These three ‘shock stocks’ love uncertainty
Tuesday, 27 November 2018
By Bernd Struben
- The art of haggling
- A fly in the ointment
- ‘Trump: Brexit “a Great Deal…for the EU”’
‘We’re supposed to haggle!’
Vendor in Monty Python’s Life of Brian
Negotiating in the developed world is fast becoming a lost art.
Perhaps not between corporate leaders or our preference swapping pollies. But your average Aussie rarely has to haggle over the prices they pay.
Your grocery store bill comes out to $164…so that’s what you pay.
Your power bill is $210…and you pay that amount too. You may shop around for a cheaper provider, but you likely won’t haggle over the fees they’ve already charged you.
If you’ve travelled to the developing world, you’ll know it’s a very different story there. Almost every item or service for sale can be acquired for less with a little skilful bartering.
I honed my own negotiating skills over many decades among the vendors’ stalls in Indonesia, Thailand, Mexico and Morocco…to name a few.
As the buyer, you often have no idea of what the seller is really willing to sell their wares for.
One obvious tip is to start your bidding low. This makes many Australians feel awkward or rude. But you often need to start ridiculously low, as the vendors have learned to ask more than double the price that they’ll actually accept.
Another tip is to threaten to walk away if you don’t get the ridiculously low price you’ve offered. And then to actually walk away.
Assuming the same item or service is available at other stalls or stores, you now know a floor price that’s actually below its local value. At the next stall you begin haggling again, this time bumping up your lowball offer a bit. And so on…
It’s a long and tiresome process. But if you want the best possible deal, you have to haggle properly.
Transactions are generally much smoother Down Under.
The only time we really tend to bargain in Australia is in the second-hand market. Used cars, used appliances, and perhaps used homes.
But my experience has been that most Aussies, both the vendors and buyers, don’t like to haggle.
Much like the character Brian in Monty Python’s Life of Brian, if a seller asks 20 shekels for a gourd, they tend to simply hand it over.
The reluctance to bargain not only means Australians and other first world denizens are not very good at it, it also makes it easy to mistake a good haggling contest for an unresolvable dispute.
This is the mistake I believe most pundits are making in their analysis of the US-China trade ructions.
More, after the markets…
Overnight, the Dow Jones Industrial Average was up 354.29 points, or 1.46%.
The S&P 500 gained 40.89 points, or 1.55%.
In Europe the Euro Stoxx 50 index finished up 35.50 points, or 1.13%. Meanwhile, the FTSE 100 rose 1.20%, and Germany’s DAX closed up 162.03 points, or 1.45%.
In Asian markets, Japan’s Nikkei 225 is up 129.81 points, or 0.60%. China’s CSI 300 is up 0.43%.
In Australia, the S&P/ASX 200 is up 51.63 points, or 0.91%.
On the commodities markets, West Texas Intermediate crude oil is US$51.53 per barrel. Brent crude is US$60.48 per barrel.
Turning to gold, the yellow metal is trading for US$1,222.24 (AU$1,692.38) per troy ounce. Silver is US$14.25 (AU$19.73) per troy ounce.
And the bitcoin rout continues. One bitcoin is worth US$3,683.46.
The Aussie dollar is worth 72.22 US cents.
The art of haggling
Now back to the spectre of a global trade war…and the art of haggling.
Regular readers will know I believe Donald Trump is getting close to striking a ‘beautiful’ new trade deal with Chinese president Xi Jinping.
Not that this will happen overnight. But Chinese and US negotiators are waiting for the signal from their respective leaders to push ahead. And I think that signal will come on 1 December.
That’s when Trump and Xi are scheduled to meet, following on the G20 summit in Buenos Aires.
Regardless of how much better the new deal is for US and Western interests, you can rest assured the Donald will tout it as a game changer. Just as you can be sure his opponents will do their utmost to make any trade concessions from China seem almost worthless.
We saw the same scenario unfold with NAFTA…soon to be rebadged the USMCA.
We also saw many of the same negotiating techniques from team Trump.
There’s the ‘good cop, bad cop’ routine, which I’ve mentioned to you before. That’s where some top-level trade negotiators draw a hardline and indicate any kind of deal is unlikely. While others take a softer approach in an effort to gain concessions.
Another aspect to successful haggling is keeping your opposite number guessing. Are you seriously interested in striking a better deal? Will you really walk away? Just how many gourds are we talking about here?
A few conflicting signals from the US camp are an excellent way to keep the Chinese off balance. Which is just what we’ve been seeing.
Here, for example, was the latest news from Bloomberg last Friday:
‘U.S. President Donald Trump and Chinese leader Xi Jinping have indicated they’re both ready for a highly anticipated meeting at the Group of 20 summit in Argentina next week…
‘On Thursday, Trump told reporters that China wants to make a deal “very badly” after his administration placed tariffs on about $200 billion worth of Chinese goods.
‘China “wants to make a deal and we’re very happy with that,” Trump said. “I’m very prepared, I’ve been preparing for it all my life.”’
Sounds promising, right?
China wants to make a deal. And Trump — totally prepared, mind you — is very happy about that. Time, perhaps, to put away the big stick and take a more conciliatory approach?
Not so fast.
As The Australian reports this morning:
‘Chinese officials have said their priority at the meeting between Mr Trump and President Xi Jinping is to convince the US to suspend the planned January 1 increase in tariffs on $US200 billion in imports from China to 25 per cent, from 10 per cent currently.
‘The US was unlikely to accede, Mr Trump said.
‘“The only deal would be China has to open up their country to competition from the United States,” Mr Trump said.’
Maybe the Russians did want to see Trump beat Hillary in the presidential elections.
But I’m guessing the Chinese would rather have almost anyone else in the White House.
Still, with the rapid growth of China’s economy sputtering, Xi can hardly afford to wait Trump out for two more years in office. And certainly not six years.
That’s why I expect we’ll hear positive noises coming from both sides following the two leaders’ meeting in Brazil this weekend.
Xi will give the nod to his team to make some significant concessions. And Trump will do one of his signature backflips and offer to suspend the next round of tariff hikes while his people work out a deal he can crow about back home.
If I’m right, that should prove good news for the Aussie and global stock markets heading into the Christmas holidays.
Not that the road ahead is free of pitfalls.
A fly in the ointment
Like it or not, what happens in the US matters to Australian investors. A lot.
When US stock markets falter, you can bet the ASX will soon weaken as well.
And if there’s one thing investors loathe, it’s uncertainty. Doubt as to where the markets are heading next is one of the surest ways to usher in a round of selling.
This isn’t lost on our in-house resource guru, Jason Stevenson. That’s why he keeps a close eye not just on the commodity markets, but on geopolitical events across the world.
One of the potential crises that’s been keeping him up at night — and there are many to choose from — is moves by US Democrats to impeach Trump.
As Jason notes, ‘With such a growing and ever vocal army of opposition rising against Trump, every day the possibility of his impeachment looks to edge closer.’
Now the Democrats are laying low on this possibility so recently after winning a majority in the House of Representatives.
Democratic leader Nancy Pelosi told the Associated Press:
‘We shouldn’t impeach the president for political reasons and we shouldn’t not impeach the president for political reasons… If the case is there, then that should be self-evident to Democrats and Republicans.’
But don’t be fooled. The people and money behind Pelosi and her fellow Democrats are still hugely in favour of trying to oust Trump.
From the Associated Press:
‘“We’re for impeachment. We’re not for get-sworn-in-on-January-1-and-start-taking-votes,” said Kevin Mack, the lead strategist for billionaire Tom Steyer’s Need to Impeach campaign. “Our argument is the Constitution outlines a process to remove a lawless president.”
‘In a new ad, Steyer says Democrats “just need the will” to act. He says he’s calling on Americans to join the 6 million who have already signed on to his group to “give Congress the courage to act”.’
What this boils down to is that we should prepare for the spectre of impeachment to rear its ugly head in 2019.
Now that’s unlikely to succeed, as the Republican dominated Senate would also need to vote to remove Trump. Unless some clearly impeachable offences come to light, that’s doubtful.
But even initiating impeachment proceedings would likely throw markets into a tailspin.
We saw it before with the impeachment proceedings against Richard Nixon and Bill Clinton. And Jason believes we’ll soon see it again.
He outlines why in his new research white paper, released today.
He also spotlights three ‘shock stocks’ he’s convinced will be among the greatest winners as investor nerves fray amid the uncertainty.
That’s all for today.
Don’t forget to check out the latest on the Brexit travails from The Australian Tribune:
‘Trump: Brexit “a Great Deal…for the EU”’
‘UK Prime Minister Theresa May’s job isn’t getting any easier.
‘Having finally managed to hammer out a draft Brexit agreement the EU was willing to sign off on, she immediately faced stiff opposition from many members of her own party.
‘As if that wasn’t bad enough, May’s hopes of getting her Brexit deal through the Commons have been dealt another major blow after…’
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