The casual observer of markets might think stockmarkets should be weakening heavily in the face of the North Korean “crisis” and the headlines appearing in newspapers predicting possible nuclear conflict and war in Korea.
As a student of history, and in particular the impacts of threats of wars and actual wars on the stockmarket I’m not surprised by the lack of reaction.
Stockmarkets dislike not knowing who is going to win and to a lesser extent how long its going to last. The turning points for markets are once these two things can be predicted with a high level of certainty.
The Rothschild family made a fortune in the Napoleonic era by having an observer at the pivotal battle of Waterloo in 1815 who, once the result was known, was whisked off in their fastest yacht across the channel to provide the news exclusively to the Rothschild family.
The London market duly rose strongly once everyone else found out.
The First and Second World Wars saw markets achieve their lows during the war once the result was beyond doubt and the end in sight. In WW1 this was in 1917 (when it was apparent that the Germans would run out of men before the allies) and in December 1942 (shortly after Pearl Harbour brought the Americans into the conflict even though war lasted three more years).
Within recent trading memory, I successfully predicted in my Sun Herald column in December 2002 (to 850,000 readers) that markets would bottom most probably in early March 2003, by which time I expected the Gulf War start date to have been announced (the date allowed for diplomacy until just before the desert conditions deteriorated to the point where war would not have been practical).
As it happened markets did bottom on my preferred date of March 6th, a couple of weeks before hostilities commenced.
In this case markets didn’t have to wait for conflict to work out who was going to win. It just needed a start date. It was always going to be a most one-sided battle.
We have a similar situation now. North Korea has no idea what the American firepower is or where it is stationed. The Americans are watching everything in North Korea from above. North Korea is in no position to actually send a nuclear warhead by missile to the USA. The Americans have about 5000 nuclear warheads that can reach North Korea. But they clearly will not need to use them.
Markets understand that all this warmongering is purely for the Northern Korean people who have no access to Twitter or Google!
I wouldn’t be surprised if this escalation of tensions turns out to be a prelude to a positive development in North Korea.
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John Aldersley is the CIO of AldersleyCapital, a “tax-aware” investment manager of separately managed accounts within the Phillip Managed Accounts. He can be contacted by email to john.aldersley@aldersleycapital.com or by visiting www.aldersleycapital.com. |
