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Why I Paid Up For That Negotiations Class
Via Michael Naso of FBN Securities,
I attended a business school which hosted classes where the demand for a seat easily outdistanced the supply. To assuage the imbalance, the administration allocated auction credits to the students for their bidding on various sections. Thanks to a dynamic professor and the practical subject matter, an offering in Negotiations consistently owned the highest clearing price for those trying to gain access to the course.
Spending over 50% of my two year allotment on this single topic was well worth the price of admission. Not only were the lessons taught helpful when navigating large personal purchases such as an automobile or a house, but they also provided a guide in trying to predict the behavior of the major players engaged in the current fiscal cliff debate. Frankly, based on what I learned, I question the most recent tactics enacted by the Administation.
I had written in Wednesday’s “Missive” of Senator Reid’s frustration that progress had stalled as he blamed the Republicans for not bargaining fairly in trying to iron out a compromise. This declaration signaled to Speaker Boehner that the Democrats will play hardball as well.
However, yesterday’s Wall Street Journal article, via quotes from Erskine Bowles, claimed the White House will be flexible when proposing a raise to the top marginal tax rate. This perceived increase in the probability of a near term accord appropriately rallied stocks aggressively to produce the first outside reversal since the session that spawned the bounce off the November 16 trough.
I question why Mr. Obama would leak his best alternative to a negotiated agreement (BATNA) so early in the process, for classic bargaining strategy suggests keeping that information close to the vest as long as possible. Moreover, since the Senate already has passed legislation that augments revenue only via the higher income levels, the President had enjoyed the upper hand in the debate. He may have forfeited that head start on the release of yesterday’s comments. More troubling, given the ideological divide between the two factions, this newfound willingness to compromise may actually transpire to an intractable divide as we move closer to year end.
From the Republican standpoint, the Administration’s concession generated an odor of weakness such that Mr. Boehner has no incentive to budge from his stance of rejecting a hike to marginal rates. He can reasonably assume that the White House’s new position does not represent its BATNA such that the Speaker’s potential of getting his most preferred outcome is very much in play. Logically, he will press that advantage. On the other hand, if the Democrats actually did announce their final offer more than a month ahead of the New Year, then, in theory, they will not shift either forcing an unfortunate stalemate between the two parties.
Complicating matters, Mr. Obama declared a preference to strike a deal by Christmas which approximates the Friday, December 21 “zero barrier” I have written about previously. If we push past that date without a formal agreement, it behooves the President to sit on the ball and run out the clock. Immediately after going over the cliff, he would simply present the aforementioned Senate bill that increases rates only on income over $250K as a tax cut to House Republicans. Couched in this manner, such legislation will be very difficult for the GOP to reject especially if the market has dislocated in the interim.
Ironically, if the Republicans acquiesce to yesterday’s posturing by Mr. Bowles, then the likelihood of a Moody’s and/or Fitch downgrade rises, for the ratings agencies would almost assuredly be disappointed by a lower than anticipated level of incremental revenues. If Mr. Obama somehow manages to overcome Wednesday’s misstep to achieve his optimal course of action, then the “resolution” would dent an already fragile recovery as exemplified by an extremely weak New Home Sales report. That is the punch line of this whole dilemma, for no matter what path the negotiations traverse, the ultimate outcome will produce at least some negative consequences.
In the short term, I expect the Democrats’ apparent flip toward compromise will rally equities especially in light of money flows that often arise with the turn of the calendar. This suggests we should continue to grind up through Monday evening. As we move deeper into December, the headline chasing environment will only exacerbate as the “theta” of the risk premium associated with the fiscal cliff increases daily without the consummation of a deal. If the tape continues to afflict investors with a serious case of whiplash by tracing 25 handle intraday ranges for the S&P 500, managers will have difficulty putting money to work amidst the skittishness.
Lost among the sparring in Washington was significantly downbeat comments made by Chakravarthy Rangarajan, India’s economic advisor to the Prime Minister, who acknowledged that its top 10 global economy is “going through a difficult phase.”
Combined with China and its unraveling equity market, the hope for a stimulus rising out of Asia has dimmed. Thus, while prospective cooperation in managing the budget crisis would generate a snapback in early 2013 as consumers and businesses release pent up demand, the longer term prospects for the U.S. recovery will continue to stumble as the rest of the world jogs in place.
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You're assuming it is his BATNA. I think it is to strike a deal on entitlement reform and income tax reform, myself.
Not sure myself but does something smell Mayan in here?
Since when do puppets negotiate, or even have a batna?
As always (and seemingly ever more often), this is another presentation by the Kool-Aid Corps.
Negotiation class is one thing. Having the ability to spot the TRUE actors is quite another. Applying lessons to non-actors is but an exercise in misdirection.
Anybody who believes this shit is real has not a clue.
Seriously, professional wrestling is more believable.
Negotciations? Shit, if you can't touch or defend it, you don't own whatever "it" is.
By the way, the rest of the world is not "joggin in place". The BRICs are very much investing in their own people, their own technology, and thier own infrastructure. what a dumbass.
Don't give this ineptocracy any more ideas or they'll re-commence funneling trillions to their crony green-energy constituents. Keynesians don't understand this "investment" concept.
And when the BRICs all have sustainable electrical grids generating local energy and the U.S. doesn't, tell us, who will be more suspectible to an EMP at that point? Pull you head out of your ass and look around, are you saying that we should allow the old technolgy to simply deteriorate and this will somehow be good for the economy? Better yet, let me guess, you probably think another unfunded war will fix the economy. What retirement home in florida are blogging from?
I'll expect lots of junks without any responses to facts because that is how those florida RINOs roll. The reset can't come fast enough.
Stupid fucking sheep.
LOP, clearly the desire for most humans is to just live their life. The smaller our footprint the better, sustainable being a fantastic goal.
That is also the worst possible scenario for our current system. No expansion, kaboom.
We should all be hitting the gas when it comes to government debt, albeit not through war. More debt=quicker collapse.
Then after the collapse (or reset), we can shoot anyone who suggests the merits of fractional reserve banking or legal tender and work on the small things in life again.
pods
won't matter, expansion/growth is not possible in the current eCONomic system. Available energy for delivery has flatlined and the energy that needs to be invested just to get more energy continues to climb. Humans have always been at war for power and control over real resources. Some things never change, and yes I agree on your suggestion regarding anyone who promotes another ponzi (which is all the fractional reserve system is).
Yeah, but the need for growth/constant expansion is merely due to our monetary system. We would not be in near the predicament that we are in if we did not have to have YOY growth just to survive.
Compound interest is a bitch!
pods
"Compound interest is a bitch!"
------------------------
Indeed. Many successful families have come before you and yours.
They want their rent (money for nothing).
Now pay up.
Well, that's why they've embarked on the grand ZIRP journey.
To infinity, and beyond!
You mean like Spain with all that "free" sustainable electric that help bankrupt the country? Solar and Wind are a joke that work 20% of the time and cost a fortune... Denmark's largest "sustainable" engery is BURNING WOOD the highest Co2 energy.... Solar and Wind are just costly bribes!
SHEEPEL
I wouldn't do anything like the europeans. How about coming up with our own innovation. Novel conept eh? No, you are probably right, spending our capital and resources on being the world's fucking police is a better idea < sarc off >
Stupid fucking sheep.
Who you calling a Florida RINO and wanting another unfunded war? Talk about having YOUR head up YOUR ass. You don't know the first thing about me or what I think, other than my contempt for Keynesian central planners. You think your the smartest fuck around here? Well you're not. So quit painting the world as you see it with that broad brush of yours.
If only any of this mattered and had any effect on the downward trajectory the US is on at terminal velocity.
for the ratings agencies would almost assuredly be disappointed by a lower than anticipated level of incremental revenues.
Looks like the ratings are gonna go down then as no matter how much Obama & Co raise taxes, the agencies WILL be disappointed. (See Hauser's law.)
Not sure the Game Theory folks would agree with your assessment. But interesting missive.
Tyler, the agencies are at the end point. After all, if "avoiding the fiscal cliff" is, by definition, avoiding any significant reduction in the deficit then how could the agencies not do a downgrade?
Answer: If they are threatened. That's how they don't downgrade. If they are threatened.
No matter if they the fuck'um, suck'm or kill,um the interest rates rates are going to go up.
Up? That would require a market, and I don't see one of those anywhere!
Seriously, people. If you don't think there is a plan already in place for after the final act, then you didn't pay attention to 9/11 (Patriot Acts I & II) and the 2008 financial crisis (TARP).
This is just for show. For public consumption. Remember: we are CONSUMERS - first, second, and last.
Yes, the history books are already written. We are just watching this unfold on the canvas of life.
The image that keeps coming to mind is the one of Chamberlin waving that piece of paper signed by Hitler. It is impossible to stop the invevitable.
Senator Reid’s frustration that progress had stalled...
Oh, poor baby. Pass a fucking budget, asshole - it's only been, like, 3+ years since you've last done something so basic.
Then you can complain about other parties' "playing hardball".
Better still, give him everything he wants and let him be solely responsible for the outcome. The reset will come much faster.
Passive-aggressive behavior is self indulgent and emotionally immature. It adds no value to matriculation of human memes. You might consider something more active, like burning books.
You probably shouldn't respond to it then. Unless the underlying moral hazard is addressed, nothing will really change.
Pretend inferiority and encourage his arrogance.
All war is based on deception.
--Sun Tzu
Sun Tzu advocated passive aggressiveness (a form of deception). He did not advocate burning books. Perhaps the Art of War is too subtle for you?
Bingo. We studied Sun Tzu at OCS.
I like this idea a lot. In fact, just this morning when I was in the shower I was thinking I needed to write my congressman (R) and tell him I full expect him to vote to raise the debt ceiling and do everything the democrats want to do. Give the D's everything they want or at the very least, do oppose what they want. Why not? Crash is inevitable. Who cares if its tomorrow or next week?
My thoughts exactly. We do need to educate as many people as possible as to WHY this crash is happening though.
Otherwise the "fix" will be a supranational fractional reserve currency, and we will just restart the debt slavery system.
pods
You nailed it Pods.
I fully expect a psuedo-one-world-currency to emerge from the next global financial meltdown.
Which could happen anytime.
I just hope gold goes along for the ride, and can then be safely converted into the new "United Earth Credits" when the dust has settled.
Go long black markets, there will be a paper price, and a physical price for everything of real value.
Which will only exist on your Visa Debit/Credit card.
Mark of the Beast, bitchez!
Agreed. Arguing over the outcome is pointless, reality is not optional, arguing over the timing is merely amusing. All things being equal I prefer to advance to the end game sooner not later.
Concur, all.
Reid is upset because he is essentially odd-man out in this negotiation. He can only be nuisance at this point. He is probably more a nuisance to obummer than to boehner. However, it just doesn't matter since none of the negotiations are attempting to solve the problem.
so be it, off the cliff then.........WE ARE FLYING !!!
12/21.... Where have I heard that date before?
haha! The End is Nigh!
That will be a newly announce retail holiday, called it Fucked Friday, where consumers most in debt will be able to double their credit limits for one day to boost GDP, then magically the US will grow its way out of debt.
"Don't call my bluff, Eric." -- Barack Obama
some fine kabuki theatre, primping, preening, posturing, bloviating
Sit on the ball and wait till market responds with a crash and then rush through some more theft? Ummmmmm very TARPesque.
There will be no downgrades of US sovereign risk. If necessary, they will force a negative risk weight! (i.e. from zero) to US Treasuries...:)
Does it matter ?
Only player left in the bond market is the FedRes,and
that supposedly ends Dec.31st.
We don't need no stinkin rating agency's.
Yeah, not sure why anyone thinks there is a good outcome even possible here. Either we "go over the cliff" and stocks shit the bed, or we don't go "over the cliff", and US debt gets downgraded again. Mind you, yields will be propped anyways via Fed buying, but it would be a disaster for the petrodollar scheme. Pick your poison.
The Republicans are idiots if they seriously think that the Democrats are interested in compromise. Obama and the Democrats have always been "If we can't run this country, we'll burn it down."
The solution: Let them burn it down. If the Republicans were smart (which they're not), they would let the Democrats bring whatever they want to a floor vote, let it pass, and make sure everyone knows it.
If the Republicans had been smart, they would have voted Ron Paul for President in the primaries.
You assume that there are two parties and free and honest elections. there aren't. There isn't a free market either. Please wake up. Let them burn it down. At least then compensation will make it's way back to people who are actually worth a shit.
Republicans did vote for Ron Paul, but the votes were not counted and the deligates were escorted out and the rules were changed last minute and...etc etc etc
Correct. A Romney-Paul ticket would have lead to a landslide victory, but probably wouldn't have changed where we are heading.
What with that bullcrap, R.Paul and Romney have nothing in common, the latter would never tolerate to have the former next to him.
I don't get some of Paul's supporter I wonder if they get what he is saying, in his farewell Paul pretty shitted on the whole political establishment, including his party, he shitted on corrupted churches and so on.
Last but not least he acknowledge that politicians can change things the way he would want to change things.
So called supporters, after all that, think that the way forward was a Romney/Paul ticket... I guess Paul acknowledge that the whole things is a lost cause short & mid term...
learn to read more carefully. "Leaders" are no longer elected by the people. Bread and circuses, period. There is no fucking spoon.
Thanks so much for the extra bullcrap. NOw you contradict your self and there is no "spoon".
First late me tell stop proving C. Hedges right about the "end of Litteracy" and think in stupid, idiotic short statments that means pretty nohting and everything.
Back to your original point, what makes you think that Paul ad Romney would have won? You may have not noticed but your fellow citizen have an awful taste for violence, Paul position on military, geo politics etc. are incompatible with both the on going leftish and righish propaganda.
Go buy another gun... I know you want to...
The point is that it doesn't matter, which is essentially what you just said. Time to go be productive.
We might agree on the matter, I no longer vote in my country either, and it's been a while.
Every piece of news can only be looked upon as short term. The world debts are way too large to be looked upon as as a small obstacle. The USA is 25% of the world economy followed by China, Japan and the Euro grid. Everyone is awash in debt. The long term implications will end either in a total worldwide meltdown (the world came real close in Septemberr 2008) OR a continuous slide in the standard of living. What does that mean? When nations aer forced to reduce living standards it means going without basic necessities which in the past have resulted in war. Wars are typically preceded by a huge rise in inflation.
My point. The short term may give the pretense of hope but the long term is dark as hell.
The future is dark and it isn't that far off any more. It is time to accept the pain of the inevitable.
OT (maybe?):
http://www.marketwatch.com/story/leveson-uk-press-needs-independent-watc...
"Led by British Judge Brian Henry Leveson who announced the findings in a nearly 2,000 page report, the inquiry was prompted by the News of the World phone hacking scandal from July 2011."
So the good Aussie helps his mates control the news because he was such a bad boy tapping into Princess Diana's (rest her soul...) phone. Wow, yet another ko-inky dink. They're getting thick around here.
:/
Democrats have been dishonest negotiators and Republicans have been incompetent negotiators.
They will both make millions going to work at some PE/Bank/lobbyist firm feasting on taxpayer money...and your point was?
In theory, both sides are negotiating on behalf of the same party: the U.S. taxpayer.
Yet the "winner" and "loser" are defined as the negotiators themselves.
This isn't Scott Boras negotiating with a baseball team or competing teams for a player's services.
Going off the cliff is win-win-win for Obama. He gets the tax increases on everyone, cuts to the military who he despises, and gets to blame the Republicans for the whole thing for not being "flexible" enough. The groundwork in the Democrat-media complex has already been laid for this.
Yves Smith at Naked Capitalism comments on this today.
I interpret the Obaminator is vetting the bankster interests, contrary rhetoric notwithstanding.
Sorry, don't read articles about Fiscal Cliff, Mideast Peace, or Lindsay Lohan's latest tussle with the law. Life is too short.
BATNA seems to convey the same gravitas as 'double secret probation'.
Obama's saying "I'll deal, but you gotta give me something I can call a win." Political theater.
One could almost conclude (in an MSM alternate universe) that this 'fiscal cliff' resolution will somehow fix the inexorable decline of the dollar and it's eventual collapse.
Meanwhile, the REAL cliff is looming on the near horizon.
Just don't call it default. Anything but that. No credit events allowed. Ever.
As far as Democrats failing Negotiations 101, it could be that what was normal for 20 years isn't where we currently are.
For the longest time the rule of thumb was that an incumbent during a recession got turfed, ala Bush1 by Clinton.
In the latest election Obama got re-elected, and it's looking like the reason is that what's left of the US economy (the economy as seen by Main Street, not Wall Street) has broken down to levels not seen since the Depression.
As a result, the number of people either working for the Government or receiving some form of Government assistance has become large enough to turn the previous rules of thumb upside down.
Before, gridlock could work if it stalled Government fiscal stimulus enough to weaken the economy and turn out the incumbent.
This time around, it looks like a weaker economy will only strenghten Obama's base support. So the Democrats not only win if the economy picks up, they also win if the economy weakens, but only as long as the voters know that they did everything they could and the Republicans blocked them. Hence the bizarro negotiation tactics. So Obama isn't negotiating with the Republicans, he's negotiating with the voters.
Hey with all the pols tralkiing and moving the markets, why doesn't wee Timmy Geithner just trade (front run) his way out of the deficit?
Oh wait a minute....