One of the world's most problematic nations is on its deathbed.
Just don't tell Kim Jong Un that. The brash young North Korean leader apparently thinks things are great and has no problem rattling sabers around the world to prove his point.
Complicating matters, there seems to be an ongoing narrative in the mainstream financial media that "nobody'd better talk about the possibility of thermonuclear war" lest it become a self-fulfilling prophecy.
I'm hard-pressed to think of anything more dangerous for your money, which is why I want to talk about what you need to do right now... before the shooting starts.
Here's what to do if you're worried about North Korea...
The ongoing political narrative is dire and the headlines surrounding North Korea are downright scary, and it's absolutely fair to be worried about your portfolio.
- "Mike Pence's Warning to North Korea: 'The sword stands ready.'" - LA Times
- "North Korea nuclear weapons increasing" - Washington Times
- "Pentagon to test ability to shoot down North Korean missiles" - CNN International
Anybody looking at North Korea from the outside can tell you that the regime is living on borrowed time.
Only problem is North Korea doesn't see things that way.
The hermit nation has held a massive military parade, tested a few new missiles, and threatened the United States with thermonuclear war - all within the past week.
At the same time, the United States has tasked three aircraft carriers to the area, sent Vice President Mike Pence to the border, and warned that the era of "strategic patience" is over.
China is reportedly working frantically behind the scenes to keep the peace ostensibly because they don't want war on the peninsula, but more probably because they don't want a horde of hungry North Koreans streaming over their borders.
Never one to waste a crisis, Russia isn't standing by idly. That country has apparently moved missiles to Vladivostok and sent ships to shadow the U.S. fleet.
Regular news programs are dedicating lots of time to the crisis but unbelievably, the financial press seems reluctant to talk about what's happening.
I don't know whether they're trying to avoid the obvious because it's so scary or simply trying to wish it away like a five-year-old child wishes away a bad dream by pretending it isn't happening. Either way, the point is moot.
The possibility of a "hot war" is very real and very dangerous for your money.
Forget the notion of a preemptive strike or a limited engagement that's being bandied about. That's wishful thinking at best and incredibly naïve at worst. Even a single missile fired preemptively in anger is going to have devastating consequences.
More than 20 million South Koreans live within artillery range of North Korea, and that means nuke weapons are the least of the worries here. Chemical and biological weapons are.
Not only could Kim order a strike that takes out key South Korean infrastructure, including many U.S. military assets, but he could lob a few regional missiles into Japan, bringing that nation unspeakable horror the likes of which haven't been seen since WWII.
Practically speaking, North Korea has very little to lose. Defense expert Jonathan Pollack, a senior fellow at the Brookings Institute, put it this way in Vox, noting that "there wouldn't be a lot of incentive for [North Korean] restraint."
I agree.
If Kim Jong Un believes he's going to lose even for a second, he will push every button at his disposal. Even the button (controlling his nukes). He's in so deep that he cannot back off without losing face and possibly control at the same time.
Worse, unlike other dictators over the years who have fled at the 11th hour, Kim is so hated he likely has nowhere to go. He will make a last stand both literally and figuratively because he has no other choice.
The only thing to do now is figure out what that looks like and how it plays out.
I'm not trying to ruin your day. In fact, quite the opposite is true.
One of the things I promised you when we started Total Wealth was that we would be taking a good, hard look at the events of our day even when they involve things that are so unpleasant we'd rather not.
Like War, Terrorism, and Ugliness.
It's one of our Unstoppable Trends and, admittedly, the one I hate talking about if for no other reason than I am the father of two teenage boys, one of whom is draft age.
But we have to.
I wouldn't be doing my job as Chief Investment Strategist if we didn't.
War, Terrorism, and Ugliness is a growth industry that encompasses the best and worst of what humanity and the financial markets have to offer at the same time. With that in mind, we have to hunt for ways to protect and grow our money with it just as we would with any other Unstoppable Trend.
Starting with answers to the most pressing questions I'm getting at the moment.
Q: What will this mean for global markets?
