Guo Jia’s Ten Advantage Framework

A framework Guo Jia used to assess Cao Cao’s strength versus Yuan Shao’s strength during the period of the three kingdom. This is an alternative measure to the modern day GDP measure which has been documented to be in use by the Chinese CCP government.

Advice to Cao Cao

  • Yuan Shao is overmuch devoted to ceremony and deportment; while you are sympathetic and natural; this is an excellence in conduct.
  • He is antagonistic and drives; you are conciliatory and lead; so you have the advantage of popular approval.
  • For many years the government has been lax, and he makes it more so; you strive vigorously after efficiency; this is the excellence of able administration.
  • He is outwardly liberal but grudging at heart, and too given to nepotism; you appear exacting, but you understand and use people after their ability; this is the advantage of correct appreciation.
  • He is a visionary but lacking in decision; you are a man of prompt decision and direct action; this is an advantage in policy.
  • He loves to gather about him people of renown; you treat people as you find them regardless of their reputation; this is where you excel in moral virtue.
  • He is compassionate to those at hand, but careless about those out of sight; your care is all-embracing; this is where you excel in humanity.
  • He lends a ready ear to calumny and is misled; you may be flooded with evil counsel, but you preserve independence; this is where you excel in perspicacity.
  • His sense of right and wrong is confused; your appreciation is accurate and clear; this is where you excel in administrative capacity.
  • He loves the make-believe force, but is ignorant of military essentials; you would overcome with far inferior numbers as you possess military genius; this is where you excel in war.

Related readings

  • The hundred year marathon, Michael Pillsbury
  • Book of Wei

Non-purchase of DOMO despite 10% dip

11th June 2019 DOMO 10% share price dip

Reasons for non-purchase

  • Macro economic environment is still uncertain given US/China Trade war where leaders are set to meet during the 28th-29th June 2019 G20 Osaka summit.
  • US Treasury yield curve is currently inverted signaling a forthcoming recession
  • DOMO share price has been on a steady trend for past 3 months.
  • Competition purchases
    • Google has recently purchased Looker
    • SalesForce has recently purchased Tableau
  • Financials
    • Cash and cash equivalent is down by more than 50%
    • Total assets is down by more than 10% while total liabilities is down by only 3%

Related References

  • https://www.fool.com/investing/2019/06/07/why-domo-shares-plunged-today.aspx
  • https://www.globenewswire.com/news-release/2019/06/06/1865628/0/en/Domo-Announces-Fiscal-2020-First-Quarter-Financial-Results.html

Macro-economics negative spiral leading indicator

Overview

This post documents how we identify negative macro downtown.

Heurisitics

  • When more than 20 companies within the mega cap area experience large dip within a week, it is a good indication that macro economics trend has shift
  • Verify by cross referencing with SQP, QQQ and ^RUT
  • During this scenario, it might make sense to shift position into SRTY

Related references

June 4th 2019 US/China trade war loss aversion reversion to mean pattern

Overview

The central banks announced they stepped in to prop up the market if situation deteriorates with the ongoing trade war.

The world’s leading indicator

The Russell index observed to have started stabilization as recent as the 31st of May 2019

The trend followers

Down trend persisted for the Nasdaq well till 4th June 2019

Down trend persisted for the S&P 500 well till 4th June 2019

The leading indicator for Asia

The Nikkei Index closely mirrored the Russell 2000 index

Other Asian indexes

The charts for the Asian markets closely mirror the SnP charts with Singapore being most responsive amongst

Learnings on shorting the market during the May 2019 US/China Trade war

Overview

  • As with micro-trend, first determine if the root cause of the negative macro trend is structural as opposed to transient
  • When trading on macro trends it is definitely more efficient to utilize industry wide indexes as opposed to individual stocks positions. This is due to the noise within the channel when dealing from micro events.
  • Next step is to consider the exit strategy for an index position

Shorting outcome for 2019 US/China trade war

Below are a list of transactions on the short side of the market with the attempt to ride this negative macro trend.

Positions were picked based on occurrences of large dip scenarios in the prior few weeks.

This strategy under performed when compared against simply shorting the SnP index during the same period.

