Peter Kent Navarro: Expecting Dow 32,000 By End Of 2020

CNBC Transcript: Director for the White House Trade and Manufacturing Council Peter Kent Navarro Speaks with CNBC’s “Squawk Box” Today

Peter Kent Navarro

Image source: CNBC video screenshot

WHEN: Today, Tuesday, December 31, 2019

WHERE: CNBC’s “Squawk Box

The following is the unofficial transcript of a CNBC interview with Assistant to the President and Director for the White House Trade and Manufacturing Council Peter Kent Navarro on CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Tuesday, December 31st. The following is a link to video of the interview on CNBC.com:

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JOE KERNEN: White House Office of Trade and Manufacturing Director Peter Kent Navarro says Phase One of the U.S./China trade is a done deal. A report out of China says the country’s Vice Premiere could be in Washington as early as this week to sign off on it. And Peter Kent Navarro joins us now. He’s also an Assistant to the President. And, Peter, welcome. It’s great to have you back.

PETER KENT NAVARRO: It’s midnight somewhere.

JOE KERNEN: That’s right. You know, usually –

PETER KENT NAVARRO: It’s morning in America to me.

JOE KERNEN: Right. Usually we say it’s 5:00 somewhere. And you know why.

PETER KENT NAVARRO: Yeah.

JOE KERNEN: But, I’ve been kidding yesterday and last week that trade is so 2019.

PETER KENT NAVARRO: Yeah. Yeah.

JOE KERNEN: And what I’m doing is just sort of saying we did Phase One, maybe, or it looks good for Phase One and the financial markets seemed to have at least put it not on a back burner but not quite on the very front burner at this point. Is that the right sentiment to have, that the Phase One deal, we can count on that pretty much being in the bank?

PETER KENT NAVARRO: That one is in the bank, Joe. And there’s four other ones in the bank in terms of countries covered. Don’t forget, we signed the epic Japan deal. That’s $7 billion for our farmers. We renegotiated the South Korean deal. And we got Canada and Mexico, which is twice the buying and trade as China, and five times the exports. That one is sitting on Mitch McConnell’s desk ready to go to the floor of the Senate. And next year, yeah, 2020 we’re going to try to get something going with Great Britain, Vietnam, Europe and anybody else who wants to fairly trade with the United States of America.

JOE KERNEN: Is it possible that the deal could be signed as early as maybe next week? Are rumors of Chinese officials coming to D.C. to sign it next week, are they—can you give us any--can you shed any light on that?

PETER KENT NAVARRO: I cannot. I’m going to defer to Ambassador Robert E. Lighthizer, a great American who is probably on the phone as we speak with his Chinese counterparts parsing that. We’re just waiting for the Chinese translation of the 86-page agreement.

JOE KERNEN: So, we’ll – yeah.

PETER KENT NAVARRO: And I’m trying to figure out whether it’s going to be more pages or less in Chinese.

JOE KERNEN: You know who -- it was an old phrase but the President, we’ll see what happens.

PETER KENT NAVARRO: Yes.

JOE KERNEN: He said--we hear that a lot, don’t we?

PETER KENT NAVARRO: Yeah. How’s that working out? It’s working out great for America.

JOE KERNEN: So, we’ll see what happens.

PETER KENT NAVARRO: Yes, indeed.

JOE KERNEN: So, are you happy with the details of Phase One? There were--you can confirm or deny this, that maybe you didn’t like certain parts about removing from some tariffs makes America look weaker than you’d like or –

PETER KENT NAVARRO: Sure. I mean, look, the Phase One deal, if you break it down, it’s got great stuff in it. It’s got essentially the same chapter we had in the May deal the Chinese walked away from on Intellectual Property Theft. So, that’s a good deal. We’ve got a base obligation in Forced Technology Transfer. So, that’s a good start for Wall Street. Jumping up and down on Wall Street. Financial market access for the banks ensuring companies and credit card companies.

So, that’s a good deal. And if you go through the numbers on the purchases, it’s not just AG. You’ve got $200 billion of purchases above the 2017 baseline over a two-year period. About 1/4 of that is agriculture. But, you’ve also gotten energy, services and manufacturing. So, that could take a pretty good chunk out of the trade deficit with China. So, that’s a good deal. And you also have a nod to the currency manipulation, as well. So, Phase One, great start. We’ll -- we should be able to get it signed in January certainly. Let’s see what happens.

