Author Topic: North Korea and Stocks  (Read 2866 times)

netnet

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North Korea and Stocks
« on: August 13, 2017, 05:34:55 PM »
Here is an article using a historical analogy, the Cuban Missile Crisis, and the current problems on the Korean peninsula.
https://mamoadvisory.com/blogposts/the-cuban-missile-crisis-lessons-for-investors

The Vix has certainly moved, btw.


johnny

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Re: North Korea and Stocks
« Reply #1 on: August 13, 2017, 08:38:28 PM »
Weird things happen at the limit, and if the "bad outcome" is all-out thermonuclear armageddon where civilization is vaporized, doesn't it sort of make sense that the markets should more or less ignore that outcome, or be more or less insensitive to it changing from 0.1% risk to 1%?

It's not like you're going to be able to force somebody to take delivery on your puts when you're living in subway station and they have turned into a wall shadow. So why bother buying puts at all? I don't think you can infer the markets sentiment on that sort of game-changing outcome based on pricing in the market.

I think that's what makes North Korea not comparable. North Korea has the ability to inflict massive destruction, unprecedented for such a marginal entity. But there's nothing it can do that will result in the collapse of civil society. Contracts will be honored, hedges will pay out, and so markets should treat a worst-case scenario for NK much differently as a result.

rkbabang

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Re: North Korea and Stocks
« Reply #2 on: August 14, 2017, 05:11:19 AM »
Weird things happen at the limit, and if the "bad outcome" is all-out thermonuclear armageddon where civilization is vaporized, doesn't it sort of make sense that the markets should more or less ignore that outcome, or be more or less insensitive to it changing from 0.1% risk to 1%?

It's not like you're going to be able to force somebody to take delivery on your puts when you're living in subway station and they have turned into a wall shadow. So why bother buying puts at all? I don't think you can infer the markets sentiment on that sort of game-changing outcome based on pricing in the market.

I think that's what makes North Korea not comparable. North Korea has the ability to inflict massive destruction, unprecedented for such a marginal entity. But there's nothing it can do that will result in the collapse of civil society. Contracts will be honored, hedges will pay out, and so markets should treat a worst-case scenario for NK much differently as a result.


What you say above was true for an all out nuke exchange between the US and the Soviet Union, but what if N. Korea only takes out San Francisco or LA?   The markets would still exist and would be devastated.  The ultimate black swan.

johnny

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Re: North Korea and Stocks
« Reply #3 on: August 14, 2017, 07:13:25 PM »
That's exactly what I meant: the NK situation seems like something that *should* be priced into the markets, whereas the peak Cuban Missile Crisis black scenario wasn't. I had a feeling I wasn't clear, thanks for making me look like an idiot.

rkbabang

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Re: North Korea and Stocks
« Reply #4 on: August 15, 2017, 05:37:04 AM »
That's exactly what I meant: the NK situation seems like something that *should* be priced into the markets, whereas the peak Cuban Missile Crisis black scenario wasn't. I had a feeling I wasn't clear, thanks for making me look like an idiot.

I had no intention of making you look like an idiot, in fact re-reading what you wrote it is I who misunderstood you.  You made exactly the point I thought you missed.

johnny

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Re: North Korea and Stocks
« Reply #5 on: August 28, 2017, 10:40:05 PM »
You know, I feel dumb for having not thought of it, but it's the lack of impact on the Korean market specifically that is really weird. Probably 80% of Samsung's shareholder equity is bolted to the ground within artillery range of the DPRK, and it's not very far off all-time highs.

rkbabang

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Re: North Korea and Stocks
« Reply #6 on: August 29, 2017, 05:04:44 AM »
You know, I feel dumb for having not thought of it, but it's the lack of impact on the Korean market specifically that is really weird. Probably 80% of Samsung's shareholder equity is bolted to the ground within artillery range of the DPRK, and it's not very far off all-time highs.

The question I have is: Is the market seriously underestimating the threat or is the US media overestimating how suicidal and crazy Kim Jong-un really is?

Gregmal

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Re: North Korea and Stocks
« Reply #7 on: August 29, 2017, 06:21:05 AM »
You know, I feel dumb for having not thought of it, but it's the lack of impact on the Korean market specifically that is really weird. Probably 80% of Samsung's shareholder equity is bolted to the ground within artillery range of the DPRK, and it's not very far off all-time highs.

The question I have is: Is the market seriously underestimating the threat or is the US media overestimating how suicidal and crazy Kim Jong-un really is?


Probably somewhere in between. It's not a coincidence that outside the US, everyone we aren't cozy with is portrayed by the media as unstable lunatics at the political level.

Kim seems to have the same temper Trump does when it comes to his ego and displays of macho-ism. That's my concern. The who's dick is bigger contest won't end with these two and outside of words, which have already been exchanged, there's not much else left outside of bombs because these guys are so darn extreme.

rb

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Re: North Korea and Stocks
« Reply #8 on: August 29, 2017, 09:06:47 AM »
You know, I feel dumb for having not thought of it, but it's the lack of impact on the Korean market specifically that is really weird. Probably 80% of Samsung's shareholder equity is bolted to the ground within artillery range of the DPRK, and it's not very far off all-time highs.

The question I have is: Is the market seriously underestimating the threat or is the US media overestimating how suicidal and crazy Kim Jong-un really is?


Probably somewhere in between. It's not a coincidence that outside the US, everyone we aren't cozy with is portrayed by the media as unstable lunatics at the political level.

Kim seems to have the same temper Trump does when it comes to his ego and displays of macho-ism. That's my concern. The who's dick is bigger contest won't end with these two and outside of words, which have already been exchanged, there's not much else left outside of bombs because these guys are so darn extreme.
I'm not saying that Kim is 100% there. Anyone who executes family members with anti-aircraft weapons for sure has 1 or 2 loose marbles. However North Korea has been talking crazy for decades threatening death and destruction, etc, etc with no followup. So crazy is pretty much for the course for them.

What's a bit worrying is that our side many not be able to accurately interpret their crazy. State department seems to be a little light on staff.

My guess is that the markets are in pretty much the same position we are. They don't know what to believe and hope for the best.

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