Related references

Prediction on US/China Trade war to be verified in 2021

Main points of contention

  • Marxist ideological foundation versus a Judeo-Christian philosophical foundation
    • “In god we trust” versus a centrally controlled and designed market model
    • China’s inability to open up markets internationally due to challenges in finding a sustainable way to separate market from government
    • viewing the Party as above the market leading to difference in way IP ownership is viewed
  • The Chinese dream versus the American dream
    • China’s dumping strategy which lead to the severe imbalance of trade and thus steady US job losses over the past years
    • China’s strategy of acquiring US technology via forceful knowledge transfer due to its point of view on markets which resulted in the blacklisting of Huawei
    • China’s intention to establish leadership over two thirds of the world’s population thus challenging US dominance leading to the election of a hawkish US president

Assessment of situation

  • The issue is deeply structural and resolution will be unlikely during Trump’s current term of service
  • Companies within impacted industries will continue experiencing negative headwinds well beyond 2019
  • US companies will gradually shift production to the US and other parts of the world as President Reagan’s hypothesis on China’s successful transition to a market economy gets invalidated
  • World splits into two distinct economic blocs
  • Chinese economy will face continued pressure given the following concerns
    • aging population
    • lack of room for further domestic growth
    • none granting of WTO market status
  • US untangles its free market economy from the Chinese centrally controlled market economy as the latter slips into recession

Related references

Key take aways from The Governance of China by Xi JinPing

Vision

  • The Chinese dream
    • make country strong and prosperous
    • revitalize the nation
    • make people live better lives
  • 2 centenary dream
    • baseline being the 1840 opium war
    • a moderately prosperous society by 2021
    • fully rejuvenating China to its former glory by 2049

Modus operandi

  • perpetual learning and improvement
  • the path of socialism with Chinese characteristics
  • further develop the theory of socialism
  • system to guarantee outcome
  • holistic view when developing policies
  • A wise man changes his way as circumstances change; a knowledgeable person alters his means as times evolve
  • Employ the way of the gentleman
  • Fostering of core values to ensure population knows what the right thing to do
  • A warlike state, however big it may be, will eventually perish

Strategic objectives

  • System integrity
    • stem out corruption within the public service
    • safeguarding state sovereignty
    • coordinating national security in the environment of rapid technology innovations
    • staying close to the people in the grassroots
  •  Reform
    • figuring out the relationship between the government and the market
    • Free the mind
    • Develop productive forces
  • Progress
    • Education to cultivate young people to boldly strive forth and including overseas
    • Technological invention and innovation combined with social development
      • internet
      • Bandwidth
      • cyber security
      • AI
      • robotics
    • Management know-how
    • Urbanization of rural areas
    • Military build up
    • Energy sufficiency – one belt one road, climate change
  • Consolidation
    • Hong Kong
    • Macao
    • Taiwan
    • All foreign Chinese nationals

Key challenges

  • Allow market to play decisive role in allocating resources and let government perform its function better
  • imposing order on the markets to prevent people seeking economic benefits through
  • dealing with production lags
  • effective competition to yield superior outputs
  • inconsistent market rules leading to rampant protectionism within local markets
  • fiscal and taxation systems to divide power between national and local government
  • management of technology security risk

foreign relations

  • inclinations
    • averse to hegemony
    • averse to war
    • averse to intervention
  • Mexico, Latin America
  • Russia – trade using local currencies and go off the USD
  • US – on cyber security
  • Asia
    • 67% of world’s population
    • aims to become leader in region
    • increase imports from this region into China
    • improve regional security
  • One belt one road
    • Africa – technology transfer and trade via one belt one raod
    • EU – trade
    • Central Asia and Middle East – invesments, trade and oil for energy needs via one belt one road

Related references

  • Taoism
  • Mohism
  • The Mencius, Meng Zi
  • Strategies of the states, Zhan Guo
  • The Great Learning, Confucianism
  • The book of songs, King Wen
  • The book of rites
  • Advice to my son, Zhuge Liang
  • The methods of Sima, Si Ma Fa

Key takeaway from Great Again by Donald Trump

Personal mous operandi

  • When you draw a line in the sand if someone else crosses the line enforce repercussions
  • When laws are not enforced them, they don’t exist
  • Plays cards close to vest to keep opponents second guessing
  • Values loyalty highly
  • find the best people to get the job done and then watch over them
  • The side that needs the deal most should walk away with the least

