Trump vs North Korea Brings On Volatility

This afternoon President Trump presented a big red line to North Korea by threatening them with “fire and fury like the world has never seen” if the nation kept up its threats against the US. Not to miss the opportunity to equal Trump’s brashness, North Korea has returned the favor by threatening to send missiles to Guam. This is a scenario no one would have quite expected when they woke up this morning…well actually yes this would be something many would expect. This definitely would be in the realm of possibilities for President Trump which is quite scary for the nation and the world.

For most of the day the markets were doing their usual dance, slowly climbing up getting ready to reach new highs. This afternoon’s pissing contest between Trump and Kim Jong Un put an end to all of that:

S&P 500 8-8-17

The S&P 500 reached an intraday high around 2,490 at about 12:10 PM EST, if the market closed at that point it would have been an all time high. During the afternoon the S&P began to give back some of the day’s gains, but still remaining in positive territory. It wasn’t until Trump’s bombastic diatribe around 3:20 PM EST did the S&P sink and turn negative.

I’ve already placed a bet¬†on the VIX that either Trump and/or just the market being at all time highs will be a catalyst for increasing market volatility. I’ve placed approximately 5% of my rollover 401k in TVIX as well as a small position in my non-retirement account. TVIX was up 5% today just on the strength of Trump’s reckless approach to foreign policy.

TVIX 8-8-17
It appears that TVIX has continued to rise during after hours trading.

I’m not wishing for war and death of innocent people by any means. No investor or trader with any measure of humanity wants to make money that way – I want to be crystal clear about that. I pray that tomorrow these provocations turn out to be just words and bluster and nothing more. I would much rather the market declines due to natural causes, not because of a military conflict.

At least for today, my hedge that Trump would bring volatility to the market has proved to be a smart bet. I’m sure most average investor’s portfolios were down today, my bet on volatility produced an overall positive return for my 401k. It has also helped that I have over 40% of my portfolio in cash. I’ve resisted getting back into small caps and mid caps due to them lagging the market and their overall negative return over the past couple of weeks. So far my strategy is paying off, we will see what tomorrow holds.


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