It's a start.
What else can you say about a decision by the Chinese government that amounts to a potential repudiation of the Made in China 2025 plan, a plan that is tantamount to stealing our technology to make their technology superior to our own?
It's why the market rallied and, to me, it makes perfect sense.
Throughout this tortured period of trade negotiations there have been two tracks, there's the track of those who want more trade with China on a fair basis, and those who don't care about trade if it is going to fund China's plans for worldwide hegemony as expressed by the Made in 2025 plan.
That plan, which is literally a manifesto to rip off our companies that want to do business in China chiefly by creating absurd joint ventures that feast off of our own technological know-how, is antithetical to the way every other country does business. It's a big deal if they mean it.
But therein lies the problem. We have no indication whatsoever that they mean anything. There has been a relentlessness to the Chinese to catch up and beat us in all things technological whether it be semiconductors or aerospace or robots and the like. The only way to prove they mean business is to renounce their joint venture policy and begin to let some outfits in to do business. In other words, show in deeds, not just in words, that an American Express (AXP) or a Mastercard (MA) or a Visa (V) can work unfettered in the country just to give some examples of companies that thought they would be in China a long time ago.
I don't want to be skeptical on such a good day for the bulls, but if the Chinese are so eager to make deals than I wonder why they are eager to sell our technology to the Iranians against our curbs or hack our companies to get information, like the hack that occurred against Marriott (MAR) , according to the New York Times, which splashed it all over the front page today. That's just plain old state sponsored terrorism, something that FireEye FEYE, a company that tries to combat these hacks, will talk about tonight on Mad Money.
I want for a moment, though, to put this China news in perspective because it can really make a difference if you think about it.
First, one of the biggest underlying weaknesses in this market is the plummet in Apple's (AAPL) stock. Now we know this company has its share of challenges as we keep hearing about weaker sales globally. However, it is China that's causing the most worry. For example, we learned Monday that an obscure court in China ordered a host of Apple phones banned because of patent issues with Qualcomm (QCOM) . The semiconductor company has filed suit all over the world against Apple in a long running dispute. The Communist Party controls all courts so this decision presumably has the blessing of the Chinese authorities; there is no freelancing in China. However, it is hard to imagine a situation where China's making nice to the U.S. and at the same time trashing its second largest company in retaliation to the arrest in Canada of the CFO of a $100 billion Chinese company.
Second, we have so many industrial stocks that have been sold down endlessly on a belief that there's nothing China could do to mollify the hardliners in the White House. The 2025 plan is at the real crux of our grievances against the Chinese. These companies have been a horrendous drag on the averages, including tech companies that are or hope to do a lot more business in China. Maybe there's a whiff of hope here.
Finally, there is a sense that the Chinese, so often portrayed in the media as being all powerful, may not be in as strong a position as the China hands think. Their economy is slowing. The trade issues are bigger than just the U.S. or a country like Canada wouldn't do our bidding in this Huawei case.
Finally, there's something nobody's talking about that could be behind some of this softening. There is a mistaken belief in this country that the president is an implacable foe of China on every front, not just on trade, although he calls himself Tariff Man on Twitter. Untrue. He's more practical, more open-minded than others in this administration.
Strange as this may sound I think the Chinese are making a calculated bet that they might be on the wrong side of U.S. history if they don't get their act together. That's because the real hardliner, the person who is toughest on all aspects of China, especially religious freedom and unchecked foreign expansion, is the vice president. That's right, Mike Pence is the real hawk who doesn't seem all that interested in trading with China because he wants to starve their attempts to dominant the globe militarily. Unlike President Trump's view, when you read speeches Pence gives you think about the old Soviet Union and the desire to have regime change. Compared with Vice President Pence this president is the proverbial bird in the hand.
Now, let's talk bigger. Why did almost every stock fly up on this news today? Because the buyers want to own the S&P 500 with a belief that our entire market may be worth more without a trade war. This is a market where everything goes up on day one, today, and then tomorrow, it gets selective.
What stays strong on day two? First, barring any contradictory riposte, like the indictment of top level Chinese officials by the U.S. Justice Department over hacking, it will be tech again. I think that the semiconductor capital equipment companies like Lam Research (LRCX) and Applied Materials (AMAT) and the fast growing semis, like Advanced Micro (AMD) , Broadcom (AVGO) and Xilinx (XLNX) could get a boost.
I like the prospects of the companies that are frantically trying to move away from Chinese suppliers and are having quality issues doing so: think Restoration Hardware (RH) . The dollar stores that want too much to have cheap merchandise and keep going back to China to get it: Dollar Tree (DLTR) and Dollar General (DG) . And the department stores that have a decent percentage of Chinese goods. Think Kohl's (KSS) . Throw in some off-price companies with Chinese sources, the usual suspects, Burlington (BURL) and TJX Cos. (TJX) and you have some winners. And of course, Visa, Mastercard and American Express.
Now there were some other positive distractions today. The endless Brexit soap opera might be reaching a conclusion: I think by this time it might not even matter. We are hearing the Italians are, once again, trying to get some logical closure on their budget issues, although by this time it might not matter. Germany is making noises of fixing the Deutsche Bank (DB) worries soon, although by this time it might not matter. Yep three really boring issues where there are clear, well known paths that can end somewhere, anywhere, but at least end as they hang over this market like a dark shroud.
Oh and there's the Fed. It got a tame consumer price index number today to go with a tame producer price, in part because of a decline in oil that no longer seems to be ephemeral. Fed Chief Jerome Powell thinks he has to raise to slow down hiring -wages are the real inflationary flashpoint now that almost every other form of inflation is disappearing.
What should he do?
I think he should wait a month. But he's committed. So he does it. We slow the economy more than we should and then he'll be done. Not optimal but he has to live with his boomtown description of an economy going south and if we get high tariffs and no real agreement with China, will go south real fast.