What destined, inevitably is going to happen

Dark shadow cast over this island as well as the world. Coincidentally both relate to the world's second largest economy.

Following the recent retaliative import tariff launched from both sides, the tension between the U.S. and China escalated to a new height. It became clearer and clearer that the conflict between the two has nothing to do with the trade imbalance but just the wrestling on the world leadership. It seems Trump has lost his patience on the so-called trade talk when he realized that it is the tactic that China uses to buy time to prepare herself for an even wider scope of confrontation not only confined to the trade aspect.

China's plan is to keep buying agricultural products from the U.S. at one hand letting Trump to get the support he needs from the farmers on the presidential election so that the trade talk can drag on and on. On the other hand, she just slowly depreciates RMB exchange rate and adjust her economy's reliance on the export especially to the U.S. market to undermine the impact on her export arising from the increased tariff.

With the recent release of the trade statistic, China appears to remain intact under the prevailing increased import tariff rates applicable to her export to the U.S. and this is certainly not what Trump is happy to see. There are signs that import tariff hike is just a double-edged sword to the U.S. especially when the second round of tariff hike is set to be effective from September 1 while China seems to continue to use RMB exchange rate as a counter measure. However, tax-led price hike definitely will not only hurt the consumer spending sentiment in the U.S. but also a substantive hit on the coming holiday shopping spree. The diminishing impact to China arising from the import tariff on her export drives Trump resorts to the alternative measure to deal with China.

Yesterday Trump announced the establishment of the new Space Command. In his speech, Trump explicitly said this is a move to counter the threat from China and Russia on the American satellites. Apart from the telecommunication and scientific observation purposes, satellites' main job is for military operation, a more explicit expression, for warfare. This latest move at this critical moment signals that Trump is in the preparation of a war with China as a last resort on the wrestling of world champion. People might take it lightly that it is only an intimidating action but judging from what Trump said and done in the past, he means business, especially this is China's moment of make or break. If she can survive and even be prosperous under the U.S.'s current clamping then China is going to be a real formidable nation which the U.S. can no longer contain. The U.S. could has destroyed the then new born nation with A-bomb to avoid the potential threat when the CCP founded communist China 70 years ago. Will it miss the chance again? Most of all, can it afford to miss again when the threat is no longer potential but imminent?

The world has enjoyed peace for a long time, too long that people almost forget warfare could be just around the corner. People escaped from the Cold War with luck. However, the world is not big enough to accommodate two leaders just like only one alpha male exists in every pride. What destined, inevitably is going to happen.

Unlock (2)

In my previous post with the same title I mentioned that the protestors' strategy is to disturb Hong Kong's economy so that the business sector is hit as such they will apply pressure on Lam's administration for solution as a result hoping Lam will back off.

Today Hong Kong's richest man tycoon Li Ka Shing has made a full front page ad in a few newspapers expressing his concern over the development of the anti-extradition movement so far. The ad came into two versions. While one of them is rather "conventional" urging no more violence but the other version is quite interesting with much undertone and implication within it.

The content of the right hand side ad is quoted from a sentence from an ancient Chinese poem. The background of the poem is that during a monarchy struggle the queen killed her son and planned to kill another one as well. In the poem this victim expressed his sorrow with an analogy of the overharvested crop just cannot stand any more picking that how come his mother was so cruel on her offspring killing them one after another.

Some said tycoon Li has already used the same citation during the chaos in the Occupy Central Movement in 2016 so he just used it again in this event with similar scenario. However, one must know tycoon Li is with super extraordinary high wisdom. Everything he did carries a meaning and serves a specific purpose. The two ads apparently address to two different categories of audiences. The conventional one on the left is straight forward and explicit without twist, simply no more violence while targeted audience certainly includes protestors but perhaps police as well.


