Yesterday, Japanese intelligence warned that North Korea was threatening to shoot a missile over Japan and across the Pacific toward Hawaii. The Nikkei average posted its worst week in three months on the news.
Few people believe that the missile will be capable of hitting the 50th state, which is 4,500 miles away from the hermit kingdom. The longest previous test-firing was under 4,000 miles. Three of the past 11 firings failed within seconds of launch.
But the U.S armed forces aren't taking any chances. According to The Wall Street Journal, "The U.S. is moving ground-to-air missile defenses to Hawaii."
Defense Secretary Robert Gates said that "the U.S. is positioning a sophisticated floating radar array in the ocean around Hawaii to track an incoming missile. The U.S. is also deploying missile-defense weapons to Hawaii that would theoretically be capable of shooting down a North Korean missile, should such an order be given."
Kim Jong-Il Is Dead
All of this posturing from North Korea is due to the fact their dear leader, Kim Jong-il, had a stroke and might even be dead. The question is, who will replace him? And how?
Kim Jong-il's chosen successor is his son, of which very little is known. Only one photograph appears of the man, now in his twenties. The picture was taken when he was an eleven-year-old boy. The boy's name is Kim Jong-un and is said to be a replica of his authoritarian father without the long training in affairs of the state. It is unknown if he has the backing of the military, or is politically savvy enough to gain power.
This has sparked speculation that the old guard in the military might not want another crazy Kim running the family business.
So far North Korea has been walking the tight rope of belligerence to drum up nationalism in a time of political flux. In the past few weeks it has tossed two American journalists in jail and set off an underground nuclear test. There are many Internet tough guys in the chats rooms who would say, "Nuke them from orbit, it's the only way to be sure."
But North Korea has enough conventional artillery aimed at South Korea's capital of Seoul to obliterate it. On the flip side, given too much provocation, Japan, North Korea's historical enemy, could turn from its pacifist demeanor and start producing nuclear bombs as fast as it does Lexuses.
The best option for dealing with North Korea is the only option. Attempt to get China and Russia to influence the regime, rattle some sabers every once and a while, and hope for a Gorbachev to arise from the cadre hierarchy.
Either that, or we can get a reincarnation of Carlos Hathcock with one of those new-fangled M40A3s and a clear line of sight.
How to Play It?
The problem with North Korea (and Iran) threatening to toss nuclear bombs about the place is there are very few ways to trade it. One can't short North Korean steelmakers or Iranian oil companies. One speculative trade would be to bet against, with put options or shorts, missile defense equipment companies like Lockheed (LMT:NYSE) and Raytheon (RTN:NYSE).
These two stocks have gotten a recent bounce and are sitting at the top range in a downtrend. Short-term momentum players are betting the news.
While it's true the companies have been selling more anti-missile technology to Iran's rich neighbors in the Middle East, this is marginal. The big picture is that the Democrats are in power now and they don't buy new military hardware.
According to the Associated Press:
In the 2008 fiscal year, the military spent $164 billion to buy weapons. For the 2010 fiscal year, the Pentagon proposes spending only $131 billion, though that number will probably grow when Congress adds weapons spending as it reviews the budget.
Big defense companies would take a hit. Lockheed will have to shut down its assembly line at its big Marietta, Ga. plant, putting thousands of jobs at risk. Boeing, which gets 80 percent of its defense unit sales from the Pentagon, could stop selling the $276 million C-17.
Crisis = Opportunity
In any crisis there is a way to make money. 2009 has been a banner year. My average pick in the Crisis Trader portfolio is up 63%!
Right now I have one such situation occurring in the lush oil fields of Iraq. The Kurds just gave this company the right to export its crude oil via Turkey. They are ramping up production 1,000% this year. And nobody's heard about them - yet... read more here.
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