Just a few days ago, Secretary of State Rex Tillerson sought to allay fears of a military confrontation with North Korea after President Donald Trump warned on Tuesday that he would unleash “fire and fury” on the regime.
Tillerson defended Trump’s remarks but said that there was no immediate threat from North Korea:
I think what the president was doing was sending a strong message to North Korea in language that Kim Jong Un would understand, because he doesn’t seem to understand diplomatic language.
The threat level has been maintained for now, and Tillerson also noted that Americans should be able to “sleep well at night.”
But Trump’s comments from Tuesday were significantly more incendiary than any made by a U.S. presidents in the past and appeared to cross the line by threatening nuclear war with North Korea.
These were Trump’s exact words that he said from his golf resort in Bedminster, New Jersey:
North Korea best not make any more threats to the United States. They will be met with fire and fury like the world has never seen.
Almost immediately after the president’s statement, and apparently in response to military exercises by the U.S. earlier in the week, officials in Pyongyang warned that North Korea would carry out preemptive military strikes against the U.S., starting with the U.S. Air Force base located in the Pacific territory of Guam.
Governor Eddie Baza Calvo of Guam released a video address Wednesday, reassuring the island’s residents that there was no escalated threat.
Homeland Security Advisor George Charfauros of Guam told CNN that he remains confident of the island’s defenses.
But North Korea warned in a separate KCNA report on Wednesday that it was looking beyond Guam and would hit the U.S. mainland with preemptive strikes with nuclear weapons should there be any sign that the U.S. planned to strike North Korea first.
North Korea said it would “turn the U.S. mainland into the theater of a nuclear war” at the first inkling of an impending American attack.
Soon after, however, Trump touted U.S. nuclear capabilities, further escalating the standoff with Pyongyang.
Trump reiterated this statement through a series of tweets:
My first order as President was to renovate and modernize our nuclear arsenal. It is now far stronger and more powerful than ever before…
…Hopefully we will never have to use this power, but there will never be a time that we are not the most powerful nation in the world!
Threats from North Korea’s nuclear and missile programs have been a top foreign policy priority for Trump since taking office in January. And the dangers posed by North Korea have taken center stage since the country test fired two intercontinental ballistic missiles last month.
The impending crisis intensified when reports emerged this week saying U.S. intelligence sources believed that North Korea had developed the ability to miniaturize a nuclear warhead to fire on top of an intercontinental ballistic missile.
These reports appeared to have prompted the president’s response on Tuesday.
Republican Senator John McCain, chairman of the Senate Armed Services Committee, said Trump took things too far:
I take exception to the President’s comments because you’ve got to be sure that you can do what you say you’re going to do. In other words, the old walk softly but carry a big stick.
Democrats are slamming Trump, saying his comments were “unhinged.”
California Senator Dianne Feinstein said in a statement:
President Trump is not helping the situation with his bombastic comments.
Tillerson has also mentioned that the U.S. is open to dialog with North Korea as long as it promises to abandon its current research and development of nuclear weapons and missiles.
But despite civil efforts made by the U.S., the military has flexed its muscles further by conducting joint military drills with Japan and South Korea and also by conducting show-of-force operations.
Experts worry that Trump’s rhetoric could hurt the U.S. by feeding into North Korean insecurities and by adding more instability to an already tenuous situation.
Joe Cirincione, president of Ploughshares Fund, a global security foundation, spoke to CNN on Monday:
We have two inexperienced, impulsive presidents in control of these massive military machines.
It’s one thing to make a mistake intentionally, it’s another thing to stumble into a conflict … either one — Kim Jong Un or Donald Trump — could miscalculate and let loose a war unlike anything we have seen since World War II.
Companies Behind the Fire and Fury
Major stock indexes continue to fall after Trump’s threat to meet North Korea with fire and fury on Tuesday.
The S&P 500 fell another 0.2% during midday trading on Wednesday.
Yet, the potential geopolitical instability was a boon for one segment of the U.S. market: America’s biggest defense contractors.
Raytheon Company (NYSE: RTN) gave this statement, regarding the latest tensions with North Korean, to Fox Business:
We are seeing significant demand signals for our integrated air and missile defense, cyber and ISR solutions driven by events going on around the world today. Interest in our international portfolio is strong and growing.
