What We Don't Know
Research for Online Investors

by John Dalt

9/22/10

When asked about the difficulty of invading Iraq in 2003, Donald Rumsfeld famously referred to 'Not knowing what we don't know.'  This concept impressed me, as we all delude ourselves into believing we have the knowledge to make intelligent decisions.  But then we get slapped by the reality of “real estate bubble” in 2008, or the “Eurozone sovereign debt” crisis of 2010.  Who would have thunk?

How many times have we watched the crude oil market move higher on news of unrest in the Middle East?  A couple of years ago, we all knew what “terror premium” meant.  Crude oil prices were dependant on supply and demand with an adjustment for world unrest.

The last two weeks, we have watched the vaper trail of a building storm in the Far East.  China and Japan have a long history; they don’t like or trust each other!  You could go back to pre-WWII when Japan invaded Beijing over shooting at the Marco Polo Bridge.  Germany backed China in the Second Sino-Japanese War.  When WWII broke out the U.S. funneled money to Khiang Kai-shek to resist the Japanese.

Hostilities between the two countries go back to the seventh century with the Battle of Baekgang.  Fought in present day Korea, Japan suffered heavy losses and was left isolated from the mainland.

On Sept. 7, a Chinese fishing boat collided with two Japanese Coast Guard ships.  The incident occurred in the East China Sea, off the Senkaku (Japanese) or Diayu (China) set of islands claimed by both countries.

The Japanese government has released the crew and ship but arrested the captain.  Three days ago, Japan extended his detention until Sept. 29, at which time prosecutors must decide whether to charge him.

Japan has tried to engage China to resolve the situation.  China has cut off diplomatic contacts, threatened action against Japan if the captain is not released “immediately and unconditionally.”  Chinese Premier Wen Jiabao said “Tokyo bears full responsibility for the situation, and it will bear all consequences.”

Chinese  Premier Jiabao rattles the sword.

Japan seeks to defuse the situation, but has a problem.  They reportedly have video tape of the Chinese boat intentionally ramming the Coast Guard Ships.  There is speculation that the incident was planned by the Chinese government to force compliance with their claim on the islands.

Sources for today’s article are; the Taiwan based website China Post, ChiCom’s official news website China Global Times, the China English language website Xinhuanet and Japan Today.

We cannot imagine the situation will spiral out of control, but are mindful that smaller problems have caused major upheavals in history.  It is interesting to read the different views in the referenced articles.  Japanese and Taiwan website tell a slightly different story than the “official” ChiCom’s version.

This exercise reminds us that “we don’t know what we don’t know” every day we make a decision to invest in a company, industry or ETF.

To the mailbag:
Are these people in our congress American?  One looks at Reid, how can he do this to our country?---paid up subscriber T.M.

John’s reply:  Harry is a cranky old man with a chip on his shoulder.  Do you remember how he viciously attacked George Bush?  It was very distasteful.  Tell me, how could Nevada voters ever elect him?

Quote:
There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know.---Donald Rumsfeld

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketToday Archive

Back to Top