“The Art of War” was an ancient Chinese text written by general Sun Tzu some 2,000 years ago.  The exact timing is not known but historical scholars have narrowed its origin to sometime between 200 BC and 200 AD.  The book is written in 13 different chapters, some of which I will fast forward and compare to Chinese actions in current day.  The text has been translated into several languages, first into French in the late 1700’s and again into English about 100 years ago.  After reading many of the quotes, I have no doubt that Sun Tzu was a very wise tactician of Eastern thought and someone that even the “masters” looked to for guidance.

  Sun Tzu believed that wars were inevitable and there would always be winners and losers both physically and economically.  Interestingly enough, one of his main themes was that if a war had to be fought, it should be done swiftly and thoroughly because no one benefitted from a long and drawn out war.  Before going any further and describing any of the chapters to you, please understand that there is a definite difference between the “Eastern and Western mindsets” in many facets of life.  Sun Tzu’s “The Art of War” is certainly one of the early reasons for this difference.

  Chapter 1, “The Calculations” speaks to the planning phase and learning all that you can about your opponent and as many of the surrounding conditions as possible.

  Chapter 2, “The Challenge” looks at war from an economic standpoint, what are the costs versus the potential gains.

  Chapter 3, “The plan of attack” speaks to five critical parts that are essential to win a war, Attack, Strategy, Alliances, Army and Cities.

  Chapter 4, “Position” teaches the importance of holding ground until a push forward can be done safely and that it is most important not to give your enemy(s) an opportunity to exploit.

  Chapter 5,  “Energy” goes into the importance of creativity in the guidance of forces and the timing of movements.

  Chapter 6,  “Illusion” offers insight to opportunities created by the moving parts and by any weaknesses of your opponent.

  Chapter 7,  “Engagement” warns of the dangers of direct engagement especially when it is not of your choice.

  Chapter 8,  “The Variations” stresses that one needs to be flexible because unforeseen change makes this necessary.

  Chapter 9,  “Movement”  describes the various possibilities an army may find when invading and the importance of knowing your foes intentions.

  Chapter 10,  “Positioning” speaks of 6 different types of ground positions, the pro’s and con con’s of the variations.

  Chapter 11,  “Nine terrains” is a focus on commanding forces through nine common situations.

  Chapter 12,  “Fiery attack” offers advice to weaponry and the use of your foes environment as a weapon.  It also speaks to the response to a foe using your own environment as a weapon against you.

  Lastly, Chapter 13,  “Intelligence”, this chapter tells of how important good and real information is.

  For anyone wishing to read the 1910 translation by Lionel Giles M.A., the full text can be found here http://www.chinapage.com/sunzi-e.html

  In order to tie this thought process together with current times, I thought it might be a good thing to offer a few short quotes from the text and relate them. 

  Two of the most famous quotes are “The supreme art of war is to subdue the enemy without fighting” and “Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win”.  In my opinion, China is currently “living” these two quotes almost verbatim.  They have sat back for the last 15+ years and watched as the U.S. mortgaged their future, spent past goodwill and savings (gold in particular), and generally become weaker financially, spiritually, economically and militarily.  I don’t believe that China wants any bullets to fly, I believe that they would be happy if there was no bloodshed but I also think that they are aware that the probability is quite high.  As for my opinion of the first quote, China hopes that the U.S. defeats itself.  The second quote, China is and has been planning the defeat of the U.S. since the days of Mao, he knew that the best way to defeat a foe is to debase their currency.  How better than to let your foe debase their own currency?

  Two other well known quotes are “There is no instance of a nation benefitting from prolonged warfare” and “Move swift as the Wind and closely-formed as the Wood. Attack like the Fire and be still as the Mountain.”  These quotes speak to China’s knowledge that any war must be swift and that they are costly in not only economic terms but in terms of life.  Please do not forget, war is not just a physical or military undertaking, it is also an “economic” undertaking.  I believe that the Chinese would like to strike swiftly from an economic standpoint when they finally pull the plug.  They will demand delivery of all sorts of COMEX products, particularly gold and silver.  They will default on many derivatives and leave the Western banking system holding the bag.  Oil and resource contracts will be triggered where the flow moves East as opposed to West (think Saudi Arabia and others here).  The wholesale dumping of U.S. Treasuries and dollars will also be a distinct possibility.  And as you know, the prices of gold and silver will be marked up and away from the grasp of “buyers” who finally “get it” but just a little bit too late.  Of course, the flow of manufactured goods and even necessities that we no longer produce in the U.S. will cease.  In short, we will economically be put into a vice grip overnight.

