Feed a Cold, Starve a Despot

Monday, 6 May 2019
Albert Park, Melbourne
by Bernd Struben

You’ve likely heard of the Hatfields and the McCoys. Even here in Australia.

Growing up in the US, the names were synonymous with any long running, dangerous feud.

The McCoys were from Kentucky and the Hatfields from West Virginia. And the two families battled it out over a period of more than 30 years following the US Civil War.

The nature of the disputes varied. One was over land rights. Another over who owned what hog. Then there was the forbidden love between Johnse Hatfield and Roseanna McCoy.

The cause of the day didn’t really seem to matter much. Patriarchs William Hatfield and Randolph McCoy could use most any issue to rile up their clans.

And the body count mounted.

According to biography.com, more than 12 people were killed in the long running feud before the families finally made peace. That includes five of Randolph McCoy’s children.

Now ask yourself this…

If the Hatfields had spent all of their money buying new weapons and explosives only to discover they could no longer afford food, would the McCoys have sent over regular wagonloads of chow?

Surely not.

Yet that’s just what North Korea’s Kim Jong-un is banking on.

Even as his people teeter on the edge of starvation, Kim continues to fritter his nation’s limited wealth on missiles and nuclear research.

This headline comes from Bloomberg, ‘North Korea Weapons Test May Have Included Ballistic Missile’. The article continues:

Kim Jong Un oversaw a live-fire military exercise Saturday that potentially included North Korea’s first ballistic missile launch since 2017, challenging U.S. President Donald Trump’s bottom line in nuclear talks.

Scan further down the same webpage and you’ll find this headline, ‘10 Million North Koreans Face Food Shortages After Bleak Harvest’.

About 10 million North Koreans — 40 percent of the population — are in urgent need of food assistance after heat and drought crippled last year’s harvest, according to the United Nations…

Post-harvest losses are also expected to mount as fuel and electricity shortages crimp crop transportation and processing.

Here’s where UN agencies should draw a line in the sand and draw inspiration from Seinfeld’s Soup Nazi…

No soup for you!

More, after the markets.

Markets

Over the weekend, the Dow Jones Industrial Average closed up 197.16 points, or 0.75%.

The S&P 500 closed up 28.12 points, or 0.96%.

In Europe the Euro Stoxx 50 index finished up 13.55 points, or 0.39%. Meanwhile, the FTSE 100 gained 0.40%, and Germany’s DAX closed up 67.33 points, or 0.55%.

In Asian markets Japan’s Nikkei 225 is closed for Children’s Day OBS. China’s CSI 300 is down 5.51%.

In Australia, the S&P/ASX 200 is down 52.40 points, or 0.83%.

On the commodities markets, West Texas Intermediate crude oil is US$60.06 per barrel. Brent crude is US$68.97 per barrel. That’s a 5.6% fall for WTI since I last wrote to you on Thursday.

You can attribute some of that to renewed jitters on global trade. If the Chinese don’t agree to speed up negotiations, Trump tweeted that he’ll raise tariffs on US$525 billion of Chinese imports this Friday.

That’s some serious brinkmanship. And if the Chinese don’t blink world trade and the global growth outlook could take a hit, denting demand for crude.

But, as I’ve often said, the problem for oil bulls isn’t insufficient demand. It’s the rivers of supply being artificially held back from the market. As more of that flood starts seeping through, prices could fall 20% or more from here.

Turning to gold, the yellow metal is trading for US$1,283.47 (AU$1,840.89) per troy ounce. Silver is US$14.90 (AU$21.37) per troy ounce.

One bitcoin is worth US$5,737.19.

As you can see in the chart below, bitcoin saw some big gains over the last week:


Source: CoinDesk

Bitcoin is up 11.9% since last Monday. And it’s up 7.8% since I wrote to you on Thursday.

Is this the setup the bitcoin bulls have been watching for a new march higher?

That’s a question better answered by our in-house crypto experts, Sam Volkering and Ryan Dinse. You can stay atop all the latest crypto investment advice with Sam Volkering’s Secret Crypto Network. (Details here.)

In the world of fiat currencies, the Aussie dollar has slipped to 69.72 US cents.

No soup for you!

Getting back to the McCoys feeding the starving Hatfields, denying food aid to 10 million North Koreans may sound harsh. And it is.

After all, most of them are innocent civilians. Yet they are the people — willingly or not — who are propping up Kim Jong-un’s regime. And they are enabling him to develop weapons that can kill millions in an instant.

Those weapons and that threat must go. And US President Donald Trump has pinned a lot of his legacy on making that happen.