BECKY QUICK: Hey, Peter, there was a huge takeout in the “Wall Street Journal” yesterday about cyber espionage from Chinese nationals. Just how they had kind of worked their way into different cloud systems like Hewlett-Packard. Had stolen all kinds of intellectual property. “Wall Street Journal” did this takeout, a deep investigation that they ran through. And I have to say, even though I knew there was a lot of corporate espionage taking place and a lot of theft that was taking place, this kind of awed me, in terms of what they’ve been pulling off.

PETER KENT NAVARRO: Right. You should see some of the stuff I see and you’d be awed. No, I think that -- I think 2020 needs to be the year where we have a very candid discussion about that aspect of the relationship. I think what President Trump has done beautifully in his first three years in office is changed the discussion about China. Prior to him taking office, it was economic engagement is going to turn them into democracy today.

I think today there’s a clear-eyed view amongst the American people on Capitol Hill. And the President has taken a hard line and gotten good results from China. But, you know, the cyber espionage is intolerable as is the killing of Americans with Fentanyl. So, I think those are going to be two 2020 important issues. But I’m looking forward to a great 2020. I mean, the forecast wise, I’m seeing closer to 3% real GDP growth than 2%. I’m seeing at least 32,000 on the Dow. And I’m a little disappointed, Joe. You’ve got to play that clip for me.

JOE KERNEN: Hold on--will you just wait please? We’re going to do the trade stuff first. We’re going to get into that towards the end.

PETER KENT NAVARRO: All right.

JOE KERNEN: But just let me ask you about Huawei quickly.

PETER KENT NAVARRO: Huawei. Sure.

JOE KERNEN: Because there’s a lot being made of the record revenue that the company recorded. But the Chairman himself says the revenue -- the growth was slower than expected and more challenges remain in 2020. Do we want Huawei to fail? Is there any way -- do we need to decouple completely? Is there any way that record revenue for Huawei can be a symbiotic or an okay thing for us? Do we just not want them succeeding at all?

PETER KENT NAVARRO: Well, I don’t know who the ‘we’ is, but let me just express, what the --

JOE KERNEN: The royal ‘we.’

PETER KENT NAVARRO: There’s no royal in the White House.

JOE KERNEN: No.

PETER KENT NAVARRO: The issue with Huawei is both a hardware and a software problem. You have, on the hardware side, the concern that if your 5g systems are full of Huawei routers, bad things can happen in terms of shutdowns and siphoning of data. And in the blink of an eye with software on your handheld device or whatever, then espionage comes into play. And, as Becky said earlier, there’s plenty of instances of Chinese espionage. So, again, that’s a concern that’s been expressed at the Department of Defense, at the Justice Department, at the State Department. It’s a deep concern. And, again, it’s one of those issues that I think we need to look very closely at. But it’s a danger.

JOE KERNEN: Here’s how I’m going to show you. So, CNBC did some calculations on the first three years of some presidents and stock market gains. I think we have a chart to bring up there. You can see the presidential performance in the S&P 500 the President’s at 51.8, the current President, 51.8%, President Trump. And there are the respective gains for the other presidents. I will tell you, peter, that we use November 9th as the date for where we measure that. Anybody who uses January 20th has a vested interest in minimizing the returns of this--

PETER KENT NAVARRO: Correct.

JOE KERNEN: They’ve got an axe to grind. They’ve got a horse--

PETER KENT NAVARRO: Correct.

JOE KERNEN: Anyone who uses January 20th is not being honest because it’s November 9th, stock markets look ahead. The market was supposed to go down thousands of points with the election of Donald Trump. And so, November 9th is the correct date to use. If you don’t see that, that’s wrong. Okay. But here’s what we talked about on November 9th. This -- i told you we’d bring this up. Here it is.

PETER KENT NAVARRO: If you’re out there today, just look at the chess board. This is a very bullish thing for the markets and Dow 25,000 is going to be like the Reagan years and it’s a good thing.

JOE KERNEN: 25,000 from 18,000 is 38% over four years.

PETER KENT NAVARRO: We can do better than that.

JOE KERNEN: I mean, people hear that and go, ‘Whoa, 25,000. Are you out of your mind?’ What is that, that’s like single digits?

PETER KENT NAVARRO: Yeah. And all we need to do –

JOE KERNEN: Or is it -- I can’t do rule 72 on this. But that’s 38% over four years is not–

ANDREW ROSS SORKIN: For those who are worried or thinking about bonds, should they short the bond market?

PETER KENT NAVARRO: I like Joe’s optimism here. But if I got here and said 30,000 people would go –

JOE KERNEN: No, no, no.