  One last quote for you and this one I believe is very pertinent, “When you surround an army, leave an outlet free. Do not press a desperate foe too hard”.  I would equate this to the current and common saying that “desperate people do desperate things”.  This as you know by some of my recent writings is a great fear of mine and I believe also a great fear of the international community.  The actions or should I say “reactions” by the U.S. to losing power is of the greatest importance and unfortunately of least certainty.  No one really knows exactly what the U.S. will do or how they will respond to various situations because policy has become “reactive” at best.  From what I have been able to see, I believe that the U.S. has had “intentions” of war over both Syria and Ukraine, the only reason this has not happened in my opinion is because of the “chess” like maneuvering of the Chinese and Mr. Putin.  

  The above quote is pertinent because I believe that the Chinese (and Russians) would like to allow the U.S. a “graceful” fall from grace so to speak.  If the U.S. would accept the reality that we are no longer the manufacturing giant of the world and that our standard of living needs to decline, it could be done peacefully.  We need to accept the fact that the dollar is over printed and over valued and that foreigners wish to change the reserve currency status. 

  Will we?  Will the American people accept it?  How about our government?  Sad to say, I don’t think so.  I don’t think that Washington can in any way accept being pushed into 2nd or even 3rd world status and I don’t believe the population will take it sitting down either.  As for the populace, this would mean a dollar that is worth only .50-.60 cents of today’s current dollar literally overnight.  It would mean that life’s savings are devalued overnight.  It would mean that current paychecks would in many cases no longer support life.  It would mean that “subsistence” payments like social security, welfare and food stamps would no longer support life.  Sadly, I see those who saved and also those who did not, rising up in anger with no “out” or recourse other than starting over or going to work.

  If you can see things in this manner then you can understand why it is so important to have savings and investments out of the system and available.  There is a “side door” available to those wishing to exit.  China has been using this exit for years, following their lead is wise because in my opinion they will soon head the group “making the rules”.  By the way, the Chinese understand “paper money” and the hazards attached to it.  They invented paper money and I believe have blown up more paper currencies than any other country, they already know the fate of the dollar.  

Regards,  Bill Holter

http://blog.milesfranklin.com/

Be prepared for the next great transfer of wealth. Buyphysical silver and storable food.

As the world continues to move into uncharted territory, today a 40-year market veteran sent King World News a tremendous piece which warns that the stage is now set for a slaughter in the global financial system. He also covers the gold and silver markets. This is a fascinating piece from Robert Fitzwilson, founder of The Portola Group. Below is what he had to say in this exclusive piece for King World News.

By Robert Fitzwilson of The Portola Group

August 4 (King World News) – Stage Is Now Set For A Slaughter In The Global Financial System

Continue Reading at KingWorldNews.com…

AH PERFECTION: Strange, but the most popular, the most widely-requested, and the most widely quoted piece I’ve ever written was not about the stock market — it was about business, and specifically about what I call the theoretical “ideal business.” I first published this piece in the early-1970s. I repeated it in Letter 881 and then again in Letter 982. I’ve added a few thoughts in each successive edition. But seldom does a month go by when I don’t get requests from subscribers or from some publication or corporation to republish “the ideal business.” So here it is again — with a few added comments.

I once asked a friend, a prominent New York corporate lawyer, “Dave, in all your years of experience, what was the single best business you’ve ever come across?” Without hesitation, Dave answered, “I have a client whose sole business is manufacturing a chemical that is critical in making synthetic rubber. This chemical is used in very small quantities in rubber manufacturing, but it is absolutely essential and can be used in only super-refined form.