Tim Cahill, vice president of Lockheed Martin Corp’s (NYSE: LMT) Air and Missile Defense business, told Reuters that some countries across the world have made missile defense their utmost priority:
The level of dialogue around missile defense is now at the prime minister and minister of defense level.
All this uptick in demand directly coincides with the accelerated ballistic missile tests in North Korea.
Lockheed Martin is trading slightly down at 0.14% premarket at $300 per share.
The aerospace and security company has seen a 20% increase in the price of its stock since the start of 2017 — in line with stocks of industry peers that have increased in price since Trump’s inauguration on the expectation of increased defense spending.
Being the largest defense contractor in the world, Lockheed Martin confirmed on Wednesday that the company has fielded an increase in customer inquiries regarding missile-related capabilities over the last 12 to 18 months.
Raytheon, known for its Tomahawk missile and other impressive weaponry, also said that the global threats are driving demand.
Shares of the government defense contractor traded slightly up premarket to $175 per share and are up 23% in total this year.
Lockheed Martin and Raytheon state that they have received more interest in missile defense systems as threats continue to intensify with North Korea.
These are just a few of the companies that contribute to the THAAD Missile Defense System, an American anti-ballistic missile defense system designed to shoot down short-, medium-, and intermediate-range ballistic missiles in their terminal phases.
The U.S. military has a THAAD battery in Guam (home of around 163,000) and conducted a successful test of a missile intercept back in July.
Boeing Company (NYSE: BA) and Honeywell (NYSE: HON) are also among supporting contractors that work on the THAAD system.
Besides being the Dow Jones Industrial Average’s top performer this year and a contributor to the THAAD system, Boeing is only down 1.25% to $236.50 per share.
This will most likely change, considering Boeing is one of the government’s top contractors and is also an impressive component of the Dow.
Its stock has rocketed 54% this year alone.
And finally, Northrop Grumman Corporation (NYSE: NOC) shares haven’t moved in the premarket, but the global security company’s shares traded slightly up to $269.82 at Tuesday’s close.
Year-to-date, the company’s stock is up 16%.
This increased demand overall could turn into big sales over the coming years.
The Bottom Line
Last Friday, North Korea tested an intercontinental ballistic missile that some experts believe could put half, if not most, of the continental U.S. at risk.
And there have been reports released this week that North Korea may be close to conducting its sixth nuclear test.
Experts believe that Iran could have an intercontinental ballistic missile capability similar to North Korea within a few years. Just last week, it demonstrated its ability to successfully launch missiles and also satellite carrying rockets that some see as precursors to long-range ballistic missile weapon capability.
A U.S. offensive attack isn’t likely anytime soon, experts say.
Defense Secretary James Mattis and new White House chief of staff John Kelly are unlikely to sign off on any military action. So, the president’s comments on Tuesday may just be yet another example of “Trump being Trump and firing off his mouth,” adds Robert Kelly, associate professor at Pusan National University.
Former President Obama made the same mistake.
The issue is that the president’s continuous use of such incendiary rhetoric is seen as further undermining the image and credibility of the world’s greatest economy.
The more he doesn’t follow up on promises, the weaker America’s image becomes overseas.
Trump is gaining a notorious reputation for not being truthful.
It is unclear to what extent — if any — the U.S. nuclear arsenal has been modernized since Trump took office.
Efforts to update the U.S. nuclear arsenal are heavily governed by existing treaties with other nuclear states.
The long-standing goal of those agreements has been to reduce the overall number of nuclear weapons worldwide — not aid in the preparation for another World War III.
Paraphrasing our president, we’ll hopefully never have to use our power, but it seems that members of the U.S. intelligence community may have underestimated North Korea’s nuclear prowess.
The specific nature of North Korea’s threats (promising to send four missiles toward Guam) while ridiculing Trump for spouting “a load of nonsense” shouldn’t be taken lightly.
Now, Trump and his entire administration are faced with a serious dilemma — hit back, take some other escalatory action, or risk seeing the president’s credibility and global authority damaged by a defiant dictator.
This has all of us sitting on the edges of our seats…
That’s all for now.
Until next time,
John Peterson
Pro Trader Today