The North Korean Black Swan


Unemployment, fighting over the federal budget, a drop in GDP growth, and slowing of the progress of corporate earnings are the most often mentioned reasons that the stock market could fall from current record levels. That list misses a single global crisis, which may be unlikely, but would cause a swift sell-off in shares. The present problems in Korea are a perfect example.

So far, all that has happened in Korea are military exercises, a report in a North Korean paper that its government has "nullified" a truce that goes back the end of the Korean War, as well as media reports from the North that leader Kim Jong Un says that the nation's troops should be on "maximum alert," whatever that may mean.

In reaction, National Security adviser Tom Donilon told the Asia Society in New York that: "There should be no doubt: We will draw upon the full range of our capabilities to protect against, and to respond to, the threat posed to us and to our allies by North Korea." Whatever that means - particularly due to the uncertain role of China.

North Korea is obviously a danger to peace in the Asia region because it does have powerful offensive weapons, even if they are crude by U.S. standards. And Kim Jong Un has an unstable personality and may be full-on crazy. With one push of a button, he could engage armed forces from South Korea and America. Japan could be extremely threatened by an attack.

And the stock markets would react badly.

The ongoing rise in global markets signals that the chances of real trouble in Korea are nearly nil. The odds that is so likely are more than 99%. However, in reality, North Korea is something of a black swan that is paddling around the Sea of Japan and walking the boarder between North and South Korea.

Filed under: 24/7 Wall St. Wire, Politics

Originally published