NORMANDY’s North Korean Missile Defense Issue (BUD,GS)
Now, the United States is a powerful nation, certainly if one measures power in terms of military hardware and training. Whether and when to use that power is a separate question that we’re not going to address here.
What we would like to consider today is a potential conflict with North Korea and the trading possibilities that develop from it. As crass as that may sound, it happens to be our job, and if stocks are going to move either before or after that eventuality, paying subscribers want to know.
Investing is about making money. It has nothing to do with raising children properly or feeding stray cats, both of which are yeoman endeavors. And both of which can be successfully accomplished by rich and poor alike.
But our goal here is to make money, and our trigger finger is on the trade button as the tensions ratchet higher and the possibility of something both unexpected and explosive draws nearer.
EMP – What the Experts Most Fear
In the last few days, we’ve seen the North Koreans threaten Guam with missiles and President Trump offering Pyongyang “Fire and fury like the world has never seen.”
Q: But what could a country like North Korea do against a powerhouse military like ours? What’s the real danger?
A: The military-industrial complex assures us that North Korea possesses a limited number of nuclear devices and the capacity to deliver them as far as Boston. They could also detonate one of them high above the nation in a potential EMP attack.
For those unaware, an EMP attack is less lethal than a full-on strike, but still carries enormous risks to both life and property.
EMP stands for Electro-Magnetic Pulse, and it arrives as result of the overwhelming power of a nuclear detonation. The fallout of such a blast (among others) is the complete incineration of the power grid, a development that could put large swathes of the country into the dark for an indefinite period of time.
Some estimate weeks to months, while others assume a more pessimistic prognosis that would put us into the dark for years. Rebuilding infrastructure that’s been developed over the course of a century would be a wildly expensive and time consuming operation, and no one can be sure how it would play out.
And no one is taking chances, either.
On August 23, a drill called EarthEX2017 will take place under the auspices of FEMA and the Department of Energy. According to the EarthEX website, the exercise will simulate on a “subcontinent-scale, [a] long duration power outage, with cascading failures of all other infrastructures.”
So it’s clearly no joke.
These types of simulations are extraordinarily costly and are undertaken to practice for events that could occur on the not-too-distant horizon.
Boiling it Down
The last thing we at Normandy want to be accused of is insensitivity or a crass capitalist worldview, and the truth is, we’re as far from those two phenomena as one can get. There’s no doubt that a whale of suffering is in store for a nation that experiences an EMP of the size referred to above. And we can’t imagine where we or our families would be, should it go down.
Yet at the same time, we have to plan for a best case scenario, too. And that means focusing on the investment opportunity created thereby.
And so we have to ask –
Who stands to lose and who to win under such a scenario?
An EMP blackout of a short duration would make Walmart a winner at the expense of Amazon – a purely electronic retailer, and oil and gas vendors winners over electric utilities.
And if you’ll permit us a moment to digress, likely the biggest losers of all would be those invested in Bitcoin and the like, a type of ‘money’ – if it can be called such – that is entirely based in the ether. Woe be to those who endure months (or longer) without electricity who are reliant on Bitcoin for their daily bread.
And herein lies our biggest issue with the phenomenon of crypto-currencies. While we love the idea that they exist beyond the reach of the statist element, the bottom line is that they do not possess all the qualities that traditional currencies possess, most notably, they are not portable.
If you have an iPhone (that works), you have access to your money. Fine.
And if the grid goes down? Where’s your Bitcoin then? Does it even exist anymore? Doesn’t it make more sense to own gold in that instance? Or salt? Or anything else barterable? Like an extra five gallons of gas?
Now we realize that the world-wide-web is a robust construct, and that gives us a good bit of comfort. But as far as we’re concerned, if you can’t stick it in your pocket or throw it on the back of a mule… it ain’t money.
Old Trade, New Trade
Just one trade to tend to this week, our effort from June 29th. The letter was called The CAT Came Back, and in it we wrote as follows –
The GS August 4th 210 PUT goes for $1.89. Sell two (2) and you pocket $3.78 against the $3.22 you ate on the shares. A gain of another $0.56 should they expire worthless.
Last Friday the options expired worthless and we regained what we had given back on our previous trade plus 56 bucks.
And it feels good.
This week, we travel up to our last graphic, depicting the New York City blackout of 1977, for our trade of the week.
It’s the food and beverage industry we’re focused on, because that’s precisely where the focus will be in the event of an EMP event.
We’ve chosen a Belgium-based company with a global reach that’s traded locally, on the assumption that if the stock market still works, this outfit will be able to continue delivery of its essential brands to customers across the land.
It’s Anheuser Busch Inbev NV (NYSE:BUD), owner of Budweiser, Corona and Beck’s brands, among others, and its chart for the last year looks like this –
BUD managed to break above its long term moving average two weeks ago (in black) and the third of three waves lower since its all-time high back in September of last year (in red).
It has since pulled back to former resistance (now support) at $117.50, and we believe some appreciable upside is now in the offing.
It’s with that in mind that we offer the following –- Content protected for Normandy Executive Lounge, Option Trader Elite, Executive Lounge members only]
All talk of conflict helps the beer industry.
Many happy returns,