This is serious stuff and I think that investors could do well not taking the news that came out about the “North Korean situation” lightly.
When we look for example at the equity markets overall it seems that we are in the best of worlds. Economically spoken, it doesn’t look like the central banks are on their way to bring down the ongoing great performance of the equity markets.
Now, overnight we have seen markets becoming somewhat more prudent in Far East, after the Washington Post reported U.S. intelligence officials had concluded in a confidential assessment that North Korea has successfully produced a miniaturized nuclear warhead that can fit inside its missiles, crossing a key threshold on the path to becoming a full-fledged nuclear power.
Then, President Donald Trump stated: “North Korea best not make any more threats to the United States. They will be met with fire and fury like the world has never seen. He has been very threatening beyond a normal state, and as I said they will be met with fire, fury, and frankly power, the likes of which this world has never seen before. Thank you.”
North Korean state media stated: “The KPA Strategic Force is now carefully examining the operational plan for making an enveloping fire at the areas around Guam with medium-to-long-range strategic ballistic rocket Hwasong-12 in order to contain U.S. major military bases on Guam...
North Korea also appeared to dismiss any possibility of negotiation with Washington, saying: “The strategic weapons that the DPRK manufactured at the cost of blood and sweat, risking everything, are not a bargaining thing for getting acknowledgment from others.”
So, I don’t say this lightly, but we are at serious risk that at some moment (hopefully never!) the communications between the United States and North Korea could at some point, let’s say it this way, be misunderstood by one side or by the other side or by both sides and we could be much closer to such a moment than many think is possible.
Therefore, I still think, as an investor, cashing in some profits, not all of course, could be not such a bad idea.
Never forget, selling equities at an acceptable price is extremely difficult to do, especially when there is panic.
Buying back shares is one of the easiest things to do when you have cash available.
All that said, there is no doubt whatsoever that we are still at a moment of rising geopolitical stress.
At these moments in time, many investors think a lot about what are called “safe havens.”
One of the first safe havens that many think about is gold. Please take care, the situation as we have it at this moment is not the ideal for buying gold.
History has taught us that gold has done poorly during periods of geopolitical stress, like now is the case. On the contrary, at these moments in time the U.S. dollar, the Japanese yen, the Swiss franc have performed well.
Never forget, gold is a great asset for having in times of rising concerns about fiat money.
while geopolitical tensions are much more associated with the threat of destruction of life and property.
As an investor, I certainly wouldn’t panic and would prefer to keep in mind what George Friedman wrote at the end of May: “Kim has only bad choices, but for a few reasons, the least bad choice for him is war. First, it’s possible that the U.S. is bluffing and that nothing will come from this episode.
Second, it’s possible that China or Russia will intervene to save him, though neither country is up to the task of fighting a conventional war with the U.S. (Neither country is all that interested in saving the Kim government either.) It’s possible that South Korea, afraid for Seoul, will block the attack. It’s possible that Japan will get involved. It’s possible that the U.S. attack will fail.
It’s possible that the nuclear program is further along than everyone thinks and that that will deter an attack.
And, last but not least, we are still only at the stage of "a war of words."
Let’s hope it stays like that.
Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.
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