On foreign military

  • Long term rivals: China and Russia
  • Build up strength of US military as a form of deterrence to avoid necessity for deployment
  • Only intervene when US economic interest is served as opposed to a purely ideology driven approach
  • Countries that benefitted from US military aid should pay for service
    • South Korea
    • Germany
    • Saudi Arabi
    • Japan
    • Britain
  • On the middle east
    • Iran should not be trusted
      • their nuclear research program
      • their motivation to take over the entire Middle East
      • their motivation to wipe out Israel
    • See Israel as an ally. Sees the need to ensure balance of power amongst players within the middle east
    • The removal of Iraq has a net destabilizing effect on the region
  • Keep oil prices in check
    • to keep ISIS oil revenue from Iraq and Syria in check
    • To insulate the US economy from OPEC’s price setting ability
    • To become the largest oil producer in the world so as to overtake Saudi Arabia and Russia so as to keep their economic influence in check

On foreign trade

  • Believe in escalating use of sanctions to force other countries to table for negotiations
  • US Trade deficit is concerning
  • On China
    • Have deep respect for the Chinese who are great businessmen
    • largest holder of American debt
    • Chinese stock markets have too much influence on US stock markets
      • 2015 Chinese stock markets collapse caused US Dow Jones to plummet 1,000 points
    • Sees China as more dependent on US than US is on China. To utilize this as a leverage
  • Discourage other countries from devaluing their currencies against the USD
    • Japan
    • China
    • Mexico
  • Rectify faulty trade arrangements
    • China
    • Mexico
    • Russia
    • Iran
    • Saudi Arabia
  • Willing to utilize economic strength (American consumer) to reward countries that cooperate and punish those that don’t

On the economy

  • Believes in a progressive individual taxation system to provide more liquidity for the lower to middle class
  • Encourage companies to bring jobs and manufacturing back to the US
  • Streamline and lower corporate taxation to encourage companies to bring foreign reserves back to the US
  • Reduce corporate taxation to encourage growth of local companies and manufacturing
  • To reduce over-regulations to increase growth rate of corporate activities
  • Build up of military encourages GDP growth
  • Build up of infrastructure encourages GDP growth and facilitates commerce
  • On Oil
    • To build up the US Shale oil industry
    • Create more jobs domestically

On healthcare

  • break up virtual state monopolies by insurance companies
  • allow competition to make insurance companies compete for their customers

On education

  • decentralize control of the educational system to the districts to enforce standards
  • mistrust teacher unions’ ability to make sure only the best teachers get the job

On domestic operators

  • On reporters
    • mistrust political reporters as they generally misrepresent and bias towards sensationalization
    • trust financial reporters because dollars and cents are at stake
    • build relationship with them to generate free publicity for his ideas
  • Views interest of politicians as mis-aligned to interest of people

On immigration

  • Wants to retain the best foreign talents within the country and make it easy for them to contribute
  • To stem out illegal immigration so as to keep out unqualified immigrants
  • To remove the USD1billion/yr cost of keeping foreign criminals in US prison
  • Stop the tide of refugee immigrants to reduce the cost and repercussions of supporting them

On guns rights

  • 2nd Amendment, gun rights needs to stay intact so that citizens can keep the state in check and have a way of protecting their family
  • People with mental health should not be allowed to own guns
  • Over regulation is ineffective, criminals do not get their guns via normal routes

On religion

  • Believes in the freedom of religion
  • Believes Christian ideals is the philosophical foundation of the US

The mushroom at the end of the world

  • staying alive for every species requires livable collaboration
  • scalability is not an ordinary feature of nature and requires a lot of work
  • expect interactions between scalable and non-scalable projects
  • The bulk of the work is threading through the non-scalable to reach the scalable

On the middle man

  • a necessary consummate translator within the supply chain
  • he maintains a mental map of who needs what
  • helps efficiently route the inventory to the most suitable individual

On Freedom

  • it is the concept of not having to be a cog in the machine.
  • it does not necessarily lead to great economic outcome for the pursuing individual
  • it allows the individual the ability to freely allocate the use of his time

The matsutake mushroom

  • along most parts of supply chain it symbolizes a social exchange which strengthens social ties
  • it is only during the sorting when the mushroom is looked at purely as a commodity

Man and nature

  • The satoyama revitalization
    • man is part of nature
    • man’s disturbance to nature is part of nature
  • unintentional design is the interplay of man and nature
    • animal/human activities/disturbance
    • pine tree growth
    • matsutake mushroom colonization and growth