Brilliant potential…

Monday, 28 May 2018
Melbourne, Australia
By Bernd Struben

  • Know when to fold ‘em
  • Betting on North Korean calmness
  • Naysayers digging deep

Our United States team has arrived in North Korea to make arrangements for the Summit between Kim Jong Un and myself… I truly believe North Korea has brilliant potential and will be a great economic and financial Nation one day. Kim Jong Un agrees with me on this. It will happen!

Donald Trump, Sunday, 27 May

If you were following the mainstream news on Friday, you may have thought the summit between US President Donald Trump and North Korean leader Kim Jong-un was out the window.

You may also have thought, ‘Wow, Bernd was way off on this one.’

Regular readers will know I’ve been convinced that Trump will succeed in bringing peace to the Korean peninsula for months now. And that he will even succeed in convincing Jong-un to completely — and rapidly — abandon his nuclear weapons program.

And in the new world of twitter diplomacy, it could happen far faster than most conventional analysts, diplomats and politicians possibly imagine.

Here’s an excerpt from Thursday’s Port Phillip Insider:

I remain convinced Jong-un won’t turn down the opportunity to directly sit down with Trump. And Trump himself has chosen his language very carefully…saying that while he may walk away from the meeting he hopes it will still happen. And he is offering “peace” as well as assuring that Jong-un’s “country will be rich” if they can reach a deal.

Most political analysts are having a hard time wrapping their heads around the new world of diplomacy unleashed by Donald Trump.

The latest aggressive words from the North Korean regime have raised further doubts among the naysayers….

Look, anything could happen.

But the way I read these tea leaves, the 12 June summit between Trump and Jong-un is on.

And peace on the Korean peninsula may not be far away.’

That forecast looked a bit shaky on Friday.

I was on a plane, heading to the Sixth Annual Friedman Liberty Conference in Sydney on Friday morning, when I first heard Trump had cancelled the summit.

(I’ll share some highlights from that conference with you later this week.)

Now I’ll admit, I was a bit worried that the 12 June summit would be delayed. Not off the table, mind you. I had little doubt it would happen eventually. But at first glance it looked like it may get pushed back.

It turned out that was because I was only reading the subtitles of the news on the tiny airplane screen. I hadn’t bothered with the headsets.

Once I read Trump’s full letter to Jong-un and all the finer details, it was again clear that 12 June was all but locked in.

We’ll get back to that right after a look at the markets…


Over the weekend the Dow Jones Industrial Average closed down 58.67 points, or 0.24%.

The S&P 500 fell 6.43 points, or 0.24%.

In Europe the Euro Stoxx 50 index finished down 6.40 points, or 0.18%. Meanwhile, the FTSE 100 gained 0.18%, and Germany’s DAX rose 82.92 points, or 0.65%.

In Asian markets, Japan’s Nikkei 225 is up 6.58 points, or 0.03%. China’s CSI 300 is up 0.68%.

In Australia, the S&P/ASX 200 is down 36.02 points, or 0.60%.

On the commodities markets, West Texas Intermediate crude oil is US$66.31 per barrel. Brent crude is US$75.31 per barrel.

That puts WTI down 7.6% since I last wrote to on Thursday.

That fall likely came as a nasty surprise to Bank of America. As I also wrote on Thursday, ‘Bank of America said earlier this month that oil could rally to $100 by the middle of next year.

It’s also not going to be great news to the thousands of options traders who’ve been betting on rocketing oil prices. Last Thursday more than 93 million barrels had been priced on expectations oil will hit US$100 inside the next 12 months.

My response on Thursday?

They may be right. But it still looks like oil’s heading the other way to me.’

My reasoning: US oil production is at record levels and heading up; and OPEC likely would ramp up production.

And…well…Donald Trump.

Here’s what I wrote to you back on 23 April:

Donald Trump, for one, has been a long time proponent of cheap oil. And why not? I’ve never understood how more expensive energy is good for anyone…save the producers and their shareholders. And, of course, governments eager to stoke inflation.

