With the threat of nuclear war with North Korea looming, inquiring minds may be wondering what that threat is currently worth.
Indices
Currencies
Commodities
Bonds
The above are charts from Investing.Com.
What’s the Threat of Nuclear War Worth?
If you assign today’s movement to a nuclear war threat here are some possible assignments:
- Commodities: Gold was up less than one percent, silver up a bit more than a percent, oil fell about 2%.
- Equities: The Dow dropped less than a percent, the S&P 500 fell about 1.5% and the Nasdaq about 2.5%.
- Currencies: The dollar index barely budged.
- Bonds: the 30-year and 10-year treasury yields each went down a mere 4 basis points.
Ho Hum. The market essentially discarded the threat of war.
More accurately, one might even wonder if the threat of war had anything at all to do with today’s action.
Dow Since May 17
Correction Hasn’t Begun to Begin!
About the only thing that budged substantially today is the VIX.
If nuclear war breaks out, we will likely something like 1,000 DOW point moves. Even then, all an initial 1,000 point move would do is take the DOW back to where it was in May.
If the stock market drops 15% from here, that’s likely just the beginning. It would take a 40% to 50% decline for valuations to get to normal. Overshoots are possible. So don’t blame North Korea no matter how deep the ultimate dive.
Heck, given the move in the VIX, it could have been Jeffery Gundlach triggering the action with his VIX Bet, not North Korea.
At this stage in the bubble, literally anything could provide a trigger.
For a discussion of valuations, please see:
- Median Price-to-Revenue Ratio Higher in All Deciles vs 2007, 90% vs Dot-Com Bubble: THE Choice
- Bubblicious Debate: Greenspan Says “Bond Bubble About to Break”, No Stock Market Bubble,
- Tracking the Amazing Junk Bond Bubbles in the US and Europe
Trends in Sentiment, Asset Bubble, Gold
Finally, please consider my 38 slide powerpoint Venture Alliance Presentation on trends in sentiment, asset bubbles, and gold.
Mike “Mish” Shedlock
Look for bounce if US NK tensions duffused. Then the REAL decline begins.
LikeLike
… and on top of it we have the MSM/CIA news scaring the crap out of the safe space zombies,
LikeLike
– If the stockmarkets fall then I expect the USD to rise, NOT to budge.
LikeLike
– I am also surprised to see the silver-gold ratio rise.
LikeLike
Stay away from Guam REITs!
LikeLike
Almost as bad as a REIT on Alderaan.
LikeLike
According to Hank Johnson, Guam should have sank a few years ago.
LikeLike
This guy thinks an island is going to capsize, while Maxine Waters doesn’t know the difference between Crimea and Korea.
These are the mental giants that are going to run universal healthcare better than they run the Post Office or Amtrak or VA hospitals?
LikeLiked by 1 person
Normal is in the rear view mirror…
we have moved on to Abby Normal…
courtesy of the Fed Heads.
LikeLike
Everyone is “sure” the Fed has their back. They “know” the Tax Payer will ultimately cover their ass.
As long as those perceptions hold, the Bubbles will continue. Yes,,,the “markets” will remain irrational longer than fundamentalists can remain solvent.
These last 9 years have been graced with bloggers “contrarian” cries of “Crash Any Day Now.” Any reason that can’t go on another 9 years? Or 1? Or 20?
Brave New World here,,,the one of Moral Hazard.
LikeLike
–> “Any reason that can’t go on another 9 years? Or 1? Or 20?”
Retirees depend on market interest rates to make ends meet. This includes annuities and life insurance policies and 60/40 portfolios in IRAs/401Ks… its not just about government employee pension scams. Low interest rates cannot continue without alienating a massive voting block (getting bigger with baby boomer retirements).
At the same time, the federal government is already projected to use up 100% of revenue on entitlements and debt interest (meaning EVERYTHING else shuts down). Is Congress going to shut itself down? Is the supreme court going to shut down? Will the military be shut down (not scaled way back — completely shut down)?
Another massive tax increase would send the economy into a death spiral. Federal taxes are about 21% of GDP (on the high end of the historical range), but to compare against other countries one would have to add state and local taxes to make an apples to apples comparison. The USA is already at the high end of tax rates when one adds all three taxing regimes (federal + state + local). Tax increases will make the problems much much worse.