The choice of the citation in the ad on the left is apparently more subtle in meaning and controversial on the audience. The trick of the citation lies on the implication who the overharvested crop is and who is overharvesting now. The choice of the citation is an ingenious one which reflects how wise tycoon Li is. The beauty of the citation lies on the background of the poem. The key point is the mother queen killed her sons one after another. Who on earth once claimed herself is a loving mother? If she is really qualified to be mother of all Hong Kong children, is she doing the thing similar to the ancient mother queen did now? Bravo! Mr. Li.

Tycoon Li is the lead man of Hong Kong's business community. He has made a high profile yet subtle message to our loving mother now. Mama, if you did not hear what the people sing, can you pick up what Mr. Li is saying?

Unlock

Everybody here in Hong Kong is talking about the deadlock which Hong Kong is facing now and it seems apart from those cliche urging violent protestors to calm down and stop violence but nothing new. Nor is it really receptive and mostly of all, that works. The deadlock is attributed by the insistence and persistence that the Hong Kong government and its counterpart both think that they are doing the right thing and none of the two sides wants to back off.

What makes the deadlock keeps dragging on is that neither the radical protestors nor the police can make an overwhelming success over their counterpart. Undoubtedly the riot police is better equipped but the violent protestors also have their edge that they are out-numbered the former and their tactics are much more agile and proactive than that of the police who can only be reactive when there is mass gathering and sign of violence. Contrarily, the violent protestors enjoy much greater freedom on where and when to launch their actions, especially with a guerilla tactic.

This is the situation at the front line. At the back office, Carrie Lam's administration is in the underdog position as well because Lam is handicapped in most areas on the handling of the situation. She is not allowed to make concession on things which Beijing sees as a undermining on the sovereignty over Hong Kong or a damage to the central government's authority. Locally she is also pressurized by the police that no independent inquiry commission is acceptable. Therefore basically Lam can do nothing on the five major demands raised by the public. Her persistent non responsiveness just fuels the protest against her. Her inability on concession, however, gives much leeway on her counterpart to launch more attack on her.

While Lam is in underdog but her counterpart also have not made much progress on their agenda neither. Their strategy is to disturb the economy in Hong Kong and to capitalize on business sector's pressure to Lam on the back down. However, they are walking on a very fine line that if they are not successful within a short period of time, as and when the general public is out of patience on the disturbance of traffic and regular livelihood, the support or at least the understanding on their radical actions will lose steam. Public sentiment could change rather quickly.

To unlock the current deadlock, there must be either one side be able to make a breakthrough. Hope on the government is slim because red lines have been drawn by Beijing whom think they are formidable that no concession is necessary nor suitable especially they see this movement is actually a master piece of foreign force that trying to deter China's rise by pulling her leg with Hong Kong issue. Beijing's last masterstroke resorts to the deployment of PLA but this is really a double-edged sword. It is not desirable and preferable for both Beijing and Hong Kong so this is the last resort which Beijing is reluctant to use except absolute necessary.

The government's counterpart is also in a dilemma that their escalating radical actions could possibly create negative feeling against them if things drag on too long but fails to generate big enough pressure from the business sector and the so far majority supporting society. They need stronger and more severe damage on the economy to create the adequate pressure on the government. Likewise, this is also a double-edged sword to the counterpart as well. However, there seems to be more room for them to play around on the strategy than is the government.

To make a breakthrough, the opponents could alter their tactic against the police. Instead of routine radical confrontation or even ever escalating deployment of weapons which just gave the police the justification on their brutal suppression and also possibly generates a violent image which is not quite receptive by the main stream opinion. On the contrary perhaps the protestors can adopt a softer approach and much lower violent yet with much economic disturbing actions as a means for their goal. Except it is more receptive by the public and the beauty is that the protestors can leverage on their agility and flexibility on the location and timing for their actions. Guerilla tactic can drain the police's energy and not fighting back with laser beams, bricks or petrol bombs that will not lead the officers taking it personal as they are not attacked physically and personally.