Here’s what Trump tweeted back in 2012:

chart image

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And here’s his tweet from this Friday:

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Despite what his own ego might be telling him, Trump cannot dictate the global oil price with a few tweets.

However, he does have a large number of levers he can pull to increase supply.’

One of those levers is Saudi Arabia.

This headline comes from Bloomberg, ‘Under Pressure From Trump, Saudis Put Brakes on Oil’s Rally’. The article continues:

The world’s largest oil exporter just made quite a policy swerve. Within six weeks, Saudi Arabia has gone from advocating higher prices to trying to stop the rally at $80 a barrel…

What changed? The supply threats posed by the re-imposition of U.S. sanctions on Iran oil exports earlier this month and the quickening collapse of Venezuela’s energy industry are both part of the answer, but they’re secondary to Donald Trump.

Trump’s intervention gave typically strident voice to a concern held more widely in the U.S. and other consuming countries: oil’s rally from less than $30 in early 2016 to more than $80 this month risked becoming a threat to global economic growth…

On Friday, Saudi Oil Minister Khalid Al-Falih responded, saying his country shared the “anxiety” of his customers. He then announced a shift in policy that all but gave a green light for a market sell-off, saying OPEC and its allies were “likely” to boost output in the second half of the year.’

And then there’s Russia. I’ve long said the cash strapped nation will be sorely pressed not to up production to take advantage of the recent surge in oil prices.

And President Vladimir Putin has just confirmed that. From Bloomberg:

“We’re not interested in an endless rise in the price of energy and oil,” Putin told reporters at the International Economic Forum in St. Petersburg, adding that Russia and OPEC didn’t plan to stick to existing output cuts. “If you asked me what is a fair price, I would say we’re perfectly happy with $60 a barrel.”

As you can see below, oil’s rally has taken a sharp turn downwards on the recent news…

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Source: Bloomberg
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I expect US$50-60 for WTI is a reasonable target. And one we’ll see within the next few months. At that price most US shale producers are still well into the black. And the global economy won’t be smothered by exorbitant energy costs.

Turning to gold, the yellow metal is trading for US$1,297.98 (AU$1,715.32) per troy ounce. Silver is US$16.47 (AU$21.77) per troy ounce.

One bitcoin is worth US$7,342.01.

The Aussie dollar is worth 75.67 US cents.

Know when to fold ‘em

In cancelling the summit, Trump showed he’s not only ‘the master of the deal’ but also a master poker player.

He knows the US has a lot more chips to play than North Korea — a lot — so he threw in his cards, forfeited his ante, and got up from the table. But he never left the room. Trump made it clear he still wanted to play. Only not by traditional, tedious diplomatic rules.

He’s also been learning as he goes.

One thing he’s learned is that North Korea wants to be seen as being courted into this deal…not coerced. Regardless of the realities.

You may recall this headline from The Sydney Morning Herald on 6 May, ‘North Korea says US ruining mood of detente before nuclear talks’. The article continued:

North Korea has criticised the United States for what it calls “misleading” claims that Washington’s policy of maximum political pressure and sanctions are what drove Pyongyang to the negotiating table.

The North’s official news agency quoted a Foreign Ministry spokesman warning the claims are a “dangerous attempt” to ruin a budding detente on the Korean Peninsula…’

Trump’s letter to Kim Jong-un cancelling the meeting read like nothing less than a love note. One that bemoaned the recent ructions. And hoped for reconciliation.

Here’s part of that letter:

I felt a wonderful dialogue was building up between you and me, and ultimately, it is only the dialogue that matters. Some day, I look very much forward to meeting you. In the meantime, I want to thank you for the release of the hostages who are now home with their families. That was a beautiful gesture and was very much appreciated.

If you change your mind having to do with this most important summit, please do not hesitate to call me or write.

Boom. Right then it was clear this meeting was back on track.

Though not to everyone.

