by inferior people (Xiao Ren) – the other five broken dark lines - until it splits apart.

If the mountain splits apart, a person who stands in the middle of the sole unbroken line plunges straight down the chasm into the very depths of earth. You can either visualize the gaps between the five broken lines below the top straight line. Or think of a sudden appearance of a great sink hole, or the solid earth below opening up during a violent earthquake.

If the mountain topples over as suggested in the commentary, one could still be saved by shrubbery or trees along the slopes but if the top unbroken line of Po splits apart or opens up, the person standing in the middle of it plunges straight down to certain death.

Therefore the Judgment warns:
Splitting Apart. It does not further one to go anywhere.

When inferior people has influence and is pushing upwards to undermine the remaining strong line, it is not favorable for a Junzi to undertake anything. But if diviners or people insist on standing in the middle of the mountain after obtaining Po as the prognostication, what can the Yi do?

The way to escape an expected or unforeseen disaster, if any, as depicted by Po has been given much earlier this year in another entry. Let me reiterate the advice by using the Great Image of Po:
The mountain rests on the earth: The image of Splitting Apart.
Thus those above can ensure their position only by giving generously to those below.

It took me six months to figure out what the Daoist heavenly immortal indicated, and several more years to understand the meaning of this great image. If readers count backs the years, this cryptic message amongst others was given in 1993 – the year of a major bull run in the KLSE. Therefore for the past fourteen years, in line with the divinity's advice, one avoids the ninth month for shares trading which ties in with my fortune. As the saying goes, ‘it is better to be safe than be sorry’.

In my opinion, Yi aficionados who tend to stick to their beliefs that there are no auspicious or inauspicious hexagrams in Zhouyi divination may have their work cut out to truly understand divining, let alone the wisdoms inherent in the Book of Changes. If there are no proper distinctions between good and bad hexagrams, and the 384 lines, how could the Yi ever give forewarnings or inform diviners of forthcoming auspicious events?

In Po, the warning is given in the Judgment, and the way out of danger – the wisdom - is depicted in the great image. Down the ages, perhaps many Chinese have stumbled upon or have been taught this truth or wisdom by their elders, teachers, or even by divinities of ‘giving generously to those below’. Yet many may not actually know, if they have not study it, that the wisdom originated from this hexagram in the Zhouyi.

I doubt elementary Yi students are aware of such hidden wisdoms in the Yi. Therefore it is time for them to reread the Zhouyi in earnest and in all sincerity, to allow the wisdoms to slowly sink in. Only then can we learn a thing or two about the Yi.

However do not attempt to convince a stingy boss to apply this wisdom for a pay rise. The end result could be a literal ‘splitting apart’ of your job with the company, for trying to be funny! The concept is rather different, if you truly understand the wisdom contained in the great image of Po.

If you put on your thinking cap, you may find the wisdom workable or understand a truth that existed for more than three thousand years.

To make it easier for some readers and to give credit where due: the kind and the sincere every where on earth still practises it today, so do a majority of Americans, especially the great persons (Da Ren) in the US.


Wednesday, October 10, 2007

Another sleight of hand

It is interesting to glean the global financial news daily from various sources on the web and how the media present the numbers to their target audience on satellite TV.

The concerned central bankers of UK and Europe fire off warnings about the risk of inflation, huge budget deficits of the US and the great trade surplus of China, the turmoil created by the US subprime mortgage crisis and related derivatives (collateralized debt obligations), the subsequent credit crunch which are still simmering to date, while being pressurized by their respective governments and the US Fed recent easing of its monetary policy to reduce their respective banks’ lending interest rates. So far the professionalism shown by the UK, the European and the Japanese Central Banks is still holding. For how long more is anyone’s guess.

Gleaning from the financial news reports over the past few weeks, one found the desired information. The US mortgage market amounts to 16 trillion US dollars.

The recent write offs by the high street banks and the investment banks amounted to USD 20 Billion – big losses, but they only represent a miniscule 0.125% of the US mortgage market. The write offs include losses arising from mortgage loan defaults, related CDOs and financing leveraged buyouts. What remained hidden were these banks’ exposure and how the provisions or write offs were made – meaning the adequacy of the write offs or the provisions. Since we read daily of the fall in the US house prices, house repossessions, and the high defaults in subprime loans.

What may interest readers could be how the global banks and investment banks provide for the write offs. According to a news article on the web this is what they do:

‘Banks this year classified securities on their balance sheets into three groups.

