By Jason Stevenson in Albert Park

The world has never been more dangerous in my lifetime.

As the global economy continues to slow, politicians keep blaming other nations for their own problems.

The biggest risk, unfortunately, is that a leader will do something stupid.

History shows that politicians, when losing their grip on power, engage in the blame game. That is, blaming someone — anyone — else to distract their own people. That gets a country united behind a convenient foreign enemy. That generally happens following an economic catastrophe. The First and Second World Wars are great examples.

The world economy still hasn’t mended from the last financial crisis. That’s causing massive global tensions. And North Korea has become a major focal point. The country’s economy remains in turmoil. And it’s cut off from the outside world, with millions of people below the poverty line.

That’s a massive risk…

North Korean dictator Kim Jong-un is obviously struggling to control his people. Any sign of weakness could be the end of his regime and power…and possibly his life. For that reason, like many other dictators throughout history, Kim believes that an aggressive posture is the only way to stay in power.

Unfortunately, with a young ‘loose cannon’ in charge of a nuclear-armed country, that probably won’t end well for North Korea…or the rest of the world.

China and North Korea — the untold story

Kim Jong-un has warned multiple countries, including Australia, that he will destroy them. The supreme leader’s list of enemies is extensive. And, insanely, that list may include China soon.

Yonhap News Agency (South Korea’s largest mainstream news outlet) noted on 22 April (my emphasis added):

‘If [China] keeps applying economic sanctions on the DPRK [North Korea] while dancing to the tune of someone after misjudging the will of the DPRK, it may be applauded by the enemies of the DPRK, but it should get itself ready to face the catastrophic consequences in the relations with the DPRK.’

Kim is clearly paranoid and believes he must show external strength. But China, the world’s second largest economy, is North Korea’s main trading partner. Last year, North Korea exported US$2.6 billion dollars’ worth of products to China. That’s about 90% of the rogue nation’s total exports.

Trade sanctions on the country would be detrimental. And while Kim Jong-un’s luxurious lifestyle is unlikely to change, he should be worried.

Deutsche Welle reported on 13 April:

‘“Everything depends on China and, to a certain extent Russia, but I do believe we are seeing the start of a crisis for the North Korean state,” said Ken Kato, director of Human Rights in Asia, and a member of the International Coalition to Stop Crimes Against Humanity in North Korea.

‘“The defections tell me that there is a deep malaise in North Korean society that is only going to get worse as sanctions bite harder,” he said. “That, in turn, will encourage more to defect and, thanks to technology, stay in touch with their friends and relatives they left behind.”

‘Ultimately, a vicious cycle of less money for the state, less money and food for the public and a consequent rise in defections will be impossible to sustain, Kato believes.’

More sanctions could be the final straw for many starving families. This could trigger massive civil unrest and a possible coup.

And more sanctions are likely to hit the country, especially from China. The Chinese banned coal imports from North Korea on 26 February. The ban will last until the end of the year. That might not seem like much. But it banned imports of gold and rare earths in April last year. That ban remains in place today.

I don’t know what will happen next on the economic front. But China certainly doesn’t want a war in its neighbourhood, which is why it’s trying to keep the country in line. It warned that another nuclear-weapons test would push relations ‘beyond the point of no return’ last week.

Beijing also said it would attack North Korea’s facilities, which produce nuclear bombs, if the country crosses its ‘bottom line’.

That’s certainly some tough talk, in either case. Yet the Western media doesn’t report that. The politically anchored media stream touts that China is not doing enough.

But what else can China really do?

Kim is out of control. Like a little boy playing with matches, Kim Jong-un believes he’s invincible and can take on the world.

Tensions rising

Yonhap News Agency reported on Sunday (my emphasis added):

‘After the United States deployed a nuclear-powered submarine and an aircraft carrier to South Korean waters amid high inter-Korean tensions, North Korea on Sunday threatened to sink the underwater vessel, accusing America of stepping up military intimidation.

‘“The moment the USS Michigan tries to budge even a little, it will be doomed to face the miserable fate of becoming a underwater ghost without being able to come to the surface,” the North’s propaganda website Uriminzokkiri said in a posting.

‘“The urgent fielding of the nuclear submarine in the waters off the Korean Peninsula, timed to coincide with the deployment of the super aircraft carrier strike group, is intended to further intensify military threats toward our republic,” the website claimed.’

The guided-missile submarine USS Michigan sailed into the South Korean port on 25 April. The US military is conducting exercises around South Korea, anticipating an imminent attack on the country.

Take a look at the USS Michigan:

Source: Twitter
[Click to enlarge]

The USS Michigan is a nuclear-powered submarine. It’s one of the US Navy’s most powerful toys, armed with 150 Tomahawk missiles suited for long-range strikes. And if the US has publicised the arrival of this sub, you have to wonder about the rest of its sub-surface striking range.

Kim Jong-un’s regime isn’t impressed with the US naval exercises. It told Yonhap News Agency, ‘…whether it’s a nuclear aircraft carrier or a nuclear submarine, they will be turned into a mass of scrap metal in front of our invincible military power cantered on the self-defence nuclear deterrence.’

It’s crazy talk. Literally.

Kim Jong-un actually believes he can destroy the US. That is, the country with the most powerful military on the planet.

Unfortunately, with a loose cannon in control of a nation, all that firepower may not be enough of a deterrence.