It’s unlikely Trump will move to cut off all food assistance. But he’s doubled down on maintaining ‘maximum pressure’ to bring Kim back to the table. And as Trump tweeted over the weekend, ‘Deal will happen!’

A Tweet by President Donald Trump
Source: Twitter

That deal may be some time away.

Regular readers may recall I expected Trump would have brought Kim over the line by now. Which hasn’t happened…yet.

But I believe it still will this year.

Scoring a peace deal with a denuclearised (or at least a denuclearising) North Korea would prove a massive boost for Trump in the 2020 presidential election race.

And don’t forget Kim’s recent state visit with Russia’s Vladimir Putin. Not to mention Trump’s hour and a half follow up phone call with Putin last week.

Putin made a point of expressing Kim’s need for security guarantees before North Korea agrees to give up its nuclear capabilities. That makes eminent good sense.

Kim must lose a good bit of sleep recalling Muammar Gaddafi’s fate after Libya abandoned its nuclear ambitions. And Libya itself hasn’t exactly vaulted into first world nation status since then either.

Trump’s made it clear he wants to be mates with Putin. And Russia has much to gain and little to lose from closer ties with the West.

I don’t have any inside scoop on what plans the two men hatched during their phone call. But I expect the big stick levelled at Kim’s head will remain in place as an even juicer carrot is dangled in front of him.

Great economic potential from team Trump. Security guarantees from team Putin. And of course they’ll need to keep China’s Xi Jinping aboard.

With Trump threatening to up tariffs on US$525 billion (AU$753 billion) of Chinese imports on Friday if the Chinese don’t speed up negotiations, this may not be the best week to approach Xi on North Korea.

The Chinese stock market has tanked on the news, with the CSI 300 down 5.5% at time of writing. US markets don’t look like they’ll escape the pain either.

Futures in the US markets, which all closed in the black on Friday, are pointing to heavy losses. Futures on the Dow Jones, for example, are down 2.03%.

That’s the power of Trump.

Love him or hate him, no other world leader today has the power or willingness to upend the status quo at the drop of a hat.

I expect that Xi is growing weary of this costly game and that soon he’ll order his negotiators to reach a deal that Trump can laud as a success. That would shift the trade ructions onto the back burner and allow the leaders to focus on finally bringing an official end to the 69-year-old Korean War.

If the big picture unfolds as I expect, that will be a boon for global stock markets. And it could prove particularly lucrative for South Korean stocks.

One way to play a looming peace treaty on the Korean Peninsula is via the iShares MSCI South Korea ETF [ASX:IKO].

The exchange traded fund (ETF) seeks to track the investment results of an index composed of South Korean equities. And it’s composed of large and mid-cap stocks.

Not surprisingly, the ETF down 1.50% in intraday trading today on the combined news of Kim’s renewed rocket tests and Trump’s China tariff threats.

It’s likely IKO will continue to lose ground over the coming days as the war or words from Trump may heat up and stir investor angst.

But the way I read these tea leaves, Trump remains intent on scoring ‘great new deals’ with both China and North Korea.

If he succeeds, that should send the share price of IKO soaring.

As a reminder, I don’t make official recommendations in Port Phillip Insider. This is just one you may want to keep an eye on. Always do your own thorough research before investing a single dollar.

Up, down, flat?

Tomorrow’s the big day. The day the Reserve Bank of Australia meets to decide whether to screw savers…or borrowers.

In truth, the 1.5% cash rate is already so low, they’ve pretty much screwed savers already. And handed borrowers the dubious gift of massive — albeit cheap — debts.

While a 2019 interest rate cut is looking more likely, I doubt the RBA will pull the trigger tomorrow. Not this close to the election.

Governor Philip Lowe is more likely to hold off at least another month. Then the new government — whoever that may be — will get the early gift of a small sugar hit to the economy.

While we await the RBA’s decision, if you haven’t yet registered to watch the great debate between forecasting masters Philip Anderson and Harry Dent you can click here to do so.

Interest rates play an important role in both men’s outlook for the years ahead. Though their outlook couldn’t be more dramatically different.

To find out how both Phil and Harry use historic cycles to make their astoundingly accurate forecasts…and why they’re now on completely different pages for their 2020’s outlook…tune in next Tuesday, 14 May.

As a paying subscriber it won’t cost you a thing. All you need to do is register first. Simply click here.

Finally, here’s the latest on the deflation ruse from The Australian Tribune:

‘Why Do Governments Fear Stable Prices?’

If you listen to the majority of mainstream economists, you may believe that deflation could herald in the end of the world as we know it.

Deflation is a scenario where the dollar in your pocket is worth, say, 2% more next year rather than 2% less.

The truth is that in a deflationary world we just need to adjust our mindset. With…’

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.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd