Geopolitical tensions are rising in Syria and North Korea, with North Korea now appearing to be a hair trigger alert away from some sort of bombing campaign. If investors think there is a possibility of that occurring in the weeks ahead and are looking for short-term gains or protection from falling equity prices, the SPDR Gold (GLD 211,52 -1,22 -0,57%) and the Direxion 20-Year Treasury (TMF 49,18 +0,74 +1,53%) – triple levered ETF – may be in order.
On Tuesday, boutique research investment firm Bretton Woods Research out of Long Valley, NJ recommended the two ETFs to their clients for short term security against the war drums.
A worst-case scenario for financial markets would involve a North Korean counter-strike, report authors said. In conventional military terms, North Korea is no match for the U.S. military, but it is possible the North Koreans could sink one or more American battle ships, given its submarines and existing ballistics capabilities. Such an event would likely catapult the gold price to $1400-1500 in short order and risk a quick 10% downside for the S&P 500.
The traditional safe havens are back in demand. Bond investors are focusing on the 10-year Treasury yield which is yielding around 2.30%. Safe haven demand is also reflected in the 10-year German bund yield dropping from a high of 0.51% in March to 0.21% currently. This might reflect uncertainty over the outcome of the first round of the French Presidential elections on April 23. Europe is a more exact risk, with Syria and North Korea being an unpredictable risk. The European parliament will meet on April 29 to discuss the guidelines for the Brexit negotiations.
Otherwise, equity markets are holding up even today. There is some investor concern still on the stretched valuations in the S&P 500. The index broke below its 50-day moving average yesterday, but the upward trend is still there. Corrections have been minor, though a 10% correction can never be ruled out due to geopolitical risks, valuations and the Republicans not moving on market-favorite items like healthcare and tax reform.