January 31, 2011

• Reflections - February 2011

  Of late, I've become very impressed with how much manipulation can occur in the markets.  Coordinated attacks, dubious information, market movements that make no sense... some of it really is the melee of financial warfare.  The prize?  Wealth.

  Recently, I've been increasing my exposure to the market, acquiring a reasonably large position in a certain company that operates in China, based in Hong Kong, and traded on the NASDAQ.  The general impression of many in the US is that every company based in asia is suspect of fraud, which is a difficult position to disprove.  So despite amazing numbers, good auditors, well-known investors, the stock is is exceedingly vulnerable to any suggestion of fraud. 

  In the past week or so, I doubled my position, leveraging significantly, in anticipation of the a forced buy in from short-traders, as the stock was very very heavily shorted (60% of the float or so), thinking that they could not "escape" this trap of their own devising. 

  The markets, however, are a battlefield.  One cannot expect that one's enemy will not seek to escape a bad situation, and will employ any means or strategy to elude you.  So, after a 20% run-up last week, the short positions appear to have coordinated a sell-off to coincide with an opinion piece on a financial blog that has resulted in an aggregate 20+ percent drop in the price over 3 days.  So, given that I had a good run up, then increased my leverage towards the top, the aggregate price movement has left me much poorer.

  I've only been aggressively trading in the last 3 years - during training, I found it very hard to trade, as time was very limited.

  One can be very encouraged during great gains - but losses can also be very discouraging.  I find myself rather listless today, unwilling to write articles or think about anything other than immediate patient care concerns. 

  But...

      ¹⁹ “Do not store up for yourselves treasures on earth, where moths and vermin destroy, and where thieves break in and steal. ²⁰ But store up for yourselves treasures in heaven, where moths and vermin do not destroy, and where thieves do not break in and steal. ²¹ For where your treasure is, there your heart will be also.

  Matthew: 6:19-21

  And then it forces me to ask, where is my treasure?  As much money as I've gained or lost in the last several days, I have a pearl of great price.  And I am treasured, even as I treasure my God's gift of salvation.

  As I trade further, I really need to be careful of "blowing up" - trading is stewardship.  If I lose it all, I cannot invest it in Kingdom work, nor in the things I need to live.  I will try to be less greedy in the future.  Better reflection on the trading environment last week should have alerted me that while the possibility of explosive growth was strong, it was also a highly risky time as well.  The psychology of the markets is a fickle and dangerous thing, as there are no allies, per se... merely temporary allies-at-arms.  Everyone wants to preserve their own wealth - and get more - which is usually at another's expense.

  More careful assessment of the probabilities should have led me to reduce, not increase, my position.

  Live and learn.  But definitely learn.  Thanks be to God.

  -------

  Just finished a book about Chiang Kai Shek.  The Generalissimo looks at the man from youth to grave, and is a lot more sympathetic than I would have guessed.  Given that the historical context within which he lived is so rich and complex, there is no way I can review the book and do it any justice.  However, I want to highlight a couple areas.

  1)  Chiang Kai Shek was, to all appearances, a devout Christian.  He committed a lot of debauchery, but it appears that after he married Soong Mayling that he truly did believe, and that he re-oriented his life, and re-cast his life in an understanding of scripture.

    He seems to have seen his life from the perspective of a sort of martyr, with Jobian sorts of a eras, as well as believing deeply in a single China, hoping to rebuild China in a way to restore national prestige, as well as improve the lot of the Chinese peoples.  Living through a period of immense social unrest and injustice, surrounded by warlords and warfare, it could be argued that any would be leadership of China saw that unification was essential to China's future existence - even at the cost of personal sacrifice.

    This point is very unusual.  The author of the book looked at periods where Chiang Kai Shek could have either eliminated the Communists, or more conservatively preserved his position and men - dragging the civil war out.  The author argues that Chiang might indeed have sought an all or nothing approach, as he did not want to sacrifice territorial integrity - did not want China divided into two states, even if he were to be the head of one of them. 

    He saw the retreat to Taiwan as a way to preserve a different vision of China, that might compete with the Communist vision in time, writing this rather clearly in his diaries.  I'd say he succeeded.  The Taiwanese model has influenced the mainland profoundly - as it should.  I view Taiwan as a repository (among many other things) of many wonderful aspects of chinese culture, which are percolating back to the Mainland.  In fact, mainland development has benefited greatly from Taiwan, just as Taiwan has benefited economically from the markets and raw materials of the mainland. I don't want to address TW/PRC here, as it's a huge issue and far more complex than I have time to write.

  2)  From the view of the Chinese people, Japan was terrifying during the 1920s-1940s.  Japan experienced their industrial revolution much earlier - and leveraged that to nearly wrest control of much of the mainland who had remained under the rule of a decaying imperial regime.  China had languished under opium, suppressed and backwards for a couple centuries.  The experience of being attacked and invaded by multiple western powers and then later by Japan leaves a very bad taste in the minds and mouths of the leaders of China.

    I don't think one can meaningfully understand Chinese international policy without deeply digesting the immense humiliation that China perceives and remembers regarding this period.  China, rightly or wrongly, remembers a long 5000 year history of culture and greatness.  It remembers the last 400 years as foreign oppression.  While the west doesn't remember, collectively, a period of imperialism, China does - at least at the leadership level.  Both Nationalists and Communists fought against what they perceived as Imperialistic impulses - Japan, Europe, and to an extent, the US.

  3)  Warfare between warlords is crazy.  In a sense, Pakistan and Afganistan are going through what Japan and China had in warring states periods.  WIthout strong central government, it's not entirely possible to build normative regimes.  Guns beat words.  In a sense, the Communist Revolution was really a competition of ideas - which model would unify and remake the Mainland.  Both sides believed in the necessity to eliminate rival factions; once in Taiwan, Chiang demoted rivals steadily, until there was a single power... that finally devolved into its present democracy. 

    It's interesting to note that had George Washington desired to be a King, he might well have established an American Monarchy.  There was certainly public sentiment to that effect.  He was wealthy, well connected, and powerful.  It's rare in history to see military leaders decline "tutelage", but Washington did decline that power.  Perhaps a near-despotic leader is necessary to achieve unity.  What follows is, however, immensely complex and difficult to navigate.

  • 2:08 pm
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