Stumbling Toward War
- Gold does what it’s supposed to do when global hot spots heat up
- Hmmm… The less people know about North Korea, the more hostile they are
- Kim Jong Un isn’t crazy, says Jim Rickards: But he’s miscalculating badly
- What a preemptive war on North Korea would look like
- Trade war with China could raise the price of a beer
- The Street hates on Disney… the $17,000 Luna bar (almost)… the trouble with options… and more!
Yesterday afternoon, gold assumed its role as a “safe haven” amid the proverbial “geopolitical tensions”….
Gold popped more than $5 the instant the president threatened to unleash “fire and fury like the world has never seen” if North Korea makes any threats to the United States. And it’s added another $11 since then; at last check this morning the bid is up to $1,272 — retesting its highs of last week. In addition, if mainstream sources are to be believed, the specter of war is one reason stocks are slumping today.
The whole thing is surreal. Trump made his remarks after The Washington Post published a story citing anonymous sources who revealed the existence of classified analysis that says the North Korean regime has managed to miniaturize its nuclear warheads to fit on missiles.
So the president’s bluster is based on leaks of classified intelligence to a proven purveyor of “fake news.” You can’t make this stuff up.
“War is God’s way of teaching Americans geography,” is the quip attributed to Ambrose Bierce.
In late April, The New York Times commissioned a poll of 1,746 American adults asking them to identify North Korea on a map. The answers were, in a manner of speaking, all over the map.
Only 36% got it right — the responses highlighted here in purple.
And the people who got it wrong, by and large, favored “military solutions” to the North Korean standoff more than those who got it right.
If you have an especially long memory, you’ll recall we cited a similar poll about Ukraine in 2014 — after Washington instigated “regime change” there and Russia responded by seizing the Crimean Peninsula. “The farther their guesses were from Ukraine’s actual location,” write the pollsters, “the more they wanted the U.S. to intervene with military force.”
“With few exceptions, no nation wants a war,” says our own Jim Rickards. “Yet wars happen with unfortunate frequency. Why?
“The answer is miscalculation, misapprehension and misunderstanding.”
As you might know, Jim is on record here forecasting a shooting war between the United States and North Korea late this year or early next — surely no later than mid-2018.
And not because Kim Jong Un is irrational or suicidal, or any of the other media stereotypes. “I don’t think Kim Jong Un is unhinged,” Jim said a few hours ago in an interview with Sky News Australia. “He may be a violent thug, a murderer, a dictator, not a nice guy, but he’s not unhinged. He’s probably making what he thinks are rational calculations, but he’s misjudging Trump.”
Let’s expand on that thought for a moment. To the extent it’s possible, let’s go inside the mind of a Kim Jong Un.
“Kim estimates that the risks of giving up his nuclear program could well be greater than the risks of continuing the program,” says Jim.
Both Muammar Gaddafi in Libya and Saddam Hussein in Iraq had nuclear weapons and missile technology programs at one time. Both leaders gave up those programs — Gaddafi in 2003, and Hussein in the early 1990s after the first Gulf War… Despite giving up their weapons programs, both Gaddafi and Hussein were killed as a result of U.S.-backed actions.
“Yet Kim’s belief that keeping his program makes him more rather than less secure could be a classic miscalculation given the tendencies of Donald Trump.
“President Trump has fired missiles at Syria and exploded the largest non-nuclear bomb in history in Afghanistan. While these missions had their own rationale, most observers viewed them as a show of force intended to convince North Korea that the U.S. would in fact act militarily if Kim does not give up his weapons programs.
“This mismatch of perceptions — Kim’s belief that the U.S. is bluffing and the U.S. insistence that Kim cannot have the weapons he seeks — is the classic recipe for war, and is exactly why war is coming to North Korea soon.”
So if the decision’s been made… What will preemptive war on North Korea look like?
Recall that last month, the State Department imposed a total travel ban on U.S. citizens traveling to North Korea. No more goodwill tours by the former NBA star Dennis Rodman.
“This travel ban is an obvious step in preparation for war,” says Jim. “The U.S wants to minimize the number of U.S. hostages prior to the outbreak of hostilities.”
The same day as the travel ban was issued, Congress agreed on new economic sanctions against North Korea. “Sanctions are part of the march to war, as they have been in prior conflicts with Libya and Iraq,” Jim points out.
“Most importantly, President Trump has called upon Secretary of Defense James Mattis to prepare battle plans for a preemptive war on North Korea,” Jim goes on — designed to eliminate North Korea’s capacity to build nuclear weapons or launch them on ICBMs.
“Complicated attacks such as the one contemplated in North Korea are not improvised overnight. Planning can take a year or two and involves elaborate preparation in the form of pre-positioning troops, vessels, aircraft and other offensive assets, and training extensively for a number of different scenarios.
“The U.S. attack will involve all elements of U.S. military and covert action including cyberwarfare aimed at the North Korean command structure and critical infrastructure, as well as special operations, psychological operations (psyops), drones, strategic bombing and many other salients.”
When North Korea comes under attack, its first and most obvious response will be to rain down artillery on metropolitan Seoul, South Korea — population 25 million.