“My client is the only one who manufactures this chemical. He therefore owns a virtual monopoly since this chemical is extremely difficult to manufacture and not enough of it is used to warrant another company competing with him. Furthermore, since the rubber companies need only small quantities of this chemical, they don’t particularly care what they pay for it — as long as it meets their very demanding specifications. My client is a millionaire many times over, and his business is the best I’ve ever come across.” I was fascinated by the lawyer’s story, and I never forgot it.

When I was a young man and just out of college my father gave me a few words of advice. Dad had loads of experience; he had been in the paper manufacturing business; he had been assistant to Mr. Sam Bloomingdale (of Bloomingdale’s Department store); he had been in construction (he was a civil engineer); and he was also an expert in real estate management.

Here’s what my dad told me: “Richard, stay out of the retail business. The hours are too long, and you’re dealing with every darn variable under the sun. Stay out of real estate; when hard times arrive real estate comes to a dead stop and then it collapses. Furthermore, real estate is illiquid. When the collapse comes, you can’t unload. Get into manufacturing; make something people can use. And make something that you can sell to the world. But Richard, my boy, if you’re really serious about making money, get into the money business. It’s clean, you can use your brains, you can get rid of your inventory and your mistakes in 30 seconds, and your product, money, never goes out of fashion.”

So much for my father’s wisdom (which was obviously tainted by the Great Depression). But Dad was a very wise man. For my own part, I’ve been in a number of businesses — from textile designing to advertising to book publishing to owning a night club to the investment advisory business.

It’s said that every business needs (1) a dreamer, (2) a businessman, and (3) a S.O.B. Well, I don’t know about number 3, but most successful businesses do have a number 3 or all too often they seem to have a combined number 2 and number 3.

Bill Gates is known as “America’s richest man.” Bully for Billy. But do you know what Gates’ biggest coup was? When Gates was dealing with IBM, Big Blue needed an operating system for their computer. Gates didn’t have one, but he knew where to find one. A little outfit in Seattle had one. Gates bought the system for a mere $50,000 and presented it to IBM. That was the beginning of Microsoft’s rise to power. Lesson: It’s not enough to have the product, you have to know and understand your market. Gates didn’t have the product, but he knew the market — and he knew where to acquire the product.

Apple had by far the best product in the Mac. But Apple made a monumental mistake. They refused to license ALL PC manufacturers to use the Mac operating system. If they had, Apple today could be  Microsoft, and Gates would still be trying to come out with something useful (the fact is Microsoft has been a follower and a great marketer, not an innovator). “Find a need and fill it,” runs the old adage. Maybe today they should change that to, “Dream up a need and fill it.” That’s what has happened in the world of computers. And it will happen again and again.

All right, let’s return to that wonderful world of perfection. I spent a lot of time and thought in working up the criteria for what I’ve termed the IDEAL BUSINESS. Now obviously, the ideal business doesn’t exist and probably never will. But if you’re about to start a business or join someone else’s business or if you want to buy a business, the following list may help you. The more of these criteria that you can apply to your new business or new job, the better off you’ll be.

(1) The ideal business sells the world, rather than a single neighborhood or even a single city or state. In other words, it has an unlimited global market (and today this is more important than ever, since world markets have now opened up to an extent unparalleled in my lifetime). By the way, how many times have you seen a retail store that has been doing well for years — then another bigger and better retail store moves nearby, and it’s kaput for the first store.

(2) The ideal business offers a product which enjoys an “inelastic” demand. Inelastic refers to a product that people need or desire — almost regardless of price.

(3) The ideal business sells a product which cannot be easily substituted or copied. This means that the product is an original or at least it’s something that can be copyrighted or patented.

(4) The ideal business has minimal labor requirements (the fewer personnel, the better). Today’s example of this is the much-talked about “virtual corporation.” The virtual corporation may consist of an office with three executives, where literally all manufacturing and services are farmed out to other companies.

(5) The ideal business enjoys low overhead. It does not need an expensive location; it does not need large amounts of electricity, advertising, legal advice, high-priced employees, large inventory, etc.

(6) The ideal business does not require big cash outlays or major investments in equipment. In other words, it does not tie up your capital (incidentally, one of the major reasons for new-business failure is under-capitalization).