Level 1 the most liquid, or mark-to-market level.

Level 2 or mark-to-model, the next level, includes collateralized debt obligations (CDOs) and other securities that trade rarely and require computer models to value.

Level 3 – the most illiquid of the group, includes investments in private equity, mortgage servicing rights and other assets that have no apparent market value. Because it is difficult to value and understand, they have been dubbed “mark-to-make believe”.’

Since the advent of the defaults in subprime loans and the consequent fear of high risk bets, the previous huge appetite for CDOs, other derivatives and junk bonds including the financing of leveraged buyouts have quickly dried up. Therefore their trade is almost non existent, which explains the recent credit crunch.

Provisions for Level 1 debts would be adequate as they are marked-to-market. But provisions for the other two levels – the ‘mark-to-model’ and the ‘mark-to-make believe’ is suspect. Why?

When it is marked-to-model, we do not need a financial or computer whiz to tell that any twitching to a model can yield better numbers. Since the Level 3 debts are marked-to-make believe, only those who want to be willingly misled will buy these debts. The global banks probably know it too well to fall for these two levels of debts which probably explained why they desist from inter-bank lending.

With a 16 trillion dollars US mortgage market, it would be made believed that a total write off of USD 20 billion by high street and investment banks is near sufficient or prudent.

It paints a rosy picture that the subprime loans and related CDOs have been mostly hived off to the ‘old fools’ banks in Europe and elsewhere – remember the recent USD 20 billion bailout of a German state bank? I have my doubts because of the huge amount of outstanding subprime mortgages and their doubling or threefold value in CDOs repackaging.

The Asian moms and pops – mainly from South Korea and Japan – are probably punting the US stock markets and the Yen Carry trades like there is no tomorrow. Otherwise it is difficult to understand why when these banks announced losses or much lower profits warnings, their share prices go up, while the value of the Yen keeps falling. Probably the punters have long forgotten about the Information Technology bubble of seven years ago where many Korean day traders, via their fast broadband networks, were burnt when the IT bubble burst. So did a few big hedge funds. Hard core gamblers seldom learn or listen.

All this while, according to news reports, the large institutional investors are particularly risk adverse and have been staying on the sidelines guarding their trillions of dollars. Perhaps these investors and the European central banks know something that small fries like us do not?

Meanwhile the ‘sleight of hand’ goes up another notch. Gloss.

Saturday, October 06, 2007

Confucius on spiritual beings (Kuei Shen)

According to a very recent article on the new ‘Poltergeist’ movie to be shown again in the United States, more than half of Americans believe in the existence of ghosts. And most people learned about ghosts in movies.

Spiritual beings (Kuei Shen) cannot be easily seen or heard unless they manifest. They seldom do because it would unnecessarily frighten people – family members, disciples, or the general public.

One often comes across discussions in the web which mentioned that the ancient Chinese sages seem not to know or discuss much about spiritual beings. Perhaps influenced by an obscure late Han dynasty philosopher, Wang Ch'ung, some of these modern thinkers or scholars tend to believe like him that there are no spiritual beings in Heaven or on Earth. Some even go to the extent to point out that only the religious believe in the existence of ghosts (Kuei) and divinities (Shen) which then inadvertently spawn endless debate(s) extant in the West of what is considered Daoist philosophy and religion.

There is never any point in discussing with those who think they know more than the ancients, the Zhen Ren, the Daoist immortals, and Buddhas put together about Kuei Shen and about Dao. Otherwise they may brand you religious, dogmatic, rude, or Confucian.

A number of modern Yi scholars tend to pick and choose what they want to learn from the ten wings of the Zhouyi – often ignoring the thoughts of sages and the wise therein about Kuei Shen – while claiming that the ten wings which include the Great Image were written by Confucians, yet somehow they conclude that none were written by Confucius. Since they verily believe that there was no evidence Confucius ever read the Zhouyi – ignoring historical facts that the great sage discussed a hexagram and wished for more years to read the Zhouyi, as recorded in the Analects? And that Sima Qian recorded down for posterity in his Records of the Historian (Shiji) that Confucius loved the Yi. Perhaps they also conveniently ignore the fact that the Doctrine of the Mean informs Yi aficionados how to obtain omens using the tortoise and the milfoil (yarrow stalks).

