Some Thoughts on North Korea’s Nukes

While the acquisition of nuclear weapons capabilities by North Korea is not a positive, it is no different in kind from the threat the world has faced for 72 years. Last week when North Korea tested an ICBM, markets barely moved, and indeed long-term sovereign yields backed up in the opposite of a flight to safety. Historically markets have reacted only mildly to geopolitical threats such as the 1962 Cuban missile crisis, with the worst of the reaction in advance, and the bottom reached before the resolution, when the military response is first understood. We think the Kim regime is rationally interested in self-preservation, and seeks a place at the top table of mutual assured destruction. China has no power and little motive to denuclearize North Korea, an ally. If a crisis eventually emerges, we expect it will follow the usual pattern, leading to a buyable dip.