North Korean Tensions
There has been an increase in the rhetoric coming out of North Korea and the United States this week. This follows several North Korean missile and ICBM tests this year.
Kim Jong Un has threatened that he can hit the United States with his newest Hwasong-14 missiles. He continued to boast that he will test his missiles near the US territory of Guam. Donald Trump responded that Un better stop with the threats or North Korea “will be met with fire and fury like the world has never seen”. Trump then stated that the US military is “locked and loaded” should they be called upon.
Investing in Conflict?
I was not planning on writing about this topic but I read an article that caught my eye this morning by Vanity Fair: How to Make Money Off Our Coming Nuclear Apocalypse.
This turned out to be a perfect click-bait title. I couldn’t help myself from clicking to see how Vanity Fair thinks we can make money off of a potential tragedy (no, we should not root for a conflict to attempt to profit from it).
What did I learn from this article about making money? Not much. Here is the outline of the article:
I. History of recent North Korean tensions
II. Stock market was down a little last week
III. 24 year history of markets being indifferent to North Korean tensions
IV. How to profit from potential full-blown crisis
Section IV of the article is only three short paragraphs. It references the Wall Street Journal MoneyBeat blog post that contains a possible investment strategy:
“Nordea analysts suggest that German bunds, the perennial refuge of panicked investors, would be good to own during a nuclear conflict too, with aggressive buying pushing the spread between German two- and 10-year bunds to 0.5 percentage point, from above one percentage point now.”
Great! They recommend buying some German bunds (bonds). As of today a 2 year German bund yields -0.73%, a 5 year yields -0.30%, a 10 year yields 0.38%, and a 30 year yields 1.11%. So you’re telling me that I should invest in a 2 or 5 year maturity where I am paying them money? Or tie up my money for 10 or 30 years and make around 1%?
This is pretty bad advice and why it’s always important to think for yourself before investing. If you really want to tie up your money, buy US Treasury Bonds at 5 years for 1.74% or 10 years for 2.19%. Personally, I am not going to do this because I believe bonds will limit my investing potential (I still have around 35 years to retirement).
What Moves Should You Make?
My opinion is to continue to invest as you have been for the long term. Don’t let your emotions get to you regarding these current tensions. Humans tend to have a short memory, but conflicts come and go all the time. It is not prudent to change your investment strategy every time there is a potential for another conflict.
What if you are worried that this time is different? North Korea is a small rogue country that has limited financial and military capability. The United States is a large country that spends more on the military than the next 7 highest spending countries combined. North Korea knows these facts. Un is most likely trying to threaten the US into reducing sanctions (which is currently backfiring).
Stick to your long term plan. Continue to invest in great companies like Apple when they go on sale. What moves are you making regarding this potential crisis?