Initially there will be a huge hit based on the unknown nature of how the world responds and what that looks like. That's as much a function of high-speed computers that now drive 70% or more of all trading volume as it is the huge amounts of leverage in today's financial markets.
I've spoken confidentially with strategists - both military and otherwise - who believe that Kim will send everything he has over the border immediately, as well as lob missiles at South Korea, Japan, and America - in that order.
There's simply not a whole lot of precedent to draw on.
If the damage is containable - a clinical term even if there are millions of casualties - the markets will bottom quickly albeit probably at least 5% to 10% lower... and probably in a single trading session that makes the 500-day single point "Brexantrum" last June look like a walk in the park.
The situation strikes me as very much like a high-stakes game of thermonuclear chicken - meaning one side blinks and it's back to normal, or neither blinks and the world enters truly uncharted territory.
The temptation to sell everything will be extreme for most investors, but I wouldn't advocate doing so unless you absolutely have to.
Instead, I'd make up a short list of companies you've been wanting to buy but haven't because they're so expensive... i.e., the "fabulous five" techies, including Alphabet Inc. (Nasdaq: GOOG), Amazon.com Inc. (Nasdaq: AMZN) and Facebook Inc. (Nasdaq: FB).
Not only will they recover the fastest, but longer term they'll continue to grow - war or not.
Q: Should I buy gold?
Again, the temptation to do so is extreme but probably a bad move unless you're into Pyrrhic victories. It will probably move higher, but not as much as you would think based on how it's traded in the past. Today's gold markets are highly leveraged and equally collateralized.
Most investors will never make the connection, and those who pile in are going to get caught by the near instantaneous whoosh on the other side as prices drop with no warning.
Besides, not to ruin your day, but if gold goes to $5,000 an ounce, odds are you're going to have a lot of other things to worry about, the least of which will be stocks. If you want to stock up on anything, I submit that bullets, medicine, and diapers are the better bet.
Stick with what works.
Studies show that you want $1 for every $10 in bonds invested in gold as a means of dampening overall volatility. Or, if that much math isn't appealing, you can achieve meaningful asset protection by having between 2% to 5% of overall investable assets in the shiny stuff.
Q: Is there a way to profit?
I've got to admit, I smiled when I got this question from a number of Total Wealth Family Members. You've taken the Total Wealth Mantra "from chaos comes opportunity" to heart and are looking further down the road (as you should).
There are two immediate plays to think about.
First, hedge your existing portfolio with a choice like the Ryder Inverse S&P 500 Inverse Fund (RYURX) or its ETF cousin, the ProShares Short S&P 500 (SH). The ratio of your hedge obviously depends on your personal circumstances, objectives, and risk tolerance. That means I can't simply give you a blanket number or percentage of your portfolio to allocate.
But I can give you something to think about.
Hedging, by its very definition, means you're engaging in protective behavior, which - as I use the term - means you are not looking to sell everything. Rather, you're looking to put specific tools like the inverse funds to work as a means of staying in the game.
Assuming that's true, consider allocating the same percentage of money in your portfolio to the overall portfolio yield you have from stocks. That way the value of those investments is protected, as is the cash flow you derive from them. It won't be perfect, but close enough under the circumstances.
Second, if you're a speculator or simply want to profit from what could be a once-in-a-lifetime event we all hope never to see, consider buying "at-the-money" put options on the S&P 500, the Dow, or even the Nasdaq, spread out over the next 90 days. In other words, buy a few with May expiration dates, a few with June expiration dates, and a few with July expiration dates. Plan on losing every penny you spend on these options if war doesn't come (and be thankful you did).
That way you won't have to second-guess the markets even if Kim Jong Un is second-guessing just about everything and everybody else.
In closing, the prospect of thermonuclear war is daunting, terrifying, and nightmarish all at once. But that doesn't mean you have to give up hope.
In fact, I'm not.
We will get through whatever happens next together.
And, my goal is, profitably.
Thank you for being part of the Total Wealth Family and for placing your trust in me.
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About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.