Whether interest rates stay abnormally low, or if they increase, major voting blocks are going to be upset under both scenarios. Obamacare threatens to absorb 100% of all federal revenues (because 30% annual increases dwarf 3% GDP growth). When (not if) Obamacare gets repealed, existing spending plans are not sustainable long term.
As an unstoppable force meets an immovable object — MAJOR political constituencies (plural) are going to be enraged.
Never mind the crazies and the fringe groups – the status quo cannot hold against itself
LikeLike
So long overdue that anything could have triggered it.
LikeLike
exactly – And it could have been Gundlatch, not NK
LikeLike
It could have been people starting to handicap the odds of tax reform when entitlements + interest on debt absorb more than 100% of all tax revenue… and Ryan/McConnell’s failure to repeal Obamacare makes the situation 100x worse.
Tax reform is required to get the economy growing again. Tax cuts are not realistic with massive (and growing) deficits. Tax increases will make the economy contract. Interest rates can’t stay low without cancelling the retirements of millions of registered voters, but interest rates can’t normalize without exacerbating the deficit and debt levels.
Many investment types go on vacation in August and start thinking about longer term horizons… Obamacare repeal might have been delayed, but not avoided (and once it is repealed, work on cost reductions won’t be easy either). The rest of the spending picture is a disaster.
Meanwhile, the Fed’s credibility is shot. The subprime contagion was not and is not well contained. Quantitative easing didn’t help Main Street (arguably made things worse), and the benefit to Wall Street was temporary.
I don’t know if Trump can fix things, but I do know the failed leadership (both parties) in Washington is not up to the task. Main Street America knows it too. Its why we are giving Trump a chance to change things — electing the same weakling leaders into office wasn’t going to change anything.
Best thing Trump can do about North Korea is to let the Chinese screw it up. Xi seems very indecisive. It’s China’s backyard, China is NK’s prime benefactor… and NK is Xi’s problem.
LikeLike
The market has ignored the threat of a Korean war, as it is unthinkable that it would really happen. The market did react to Trump’s fire and fury comment, so it is on their mind.
The DOW has dramatically run up the last few weeks and was subject to running down even faster.
LikeLike
Please bring back the good old days of the Cold War. I never feared a nuclear missle launch with Russia but India, Pakistan and Korea to name a few are another matter. Everything is pointing to greater instability world wide. No one can predict clearly where we are headed.
LikeLike
The Soviets came very close to launching based on a computer error in 1983. The incident took place during a period of heightened paranoia when NATO was performing a routine communication exercise (the Soviets thought it was a preparation for an attack).
LikeLike
The NK story is a lot of noise for the media to run with. Nobody is going to fire off a nuke. Kim Dung Poo lives a much too prosperous quality of life to risk his own annihilation. I bet that ugly little bowl-cut oinker gets laid every night. He got his way under Bush and Obama who sent him grain and US currency to shut him up six months at a time to shut him up for 16 years. Now enters Trump who took a dump in his punch bowl. lol. The extortion is no longer working. The gravy train has come to a screeching halt. Oh, he’ll huff and puff – but Kim won’t do jack. A big win for Trump.
LikeLike
History sometimes proves otherwise. When archduke Ferdinand was assassinated, no one took it too seriously, but the conditions were set for a conflict, and it became the fuse.
LikeLike
Saddam also had nothing, except a bunch of bluster to keep his neighbors at bay. It didn’t stop the military industrial complex from spending inventory and target practice to protect energy interest.
The world is heating up because govt’s are broke and going after other people’s money, which is destroying economies. Conflicts and wars are normal steps in the cycle, just like people transition through the 7 stages of grief.
LikeLike
NK never had an economy to go after. It’s a nation of losers and always has been,. All Kim has is a line of BS. Under Bush and Obama it paid off. Now there’s a new sheriff in town. Trump has called him his BS. Now he doesn’t know whether to crap or get off the pot. There’s only one way to deal with a bully. Punch him square in the nose, and hard. If he doesn’t go down he’ll run away.
It was long overdue that we has a real leader in the White House who stood up to this little fat oinker.
LikeLike
‘He got his way under Bush and Obama who sent him grain and US currency to shut him up six months at a time to shut him up for 16 years. Now enters Trump who took a dump in his punch bowl….Kim won’t do jack. A big win for Trump.’
