Just in time for Halloween, we have a Capital & Conflict horror story for you. You’ll have to decide for yourself whether it’s fact or fiction: will there be war in Korea?

It’s a trick question, really. In the spirit of Halloween, I suppose. Britain is technically still at war with North Korea in a way. There was only an armistice in the 1950s, no peace. The armistice was supposed to be temporary. It just seems to have lasted.

Back to the relevant version of the question: is a resumption of the war in Korea possible?

Most commentators think it’s nigh impossible. There are calls for President Donald Trump to rule it out altogether. After all, who wants a war? Who benefits?

And just think about the cost. It’s a particularly miserable equation for South Korea. A chunk of the capital Seoul is within artillery range of North Korea. And the artillery is all set up and ready to go.

We don’t know for sure what Kim Jong-un’s missile and bomb capabilities are. Could he deliver nuclear wars effectively? How far?

A ground assault into North Korea would be a bloody battle. But the real spectre is China. Its involvement is what turned things into an armistice last time around.

The Chinese supported North Korea to create a buffer state to prevent the US from getting too close. Understandable given General Douglas MacArthur had asked to bomb the Chinese.

This time around, if China decides it likes having North Korea to its south, then aggression could lead to a dramatic escalation of tensions. Any military action better be approved by China or things will get very ugly, very fast.

In the end, there’s little question North Korea itself would lose. South Korea, China, the US, Japan and others in the region would all be losers too. Lives lost, economies damaged and international relations strained.

So war in Korea won’t happen, right?

There’s just one problem with this reasoning. It’s not how military strategists think.

 

Why war in Korea is coming

Today, Seoul and South Korea are at risk of a first strike out of North Korea. Perhaps Japan is already in Kim’s range. But that range is growing. The US, Canada, Australia and others are gradually joining the list of Kim’s hostages.

Faced with a hostage-taker that grows stronger instead of weaker over time, the incentives to act are completely reversed to your usual bank robbery. The earlier you act, the less damage you get.

What if you don’t act? Then your hostage-taker becomes powerful enough to make demands. “Remove all American military bases from South Korea or I’ll blow up Los Angeles” is not a demand the Americans will want to face.

Thinking like this illustrates how war with North Korea is near unavoidable. It’s just a matter of time until the power and potential demands of North Korea become too difficult to stomach. America will act before things reach that point.

Meanwhile, Japan’s recent election may have cleared the way for the constitutional change needed to militarise the nation. What better motivation than having a rogue nation lob missiles over your territory while blowing up nuclear bombs underground.

And so the question presents itself: trick or treat? War or bribery?

Kim’s aspirations might be forestalled with a bribe. Or he could be killed, followed by regime change. It’s going to be one or the other.

Unfortunately, the bribes and sanctions relief have only encouraged the Dear Leader in the past. There have been a succession of deals and agreements, each as flouted as the last.

Kim has begun shuffling the population around according to media reports. They’re practicing evacuation drills. There was also a half-marathon event in Pyongyang, apparently unrelated to the evacuation drills. If you missed the event, you can sign up to the next one in April 2018 here on a helpful website in English.

With missile technology allowing him to launch over Japan, Kim now has to focus on underground nuclear war testing. His mountain lair used for this purpose is looking a little wobbly these days, according to the Western media. Too many explosions have created gigantic cracks.

If he can demonstrate both missiles and bomb tests, where does that leave the US and Japan? Where does it leave their allies, including us?

At war.

What would a war in Korea mean?

South Korea is a major international financial centre and economic hub. Japan even more so. A shutdown or military conflict could be just the geopolitical storm that triggers an end to the quantitative easing (QE) driven bull market.

Or might the Japanese government bond market crash at last under the weight of a war?

You’d think the gold price would surge, given its safe-haven, non-financial status.

The price of bitcoin would be fascinating to watch as the bombs drop. On the one hand, South Korea is one of the major support centres for bitcoin. On the other hand, the digital currency is a good way to keep your wealth out of the brick and mortar financial system.

Better still, Japan is establishing itself as a bitcoin hub in a clever way. The Japanese government seems keen to support the currency’s development. It’s the first place a cryptocurrency might get the sort of institutional and legal backing needed to be truly legitimate.

Japan is within range of Kim’s missiles. He fired one over Japan a few months ago, just after I left. If war breaks out in Korea, bitcoin could explode into popularity in Japan as people rush to escape the mainstream financial system.

Or perhaps a different cryptocurrency is a far better bet. Some are still very cheap, and with even bigger potential than bitcoin. You need a guide if you’re going down this rabbit hole though. Bitcoin has shown how worthwhile it can be. Discover why now is the time to take the plunge and which cryptos are the best bet.

Depressing as it might be, a Korean conflict is an investable event. If you think it’s on the horizon, holding gold and bitcoin is a great idea.

Failing the acid test

There’s another horror story in the news, out of Canada. Last week a jeweller discovered that a gold leaf he bought, certified by the Royal Canadian Mint, contained no gold.

Oops.

The Royal Bank of Canada (RBC) and the Royal Canadian Mint wouldn’t accept the ounce of gold when he tried to sell it back. The packaging looks a little dodgy. Lest you think the buyer is just stupid and easily fooled, the packaging and the gold both came from the RBC in the first place…

The buyer quickly did right thing and went to the media. Once the news broke, RBC decided to accept the gold, refund the value and launch an investigation. Point proven.

The problem is, how many fake ounce wafers are out there? Last time around in 2012, ten bars were discovered as fake once the scandal broke.

If you’d like to discover whether your gold is real, take it to a jeweller for testing. Trick or treat?

Happy Halloween!

Until next time,

Nick Hubble
Capital & Conflict