John Norris: People asking ‘what if’ questions don’t really want the truth

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Last week, I made a presentation about the current health of the economy and markets to a group of folks in Birmingham. Not surprisingly, I got a “what if” question about North Korea. You know — what if Kim Jong-un launches a few nuclear missiles towards the United States? How would the markets respond?

Admittedly, speculating about such things is more entertaining than analyzing trends in economic data sets and the slope of the yield curve. Those things suggest the good times should last a little while longer yet. However, what about all those worst case scenarios floating about? I mean, that is what we need to worry about! Not boring stuff like non-performing assets in the banking system, the employment to population ratio, median household income and all that jazz. Right?

Well, if you say so.

That is why folks who do what I do for living are prone to say things like: absent some unforeseen event, all other things being equal, and the trend line suggests. What if questions? You probably don’t really want the truth.

Consider a somewhat limited nuclear confrontation with the North Koreans, particularly if they really have the capability they claim to have. What would happen to the markets? First things first, I am not going into the office the day we exchange nukes with Pyongyang to see what is going on with the S&P 500. In fact, I won’t be within 5 miles of the place, seriously. Nope. Like most people, I will desperately try to find bottled water, ammunition and non-perishable foodstuffs. I will then hit a working ATM or three, before going to church with my entire family.

That is what I will do.

Still, what of the markets? Simply put, the NYSE and NASDAQ will not be open for trading that day, and will likely remain closed for an indefinite period of time. The feds will close the banks for probably about a week, and then will only open them for limited transactions. Behind the scenes, the powers that be will deliver vast amounts of physical cash to the various Federal Reserve Banks and their respective branches. The security at each of these will be as tight as Fort Knox, so don’t even think about it.

As for timing, that is anyone’s best guess. The markets were closed for about a week after 9/11, reopening on 9/17 with a resounding thud. If that is a precedent, I would imagine a nuclear war with the North Koreans would keep things shuttered for a good while longer than that, and the thud upon reopening would be a little louder.

If I am able, anticipating the SEC will halt trading after an almost immediate 10-20 percent gap down, I will get in as many sale tickets as I can by the first opening bell. By the fifth day of resumed trading, the S&P 500 will likely be down at least 30-40 percent, maybe even 50 percent or more. At this point, it would probably be safe to nibble on some consumer staple and health care stocks with the remaining cash in your portfolio.

There you have it. That is the probable case scenario, if not best case, to the “what if” question I have recently been getting about a potential nuclear war with only the North Koreans. If that actually did come to pass, you probably wouldn’t really care too much about your stock portfolio.

At least I hope you wouldn’t.

(Read more as previously published in the Montgomery Advertiser on November 14th, 2017)