JOE KERNEN: So, we’re twenty-eight five. And you said 38 in the first four years. It’s 51 in the first three. Now you gave--what is even scarier is that with your prediction back then, you gave four main tenants of what was going to cause that on November 9th. Do you remember the four that you said?

PETER KENT NAVARRO: Indeed, I do. Four ports of the economic compass: deregulation, tax cuts, the unleashing of our energy sector and fair and reciprocal trade. And, bingo, the President did it.

JOE KERNEN: I don’t know if I was listening to fair and reciprocal trade. Because I had no idea –

PETER KENT NAVARRO: What that was.

JOE KERNEN: --that we were going to take on China. I guess we should have known when you, Mr. China hawk, you know, got this position in the administration I guess it should have became clear. But, I thought you were kind of an outlier. I couldn’t believe -- I don’t think anyone believed at the time we were going to be that aggressive with China. And suddenly the sentiment has turned to where I think most people think it was the right move.

PETER KENT NAVARRO: Pretty extraordinary. And let’s not forget that day after the election when you and I were sitting there, futures were down hundreds of points. And you and I were the only people bold enough to say 25,000 or higher on the Dow. That’s pretty good prediction.

JOE KERNEN: Yeah, I know. I took a lot of flak.

PETER KENT NAVARRO: So did I.

JOE KERNEN: Someone that worked for our company at that time called me a jackass on another show. And then "The New York Post" picked it up. I mean, if there was a jackass that turned out from that, it was -- he looks more like the jackass.

PETER KENT NAVARRO: Let’s not forget in 2019 I had two lead editorials against me in the Wall Street Journal calling the ‘Navarro recession’ was coming. So, how’s that working out?

JOE KERNEN: I just wonder from here on out, peter, whether this has been played forward -- you think 2020, more to come and that there’s a lot of gas left in the tank in terms of -- why do you think 3%? That’s the one criticism we hear a lot.

PETER KENT NAVARRO: Closer to 3%.

JOE KERNEN: Is that the trade war that you are in favor of obviously was sort of canceled out the positive effects of the tax cuts in terms of CEOs spending on capital equipment and making business investments because that stayed flat then productivity doesn’t increase. Then we don’t get to 3%. We’re stuck down at 2% again. That’s the rap on that.

PETER KENT NAVARRO: It is.

JOE KERNEN: You say back to 3% this year?

PETER KENT NAVARRO: That is the globalist rap and that’s --

JOE KERNEN: That’s me.

PETER KENT NAVARRO: Basically, got a double entendre on that. But let me give you four more points on the compass, Joe. I remember in the old days when you and I would sit and do forecasting. I’d talk about the four drivers of the GDP equation, right? It’s consumption, investment, government spending and exports. So, let’s break that down and see how we get to 3%. If you look at consumption, we’ve got very low unemployment, rising wages and incredible optimism on consumers.

Consumers will be the anchor of the expansion in 2020. Then you get to exports. All of these trade deals the President’s been negotiating will kick in in 2020. It’s the big five. It’s Japan, South Korea, Canada, Mexico, and China. So, we’re going to get a really good lift there and an improvement in the trade balance. If you look at the sleeper in that, those four points, the sleeper is the government, right? You had the National Defense Authorization Act and the Appropriations bill passed two weeks ago.

Massive government spending which will both be a fiscal stimulus and importantly to me, strengthen our defense industrial base. Then finally, Joe, in terms of investment, which has been lagging, you’ve got a combination of this being the best economy in the world of tracking investment plus tariffs. Tariffs have done a tremendous job attracting selective investment in industries like the auto industry.

I mean, Japan has been bringing in billions of dollars hand over fist into places like Tennessee. So, when you add those four points up in terms of the economic drivers, you continue the four points in the economic compass of President Donald J. Trump, it’s going to be the roaring 2020s next year. And I’m very bullish about this. And as you know, stock market’s leading indicator of the economy. So, 32,000 is a conservative estimate of where we’ll be at the end of the year. I did predict 30,000 on the Dow in July if we got USMCA passed and lower interest rates. There it is.

JOE KERNEN: The last roaring ’20s didn’t end well.

PETER KENT NAVARRO: This is true.

JOE KERNEN: We’ve got huge deficits. We’re adding huge deficits. We’re not doing anything about entitlements. Obviously, there was –

PETER KENT NAVARRO: No gloom and doom on New Year’s Eve, Joe. Come on, baby. Nothing but positive.

