China’s nuclear threat is an opportunity for Australia

Friday, 11 May 2018
Melbourne, Australia
By Sam Volkering

  • No room for wrong decisions here
  • One situation cools, another fires up
  • Is it really China that’s the issue here?

If a nuclear bomb explodes but no one is there to hear it…does it make a sound?

Hell yes it does.

It sends shockwaves through the earth. There are even scientists dotted around the world whose sole job is to keep an ‘ear’ out for nuclear explosions.

With a network of censors the Comprehensive Nuclear-Test-Ban Treaty Organisation (CNBTO) can tell where any nuclear bomb may go off. And they’re even able to discern the difference between a bomb and an earthquake.

This is important, because they send information to countries about their alerts. So in September 2017 when they detected a nuclear bomb, they had to make sure they were right about the data.

As it turns out they were right. And they’d determined that about 400 miles north of Pyongyang, North Korea a nuclear bomb had gone off.

In a recent report by The Verge, seismologist Ezekiel Jonathan said,

It is a great sense of responsibility that is on our shoulders,

If we make a mistake of giving out data or information that is not accurate, it means all our member states are going to come up with the wrong decisions or actions.’

When you’ve got member states like the US with their finger on the trigger, you’d want to be right.

However we’d prefer that Jonathan didn’t even have a job. Well at least not one detecting nuclear bombs.

Sadly it looks like business might be booming…

First, the markets.

Markets

Overnight the Dow Jones Industrial Average closed up 196.99 points, or 0.80%.

The S&P 500 rose 25.28 points, or 0.94%.

In Europe the Euro Stoxx 50 index finished down 0.030 points, or 0.00084%. Meanwhile, the FTSE 100 gained 0.50%, and Germany’s DAX climbed 79.81 points, or 0.62%.

In Asian markets, Japan’s Nikkei 225 is up 222.48 points, or 0.99%. China’s CSI 300 is down 0.23%.

In Australia, the S&P/ASX 200 is up 4.60 points, or 0.080%.

On the commodities markets, West Texas Intermediate crude oil is US$71.33 per barrel. Brent crude is US$77.38 per barrel.

Gold is trading for US$1,320.25 (AU$1,755.42) per troy ounce. Silver is US$16.44 (AU$22.34) per troy ounce.

One bitcoin is worth US$8948.51

The Aussie dollar is worth 75.36 US cents.

Same play book, different game

It was only September 2017 when all out nuclear war was imminent.

President Trump had called North Korean Supreme Leader, Kim Jong Un, ‘little rocket man’.

And in a return of serve Jong Un said Trump was a, ‘mentally deranged U.S dotard’.

Sounds like a fun relationship.

The US had already moved in several ‘Terminal High Altitude Area Defence’ (THAAD) anti-missile systems to Seoul, South Korea.

Markets were in a state of flux anticipating that Trump or Jong Un would finally press ‘the button’. It would be nuclear war.

Instead it all fizzled away. Now Trump has, ‘probably a very good relationship’ with Jong Un. And they’re willing to hold talks.

The threat of nuclear war has dissipated. But now we have the imminent threat of two lunatics holding talks.

And now in a strange turn of events (or maybe not so strange) it seems nuclear war may be right back on the cards.

It’s not North Korea this time though. I’s Iran. And Trump’s still involved, but on a whole new level.

The Iran Nuclear Deal was enacted to lift a number of economic sanctions imposed on Iran. Around US$100 billion in frozen assets would be unfrozen.

In exchange Iran agreed to restrict their uranium enrichment, production of weapons grade plutonium and any covert nuclear armament activities.

Only problem is the US — mainly Trump — doesn’t like the deal. So they’re out. And it’s already fired up tensions between Iran, the US and inevitably Israel.

Iran’s not happy. They want their money. And the US seems as though they don’t want Iran back on the international trade table. With their hard line global stance on trade right now, the US wants all the bargaining chips they can get.

We think that’s part of the now ‘probably very good’ relationship with North Korea. And we are reasonably confident it’s also got a bit to do with China not being the victim in the US bully-boy trade tactics.

As such the US want to renegotiate a better deal. Is this playbook sounding familiar yet? If not, just reference the Paris Accord from early 2017. Or the NAFTA which Trump also didn’t think was a ‘good deal’.

Now Iran and Israel are back at it with some of the biggest missile strikes we’ve seen ever. This is one wild west of political positioning. And it’s inching closer and closer to another war.

While they may not end up in a hot war, it could quite possibly turn into a trade war. Or a proxy war. Or a cold war. Whichever way you look at it. Get ready for war.

North Korea, Iran…or China?

The chance of nuclear war is scarily more imminent that ever before. But maybe it’s not North Korea or Iran that the US are really worried about. Maybe it’s been China all along.

We know that China has nuclear warheads. They roughly have 270. That’s someway short of the US with 6,550. But it’s well ahead of North Korea with (allegedly) just 15.

But if the US is worried about uranium enrichment, or weapons grade plutonium, or the covert capability to develop nuclear fissile material, take a glance over at China’s nuclear plans.

China currently has plans to build six new nuclear plants this year. In 2019 they plan to add another seven. There are plans for another four in 2020. And another two after that from 2021 to 2023.

That’s in addition to the existing 38 in operation and 20 currently under construction. By 2020 China will have more nuclear capacity than anywhere on earth…except the US and France.

Although we are talking about nuclear energy stations here, let’s remember that you never really know the full details of these plants. And you never really know the real motives for such an aggressive nuclear program from the Chinese government.

And if the US is worried about Iranian heavy-water reactors…they most certainly (or should be) worried about Chinese ones. The Chinese are going ‘full nuclear’ and are working on new reactors, new technology and new processes.

We haven’t got categorical evidence that says otherwise, but if they’re not looking to bolster their nuclear weapons program as well…perhaps we’ll just leave it there.

An article from the People’s Liberation Army (PLA) Daily was translated by Reuters, which stated:

In the roiling unpredictability of today’s world, to upgrade the capability of our country’s deterrence strategy, to support our great power position… we must strengthen the reliability and trustworthiness of our nuclear deterrence and nuclear counterstrike capabilities.

We can’t help but think the real strategy behind all of Trump’s moves with North Korea and Iran is actually to thwart off the Chinese. Or at least to use it as a position of negotiation at the trade talks table.

It’s a frightening, and fascinating situation. And in our view it will likely end in a trade stand off between the US and China. We think that China’s might has become too much for the US to control.

And we think the US knows it.

What this means for you as an Australian is challenging. Australia has always been the whipping boy of the US. They call and we come running. But although our economic reliance likes heavily with the US, it runs even stronger with China.

There’s good reason why. Technology, agriculture, construction, tourism…these are all big opportunities which China will help deliver to Australian companies.

Our reliance on China is so huge that Harje Ronngard has sniffed out three ASX listed small-cap stocks that could see massive gains of 10-times or more thanks to the China gravy train.

You can find out the full potential and risks of these three stocks right here.

But one way to think of this China/US situation is like we’re in the school yard with China and the US as two teams. Except we get to choose whose side we’re on.

If we had to pick, the smart bet would actually be China. At least for now.

Regards,
Sam