While the storm over North Korea may appear to have passed, Bloomberg FX strategist David Finnerty warns that it’s possible we’re only in its eye.
Investors may want to think twice before jumping back into risk assets…
The good news is that it appears North Korea has, at least temporarily, backed down from plans to fire missiles toward Guam.
But there hasn’t been any indication that the country plans to halt, let alone dismantle its nuclear program.
The trend is not your friend when it comes to this Asian country’s behavior. The firing in July of an intercontinental ballistic missile had Secretary of State Rex Tillerson calling it a “new escalation of the threat”. And that comes after the other launches this year.
Guam may have been put on the back burner for now, but it’s hard to believe that other destinations won’t quickly replace it.
Trade sanctions have been imposed but the extent to which that will stop the country’s nuclear program is debatable. A diplomatic solution would obviously be preferable, but given the personalities and geopolitical interests involved, it’s hard to fathom how that would look.
Until this situation is resolved somehow to everyone’s satisfaction, investors are at the mercy of a tweet, a missile launch or anything else that could possibly reignite tensions.
China is lurking in the background monitoring developments.
Things could get very ugly, very quickly if Trump or Kim oversteps.
Option volatility in major currency pairs is well below 12-month highs, yet the stampede to safety in the event of any negative development will likely see them take off at least as fast as one of Kim’s missiles.
As Alt-Market's Brandon Smith noted previously, if we are to believe the latest polls, unfortunately, one thing is clear:
The American people, on both sides of the political spectrum, are becoming more galvanized around supporting a potential conflict with North Korea.
For the establishment, war is a winning sell, at least for now…
How does the establishment rationalize a contested debt ceiling increase while also diverting blame away from themselves on the continued decline in U.S. and global fiscal data? War!
Not necessarily a "world war" as so many are quick to imagine, but a regional war; a quagmire war that will put the final nail in the U.S. debt coffin and act as the perfect scapegoat for the inevitable implosion of the current stock market bubble. The international banks have much to gain and little to lose in a war scenario with North Korea.
I predict that there will be an attack blamed on North Korea.
Which suggests, as Finnerty concludes, this is far from over for markets…
The clouds may appear to be parting for risk-on trading, but the storm warning is still in effect. Venture out if you dare.
via http://ift.tt/2vMfOvH Tyler Durden