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Takeaway: North Korea's nuclear test makes the commander-in-chief question in the campaign real.
Editor's Note: The note below was written by Hedgeye Potomac Research Senior Defense Policy Advisor LtGen Emerson "Emo" Gardner USMC Ret. For more info on our institutional research email firstname.lastname@example.org.
If it had been an earthquake that measured 5.3 on the Richter scale
...North Korea's fifth nuclear test would be considered "moderate", one of over a thousand such occurrences that happen each year. The impact will be far greater than "moderate" on the campaign and on US defense policy and activity over the coming months.
This was the most powerful North Korean test yet, estimated to be between 10 and 20 kilotons, approximately the size of the Hiroshima bomb, "Little Boy". North Korea's second test this year comes just 16 days after North Korea's better than expected test of a submarine-launched ballistic missile (SLBM) that went over 300 miles before landing inside Japan's Air Defense Identification Zone (ADIZ). North Korea has claimed that its nuclear test was of a missile-sized payload.
While we do not believe that North Korea has the capability to put the two capabilities together yet, it will - and well within the first term of the next President. Pacific commanders have become increasingly concerned about the rate of North Korean progress. Although the test was not unanticipated and fits into the well-known North Korean pattern of seeking concessions through aggressive behavior, the actual event shows the apparent ineffectiveness of sanctions. Those sanctions had just been increased to the "toughest yet" in March and President Obama has been in Asia for the last week calling for more.
One of the two Presidential candidates who talked about everything but what is really important about being the next commander-in-chief during Matt Lauer's pathetic job interviews on Wednesday night will have to decide how the US is going to stop Kim Jong Un from getting these tools.
A preemptive strike against North Korean capabilities has always been on the US menu of options. While an effective strike against North Korean nuclear or missile launch facilities can be done, the concept is no slam dunk. North Korea has been preparing to be attacked for decades. The 10 million people of Seoul are extremely vulnerable to well-concealed North Korean artillery and no amount of preemptive strikes will be totally effective against their use.
Nevertheless, the probability of a US preemptive strike happening over the next twelve months has increased.
- The North Koreans will do something provocative again soon. President Obama is certain to tighten the screws further on North Korea and may even get Chinese support. North Korea almost always reacts to such pressure by ratcheting up the tension or doing something provocative.
- Both candidates will try to out tough-talk each other on this issue as it moves to the top of the pile of steaming campaign fodder and one of them is going to be elected.
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Email email@example.com for more info on our institutional research
The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.
LONG SIGNALS 80.52%
SHORT SIGNALS 78.67%
Takeaway: It's a global gong show out there. Keep your head up.
Did you see?
...what stocks, bonds, and commodities did on one Fed voter (Boston's Eric Rosengren) ramping his rate hike rhetoric on Friday?
How about eviscerating all the no-volume “gains” of the SPY’s summer on a +46.5% volatility (VIX) spike?
As I've said many times before, "risk happens slowly at first, then all at once."
SPX broke my immediate-term TRADE momentum line of 2171 support and didn’t look back with volatility (front month VIX) ramping. My risk range is now 2115-2170, so I’ll register this as a buy/cover day. The constitution of the bounce will be critical to analyze. (Get my Daily Trading Ranges here.)
Remember... Every seven years or so, most investors get royally crushed by these centrally-planned bubbles, by Old Wall Street and its head-in-the-sand research analysts, and by the woefully blind financial media supporting it.
Don't let them crush you again. Don't be a sheep.
Editor's Note: Below is an excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.
Doesn’t this set up nicely for another positive “surprise” by Janet to pivot back to dovish, right before the election? As you can see in the Chart of The Day (her former “favorite” indicator – the Change In Labor Market Conditions Index), it’s very red.
And, again, on Friday so was what’s become her new fav indicator – the stock market. Very very, you-gely, red.
Did you miss it? Hedgeye CEO Keith McCullough went live (for free) this morning on The Macro Show. It was a no-punches pulled look into why “this is one of the top-3 stock market bubbles in history.” He opened up the discussion during interactive Q&A with viewers.
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