The North Korea summit came and went June 12 with barely a reaction from stocks. It’s surreal to think that a summit revolving around nuclear weapons would have little or no effect on the markets but that’s exactly what we’ve got.
At least in the short term.
In the long term, it’s entirely possible that investors will freak out once they realize money as they know it won’t mean much if the entire planet is involved in a World War.
Far fetched, I’ll grant you, but when President Donald Trump is willing to do battle with Canada, America’s closest ally, over what it did, what will happen if North Korean Leader Kim Jong Un makes the president look bad in the future?
North Korea 1, World 0
Early indications suggest Trump lost round one.
“The agreement falls way short of people’s expectations. It should have included details about CVID [Complete, Verifiable, Irreversible Denuclearization] and its timetable,” said Nam Sung-wook, former head of the Institute for National Security Strategy in Seoul.
However, it’s possible the leaders discussed a future agenda for further negotiations during their one-on-one meeting and chose to keep that under their hats.
Certainly, King Jong Un would want to appear to have bested the mighty Americans in front of his people providing a huge amount of goodwill for the dictator.
Unfortunately, that would mean either Donald Trump is the world’s best actor which I doubt, or the president’s about to lose his mind when he realizes Rocket Man was simply bluffing about his country’s desire to denuclearize.
That’s a good question.
The Republicans are correct to say it’s a historic first step, with future negotiations being held to determine whether a verifiable deal is achievable.
Inch by inch, little by little.
The problem is that Kim Jong Un gave up little at the North Korea summit while the U.S. president said the U.S. would halt joint military exercises with South Korea, something that can’t make the South Koreans very happy.
“North Korea does not seem to have yielded anything major other than shutting down its missile test site and returning the remains of U.S. soldiers,” said Chung Sung-yoon, an analyst at the Korea Institute for National Unification. “Trump seems to have taken the bait.”
Imagine: a 34-year-old with limited exposure to the world outside North Korea getting the best of a man with 50 years of business experience? Who’d have thunk it?
How North Korea Summit Could Affect Stocks
After calming down [I’m Canadian] from all the rhetoric and hatred spewing from the president’s advisers’ mouths post-G7, I concluded that the trade war brewing between the U.S. and Canada was terrible for stocks.
“It’s time for President Trump to stop the chest-thumping and name calling and get serious about creating a trade agreement with Canada that works for both parties,” I wrote on June 11. “Otherwise, North American stocks will crater, hurting everyone … including the richest 1%.”
I should have said “especially the richest 1%” because they’re the ones that own a lion’s share of publicly traded stocks.
Now, imagine if President Trump is unable to get Kim Jong Un to agree to CVID? This is his baby — a potential Nobel Peace Prize starring him in the face.
In my experience, the president does not handle losing very well.
If a deal doesn’t happen with North Korea, dollars to donuts he’ll take out his anger on Canada and in the process he’ll destroy American jobs, Canadian jobs, and quite possibly send both countries into a massive recession on par with 2008.
Don’t think that’s possible?
A Fixation on Trade Deficits
In May, I suggested that a U.S.-China trade war wasn’t a good idea given that a trade deficit with China was actually helping the U.S. economy rather than hurting it.
“Fixating on the trade deficit at a time when interest rates are rising is not a recipe for success,” I stated May 23. “The best way to reduce a trade deficit is to export more products that are made in the U.S. by creating trading partnerships such as the Trans-Pacific Partnership or NAFTA. Not by breaking them.”
I don’t believe the president will go after China at this point when he can break the back of a much smaller economy right next door in Canada.
So, if you want stocks to remain at current levels or move higher, you better hope and pray the North Korea summit is the beginning of a successful denuclearization of Kim Jong Un’s arsenal.
I think anything less than that could result in a trade war like none we’ve ever seen in North America and that most certainly would put an end to the bull market.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.