The big dog

Was it only two days go this geriatric but prescient and well-muscled blog suggested (a) a Trump-Xi hug and (b) no rate hike? Hmmm. More bulleyes.

So it happened in Japan. Trump and his Chinese counterpart agreed to re-open trade talks aimed at ending the current war. The US will not impose a boatload of more tariffs on Chinese goods. They smiled, kibitzed, and Xi used all the time he gained by ignoring Justin Trudeau to yak with the Donald.

This is a big deal. The temperature went down immediately. The way’s now cleared for a US-China trade pact. It might take a while to emerge, but that’s okay with markets. Just stop the damn war. Thus Dow futures are up by triple-digits as I write this, making for an interesting Monday.

Meanwhile, as you know, China continues to dump on us. Canola guys stiffed. Pork shipments halted. The two Michaels in shackles. All because Canada unwisely did Trump’s bidding and arrested Huawei’s CFO (and daughter of the Chinese tech giant’s founder). Now we’re paying a big price for that, just as the US president is doing a deal with the company. American irony. We got played. Just ask poor John McCallum, our talented former Chinese ambassador that T2 threw under the bus. He knew.

Well, the trade war truce also has markets today rethinking interest rates. Odds were 100% the Fed would hike in July, with the expectation of a full 1% drop in the price of money within the next 12 months. But, nah, not so fast.

No trade war means lower input costs for US manufacturers and reduced consumer prices. All that translates into more economic growth, better job creation numbers, more upward pressure on wages bringing higher inflation and – bingo – no reason for the Fed to add stimulus. Stocks should rally past their 2018 all-time highs in the next few days, and could – as mentioned here last week – melt up.

Politics matter, too. Last week’s two-night Democratic debate slugfest defrocked the front-running Biden, exposed several of the leading candidates as lefty wackjobs and gave Trump a delicious moment when they all supported universal health care for undocumented immigrants, when lots of natives lack it. And then, the Kim Moment. Brilliantly orchestrated as a Tweet-inspired, ‘I’m-in-the-hood-so-can-I-drop-in?’ suggestion, it saw the first US president ever walking on NK soil. It resulted in a commitment to re-open talks on taking away Kim’s ballistic toys.

So what?

So politics is optics. While the 2020 election is a long ways off and anything can happen, this was a dream weekend for the White House. Trump and Xi. Trump and Putin. Trump and Kim. Saving the world. One badass foe at a time.

More predicting: Trump does a deal with Xi. Maybe next year. The US and North Korea sign a nuclear non-deployment agreement. Kim visits America and starts a haircut craze. The American economy shifts into overdrive. The Dow and S&P move into uncharted territory. People forget about rates cuts, since they no longer matter. And investors plan on four more years of tax-cutting, growth-pumping, inflationary, testo-drenched, capitalistic chaos from the oldest person ever to be elected to a second term.