What's going to happen to the stock market if Larry Kudlow is right?
Larry, the chief economic advisor to the president of the United States, had some pretty bold things to say about world trade this morning on 'Squawk on the Street', so bold that they are worth parsing here.
I make no bones about my relationship with Larry. He was my partner in Kudlow & Cramer, a lively show about politics and money, from 2001 until 2005. So let me just say I have a bias, he's a friend and I want that known lest anyone say, "he's just an old crony of Kudlow's." You can say it but you have to understand I am not going to deny it.
There. That's my preamble.
What did he say, exactly?
He made two points. The first: even as we haven't seen anything positive coming out of China since the talks concluded last week, don't give up on a deal. "People shouldn't be so pessimistic on China," he told us, "some good things could happen."
He predicted that not only would the Chinese be buying agricultural products, they would also amend the way they treat joint ventures with American companies. Historically, the Chinese would only let our enterprises to own 49% of a venture. The Chinese got the majority stake. Larry said that's about to change and our companies will be the ones who own more than 50%.
Second, he said that we shouldn't give up on a NAFTA revision and there could be a deal in the offing. Despite what looks to be irredeemable contempt by Speaker Nancy Pelosi toward President Trump, Larry said she had been accommodative about the potential United States, Mexico and Canada trade agreement before Thanksgiving.
Now I thought this deal was a possibility just a few weeks ago when I interviewed Speaker Pelosi on Mad Money. She said it was too important for the nation to let partisan politics derail it. But that was before she switched stances about impeachment. I figured her support for impeachment meant the end to any constructive dialogue. No, Larry said, things are on track.
My general sense of things, as posited by my Twitter file is that Larry is an eternal optimist and he's just blowing smoke. I figured it would be like that which is why I gave Larry a chance to dial them back by asking about both a second time. He made it clear that these answers were checked off by Robert Lighthizer, the chief trade negotiator for the president.
I have to ask, why bother to say that if you know it could be discredited rather soon. Yes, Larry is a perennial constructive individual but that doesn't corrupt his thinking about what he's heard from the key man on trade.
Which brings me back to my original question: what happens to the stock market if we get a trade deal with Mexico and Canada before Thanksgiving and we see concrete results from China despite the rancor visible from all sides? I think we blast right though these levels and go much higher.
I know that there will be some sardonic managers and commentators who will say, "Oh the Fed will be done tightening then" and therefore the market must go lower.
I believe the weakness in this economy and the stock market stems from a lack of trade deals worldwide. We could have a real pro-American domino effect if trade hang-ups with Mexico, Canada and China all resolve themselves positively.
If that's the case, earnings will explode for the weakest part of the economy: the industrials. If that is the case then long rates are going higher, the inversion ends and who cares about the Fed.
So, question or dismiss Larry all you want. Short or long, you want to be buyer because we are going much higher if my ex-partner turns out to be right.