The deal mattered. I know that the Chinese have a history of reneging on all sorts of deals but this one does feel different and it's why the market is erupting in a way that seems to have real heft.
So, the questions we must ask are why is this deal different and why are stocks having such a positive reaction to is?
How does stage one have teeth? First, unlike almost every other deal the Chinese have done with us, it actually needs what we have: pork. I think the problems of pork are poorly understood. African swine flu is behind the need by the Chinese for our pork. Most of the Chinese pork comes from backyard farms. African Swine flu is airborne and virulent.
The Chinese are ill-prepared for this scourge. It is expected by the highly respected RaboResearch that the herd loss will reach 55% in 2019. Unchecked it could be worse next year. Contrast our herds which are being treated with extreme biosecurity. You can not go see a hog farm. You are too big a bio risk. Trucks that go in and out must be hosed down. It might as well be like The Stand, that fabulous Steven King book where the human killer virus could not be maintained. May I suggest reading the Lincoln Tunnel scene if you learn nothing else from tonight's Mad Money show.
Anyway, the Chinese have frozen pork to tide the people over and there are government run farms with better biosecurity, but unlike grains - the ubiquitous soy - we are the only country with enough production to export. Food inflation is a real issue in China. People should remember that Tiananmen square protests started as food riots. The mainstream media is transfixed upon the notion that the Chinese play the long game. To me it sounds a lot more like the Hunger Game.
The Chinese can drag out their purchasing but time is not on their side because other countries' herds are being decimated, too. Get in line.
Second reason the deal has teeth? The last round of tariffs that were cut in half and the new ones that have been proposed and are now scrapped, will come right back to life in a couple of months if the Chinese don't play ball. I think this is the equivalent of Ronald Reagan's trust but verify stance with the Soviets. So we haven't see the last of the tariffs if issues remain unresolved.
Third reason for the tariff forestalling? The Chinese want the end of the exodus of companies from China to other countries. The long game mainstream media has endlessly said that the tariffs mean nothing to the Chinese who can out wait us any day.
But it isn't "us" that's the issue. For years and years the Chinese have received business from out countries as U.S. companies have shuttered factories and moved them to China. Now it's the other way around. It is absolutely clear that few companies have opened new factories here. However, as infrastructure is built out in Vietnam and as South Korea and Mexico score new business, the Chinese have to create even more make work projects. It's a lot easier to take our jobs away than it is to pay people to make goods that aren't needed.
Now, how does this deal have such a positive ripple impact for U.S. stocks? Let's start with last week, Credit Suisse, which has a hold on the stock of Apple (AAPL) wrote a piece headed, "China iPhone shipments decline meaningfully in November, looming tariffs a risk."
The stock got clobbered. I immediately suggested that this was a classic example of what has kept people from scoring big owning Apple because you could easily be freaked out and trade out of Apple on this note. I urged you to stick with it. I said own not trade it.
Sure enough we have now gotten rid of the tariff risk and with that may come a resurgence of Apple orders in China. It could reverse the entire dynamic. Maybe you could have gotten out of Apple's stock and back in but, as I have said over and over again, nobody is that good.
Apple's pin action is huge. You have exposure from Texas Instruments (TXN) , Cirrus Logic (CRUS) , Skyworks Soluions (SWKS) , Qorvo (QRVO) , NXP Semi (NXPI) , Broadcom (AVGO) which just reported a terrific quarter last week, and Micron (MU) which reports this week. These are all good shorts if you think that Credit Suisse is going to be right. But they are fabulous longs if you think Credit Suisse is going to be repudiated and that sure seems the case.
Why we know that some retailers have mitigated tariffs well, others are regarded as totally lame and pathetic. The most lame and pathetic are Kohl's (KSS) and Macy's (M) . They immediately experience a run as they are regarded as pure victims if not roadkill.
Then there are the banks and fin techs. These companies are widely perceived as the ones who will be able to fly unfettered, without bogus partners, because of stage one. JP Morgan (JPM) , Bank of America (BAC) , Citigroup (C) , Mastercard (MA) , Visa (V) and PayPal (PYPL) , which is already there, truly had their day in the sun. Again, ETFs make all banks and fintechs go up when these go up. It's what's happened. Live by the ETF, die by the ETF.
Then there are the oils. Remember, whenever you think that the world's economy could accelerate there's a knee jerk rush to owning the oils, any oils. The ETFs, once again, move every one of the oils higher, the good with the bad.
Now beyond China there's another set of winners today: the cloud kings. Last week Adobe (ADBE) reported a fantastic quarter but because of the tariff woes people simply didn't step up and buy them as they would normally have done so. That's not the case today as you have ServiceNow (NOW) , Splunk (SPLK) , Coupa (COUP) are emblematic of the move.
Not all's well that ends well. If Boeing (BA) considers halting production of the 737 Max that could ripple through the economy for certain but beyond Boeing's stock there wasn't much pin action save GE (GE) .
It's strange to see the market act so simply to such obvious news like the China deal. But this is a market that thrives on certainty. We got it Friday. Thrive away!
(Apple, Nvidia, Kohl's, JP Morgan, Citigroup and Mastercard are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)