The left leaning, Trump hating media’s response was almost joyful that things looked to have fallen apart. Not that they don’t want peace. They just don’t want Trump to be the one to usher it in.

Like this from The Washington Post (emphasis added):

The collapse of the planned summit with North Korean leader Kim Jong-un shows the limits of Trump’s me-first approach to diplomacy

In the end, what killed the summit was the rushed nature of the negotiations, the lack of message discipline by senior Trump officials and the absence of the meticulous planning that typically leads to diplomatic breakthroughs…

Much of the typical planning that accompanies high-level summits was missing. In a more traditional diplomatic process, months of lower-level meetings would precede a presidential summit.’

I assume the article’s authors are referring to all the, erm, previous ‘diplomatic breakthroughs’ US presidents have scored with North Korea over the past 50 years. If only Trump would slow things down and resort to months of lower-level meetings!

Then there was this, from The New York Times (emphasis added):

Now we enter a more dangerous period in relations with North Korea.

President Donald Trump topped a particularly inept diplomatic period by canceling his summit with North Korean leader Kim Jong-un. The previous policy of maximum economic pressure on North Korea may no longer be viable, so the risk is that Trump ends up reaching for the military toolbox

I hope that North Korea will respond to Trump’s letter in similarly measured, calm terms. But no one has ever made money betting on North Korean calmness.

North Korea could decide to create a new crisis, perhaps by conducting a missile test or an atmospheric nuclear test.

Betting on North Korean calmness

If The New York Times is right, you might want to rethink investing in iShares MSCI South Korea ETF [ASX:IKO]. I suggested you may wish to consider this ETF if you believe the Korean peninsula is indeed on the fast track to peace.

As a reminder, this is not an official recommendation. You should do your own research before deciding to invest.

But as I wrote on Thursday:

If Trump does pull a rabbit from his hat and gets North Korea to abandon its nukes, it could open the door to huge opportunities for South Korean companies.’

There numerous individual companies that could benefit. But IKO is one of the easier ways to gain exposure to a basket of these companies and it’s listed on the ASX.

Naysayers digging deep

With the historic meeting back on track — the first ever between a sitting US president and a Korean leader — you’d think the mainstream media would have to give a bit of credit where credit is due.

But you’d be wrong.

Here’s a short quote from today’s The Age:

Diplomatic seesawing by the US president suddenly made Kim look like a reliable negotiating partner.’

That’s right. All the credit goes to Comrade Kim Jong-un.

Entrenched politicians are also having a hard time coming to grips that this time really may be different.

From Bloomberg:

Michael Hayden, who led the Central Intelligence Agency and the National Security Agency… and Republican Senator Marco Rubio agreed it’s unrealistic to expect Kim to give up his nuclear weapons.

“I remain convinced that he does not want to denuclearize, in fact he will not denuclearize,” Rubio, a member of the Senate Foreign Relations and Intelligence committees. “But he wants to give off this perception that he’s this open leader, that he’s peaceful, that he’s reasonable.”

Rubio called Kim’s willingness to release U.S. hostages and destroy a nuclear test site “all a show.”

Look, I’ve never been a member of the Senate Foreign Relations and Intelligence committees. Nor have I led led the Central Intelligence Agency and the National Security Agency.

But I’ll go on record here and say these guys are talking their own book. And rather than their experience aiding their insights into Trump’s wholly new diplomatic method, that experience appears to be blinding them.

As for the IKO exchange traded fund? It’s up 1.51% in today’s trading at time of writing while the ASX 200 is down 0.61%.

Finally, the nation’s self-appointed health police are at it again. From The Australian Tribune:

Nanny Staters Won’t Let This Tax Die

Australians should be free to choose what they want to eat and drink, without fearing it’ll make them cash strapped until the next pay day.

Introducing a sugar tax will increase the cost of food and drink, but it isn’t the answer to solving the nation’s obesity crisis…education is.

The vast majority of people who consume food and drink with added sugar are not overweight. And with wages stagnant for years now, more expensive…’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

And it’s absolutely free.

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