Meanwhile for the earnest and sincere Daoists and Yi aficionados, let us read what Confucius has to say about spiritual beings (Kuei Shen):

The Master said,
‘How abundantly do spiritual beings display the powers that belong to them! We look for them, but do not see them; we listen to, but do not hear them; yet they enter into all things, and there is nothing without them. They cause all the people in the kingdom to fast and purify themselves, and array themselves in their richest dresses, in order to attend at their sacrifices.

Then, like overflowing water, they seem to be over the heads, and on the right and left of their worshippers.

It is said in the Book of Poetry, “The approaches of the spirits, you cannot surmise; - and can you treat them with indifference?”

‘Such is the manifestness of what is minute! Such is the impossibility of repressing the outgoings of sincerity!’

[Chung Yung – Doctrine of the Mean 16 .1 to .5]

Like Confucius and the ancients before him, does this not mean that modern people can still believe in the existence of Kuei Shen (dark and light spirits in the ten wings, or ghosts and divinities in the minds of the multitude) without being overly superstitious, religious, rude, or Confucian?

Tuesday, October 02, 2007

That October month again

Every year when it comes to the month of October, equity investors noticeably turn uneasy. Especially for those investors who had witnessed or read about the US stock market crashes of Octobers 1929 and 1987. (For that matter, even a US TV presenter showed her concern about the performance of the Dow Jones Index this October.) By coincidence, the ‘October plunges’ had also occurred in 1978, 1979, 1989 and 1997 according to

Last year, one suggested that there were no October effect because the Yi did not say anything. This year is anybody’s guess – there are quite a number already in the web. The article titled “October a ‘misunderstood’ month” at predicts that there will be no October plunge in 2007. By their analysis, the authors could be right.

The good news is that the global stock markets have rebounded, some reaching new highs, after the twitching of discount rates followed by a reduction in bank lending rates by the US Federal Reserve. With a simple wave of the magic wand, it seems that the global financial nightmares created by the subprime mortgage defaults, losses in CDOs and un-disgorged LBO loans, the Yen carry trades, and the subsequent credit crunch have disappeared the next morning.

The bad news is that the value of US dollars keeps getting cheaper; with foreclosures and a glut, US house prices are falling fast; oil, gold, and commodities prices have started to climb because of the falling dollar, therefore inflation may slowly rear its ugly head in the US and elsewhere.

China already concerned about the effects of galloping inflation caused by a huge rise in food prices has increased interest rates several times this year to dampen assets speculation. Instead of printing more money like the US and Europe is or will be doing, China has been draining surplus money out of her financial system and capital markets. Soon she will send money out of the country what with the set up of a USD 200 billion sovereign investment fund. Probably a much better idea than investing the sum in US Government bonds because of the falling dollar.

The original high street banks (not talking about US stock brokers and building societies in UK) are slowly but surely revealing their losses from subprime loans, CDOs and leveraged buyout loans hoping for a quick reprieve with interest reductions from the central banks. Of late, some of the high street banks had been rescuing their own hedge funds which deal with subprime loans and putting them back into their balance sheets. Now I understand better how some hedge funds get up to hundred-fold leverages. Banks have become high rollers of risky bets. No wonder the British public no longer trusts banks with their hard earned money.

In tandem with global stock markets, The Kuala Lumpur Stock Exchange has also rebounded near to its record highs. But the low liners have not followed suit. Therefore not much joy for retailers and punters. If only the KLSE had followed the Shanghai stock market which performed in line with the Yi chart for 2007, many Malaysian retailers would be quite rich by now.

In case readers still want to know how the Shanghai stock market will perform in October. Stay out. Preserve your capital or take profits.

From my records, the Hong Kong Stock Exchange plunges led another round of freefalls in the Asian stock markets on 23rd October 1997 after the Thai Baht link to the USD collapsed in August.

According to the Yi chart, there will be a few big obstacles in the month of October. I wonder if the Shanghai stock market can cross those hurdles since the Chinese Government would continue to raise interest rates and drain money from the financial system. Therefore do not be surprised if the Shanghai stock market ‘decides’ to crash sometime in October. The stock market had really enjoyed a stupendous run up till now (up 170% plus from the previous year) despite warnings from several prominent personages in mid June.

All said, the higher stock markets rise, the bigger will be the falls – in terms of points for the US and percentages for others. Remember Yi’s recent warning to me in the form of Hexagram Tun / Difficulty at the Beginning which leads to chaos and unemployment?

Take care.