Nuclear Anxiety Returns to America

Opening their paper on Friday morning, readers of The Wall Street Journal encountered a financial item of unusually wide interest. “Here’s a question that’s probably not on the CFA exam,” write Mike Bird and Riva Gold. “What happens to financial markets if two nuclear-armed nations go to war?”

What, indeed? We soon learn the consequences could be dire. Short-term interest rates would rise and long-term rates would fall. In a small skirmish between North Korea and the United States, the S&P 500 Index might post 20-percent losses “before it became clear that the U.S. would prevail.” But were another nuclear-armed power like Russia or China to get involved, the European Central Bank would have to take extreme action and issue “highly dovish forward guidance.”

Yet even amid this market turmoil, the savvy broker might still protect their investment. Sure, it’s true that the Japanese yen—a traditional safe haven—makes for a tricky bet when Tokyo is 800 miles downwind of Pyongyang. But there’s at least one good option left, according to analysts at the Nordea Group:

German bunds, the perennial refuge of panicked investors, would be good to own during a nuclear conflict too, with aggressive buying pushing the spread between German two and 10-year bunds to 0.5 percentage point, from above one percentage point now.

At last, a good spread between German bonds. What a relief.

Nowhere does the story mention several other consequences of nuclear war: the urban firestorms; the plumes of sun-blotting black smoke; the crop die-offs across Asia, Africa, and North America; and the breakdown in the global communication network, whose destruction would render the German bund meaningless (no matter how favorable its yield curve). Nor did the story pause to note the millions of dead.

In the second week of August 2017, the American public began to do something that felt distinctly 20th century: Consider the consequences of a nuclear…

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