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INVESTMENT: Can investors make money from a thermonuclear war?
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Can investors make money from a thermonuclear war?

By Anthony

       朝美双方的矛盾一直不断,这是大家有目共睹的事实。然而这一次双方的隔空对话却对引发了投资和股市不小的震荡。7月上旬,美国中央情报局局长Mike Pompeo表示美国政府正在设法阻止金正恩核武器扩张,将人和核武器分开,暗示不排除让金正恩下台。朝鲜外交部发言人立即强硬回应称,一旦朝鲜的最高尊严受到威胁,他们将动用包括核武器在内的各种打击手段,先发制人消灭那些直接或间接参与其中的国家。如果美国敢于表露企图推翻最高领导人的迹象,将用强大的核武器对美国心脏地带进行无情的打击。



BT 201709 INVESTMENT 02 编辑
The world is finally witnessing a stumble in developed market equities, of which US markets (particularly the NASDAQ where tech stocks reside) are the most overinflated, outperforming their European and developed Asian peers for years since the 2008 Financial Crisis. Perhaps it was the clown in the White House threatening North Korea with nuclear war that caused the rise in volatility indexes and several consecutive negative days in equity markets. Asian markets have particularly felt the brunt of the President’s bluster, reminding watchers that he truly does not know and does not care about the power of his words. Either way, a world in which economic and military power is so diffuse and where equity market valuations are incredibly outpacing corporate revenue is a world in which some unforeseen event or a collapse in a major bond market, for example, would be catastrophic for those who have recently bought into the market.

hl investRegardless of where your portfolio is at the moment, there is never a bad time to de-risk or at the very least diversify into safe haven assets. Even if you think Chinese or global markets will continue to go on a tear for the next consecutive two years, it is important not to be too overexposed to high risk assets, especially now. Gone is the time where shorting volatility was a nearly sure bet to gain short-term gains. It makes no sense to buy equities at this moment and hope they will have increased by twenty percent by the end of the year. The time for that trade was in 2008 (at least in developed Asia such as Taiwan, South Korea, and Japan).

BT 201709 INVESTMENT 04 编辑As I’ve uttered before, it is impossible to time the market. Also, if your worldview does not coincide with the notion that a market correction could occur within the next two years, then by all means go ahead and adhere to an investment strategy that coincides with your own personal investment strategy. I firmly believe that anything I put in this space should be closely scrutinized especially considering how high the risks may be. But just do not forget that market runs do not last forever. Although China has managed to avert economic calamity for the time being, it still feels the pain when developed markets accept crashes. It has been almost ten years since the last major financial recession. Lesser problems have significantly dogged Chinese markets, most notably in the summer of 2015 and then again in January 2016.

But also keep in mind the idea of hedging and the idea of continued bull markets are not mutually exclusive. Would it really be surprising if markets turned around recognizing the small likelihood of nuclear war in North Korea? Not really. And that bull run could last at least until tax cuts officially fail in the Senate, a move that would undoubtedly cause investors to sell off of highs from the already probably dead Trump Trade. Either way, the market is expensive and hedged assets are relatively cheap since they’ve been in retreat from years of equity gains. This includes safe haven assets such as gold and silver, but also volatility indices (which are probably a bit riskier and should be avoided). Another relatively cheap safe haven asset could be the Japanese yen, but if things do get messy on the peninsula Japan is almost undoubtedly going to suffer just as much as the South Koreans. Analysts at Trading Point assert the Swiss franc would be a good alternative safe haven currency instead of the Japanese yen.

Some in the financial crowd are suggesting that now is a time for bullish investors to buy into the recent dips. Again, if that is your worldview then perhaps you should pursue that strategy based upon when you plan on selling newly acquired equities. However, the conditions are ripe for downward pressure on equities, especially since North Korea is touting its nukes. Yes, North Korea is quite a scary place, but so is Washington DC. Both have the ability to continue to bring down markets as Trump and Kim Jong Un adopt a mirrored rhetoric of “fire and fury” which sparked the recent downturn. As of now, the risk of war is low. However, if tensions do ratchet up, a wise investor will see their positions secure as the time to hedge against these types of geopolitical risks is now rather than later given the expense of equity markets at the moment.


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