And yet South Korea’s KOSPI index closed down a mere 1.1% today. It’s up 21% so far this year, even with all the saber-rattling leading up to yesterday.
“No one wants war,” Jim wrote readers of Rickards’ Intelligence Triggers yesterday, “yet there are huge profits to be made for those who see this war coming and take appropriate actions now.” [If you’re not yet a subscriber, there’s another trade Jim is keen on — one that could reverberate from “Earth’s biggest selection” of merchandise to the stock market as a whole. Details here.]
Well, that’s plenty depressing. How about the markets today?
As we indicated above, the Korea jitters might be having an impact on the major U.S. stock indexes. They’re all in the red as we write, although the Dow is still holding the line on 22,000.
Acting as a drag on the Dow is Disney. The Street evidently hates the company’s plans to launch its own streaming service and keep future movie releases off of Netflix. DIS shares are down nearly 4% at last check.
Sorry for a downer episode of The 5 today — how about a beer? Oh wait, it’s probably going to get more expensive if the Trump administration gets its way.
The aluminum can industry is warning about higher prices if the administration slaps new tariffs on China. Steel is the industry mentioned most often, but aluminum is right behind.
“If there are duties on aluminum coming to this country, it will obviously get passed on to us and the customer,” says Molson Coors’ Tim Weiner in a recent Bloomberg article. “Our prices will go up.”
The type of aluminum that goes into a typical beer or soda can comes from an ore called bauxite. It’s in short supply. American aluminum makers could run 24/7 and still need to import about 80% of the metal required to meet demand. It’s simply cheaper to purchase sheets of the alloy from overseas and produce the cans here.
An industry group has sent a letter to the White House, warning that 82,000 U.S. manufacturing jobs could be impacted in industries that rely on inexpensive foreign aluminum.
We suspect the letter will fall on deaf ears… and we apologize in advance for getting back into some depressing weeds here… but as Jim Rickards said here last month, Trump is determined to wage a trade war against China. The only reason it hasn’t started yet is that he was hoping Beijing would lean on the government of North Korea to dial back its nuclear program. Obviously, that’s not happened.
“China,” said Jim, “will not take these sanctions lying down and will impose their own sanctions on U.S. investment in China and U.S. exports to China.”
And so it begins…
On the topic of bureaucracy gone wild, one of our regulars writes from Illinois:
“My wife just flew into Ottawa, Ontario, a couple days ago. She brought some Clif and Luna bars with her, which she didn’t ‘declare’ on those stupid forms they give you before you land. Somehow they saw them and found out she didn’t ‘declare’ them. She was told this was a felony and a $17,000 fine, but was able to talk her way out of it.
“I’ll find out on her return how serious the accusation was, and more specific details, but any way you cut it, this is disgusting. Of course, this is no different in the U.S. — e.g., in 2010, the U.S. Federal Register totaled 81,405 pages (to be fair, not all of these pages are laws), per Jim Hemphill, the special assistant to the director of the Federal Register.
“I haven’t had the heart to look since then how many pages it is now.”
The 5: Oy. Clearly it wasn’t the monetary value of the energy bars — was it the fact they were made from “agricultural products”?
In any event, we mentioned a while back that as of year-end 2016, the number of pages in the Federal Register totaled 82,324…
The 2017 total should be interesting in light of Trump’s executive orders and the item we had here yesterday about “few if any new rules” coming into effect, per the National Federation of Independent Business.
“Come on,” a reader writes after we spent some time yesterday exploring the performance of the early trades in Kinetic Profits.
“I get the point that the width of the bid/ask spread can make ‘marking’ options ‘to market’ problematic. That said, the spread on most big-cap stock options with strikes anywhere near the money and not too far out in time amounts to a few pennies, sometimes just a cent or two. You overstate the problem.
“As to options being a great way to ramp up your return on a trade, that’s true… if you get the direction and the timing right. Most traders don’t. Here’s the real truth. Going long options is a sucker’s game. It makes sense once in a while, but being a smart options trader means being a seller. When you suggest otherwise, you mislead people.”
The 5: We’re not averse to selling options around here. In fact, that’s the whole idea behind our popular Income on Demand service.
Absolutely, if you buy options, you have to get the direction and timing right. But as Alan Knuckman pointed out this morning in his video to subscribers of Weekly Wealth Alert, the low volatility in the market right now makes options dirt-cheap. That raises the odds of success.
The 5 Min. Forecast
P.S. As the morning has worn on, a dangerous complacency is setting in among the elite media: The story goes that Trump “didn’t really mean” what he said yesterday about North Korea. It’s just more “loose talk” of the sort we’ve come to expect from him.
So then why did Defense Secretary James Mattis — you know, the ex-general the media love to play up as the sober, responsible “adult in the room” in contrast to Trump — just issue a statement saying North Korea “should cease any consideration of actions that would lead to the end of its regime and the destruction of its people”?
This story isn’t going away. If Jim Rickards is right about a U.S. attack on North Korea next year, it will define the direction of markets for months to follow. The mainstream is dismissing it… but we won’t. Gold is already sniffing out what’s going on. We’ll be here to keep you in the loop.