North Korea
I've been asked today by more than a few people about North Korea and their nuclear program. It has kept me on the phone more today than usual for a slow trading day in August and it kept me from updating as soon as I might have liked. Since I'm running out of time today I'll lay out a few outline thoughts and then try and flesh this out sometime over the next few days. I won't be posting tomorrow as I will be traveling. Here goes in brief.
North Korean missile tests and provocative language are making a tense situation on the Korean peninsula worse. Should this deteriorate then it would qualify as the sort of political crisis or event, seemingly coming out of nowhere that could catch markets by surprise.
A deteriorating situation has a high probability of having a negative impact on markets. Markets hate uncertainty. War or some sort of hostile military action ranks right up there as a so called "black swan" event. The likelihood of a significantly negative market reaction sharply increases if in some manner, shape or form North Korea should somehow be willing and able to attack the United States.
The problem right now is that we have no idea where the future is going to lead us in this situation. There are no current tea leaves that will tell us if this is just more blustering from the North Koreans or something with the potential to become significantly worse. Should this just be more of the same then the market will likely continue focusing more on domestic economic issues, the same things we've been looking at for months. Stocks may rise or fall depending on how it is viewing the economy but that is different than a sudden military escalation. In short, North Korea could become a major crisis tomorrow or never.
Investors need to be comfortable with their asset allocation and investment positioning. If they are ok with how they are invested then they should be able to ride out any increase in volatility coming out of any crisis. This is especially true if the crisis is relatively short-lived and ultimately has little economic impact. Underlying economic conditions are quite positive right now as we've detailed in the past.
Investors concerned with their portfolio's positioning should we see this situation deteriorate need to think about changing their asset allocation or putting in place perhaps a more defensive posture towards the markets.
Back Thursday.
A deteriorating situation has a high probability of having a negative impact on markets. Markets hate uncertainty. War or some sort of hostile military action ranks right up there as a so called "black swan" event. The likelihood of a significantly negative market reaction sharply increases if in some manner, shape or form North Korea should somehow be willing and able to attack the United States.
The problem right now is that we have no idea where the future is going to lead us in this situation. There are no current tea leaves that will tell us if this is just more blustering from the North Koreans or something with the potential to become significantly worse. Should this just be more of the same then the market will likely continue focusing more on domestic economic issues, the same things we've been looking at for months. Stocks may rise or fall depending on how it is viewing the economy but that is different than a sudden military escalation. In short, North Korea could become a major crisis tomorrow or never.
Investors need to be comfortable with their asset allocation and investment positioning. If they are ok with how they are invested then they should be able to ride out any increase in volatility coming out of any crisis. This is especially true if the crisis is relatively short-lived and ultimately has little economic impact. Underlying economic conditions are quite positive right now as we've detailed in the past.
Investors concerned with their portfolio's positioning should we see this situation deteriorate need to think about changing their asset allocation or putting in place perhaps a more defensive posture towards the markets.
Back Thursday.
posted by CR English at 2:57 PM
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