People should reduce their holdings of riskier investments like stocks as the U.S. copes with a growing nuclear threat from North Korea, said Michael Lewitt, manager of the Third Friday Total Return Fund.
“This is as great a threat as many of us will see in our lifetimes (at least we can hope so) and investors should take it very seriously,” Lewitt said in a special edition of his Credit Strategist newsletter. “Investors who do not reduce risk in their portfolios now are demonstrating a dangerous ignorance of history.”
The Dow Jones Industrial Average fell for the first time in 10 days on Tuesday after President Donald Trump warned of “fire and fury like the world has never seen” in response to North Korea’s expansion of its nuclear weapon efforts. The U.S. intelligence community believes North Korea has developed mini nuclear warheads that can be fitted into missiles capable of reaching the U.S., The Washington Post reported.
“Can you really keep telling yourselves that North Korea is just bluffing?” Lewitt said. “Do you think President Trump can do that and place American lives at risk? North Korea may awaken markets from their long slumber and investors and citizens alike need to be prepared.”
The U.S. has placed sanctions on North Korea intended to impair its economy, but the country has proceeded with its weapons programs.
“Sanctions don’t work; they are classic half-measures that signal to bad actors the world’s unwillingness to do what is necessary to stop them,” Lewitt said. “Saying nobody wants war is an empty shibboleth; sanctions invite war by emboldening tyrants who smell weakness and exploit it. Ask Vladimir Putin or Bashar Assad or Kim Jong-un.”
Lewitt blames the Obama administration for a feckless policy of “strategic patience” that “was never anything more than strategic stupidity and weakness.”
Diplomatic measures are also proving to be useless.
“President Trump is constitutionally bound to defend and protect America, not South Korea or Japan, and must make that clear to the Chinese, the only country with any capability of bringing North Korea under control (its protests to the contrary are disingenuous),” Lewitt said. “We know what Xi Jinping or Vladimir Putin would do if faced with a similar threat to their mainlands and it is not praising them to say that Donald Trump must do the same.”
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