(7) The ideal business enjoys cash billings. In other words, it does not tie up your capital with lengthy or complex credit terms.

(8) The ideal business is relatively free of all kinds of government and industry regulations and strictures (and if you’re now in your own business, you most definitely know what I mean with this one).

(9) The ideal business is portable or easily moveable. This means that you can take your business (and yourself) anywhere you want — Nevada, Florida, Texas, Washington, S. Dakota (none have state income taxes) or hey, maybe even Monte Carlo or Switzerland or the south of France.

(10) Here’s a crucial one that’s often overlooked; the ideal business satisfies your intellectual (and often emotional) needs. There’s nothing like being fascinated with what you’re doing. When that happens, you’re not working, you’re having fun.

(11) The ideal business leaves you with free time. In other words, it doesn’t require your labor and attention 12, 16 or 18 hours a day (my lawyer wife, who leaves the house at 6:30 AM and comes home at 6:30 PM and often later, has been well aware of this one).

(12) Super-important: the ideal business is one in which your income is not limited by your personal output (lawyers and doctors have this problem). No, in the ideal business you can sell 10,000 customers as easily as you sell one (publishing is an example).

That’s it. If you use this list it may help you cut through a lot of nonsense and hypocrisy and wishes and dreams regarding what you are looking for in life and in your work. None of us own or work at the ideal business. But it’s helpful knowing what we’re looking for and dealing with. As a buddy of mine once put it, “I can’t lay an egg and I can’t cook, but I know what a great omelet looks like and tastes like.”

For general info regarding subscriptions and signup please contact Dow Theory Letters.
For  subscription issues, e-mail staff@dowtheoryletters.com 

Mr. Russell may be e-mailed at this e-mail address, but unfortunately he will not be able to respond to any of the e-mails (due to sheer volume, which sometimes amounts to as many as three dozen a day). Correspondence may be mailed to Mr. Russell at PO Box 1759, La Jolla, CA 92038.

Plus: How to Avoid the Coming Bear Market in US Stocks

published July 29th 2014

Large groups of people do extraordinarily pig-headed things from time to time.

Republicans can drive a car more or less as well as Democrats or Communists. Of the millions of autos on the road, driven by Rosicrucians, Rotarians, River Keepers, and all manner of people with all manner of ideas, there are relatively few accidents.

Making their own decisions about their own lives, people of all sorts get along passably well — even when they are driving automobiles at high rates of speed with a Democrat headed right for them. They obey simple, general rules — keep to the right (or left)! — and decide the minor details for themselves.

Usually they get where they are going. But trust these people with public affairs and there’s a good chance you’ll wind up driving tanks through Poland.

The human brain is well adapted to driving a car and to looking out for itself. Without conscious thought, it makes life and death calculations on a second-by-second basis, for the most part successfully. But it evolved while living in small groups without the abstractions of large-scale, modern public life.

The ability to do abstract thinking, or to understand the dynamics of large groups, was unnecessary. That is probably why the ability to do this kind of thinking is so rare. The typical brain is not equipped for it. Ask the human brain to coordinate the ordering of a pizza for a family of five and the results are outstanding. Put it to work on Obamacare, NSA snooping, firearms control, or public finance and the results can be astonishingly silly.

Ambitious people pretend this isn’t the case. They feel it is their responsibility to read the papers and try to understand the headlines. They identify the hero, the villain, the love interest, and the conflict. They root for the good guy, curse the guy in the well-tailored business suit, and pray their side will win.

They cannot imagine a team without a captain or an army without a general or a war without a victor. They need to think someone is in charge — someone who can win this struggle against an uncertain Fate.

Few people can stomach the idea that public life is out of the conscious control of the authorities in whom they have placed so much faith. They lack what Nietzsche referred to as an ‘amor fati’… a faith in, and an affection for, Fate. People don’t like Fate. Fate is the bad stuff that happens when no one is in charge, when chaos reigns.

