Is North Korea in violation of U.N. mandates with its most recent missile tests and what does this question have to do with financial markets? The answer to the former question is "no" according to the President of the United States, Donald Trump, and "yes" according to his National Security Adviser John Bolton. The answer to the latter question is that this question will affect the performance of financial markets in the coming months more than any other "economic question" and I'll tell you why.
In short, Bolton is on his way out and the Trump that campaigned on not policing the world is campaigning again. Trump rarely contradicts his own people so openly without an impending guillotine. This means hands-off global conflicts at least until November 2020. No war with Iran. No war with North Korea. Daily changes with respect to trade policy with China. Taking a page out of Adam Curtis' "hypernormalization," Trump's complete and utter unpredictability is utterly predictable and it's something we need to all come to terms with.
North Korea is Trump's pet project and his path to the Nobel Peace Prize, read "winning." So any increase in conflict with North Korea is impossible. Iran on the other hand would be a war orders of magnitude worse than Iraq, and Israel would be threatened in the meantime, both of which Trump can't risk. Finally and most importantly Iran means big business. Trump and most of his colleagues in Washington love Iran. Specifically the Islamic Republic. They need it. They feed off of it. It's their cash cow and literally puts money in their pocket.
Remember the photo opportunities with Arab leaders in the White House when Trump first became president? You know the one where he rests a Kinko's printed board on the lap of a crown prince and runs through a laundry list of arms purchases in front of another Gulf monarch? Why was Trump able to do so? In a word, Iran. Saudi Arabia and other Gulf countries are being forced to arm themselves against an impending Iranian attack. The removal of this threat doesn't bode well for people who sell weapons to counter the Iranian threat. The weapons makers in turn "donate" to saber-rattling think tanks which in turn are the farm teams for government and vise-versa. I'm thinking of people like John Bolton, destined for a fellowship at the American Enterprise Institute any day now.
A 45-year-old Iranian has never known an Iran free of sanctions and embargoes. She or he do not want continued economic strife in their country, absent sanctions, one of the wealthiest countries in the world. A peace between Iran and the Arabs would mean billions of dollars in arms sales would vanish. Iranians could invest in their people and Arabs in theirs. Prosperity neither side has ever known would exist and children could grow up knowing their future would be brighter than their parents. For all of this to happen, arms sales to the region need to suffer. Is this something Bolton and those that he serves, not President Trump apparently, will allow? For the sake of little kids everywhere in the Middle East and beyond, here's hoping.
With the removal of Bolton, probably something that will happen sometime in the coming months, Trump can get back to fighting his trade war or at least threatening to fight it. The Chinese may respond in kind, if they can, and Trump can campaign on "making America great again" and returning jobs to the U.S. If the economy and this bull market continue into late next year, Trump is all but guaranteed a win. The Fed has plenty of room to ease interest rates and thus Trump has an election cushion should the Fed be so inclined to help out.
Should Trump truly fire Bolton and remove Bolton-types from his administration, he has the potential to turn this accidental presidency into something great. Can Trump mandate peace in the Middle East and the Korean peninsula? Definitely. Would it be in the best interest of the United States economically? If only it somehow could be, peace is at hand.