JOE KERNEN: I know, I know. Can’t be all positive.

PETER KENT NAVARRO: The Tamiflu will kick in and you’ll be positive.

JOE KERNEN: Revenue is fine. Even after the tax cuts, revenue is still pretty good. But the spending, and some of it was on defense obviously, but then there’s -- will there be any -- in your view, you’re a China trade guy, but in your view, any refocusing on spending and ways to curtail that in the next four years if the President is re-elected?

PETER KENT NAVARRO: Well, elections do have consequences, Joe. And when we did negotiate that Appropriations bill we had to do it with a Democratic house and that led to a lot more spending that we otherwise would have had. But, you know, I think 2020 -- here’s the difference between Donald J. Trump and maybe the old roaring ’20s. What Trump has done is turn the Republican party into the party of the working class.

What he’s brought about is a structural revolution that continues in terms of restructuring our economy, going back to the future of manufacturing. We have a strong defense industrial base. We have a trade policy based on America first and not having the U.S. treated as a piggy bank. You know, we’ve got half a trillion dollars in trade deficit to get down. We do that, that’s going to be a growth machine.

So, structurally we’re going to be sound through the ’20s. And, again, it’s all good. And it’s a strategy, Joe, that dates back not just to that day after the election you and I sat together and made that prediction but throughout the campaign. This economy stems from the DNA of the Trump campaign that goes back to the seven jobs plan promises in June of 2016 and those four points in the economic compass.

JOE KERNEN: We probably should end this soon, but how many more phases of trade do you -- with China do you see being necessary? How long would it take to address the most contentious intractable issues, the I.P. and the state-owned enterprises, et cetera? When do you see -- do you ever see China -- there are some people that are hawkish like you that say that it will never happen with China, that we need to decouple and just play hardball forever basically.

PETER KENT NAVARRO: Well, I think yesterday’s China hawk is today’s realist. I mean, I don’t think I look at China any differently now than most of the folks in government, particularly places like the State Department and the Defense Department. You just see it clearly for what it is. In terms of what more we have to negotiate, I go back to what I’ve called the seven deadly structural sins in China.

What’s missing is something that Becky mentioned earlier which is the cyber intrusions into our business networks and the broader problem of espionage. We really have to wrap our head and handle around that because that drains billions from our economy. The whole issue of dumping in state-owned enterprises is a very big deal to Ambassador Lighthizer and I’m sure he wants to turn his attention to that.

In terms of the Intellectual Property theft, when you actually read the agreement there’s a very interesting section in there on counterfeiting. And I’m going to be spending a lot of my time in 2020 making sure that when you go on eCommerce platforms like Amazon and Alibaba you don’t get stuck with counterfeits from China. The flow from China is just horrific that comes in every day. That both takes jobs away from us but it also defrauds consumers and sometimes can actually harm them, depending on the product. So, there’s a lot of work to do in Phases 2 and probably 3, but there’s no two people better to do it than Ambassador Lighthizer and President Trump.

JOE KERNEN: All right. So, what -- you know, you’re not a stock market forecaster but you play one on TV.

PETER KENT NAVARRO: Used to be.

JOE KERNEN: Do you have one --

PETER KENT NAVARRO: Used to be.

JOE KERNEN: Yeah. Should we revisit -- okay. So, December 31st, 2020, where’s the -- where’s the Dow?

PETER KENT NAVARRO: Well, I’ve said conservatively 32,000.

JOE KERNEN: 32,000.

PETER KENT NAVARRO: And the Nasdaq will surely outperform. Tech’s doing really well. The one drag on the Dow has been Boeing. I think it’s a highly diverse company. The defense budget’s going to help Boeing and it’s going to get through all of its problems. And once it does, then we won’t have that drag. But it should be a great year for the stock market and a great year for the economy. Joe, the beautiful thing about Donald Trump’s economy is that it’s working for the working class. That “Wall Street Journal” article that said that workers’ wages are rising faster than managers on the front page of the “Wall Street Journal,” I thought I was reading the “Main Street Journal” that day.

JOE KERNEN: Peter Kent Navarro, thanks for all of that time.

PETER KENT NAVARRO: Joe, Becky, happy new year.

JOE KERNEN: Happy new year.

PETER KENT NAVARRO: It’s midnight somewhere right now.

JOE KERNEN: You’re right. It’s 5:00 somewhere. But you know, that’s a different issue. Thanks, Peter.

BECKY QUICK: Thanks, Peter.



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver