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Fiscal Cliff Progress Typical Of Successful Negotiations So Far!

 December 02, 2012 06:47 PM


The apparent lack of progress in the fiscal cliff talks is being described as a farce and a disgrace by some, and by others as a poker game where participants are simply not exposing their cards in the early stage of the game.

It's most definitely not a poker game, a situation where one winner takes it all and the other side loses it all. Neither side in the fiscal cliff talks will feel like the only winner or only loser when a deal is finally hammered out. Both sides will have taken some chips, given some chips.

Nor is it a hopeless farce being played out by fools who don't know what they're doing. There is no group more highly trained and experienced in the art of negotiating than politicians. It's their life-blood, takes up most of their time. Legislation can only be passed or amended through negotiations and compromises that result in enough votes from both sides.

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The foolish part is that it has taken them so long to address the situation, leaving themselves so little time to get through the process.

And therein lies the risk, that they don't have time for the normal process and go past the end–of-year deadline, or that one side becomes more desperate for a deal than the other and at the last minute grabs prematurely at the last offer.

In business a good business deal hammered out in negotiations is considered to be one that does not have a winner and a loser, but one that is fair and acceptable to both sides.

And that is certainly what is needed from the fiscal cliff negotiations if both sides are expected to work more closely together for the good of the country for the next few years.

[Related -The Bumpy Road Ahead To Policy Normalization]

From my experience what has been happening so far, disappointment being expressed by both sides that the other side doesn't seem to be serious about reaching an agreement, is Negotiations 101, and on track.

Years ago, my first career was buying small manufacturing businesses that were failing, turning them around, building them to medium size businesses and selling them. It involved many episodes of serious negotiations, for example in acquiring the failing businesses, in acquiring competitors as part of the growth, in purchasing or leasing larger factory buildings to house the growth. And at the other end, negotiating with those who were anxious to acquire them, in one case a NYSE listed company.

The course of the negotiations, from preliminary contact to the final agreement, was the same each time. The principals, their attorneys and accountants lined up on opposite sides of the table and the process began.

To an outside observer it would probably appear to begin and proceed as seemingly hopeless, a waste of time. After both sides made their pitch of how a deal would be advantageous to both, the seller would name a preposterously high asking price, the buyer an almost insulting low offer. Both sides would flat out reject the other side's proposal as unreasonable. But the talk would continue, both sides feeling out the other side, trying to determine what their real interest and need for a deal might be.

The initial meetings would usually end with both sides agreeing a deal was not possible, they were just too far apart, but they should meet again just to make sure. Subsequent phone calls would take place pointing out the positives of making a deal, and hints would be made by both sides that maybe the initial price offers were not realistic.

At subsequent meetings both sides would give ground only grudgingly, but it would usually become more clear which side the deal was more important to. Eventually a deal was usually made that both sides felt was fair, or at least the best that could be achieved.

I can't help thinking back to those days when I see the fiscal cliff negotiations playing out, and how we on the outside think it's such ridiculous game-playing and posturing.

But with those memories in mind, I'm not alarmed yet by the early stages of the fiscal cliff talks, the accusations from both sides that demands and offers from the other side cannot be taken seriously, etc., and still expect an agreement will be reached in time.

It does have the market on edge, bouncing up and down with each public statement by one side or the other.

Yesterday in the U.S. Market.

A very quiet day in spite of more uncertainties on fiscal cliff talks created by public comments from both sides. The Dow traded in a narrow range of 65 points from its high to its low but they managed to close it positive going into the weekend with a late day spike up to close it up all of 3 points on the day.

The Dow closed up 3 points, or less than 0.1%. The S&P 500 also closed basically flat, up 0.02%. The NYSE Composite also closed up less than 0.1% (up 0.05%). The Nasdaq closed down less than 0.1%. The Nasdaq 100 closed down 0.1%. The Russell 2000 closed down 0.2%. The DJ Transportation Avg. closed down 0.5%. The DJ Utilities Avg was the biggest winner, closing up 0.9%.

Gold closed down $11 an ounce at $1,714, and down $38 for the week.

Oil closed up $.88 a barrel at $88.85 a barrel.

The U.S. dollar etf UUP closed down 0.1%.

The U.S. Treasury bond etf TLT closed down 0.3%.

Yesterday in European Markets.

European markets also closed mostly down. The Europe Dow closed unchanged. The London FTSE closed down 0.1%. The German DAX closed up 0.1%. France's CAC closed down 0.3%. Italy closed down 0.5%. Spain closed down 0.5%. Greece closed down 0.9%.

Global markets for the week.

Not much follow through to last week's big rally in the blue chips in the U.S., or in most global markets, but decent follow through in Nasdaq and Russell 2000. Gold back to the downside, and a nice bounce in the utilities sector.

THIS WEEK (November 30)
DJIA13025+ 0.1%
S&P 5001416+ 0.5%
NYSE8260+ 0.4%
NASDAQ3010+ 1.5%
NASD 1002677+ 1.4%
Russ 2000822+ 1.8%
DJTransprts5119+ 1.3%
DJ Utilities454+ 3.1%
XOI Oils1,216- 0.5%
Gold bull.1,715- 2.1%
GoldStcks170- 2.4%
Canada12239+ 0.2%
London5866+ 0.8%
Germany7405+ 1.3%
France3557+ 0.8%
Hong Kong22030+ 0.5%
Japan9446+ 0.8%
Australia4518+ 2.0%
S. Korea1932+ 1.1%
India19339+ 4.5%
Indonesia4276- 1.7%
Brazil57474- 0.2%
Mexico41833- 0.2%
China2073- 2.3%
LAST WEEK (November 23)
DJIA13009+ 3.3%
S&P 5001409+ 3.7%
NYSE8225+ 3.7%
NASDAQ2966+ 4.0%
NASD 1002639+ 4.1%
Russ 2000807+ 4.0%
DJTransprts5051+ 3.3%
DJ Utilities441- 0.6%
XOI Oils1,222+ 4.3%
Gold bull.1,752+ 2.3%
GoldStcks174+ 5.2%
Canada12213+ 2.8%
London5819+ 3.8%
Germany7309+ 5.2%
France3528+ 5.6%
Hong Kong21913+ 3.6%
Japan9366+ 3.8%
Australia4431+ 1.6%
S. Korea1911+ 2.7%
India18506+ 1.1%
Indonesia4348- 0.1%
Brazil57574+ 3.9%
Mexico41901+ 2.6%
China2122+ 0.6%
PREVIOUS WEEK (November 16)
DJIA12588- 1.8%
S&P 5001359- 1.5%
NYSE7931- 1.5%
NASDAQ2853- 1.8%
NASD 1002534- 1.9%
Russ 2000776- 2.4%
DJTransprts4891- 2.5%
DJ Utilities443- 1.1%
XOI Oils1,172- 2.4%
Gold bull.1,713- 1.0%
GoldStcks166- 8.5%
Canada11877- 2.6%
London5605- 2.8%
Germany6950- 3.0%
France3341- 2.4%
Hong Kong21159- 1.1%
Japan9024+ 3.0%
Australia4360- 2.7%
S. Korea1860- 2.3%
India18309- 2.0%
Indonesia4351+ 0.4%
Brazil55402- 3.4%
Mexico40830+ 0.4%
China2109- 2.6%

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