The United States is planning joint military exercises with South Korea, while Kim Jong-Il has told the North to prepare for war. The markets are responding negatively to the escalation of tensions, which follows the sinking of a South Korean warship. Tricky as it may be to predict how this will play out politically, commentators think they have a handle on how the crisis is hitting stocks and Treasury notes.

• Asia Down, Everywhere Else Down Too Mike Shedlock notes a "sea of red in Asia," but points out that "close inspection of the futures market shows it is a sea of red everywhere ... right now the stock market," he concludes, "does not seem too excited by war prospects. The beneficiary should be easy to guess. US treasuries are flying high."

• 'The Market Is Freaked Out' Business Insider's Joe Weisenthal is less mild.

• 'Buckle Your Seat Belts,' suggests Randall Forsyth at Barron's. He, like many, blames the North Korea-South Korea tensions for the sell-off yesterday. He also adds that "once again, the winners are U.S. Treasuries and gold as safe havens. In other words, more of the same."

• 'Not Exactly the Best Time to Escalate a Fight,' comments Yves Smith at Naked Capitalism, eyeing the sinking euro. "In case you managed to miss it, it's ugly out there."
  

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Heather Horn