Lam's administration relies heavily on the deployment of police to counter the protestors actions. A more favourable option to the protestors is probably to rip the police off from the government. The association for the front line officers has once made an open announcement to their management expressing their concern that police force is used on political conflict. Just image wearing a full gear and working longer hours in the hot summer days/nights day in day out without an end, it is believed no officer is happy with that. Naturally they are disciplined force which must be obedient but when the situation drags on and the police officers are getting more and more fatigue. After taking off their uniforms these officers are individuals with independent thinking. They will ask who on earth gives them this ordeal and why the hell they have it. At a time the collective resistant sentiment is high enough then the government just cannot neglect it.

The protestors should not put themselves into confronting role against the police. This will just push the police becoming Lam's administration's ally if both are seen as enemies by protestors. This is certainly not the ideal situation. When Lam's administration loses its only local supporting force while Beijing is reluctant on the deployment of PLA then perhaps it is the time a breakthrough can be seen, hopefully.

Hemophilic value investors (2)

I used to write a post in the same topic hemophilic value investors back nine months ago. First of all, I make it clear again it is no offense with such heading but just wanted to bring out the fact that the moments when value investors have a good appetite are that when tragedies happen that bring fear, as Buffet puts it when others are fearful be greedy.

While the world major indexes like DJ, FTSE, DAX and Nikkei are still hanging around their relatively high level, HSI has already down 22% from its peak. The reasons are multiple. HSI reached its peak by 2018 January but then it experienced an almost straight fall from February till October sparkled by the trade tension between the U.S. and China. Only when the two bosses of the world's two largest economy met in December in the same year then the meeting brought HSI a short-lived four months rebounce in this year then followed by an on-going plunge amid the worsening relationship between the two since this May compounded with the ever escalating social tension locally due to the anti-extradition bill in the past two months.

Technically HSI has already entered into the bear market. With the view of Elliot Wave Principle, HSI is also in the course of wave C. Unlike the pattern in the textbooks, this wave C could be a tricky one though because Hong Kong is an highly opened market so it is prone to be affected by the overseas markets and the China market as well, amid the local incidents. The ever increasing listing of Chinese companies in the HKEX and their high ratio among the constituency in the HSI renders a dominance on the movement in the Index along the outlook of China economy. Among the overseas markets, the U.S. stock market no doubt has the most impact on the HSI.

These two major drivers are with contradictory impact on the HSI, at least in the year to come. Still being an export-oriented country, China's economy will inevitably be hit under the hindrance of the trade war, so will her stock market be and this is a gravity on the HSI. However, as Trump is doing everything he can to drive up the U.S.'s stock market to facilitate his second term presidency campaign, the DJ and S&P should be staying in the high level, if not to break another record high, at least in 2020. This is a pulling force on the HSI.

While there are upward and downward forces on the HSI in the long run, it seems the local incident plays an even more decisive factor on the HSI at least in the latter half of 2019. The impact of the social tension and the ever increasing frequency on the police-protestors confrontation start to emerge on the economic activities. Stock market and property market, the two thermometers of the well-being of Hong Kong economy, are not immutable. Rumors of capital outflow from the Island went viral indeed. Along with the recent development, Hong Kong is no longer seen as a capital safe heaven, especially to some controversial funds. To add to its woes, the meeting in yesterday in Shenzhen held by the Hong Kong and Macau Affairs Office further brought doubt and worry on the deployment of China soldiers(PLA) in suppressing confrontations as hinted by the quasi spoke persons or messengers after the meeting.

As the anti-extradition bill movement is hijacked by forces with otherwise intention, on the other hand, the lame duck Hong Kong government is handicapped by Beijing on the concession on the five demands raised by the public, confrontation and escalating violence will not go away but just intensify. The deployment of PLA in combating protestors is not the question of whether or not but when. These soldiers are no boy scout nor are they ordinary army which protects their own fellow. People should not forget what they did in a hot summer night 30 years ago in the far northern city. Indeed these soldiers are embedded in the downtown of the Island so people should not be surprised if they are spotted with their tanks in the streets of Hong Kong soil. The nightmare bloodshed haunting for 30 years just comes alive again.

Value investors, are you ready for the feast?