Disclaimer: I am not a licensed securities dealer or adviser. The views here are solely my own and should not be considered or used for investment advice. As always, individuals should determine the suitability for their own situation and perform their own due diligence before making any investment.
First off, I would like to apologize to readers for the delay between this article and the last article. Work, family, and life in general took up much of my time. In addition, in my previous post, I believed the market would crash in the first half of the year, mainly because it had every sign of crashing like it did for the Dotcom Bubble. Obviously that didn’t happen. So true to my word, there should be a winner for the contest!
Although there hasn’t been a crash yet, my position is still the same. The market valuation of equities and bonds are not matching up with the fundamentals, which I think is caused by the distortion created by the Federal Reserve and government intervention, distorting the market and its price discovery mechanism. Therefore, I still own physical gold and shorting the S&P 500.
The amount of time that interest rates have been near zero is causing a big bubble, something that the Austrian Business Cycle correctly describes (which F.A. Hayek won the Nobel Prize for). There is inflation, just not where we traditionally see it. Inflation is found in the form of equities, which are way over priced compared to their performance on their financial statements, and bond prices.
In fact, there are only a few stocks that are really moving the markets, such as Google.
Right now, due to the tensions with North Korea, S&P 500 has been down and gold has been significantly up. Many see North Korea as an irrational actor, but experts agree that North Korea is very much rational, and very much sane.
Expert Michael Malice uses the example of two people playing the game “chicken.” Neither wants to get hurt or killed. But if you appear crazier than the other person, you will cause the other person to cave first. That is North Korea’s strategy.
North Korea is a strange combination between fascism and communism. They believe in a pure race, where the government owns the means of production. A dangerous combination, but effective for total control.
North Korea has witnessed the fall of communist regimes, and seen their leaders executed in the streets, like the leader of Romania, Nicolae Ceausescu. North Korea also saw how Gaddafi gave up his weapons of mass destruction in compliance with America’s demands, only to see the Americans support a coup that left him dead.
North Korea has learned the lessons that neither its own people nor the Americans will ever protect or show mercy, even if their demands are met. Therefore, they act in a way that has worked since they become a nation: throw a dangerous fit, and the world will cater to the demands of the leaders. Its people can be controlled by placing them in concentration camps and starving the entire nation.
This is clearly demonstrated in a great book, Dear Reader: The Unauthorized Autobiography of Kim Jong Il.
The books Nothing to Envy: Ordinary Lives in North Korea and Escape from Camp 14: One Man’s Remarkable Odyssey from North Korea to Freedom in the West demonstrate the lengths the regime will go to repress any opposition, real or imagined, to maintain power.
How is the U.S. going to respond? Luckily the top diplomats are fully aware that North Korea really doesn’t want a war. They also know that North Korea knows they will lose. However, everyone is aware that the Kim regime will destroy everything it can on the way down. That makes a good reason not to go to war, which according to The Impossible State: North Korea, Past and Future would cause enormous casualties and economic destruction for the USA and its allies South Korea and Japan.
That’s why I don’t see the North Korean threat of war as serious as the media makes it out to be. The most likely victim of a North Korean attack is the North Koreans themselves. Provoking a war with someone outside their borders will only increase the chance of losing their power, which is the last thing the Kim regime wants.
However, there is another Asian country that is going to have a dangerous impact on the American economy, and that is China. It has created a housing and construction bubble that is unparalleled in human history. If this bubble pops before the American bubble, Trump may be praised for his “foresight” of seeing China as a problem for the American economy. This isn’t exactly true. The problem with the American economy is that central banks give false signals to the market.
North Korea is a problem, but more for its own people. China’s central bank, the only government organization that believes in “freedom of the press”, is the real enemy, and probably envied by the Fed. For the full details on the Chinese bubble, purchase Trumped! A Nation on the Brink of Ruin… And How to Bring It Back. China is the insane country, not North Korea.
I think the stock market will crash soon, but North Korea’s threats will not have a lasting effect on the prices.
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