Follow the market. Financial markets are the ultimate arbiter of risk. What we have here is the 5yr Republic of Korea CDS which gives a rough guideline of how risk is being priced over time. Clearly unchartered waters at the time of GFC saw Korean risk leap to 700bps. The death of Dear Leader Kim Jong-Il saw around 240bps on the clock and Kim Jong-Un’s first nuclear weapons test saw a slight nudge over 100bps before sliding back to a standard 50bps range. Since Trump sent a carrier battle group and China issued an ultimatum (the ‘bottom line’) the rate has popped to 58.7 from 50-odd earlier in the week. It will be no surprise to see the fear factor rise in coming days but the odds are now on for China to take charge and work to install a pro-Beijing puppet which can be sold as a way to dismantle the nuclear threat and remain China’s protectorate. Kim Jong-Un may be offered a Rimowa of cash and an Idi Amin style exile in Saudi Arabia as a way to saving his hide because he has no alternatives and backing down in the face of the current situation will bring his power into question. China wants North Korea to survive for its political aims. For now markets are not panicking. Gold drifting higher and Korean won softening but it is hardly showing fear at this stage.