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9.20.2017 - Free Investment Newsletter Bookmark

North Korea
The dance continues.
 
NOTE>> A big Thank you to the folks that were generous enough to use the donate button to send some hurricane relief. I mentioned Sunday that I'd use any donate money to buy "stuff" for the people more inland than us who really got waffled in Irma. I want you all to know that yesterday afternoon, I took almost 900 dollars worth of food to 4 families that had lost almost everything in River floods. Thanks folks, you've been a blessing. 

On Tuesday at 10 am, President Trump addressed the UN, and while he hit on a lot of markers, he was quite focused on North Korea and Iran. As  you are all aware, North Korea and the US have been butting heads for quite some time. And like many big time topics, the question remains the same. What’s going to happen?
 
First let’s take a peek at why we’re seeing what we’re seeing.  The “Korean” war doesn’t get the press of WWII nor of Vietnam. Yet it was an absolutely horrific war, with incredible loss of life. The number of Korean dead, injured or missing by war’s end approached three million, ten percent of the overall population. The majority of those killed were in the North, which had half of the population of the South; although the DPRK does not have official figures, possibly twelve to fifteen percent of the population was killed in the war, a figure close to or surpassing the proportion of Soviet citizens killed in World War II.

When it was over, it wasn’t over. There was never a declaration, simply an armistice.  The armistice is however only a cease-fire between military forces, rather than an agreement between governments. No peace treaty was signed which means that the Korean War has not officially ended.
At the end of the hostility, the nation was cut in half, with the North Half being strongly communist influenced and the South half looking toward a more Democratic solution.

The contrast is startling. South Korea makes electronics, cars, steel and a thousand other first world products. The North struggles to feed its people. But that’s not uncommon in a dictatorship. What is uncommon is the “cult” that became North Korea. These people have been cut off from the world for so long, they have no idea about life outside their state. They truly believe that Kim Jung-un is a God.

The leadership of North Korea has sought for decades to keep their people insulated from the world. They want total control of their population, and to stay in power indefinitely.  In reality, that’s ALL they want.

Well if that’s their whole goal, why all the head butting between us and them? Part of it is the fear of them having nukes and yes that’s a big part. But the lesser known part is that the US would like nothing more than to have a North Korea that’s US friendly, so we could park military on China’s doorstep.  Don’t ever think that’s not part of this equation.
 
Now, Kim Jong might be a scumbag. He might be a lot of things, but he’s not stupid. He saw what happened in Iraq as Saddam was overthrown. He’s seen what happened in Libya as they were overthrown. He’s watching in real time as the US tries to oust Assad of Syria. What was a common thread between them all? They didn’t have nuclear weapons.
 
Thus, Jong figures that if he doesn’t have nukes, at some point the US will invade him and overthrow him and try and democratize his nation. So they’ve been working on nukes for years and they’ve now got them. While that was bad enough, it wasn’t the worst thing. But then they got the technology good enough to get one of these nukes on a missile. That right there is exactly why we’re seeing all this head banging.
 
See, the bottom line for the Pentagon types is to make sure we don’t see one of our cities go up in a mushroom cloud. Very soon Kim Jong will have that capability. Now would he ever do that, knowing his nation would be obliterated? Probably not. But probably isn’t good enough for the war hawks. They figure the only way to be positive it can’t happen, is to dismantle his program.
 
Could the US just launch an attack and take out Kim and his nukes? Yes, with little doubt. The problem of course is that the North has so many conventional weapons pointed at South Korea, that no matter how hard and how fast we hit him, they could easily kill 10, 20, 30,000 South Koreans in the first hours. That right there is the ONLY reason we’re not bombing him to hell.
 
Well, I just lied. See, there’s another reason. The President of South Korea has told the US they do not want us “going in”. While having a nuclear North Korea scares the crap out of them, it doesn’t scare them as much as having the North bomb Seoul, and killing half a million citizens.  So the South has told us, please, no attack.
 
