Playing Chicken With Armageddon: Goldman Ponders North Korea

You know, we’d be remiss if we didn’t remind you that we’ve been warning about complacency on the North Korea issue for months.

Specifically, we’ve marveled at the persistent inflows into Korean assets amid rising tensions.

Recall that it was less than a month ago when we penned “Offshore Money Is Pouring Into This Country At The Fastest Pace In 5 Years,” a post in which we observed that inflows into Korean equities were proceeding at a break-neck pace:


That of course has helped propel the Kospi to record high after record high despite the increasingly shrill tone emanating from Pyongyang.

As our homegirl Tracy Alloway reminded investors earlier this morning, BofAML’s David Woo has been keen on flagging the risk posed by the “game of chicken” between Trump and Kim. We documented Woo’s thoughts at length in several posts including the one mentioned in the following tweet:

Well, here we are on Wednesday staring down a nuclear confrontation and for their part, Goldman wants you to know that markets still aren’t pricing in armageddon.

Via Goldman

Derivative markets in equities do not show much sign of geopolitical tensions. Back in May, we found that for the KOSPI both the 25-delta one-month implied volatility and the 25-delta put-call skew mirrored the vol pattern in European and US equity markets, which suggested that the French elections, not Korean tensions, were driving vol. As Exhibit 1 shows, KOSPI skew increased slightly yesterday after gradual rises in recent weeks (consistent with the delta one move we noted above), but has only now caught up to the levels of skew seen in European and US equity markets.

FX-implied volatility, on the other hand, appeared to hint at some lingering anxiety when we last looked in May. The clearest evidence of geopolitical concern we found was in KRW/USD implied skews, which rose in April amid the arrival of US carriers in the region, and remained near three-year highs.

As Exhibit 2 shows, KRW skew rose on Aug 9 after falling steadily in the intervening months and is now back to where it was in the early spring when US-North Korea tensions began to escalate. The steady decline (until end-July) suggests that the few modest concerns we documented in Korean derivatives markets back in May seem to have moderated even as geopolitical concerns have continued to grow, suggesting that markets were discounting the risks of military action or tougher bilateral sanctions.

We still suspect that investors are more concerned than markets reveal. Even though tensions continue to mount and North Korea’s nuclear program continues to advance, it appears markets have yet to see enough evidence that this time is different.


Yes, “markets have yet to see enough evidence that this time is different.”

Well, allow us to show “markets” why “this time is different,” with the help of some handy visual aids.





Any questions?



11 thoughts on “Playing Chicken With Armageddon: Goldman Ponders North Korea

    • so you have nothing to contribute to this story or this blog… you simply want us to just read your shit?

      – Murphy

      • It’s truly strange and amazing to watch apologists take Trump’s Tourette’s outbursts and attempt to fashion a policy moniker around his words. It’s as if there’s a lunatic in an mental asylum claiming to be Napoleon who babbles about the use of diversionary tactics and those listening assume he’s referring to the September, 1805, Ulm Campaign, which took place during the War of the Third Coalition, where the French and Bavarians used a series of military maneuvers and battles to outflank and capture an Austrian army.

        Such grand creativity and illusion at work.

    • Oliver – got a mirror? Look into it…now there’s the prick. How dare you make such a comment about Mr. Obama…and such a big word for such a little man to use. In one sentence you have told the world what kind of man you are. Mr. Obama is not a coward nor does he have a cowardly spirit (yeah, I had to look it up) but clearly you are a bully with a pea brain. You seriously believe that trump showed strength with his school-yard dare, and his fat arms crossed while sitting on his lard ass? He is a buffoon with no idea what the hell he is doing! You and your cult that follow that jackass like he is the King are the laughing stock of America. The good news is that at least some of your cult crowd has engaged their brain and realize that trump only cares about himself and his ratings – he thinks the whole thing is a game for a very bored rich man to play. You should find your way out while there is still time. Start with changing your TV channel!

      – Murphy

  1. Politico yesterday(a rag you likely favor over some others):
    Trump’s North Korea strategy: A lot like Obama’s
    (Despite warning that U.S. patience with Kim Jong Un ‘is over,’ the president is so far relying on sanctions and diplomatic pressure to try to curb North Korea’s nuclear ambitions.)

  2. Goldman you are a piece of sh*t. Just a little more proof that we have two children playing with matches, it’s no problem yet. Give me a fu*king break.

    So does ANYONE trust SOMEONE who says “If we got nukes,why can’t we use them?” Saber rattling my ass this is not children with matches, it’s children with the MOST awesome power on the only inhabitable planet around. Nobody wins if this thing goes off the rails, one bullet and one dead DUKE started that sh*t storm.

    Our guy is just as dangerous as their guy at this point. Anyone have an XXXL straight jacket ?

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