Instead, they believe in the ability of right-thinking experts to ‘do something’ to bring about a better outcome than Fate had in store for them. They want a leader who will slay their enemies and bring the home team to victory. They want officials to deliver up full employment, someone else’s money, the America’s Cup, and free beer on tap 24/7.

They want someone in the driver’s seat who will take them where they want to go.

But where do they want to go? They don’t know. And history is largely a record of fender benders, sideswipes and pile-ups on the way there — a place, it turns out, they really shouldn’t have been going in the first place.

(Adapted from Hormegeddon: How Too Much Of A Good Thing Leads To Disaster. Copyright © 2014 by Bill Bonner)

Regards,

Bill Bonner
for The Daily Reckoning

Also From Bill Bonner:

published July 28th 2014

Dear Diary,

On Friday, the Dow fell 123 points. On Saturday, our youngest son, Edward, returned from Africa. He had escaped capture by a rebel army in the Democratic Republic of the Congo… walked 50 miles through the jungle… and eventually made his way to the US embassy in Kinshasa, where he was given a new passport.

As to the Congo, Edward reported to his grandmother: “Rich country (in natural resources). Hard place to do business. The local people are nice. Until they decide to kill you.”

Grandmother: “Why would you want to do business there?”

Edward: “Because it’s there. It’s a challenge. It’s an adventure.”

Grandmother: “You don’t get extra points in life by doing things that are not worth doing.”

Wise Counsel

That wise counsel in mind, we return to the stock market. As we explained last week, we can only know what is false, not what is true. Even as to what is false, we are sometimes surprised.

But since our ground is firmer on the “what we don’t know” side of the hill, investing is best approached from a defensive position. Don’t worry about finding the best stocks or the best investments; just be sure you don’t have the worst ones. And don’t worry about missing the market’s best days… just watch out for the worst ones.

This view was recently confirmed for us by a study (thanks to Richard Russell atDow Theory Letters for bringing this to our attention). If you missed the 10 best days of market action during the last 25 years, your rate of return would have been cut nearly in half. Instead of getting over 6% per year, your return would have been only 3.67%. On the other hand, if you missed the 10 worst days over the last 25 years, your rate of return would have risen to nearly 11%.

The lesson from this is familiar: If you can avoid the market’s worst days, you’re way ahead of the game.

This is true of a lot of things. Think how much happier your marriage would be if you could blot out the 10 worst days of it. Or what a nice life General Custer might have had if he’d managed to avoid that awful day at Little Bighorn!

But when do the market’s worst days arrive? We haven’t studied the matter, but you don’t need much study to know that they follow big run-ups in prices. 1929. 1987. 2000. 2008. Typically, you get big drops after a long period of gains.

A 20-Year Bear Market in Stocks?

Or in grandmother’s terms: Trying to capture the last gains of a bull market is probably not worth doing. Even if one of those gains turns out to be one of the market’s 10 best days (unlikely), it is still not worth the risk that you might stumble into one of its 10 worst days.

We bring this up today because we don’t want you to say we didn’t warn you.

One day – perhaps soon, perhaps not – the US stock market will have one of its worst days. It will fall maybe 1,000 points. Maybe 3,000 points. And unlike previous recent episodes, this time stock prices may stay down for 10 or 20 years.

Bear markets – and market crashes – are not hypothetical. They are real. They are part of the market cycle. They are a part of life.

What’s that you say?

Janet Yellen and intelligent financial management techniques have banished bear markets? Because the Fed will always come to their aid with more cash and credit, investors will never again sell stocks in panic; those days are over?

Is that true?

Never was before. But who knows? Time will tell.

Custer claimed there were “not enough Indians in the world to defeat the 7th Cavalry” before he and nearly half of the 7th Cavalry were wiped out at Little Bighorn.

Regards,

Bill Bonner
for The Daily Reckoning

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Looking over a 2007 report on Irish real estate last week, I got a chill when I ran across this line: “Most available evidence would now appear to suggest that the housing market appears to be on the way to achieving a soft landing.”

Sound familiar? It’s a line Canadians have been hearing for years, recently from Finance Minister Joe Oliver and the Bank of Canada. ….continue reading HERE

Hat Tip To- Investor Relations Vancouver