This is the best summary so far!
Stratfor thinks China wants this to result in less US influence in the region, but it’ll result in the reverse.
LikeLike
China watched 16 years of Charmberlain like appeasement… you can’t blame them for assuming the same dumb western policies would yield the same dumb results.
Trump clearly doesn’t think like a Washington DC insider. Not sure if China (or the beltway gang in DC) know what to make of him.
As NK’s prime benefactor, I think China (not the US) decides what sort of fubar comes out of NK — and so far China has just delayed making any decision at all. Dithering and indecisiveness isn’t leadership, any more than the Bush/Obama appeasement policy.
Western media outlets will blame Trump for the sun rising each day, but they are losing viewers/readers faster than ratings agencies can count. The smart money knows this is China’s moment in the spotlight, for better or worse.
Xi doesn’t have any good choices, and seems too scared to lead under uncertainty. That leaves a big opening for Trump…
LikeLike
Paul Ehrlich can …
LikeLike
Fat little Kim isn’t going to start anything. Tyrants want nukes for one thing only – protection against regime change. Kim may also want them as “free stuff from the west” bargaining chips.
The US has agreed, correctly and understandably, with SK to not do anything militarily without their approval and SK will NOT be approving a preemptive strike unless it is shown to them that NK is about to attack THEM which, as I said, is not going to happen.
So, this is all sabre rattling bluffs and the umpteenth media tempest in a teapot.
LikeLike
Controling world rescources that are rapidly disappearing that is the name of the game.This wonderful human brain also has a very dark side. Withnes the millions of live lost in wars. Demonise your adversary , if necessary kill him.
LikeLike
Since the low in 2016, it is very clear in the S&P500 that each of the three advances and 2 declines have been zigzags. Under strict e-wave counting, these cannot be an ending diagonal since 1st and 3 advance do not overlap. But this pattern of advance has never happened before. This unique situation clearly points to central bank influence in markets. Without the central bank loose lending, the 1st and 3rd advances would have overlapped. That means central bank influence is 5 to 8% of the overall market behavior. I expect a sharp drop to the 2016 lows before finding temporary support on a much longer downward trajectory.
Looking at the markets through filters, the 3.3 year cycle is topping, a cycle longer than 15 years is slightly past peak, while the ~8 year cycle is entering its hard-down phase. Another observation is the amount of price movement contributed by cycles shorter than 2 years. The general long term picture is down. Don’t expect new highs for 15-20 years once this top is in.
LikeLike
According to the market fundamentalist, gold bugs, and pundits, the market should’ve crashed dozens of times over the last 5 yrs. Mr. Market does need a reason for these people to say see, I told you so, and get more people off sides before wiping them out, again.
Since Aug and this weekend is a peak in the war cycle, NK is a good reason to be cautious, but elections in German and Italy will have greater market implications, and not how most think.
LikeLike
Western media outlets like to think US policies have enormous influence everywhere, but in many cases this is not true — North Korea being a prime example.
China ultimately decides whether Kim has enough food and fuel to feed himself and his generals (never mind the NK populace).
China has to weigh the likelihood of a refugee crisis pouring over its borders when the Kim regime collapses… versus the likelihood that one of China’s main export ports and China’s biggest energy import facility get embroiled in a war zone (even if China stays neutral, its imports and exports will not).
While China dithers, Japan is building its defense forces. The US is increasing its naval presence off NK waters — which happen to be smack dab in the middle of Chinese export shipping lanes. And China’s neighbors bordering the South China Sea must act to defend their interests too.
China wants to have it both ways, and as long as a sissy was in the White House — sending free food and fuel to NK as ransom / appeasement money — China could DELAY making a choice.
China, not the west, is going to decide how this fiasco ends. Refugee crisis, war, or NK regime change. Its not up to Trump (or anyone else in the west).
China says it wants to be a major global player… be careful what you wish for.
LikeLike
I feel for you man, every once in a decade the market crashes 20-40%, or gold prices rally, and life is good, but for the most part it must hurt banging your head against a wall.
LikeLike
There was never a chance of creating inflation when Obama let the big bankers write their own ticket in the midst of the crisis. We had way too much debt back then, and we kept digging. Any body betting on whether the Fed tries QE again?
LikeLike