Kim Jong-un could do something extraordinarily stupid at any moment. Alarmingly, only one mistake is needed to spark global military conflict. That could be a missile attack on a military exercise or in the wrong direction.

I hope that he doesn’t engage the world in war.

Remember, war isn’t good for much — except commodity prices. Throughout centuries, resources are needed to build militaries. That’s why commodity prices tend to rocket during wartime. For that reason, I recommend buying the best resource stocks in the right sectors.

Regards,

Jason Stevenson,
Editor, Markets & Money

Tech Wreck Coming
By Bill Bonner in Gualfin, Argentina

This week, we got a visit from an Austrian man who recently retired and is spending five years traveling the world.

He has a specially outfitted four-wheel-drive Toyota with such marvels as heated water for a shower, a stove, a kayak, and an iridium-based alarm system.

Bill encounters a truck prepared to travel the world
[Click to enlarge]

In case the vehicle gets stuck, it also has a balloon under the carriage that can be inflated to lift the tires up and out of the mud or sand.

‘Wow…I guess there’s a lot of new technology involved,’ we remarked, just making conversation.

‘No…they took the new technology out of it. There are almost no electronics. It has to be fixable… almost anywhere.’

Low-tech apple pies

We do not think much about new technology.

Not only do we know nothing about it, but we also don’t want to know.

We’re perfectly happy with old technology. The low-tech apple pies cooked by our grandmother were as good as any tech-enhanced, plastic-wrapped confection in the grocery store today.

The wood fire we sit in front of every night warms us as well as any electronically-controlled central heating system.

And yesterday, Mila — the 10-year-old daughter of one of the gauchos, now enrolled in Elizabeth’s English class — came into our office.

She handed over an old-fashioned note, handwritten on a piece of low-tech paper (no need for batteries or an internet connection).

On it she had drawn a heart, with these words: ‘I will always be with you and your family.’

Show us the website that can beat that!

River of no returns

But now, Wall Street seems to be in the middle of a new bubble, even wilder than the last one.

In the bubble of the late 1990s, dot-coms with no proven ability to earn money sold equity worth billions of dollars.

Investors told themselves that the dot-coms would be hugely profitable. Most of them never were profitable at all. In March 2000, their stock prices collapsed.

But today, investors don’t even seem to care about profitability — not now…not ever.

We say that after reading colleague Dan Denning’s update on Amazon in the latest issue of our monthly newsletter.

More than 10 years ago, we dubbed Amazon the ‘River of No Returns.’ Since then, a lot of water has run under that bridge.

Shareholders have bid up the company’s market cap to nearly half a trillion dollars. And they’ve made a lot of money trading the stock back and forth between themselves.

But Amazon has not returned a single penny to investors.

Badge of honour

There are rare moments when politicians don’t lie…porn addicts don’t want to look at dirty pictures…and investors don’t care about money.

They won’t last, we predict.

But for now, investors are happy to be in the company of a real visionary…and they count on other investors to want to join them.

The theory, we suppose, is that if you can get enough gross, you can turn it into net when the time is right.

But Amazon’s business model seems to depend on not making any profits. It makes sales by offering products without them. Add in a profit…and its competitive advantage disappears.

Not that we know what will happen. But we’re amazed by investors’ patience: They’re waiting more than a decade to find out.

At least Facebook and Google were profitable when they went public. Snap — which makes a messaging app popular with millennials — had a loss of more than 100% of sales when it went public earlier this year.

And ride-sharing app Uber had losses of about $3 billion when it went public. Losing money was a badge of honour, not of shame.

The Tesla of schmatta

But this is the kind of thing you get in a zero-interest-rate world.

The big players have a lot of ready money to work with.

What to do with it?

Give it to the guys with ‘vision’!

The next thing you know, Amazon — the visionary retailer, remember — launches an entertainment business.

Yep. This year, Amazon is spending $4.5 billion on Amazon Studios, which produces original TV shows and movies for its Amazon Prime streaming service. By contrast, competitor HBO spent only $2 billion last year.

But why not?

Investors give you all this money, you gotta do something with it, right?

Meanwhile, back in dear ol’ Baltimore, the city’s leading visionary is having trouble focusing.

Under Armour CEO Kevin Plank — hero to all those millennials who got confused and thought that Baltimore might be the new San Francisco…or at least the new Brooklyn — tried to sell his sportswear company as though it were a tech firm.

We never understood how the two connected.

But Mr Plank — young, handsome, rich, and ‘visionary’ — was the toast of the town while we were, uh, chopped liver.

He was not only going to create one of the great new tech companies of the 21st century, but he also built a whisky distillery…a horse breeding operation…and a 3D factory to ‘print’ running shoes on demand.

Plus, he had plans to renovate a whole rusty and dilapidated section of the city, with new stores, restaurants, theatres, and apartments.

So, we admit to being seized by a certain amount of unbecoming and disgraceful schadenfreude in reading that Plank’s stock has since lost 65% of its value.

Which just goes to show that investors can lose confidence in the vision of the visionary…as well as the whole ‘red is the new black’ investment mantra.

Someday, perhaps soon, we predict that red will be dead again…and black will be back.

Investors will want profits. And dividends.

They may have sent their money off in a self-driving, electric-powered, artificial-intelligence-assisted auto. But they’ll be happy to see it come back home, older and wiser, on the bus.

Regards,

Bill Bonner,
For Markets & Money