This is why we see the back and forth head banging. This is why we see the war talk. This is why we see Kim shooting missiles. He feels he needs to display nuclear strength to stay in power, the US thinks he’s too unstable to have such weapons. It’s a stalemate so far.
 
The question is, what is the answer? Is the US ever going to be comfy with a nuclear North? Nope. Yet they too know that if we go in, it’s going to be uglier than most imagine. So the game lately has been to try and squeeze China into talking down their NK buddy. This is still their best plan, but as you can imagine, China’s going to want all kinds of concessions for doing it. They’ll want more trade bargains, they’ll want us out of the South China Sea, etc.  The price will be steep.

We are not in the clear. The US won’t stop trying to denuclearize the North and Kim will not stop building them unless China steps in and gets him all manner of “gifts” from the US. If China doesn’t pull it off, or if the North makes a mistake and drops a missile on Japan or Guam or hits one of our ships, then the gloves come off. We will indeed “go in” and it would be horrifying.
 
One last thing to consider. It’s not pleasant. The highest decorated marine of all time, General Smedley Butler wrote a book way back in the 30’s called “War is a Racket” in which he said all wars were for profit. Considering the economic mess we’re in, and considering the military/industrial complex, it isn’t far fetched to think that they might rely on a horrible war to cover up the Nations issues.
 
The Market:
 
One might have thought that with the Korea situation and with the pending Federal Reserve meeting that maybe, just maybe the market wouldn’t go up on Monday. Ha. It most certainly did, hitting all-time highs again.
 
Then on Tuesday it followed through. Another all-time high. But why? Well, part of it can be explained by our friends at the Norwegian Wealth fund. Remember when I wrote not long ago that they wanted to take their allocation in stocks from 60% to 70%?  Well now the board has officially recommended doing it, and  they’re thinking about even more.
 
It's not hard to see why stocks will go up if a fund worth 1 trillion dollars is plowing money into US equities like that. It certainly wasn’t great earnings out of Fedex, as they missed the numbers and guided lower. It certainly wasn’t housing sales as they were off 9%.
No, like usual it was Central banks and wealth funds pushing more money in the system and pushing stocks higher. But, there was some question today whether the Fed’s would come out a bit more Hawkish than they have been. With stocks gaining 4,000 DOW points since November and hitting new highs almost daily, they know they’ve blown a pretty enormous bubble.
 
So the Fed statement hit today at abut 2 pm and in it we saw that they’re going to start reducing the balance sheet in October, dumping 10 to 50 billion worth a month. We learned that 12 out of 16 Fed heads expect another rate hike in December. A half hour after the statement was released, the DOW was down about 45 and the S&P was down 9.
 
Then Yellen took the stage and did her Fed dance, and inch by inch they brought the market back towards flat. Then, they did their levitation magic in the last half hour and “boom” the DOW ended the day up 40, and the S&P by a point.
 
So there you have it. Despite the Fed’s telling them another hike is coming and that they’re not going to reinvest somewhere around 10 - 50 billion a month, they shook off any worries and took us green. Oh and by the way, to an all time DOW high. Again. For the 42nd time THIS YEAR. You read that right. We’ve hit new highs 42 times.
 
Is this nuts? You bet it is. But you all know what’s happening. We have Central banks printing money like mad, we have the Norwegian Wealth fund going to 70% of their holdings in equities (that’s a trillion) , we have the Swiss national bank buying and holding 85 billion in US stocks. Print free money, buy up stocks.
 
So, what are they going to do, drive us higher? Probably. There is a very small chance that tomorrow we see something of a delayed “hangover” and we see them pout a bit. But the talk on Wall Street is that she’s going to go slow, all is well, and blah blah blah.
 
I’m leaning towards financials and Hurricane rebuilding companies. In the coming days, that’s where I think we’ll see some movement if the overall market does hold up. Oh and I will be doing a piece in our Insiders club soon concerning a couple “pot” stocks. Yes some of them have moved a lot already, but most of that was speculation players. Now that the initial rush is over, picking the right one’s going forward could be very nice long term plays. Stay tuned. 

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