Tuesday, May 26, 2009

North Koreas Effect on the Economy

North Korea has been in the news quite a bit over this extended Holiday weekend here in the United States. Not only did they conduct an underground nuclear test over the weekend, but last evening they test fired 3 short range missiles, after the strong condemnation of the nuclear test by the world governments. So, What kind of economic impact will this have if any if things do continue to spin out of control, which probably won't happen?

Short Term the Dollar Will Rise, Gold will Rise in relation to other Currencies - The dollar is a safe haven when there are times of uncertainty in the rest of the world. Gold also is a great place to keep your money in uncertain political times, but the rise of the dollar may make Gold's rise a little less significant for us Americans.

Long Term The Dollar will Fall - If this thing gets drug out to where military action on our part was required, this means that there would be even more massive government spending, leading to even more national debt. Debt causes the dollar's power to decline in the long run

Stock Market
In my opinion this whole mess may give us all more time to invest at low prices. I highly doubt this will turn into an all out war, but even if it does, government spending is usually a plus for stock prices. If it doesn't progress much further, then stock prices remain depressed for a few extra weeks, and then shoot back up to where they would have been without a North Korea problem on our hands.

Overall, I'd recommend not changing your investing strategy at all if you are investing in US securities. If you are an Japanese, or South Korean investing in their local markets, however, an investment strategy shift may be in order.

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