Conclusion: While North Korea’s actions shouldn’t be taken lightly, the nation’s wherwithal to actually accelerate military activity is limited and this appears to be another attempt to get the nation noticed and make themselves relevant. We’ve posted a replay of our May call below.
Overnight North Korea fired artillery shells at a South Korean island near their border, killing two soldiers and setting houses on fire. South Korea responded by firing 80 rounds at its Northern neighbor, in addition to dispatching F-16 fighter jets to the area and raising the military alert to its highest level. Tensions on the peninsula haven’t been this high since North Korea sank the South Korean warship Cheonan back in March – an attack that killed 46 sailors. Unlike the March attack, however, this attack was on a civilian-occupied island and could be considered the most serious provocation in at least two decades.
Back in May, when the struggle was expected by many pundits to escalate into a full-blown war, we hosted a conference call with our subscribers with renowned Yale Historian Charles Hill. On the call, Professor Hill discussed in great detail the likelihood of an outbreak of war on the peninsula, while masterfully weaving in the history of the relationship and his first-rate knowledge of North Korean leaders and psychology to deliver an actionable roadmap for navigating this geopolitical risk.
Some key takeaways were:
- North Korea’s leadership and military is more divided than most pundits believe;
- North Korea has a history of creating skirmishes to get attention/get what it wants via negotiations, be it food, humanitarian aid, etc.; and
- North Korea’s ailing economy forces its administration to use its sovereign powers to run a large-scale “criminal organization”.
For a replay of the call, please copy and paste the following link into the URL of your browser:
Yours in risk management,
The Hedgeye Macro Team