How to Defend Your Money (Against North Korea)
Technically speaking, Kim Jung Un never left; he just started launching missiles.
Missiles capable of carrying miniaturized nuclear warheads, according to various sources.
Obviously, that’s a BIG problem.
So far the markets have taken this in stride, but traders finally let jitters get the best of them yesterday.
That’s why “safe-assets” like gold and the Swiss Franc rallied against the dollar as a result while the S&P 500, the Dow and the Nasdaq all fell.
As you might imagine, I’m getting lots of questions about what the brash young leader’s nuclear aspirations could mean for your money.
And, of course, how to play the situation for safety and profits.
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Let’s get started… There’s Not a Minute to Waste
Unfortunately, despite the fact that we’ve been talking about North Korea for over a year, most investors are still totally unprepared for the unthinkable.
That means they’re going to get caught flat-footed if the shooting starts, and that’s a position I don’t ever want to see you in.
Given what we know, there’s simply no reason you can’t start preparing as the headlines play out. The case was the same back in April, when I last wrote to you about North Korea, and it’s certainly no different now.
1. A Surgical Strike Isn’t Feasible
Many people are trying to armchair-quarterback the situation by suggesting some sort of surgical strike is in order – meaning the military will hit very specific targets, very quickly and completely.
The problem is that North Korea has anticipated this and, having done so, has spread its weapons systems out nationwide. They’ve used a carefully concealed network of tunnels and the country’s naturally mountainous terrain, both of which make them harder to hit and even harder to destroy.
North Korea has the fourth-largest military population in the world, with an estimated 1.19 million men and women under arms and more than 8,600 artillery units.
Should even a single target survive, there are more than 10 million people in Seoul, nearly 40 million in Tokyo, and another 1.3 billion in nearby China at risk of chemical, explosive, and even biological weapons that can be launched more quickly and stealthily than nuclear missiles should Kim’s nuclear commander, General Kim Rak-Gyom, give the go-ahead.
Many “limited engagement” proponents fail to understand that Kim Jung Un will push the button if he feels he has nothing to lose, or even if he simply feels the need to “save face” rather than risk the respect (and fear) of his subjects.
There are direct parallels, for example, to Saddam Hussein, Muammar Kaddafi, and current Syrian strongman Bashar al-Assad.
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2. Regime Change Would Work Against Peace
Some folks favor “regime change” – a fancy, sanitary term used to avoid the unpleasant connotations associated with changing a country’s power structure using military force or covert action, or both.
In this case, not only would Kim have to go, but everybody on a long “kill list” would have to be eliminated, too. Put bluntly, there’s no way the U.S. would “get ’em all.”
In the meantime, China would see its borders overrun with refugees and millions of troops in that nation, Russia, and of course in South Korea, would face imminent confrontation.
As unpalatable as the thought is, there’s a good case to be made for the “devil you know” as opposed to the “devil you don’t.”
3. All-Out War is a Losing Proposition
And, thanks to long periods of time he spent outside North Korea growing up, Kim knows it. He also understands that the rest of the world is war-weary after 27 years of conflict in the Middle East and the ongoing fight against terrorism… and that everybody else would lose more than they would gain if the battle of boastful leaders turned to a battle with bullets.
Tactically speaking, even if it were possible to use such overwhelming force, as was the case in Desert One or on D-Day, for example, the other consideration is that Kim’s army would roll into South Korea with such speed and ferocity that they’d repeat the “Banzai charges” of Japanese soldiers in WWII – although a far deadlier version thanks to modern weaponry.
4. Global Markets Will Tank When the Shooting Starts – Even if Not a Single Shot is Fired
Contrary to what the mainstream media and our leaders seem to be focused on, Kim doesn’t need missiles. He can ship a dirty bomb using the Postal Service, or merely put a suitcase nuke on a freighter and sail it into Yokohama – or Hong Kong, where it would be welcomed as normal shipping traffic.
Or, he can use a half dozen other low-tech methods to ensure that his bombs get where they’re going and that they detonate on schedule.
That’s what our intelligence services really have to guard against, even as our leaders continue to operate on the assumption that they’ll be fighting a traditional conflict.
5. Kim Does Not Respond to Traditional Diplomacy
There are two ways to deal with Kim – the carrot and the stick.
The former is a reward while the latter is a series of punishments using “sanctions.” He doesn’t like the former because it makes black market activities considerably more difficult, and he loves the latter because they’re worth the paper they’re printed on… and that’s about it.
Kim is a wild card, which means that having imaginary conversations with him are going to mean nothing at the negotiating table, especially to traditional diplomats who depend on some small degree of logical behavior and incentive recognition.
It’s beginning to dawn on the world that Kim has no incentive for restraint.
So now what?
The markets haven’t pitched a fit yet because traders are still trusting that there will be a solution, a comment I made earlier this week on Cavuto: Coast to Coast.
Instead, what I think we have is seasonal profit taking that falls within historically normal patterns for this time of year.
I expect that to change very quickly in the weeks ahead if diplomats cannot figure out a way to push everyone back a few paces. President Trump doesn’t seem to be helping matters much in this regard, observing Thursday that perhaps “fire and fury” wasn’t tough enough.
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Former NATO Supreme Allied Commander, retired General Wesley Clark, sagely observed to CNBC that “rolling back the clock” is unrealistic and unachievable. What we should seek is “strategic stability and continued deterrence.”
And that’s your entry point.
War, Terrorism & Ugliness is a growth industry, especially when faced with a situation that, by its very definition, requires “strategic stability and continued deterrence.” That means we have to address the unfortunate profit potential just as we would any other Unstoppable Trend backed by trillions of dollars.
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Admittedly, this isn’t easy.
I’m a parent, too. The situation scares the hell out of me. Our oldest son lives in Tokyo and our home in Kyoto is easily within missile range. Further, I take no comfort in the Japanese government urging us to practice air raid and missile defense drills because it reminds me of my childhood.
Back then, we did the same thing to protect against the “Soviet menace.”
If you’re like most investors, chances are you’ve had at least a passing thought related to selling everything in the past 24 hours. I have, too. That’s normal.
Instead, what I want you to do is flip that around for two reasons: 1) if the shooting starts, you’re going to have a lot of other stuff to worry about – like shelter, food, and medicine; and 2) many of the world’s markets will be closed or operating on “safety breakers” anyway, so trying to jam an order in will be problematic at best.
What you want to be doing now is thinking about what you’d buy if you get the chance to do so at prices that are suddenly a lot lower. Perhaps you’ve missed Apple Inc. (NasdaqGS:AAPL)’s 158% run over the last four years, or Alphabet Inc. (NasdaqGS:GOOGL)’s 259% rise over the decade, or Amazon.com Inc. (NasdaqGS:AMZN) which now stands at $956 a share – up more than 2,140% since November 2008 when it was only $42.70 a share.
Do it tonight. Talk it over with your spouse or your financial advisor, your kids or even the deli guy if you have to. Just don’t delay.
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I think any kind of military exchange will cause a single day drop that makes the 500 point single day Brexantrum look like child’s play. Yet, I also think that the markets will come roaring back once the panic dissipates and the dust settles, especially if the damage is “contained.”
We obviously don’t know if that’s going to be the case yet, but deciding in the heat of the moment is the last thing you want to do. As I also noted on Cavuto: Coast to Coast Tuesday, that never works out for the better.
Enter “lowball orders“ now, when nobody thinks they’re even remotely plausible because you may not be able to when the exchanges panic.
At the same time, I want you to do what many professionals have been doing over the past few days and start trimming your portfolio to protect profits. Leave the best companies making “must-have” products in place, but prune the marginal “nice to have” choices.
The easiest way to do that is to enter trailing stops positioned just below the most recent lows. Or, if you’d rather, simply sell select positions outright as part of rebalancing but keep your core investments in place.
Consider hedging your portfolio with a choice like the Ryder Inverse S&P 500 Inverse Fund (RYURX) or its ETF cousin, the ProShares Short S&P 500 (SH) as I’ve recommended both here and in our paid sister service, the Money Map Report.
The ratio of your hedge obviously depends on your personal circumstances, objectives, and risk tolerance so there’s not a “one size fits all” number here, but 2% to 5% ought to do it for most investors according to various studies.
You can, of course, buy gold or the Swiss Franc like many people are at the moment. They’ll hold their value but the trick here is that the trade can vanish faster than you can blink if peace breaks out. Studies show that the same 2% to 5% is statistically valid here as well.
Again, not sound like a broken record, but I’d prefer to see you go on the offensive because missing out on gains is always more expensive than avoiding losses over time.
Right now the easiest way to do that is a choice like the iShares Dow Jones US Aerospace and Defense ETF (ITA) which counts stocks like Boeing Co. (NYSE:BA), Lockheed Martin Corp. (NYSE:LMT), and Raytheon Co. (NYSE:RTN) among its holdings.
While there’s a lot to like in each of those names, what catches my attention given our discussion today is the 60%/40% breakdown between aerospace and defense investments.
It’s weighted enough to ensure quality with the right emphasis, but a tight enough focus to produce some tremendous gains 12-24 months from now. Perhaps a whole lot sooner.
Obviously today’s column has been a little longer than usual, so thanks for hanging in there with me all the way to the end.
North Korea is an unthinkable situation but by making these moves now ahead of time, you’re taking control of your money in a way that best positions you for maximum protection and profits.
Speaking of which, I’m investigating several small, relatively unknown defense tech companies at the moment that I’ll be telling you about in the weeks ahead as the situation develops and the unique products they make become increasingly valuable.
Until next time,
P.S. North Korea continues to dominate headlines with missile tests, nuke buildups, and the death of a recently released American prisoner. This regime needs to be dealt with, but are we missing an even bigger story? Click here to learn about the threat the media isn’t covering.