North Korean crisis? Not so much

August 9, 2017 10:22 AM

There is nothing like the thought of your friendly neighborhood unstable dictator happily cheering along his newly confirmed intercontinental ballistic missiles (ICBMs) and miniaturized nuclear weapons to give the markets pause. And of course, we say ‘neighborhood’ in the sense that media genius Marshall McLuhan noted back in the 1960’s that the new high-speed video communications had turned the entire planet into a ‘global village’. And in addition to the awareness of what was going on in the whole rest of the world via communications, the extensive nuclear weapons and ICBMs built up by the major powers since the 1950’s meant that what was going on elsewhere in the world was also critical to everyone’s views, and even survival.

Yet even as bad as things were in the bipolar USA-Russia rolling confrontation during the Cold War out of the 1950’s until the 1991 fall of the Soviet Union, there was a sense of security from the geopolitical principle of ‘Mutually Assured Destruction’ (with the appropriate acronym MAD.) That was based on the war games theory that each side’s nuclear weapons arsenal was so massive as to assure the annihilation of both sides (and end of the civilized world) if either should ever launch a ‘first strike’ attack.

Yet it is a different matter that much smaller North Korean has achieved some real success with its long range missiles. That is, even more, the case as the U.S. Defense Intelligence Agency has just reported it is likely that North Korea has also been able to miniaturize a nuclear warhead to fit on an ICBM; and that is two years ahead of previous estimates. Along with the ICBMs, it is the key to being a real threat to the United States.

Markets subdued
Yet at least so far markets have taken this latest shock in stride, especially equities that might have otherwise been expected to react in horror to the prospect of anything with the potential to cripple the political and economic foundations of the West. Why?

Well, in the first instance there is the scope of what North Korean (NOKO) dictator Kim Jong-un might do next. He is considered an ‘irrational’ actor for pursuing his nuclear weapons program in spite of embargoes and threats. Yet the ability and desire of North Korea’s allies (especially China and to a lesser degree Russia, Pakistan and Iran) to circumvent trade restrictions and look the other way on his armaments programs is well understood. It has been the case that all of the previous U.S. administrations going back the Bill Clinton have tolerated this via phony negotiations and agreements.

That is because they did want to end up in a real confrontation with China over its erratic southern ally. There is so much analysis out there already on why China continues to support North Korea in spite of the problems it might cause that we will leave you to access that through other resources. In essence, China does not want a unified democratic Korea and relishes the problems North Korea creates for the West (which at this point also obviously includes the developed Asian economies.)

Strategic Patience
However, it is important to note that under the very lame international policies of the Obama administration regarding Russia, Europe and the Middle East there was also the principle developed regarding North Korea that they called ‘Strategic Patience’. It was very obvious to many international players that this was not just the Obama administration policy towards North Korea.

Yet the term ‘Strategic Patience’ was especially damaging regarding any realistic chance to deter NOKO’s nuclear weapons ambitions. Instead of even any of the admittedly ineffective previous rounds of trade and other pressures, the North Koreans were free to pursue their nuclear arms ambitions unencumbered while the U.S. showed absolutely no leadership that might have at least slowed it down. This was among the worst failures of the Obama administration, as admitted by the ex-President himself when he warned incoming President Trump that North Korea was his worst and most imminent problem.

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About the Author

Alan Rohrbach is Lead Analyst and President of Rohr International, Inc.  He is an international equity index, interest rate and foreign exchange trend advisor. His forte is ‘macro-technical’ analysis of how fundamental influences blend with technical aspects to drive trend psychology. Clients include international banks, hedge funds, other portfolio managers and individual traders.