So National Security Council Director H.R. McMaster wants you to know that the Trump administration has developed “four or five” scenarios to “resolve” the North Korea situation and some of those are “uglier than others.”
Speaking at an event hosted by the Institute for the Study of War, McMaster also said that while Trump “hopes to avoid war, we cannot discount that possibility.” More specifically, McMaster appeared to draw a new red line, calling nuclear-tipped ballistic missiles “unacceptable” before noting that the North hasn’t yet demonstrated that technology.
The read-through there appears to be that Trump is discovering why it’s difficult to draw “red lines.” You draw one, someone crosses it, and then you either have to bomb them or back down. So far, Trump’s advisors seem to have convinced him that ordering an actual strike is ill-advised even if they can’t convince him to stop threatening to murder millions of people on Twitter (something which, you’ll note, Twitter is seemingly growing weary of dealing with).
Well as far as markets are concerned, Asian shares managed to hold up pretty well overnight considering the gravity of what Foreign Minister Ri Yong Ho said on Monday in New York.
But it is worth noting that the Kospi has now fallen for six consecutive sessions:
You’re reminded that there are reasons to like Korean stocks including robust earnings growth and compelling valuations and indeed almost anyone you care to talk to about this situation will tell you that the bull thesis far outweighs the threat emanating from the North.
But as you can see from the chart, South Korean markets are not in fact as immune to the threat as some folks would have you believe. No, the losses have not been catastrophic around the multiple risk-off episodes tied to North Korean provocations that we’ve seen in the past 60 days, but they are readily observable on a chart.
So while you should acknowledge that the fundamental thesis may be compelling, just understand that “resilient” is to a certain extent a subjective assessment. So when people talk about how “resilient” the Kospi has been, ask them this: “what do you mean by resilient?”