Negotiation is like a game of chicken. It’s all about who blinks first.
That’s why I always wait until December 31 to buy a new vehicle. I know the dealership wants to pad its figures for the year.
I know everyone else waits for this day too, so it’s a busy day for the dealership. I make sure to scout out the car I want early. That way, I get to take my time negotiating. The longer the salesperson spends talking to me, the fewer sales he’ll make that day.
That gives me an edge. It might be the one day a year the buyer truly has an edge. I’ll keep asking questions and haggling about the price for an hour or more until I get the price I want. In the end, I usually get what I want because they’re sick of listening to me.
I reckon President Trump is an expert negotiator. The one thing you have to be willing to do is walk away. If the party you’re bargaining with believes you must make a deal, they have no incentive to make concessions.
By breaking off stimulus negotiations with the Democrats, Trump has sent a clear message. He wants a deal but will not be bullied on the deadline. The big question now is how badly do the Democrats want a deal?
Federal Reserve Chairman Jerome Powell stated yesterday there was little risk in overspending on federal assistance. He also said the consequences of failing to put extra spending in place would be dire.
President Trump is upping the ante in the negotiations by calling off stimulus talks on the same day as this warning from the Fed.
He stated in plain English that if he wins the election, he’ll immediately pass a new fiscal spending deal.
Meanwhile, the Democrats are lining up their own plans for if they get a clean-sweep victory.
From an investor’s perspective, there will be more spending and more stimulus if either party wins a clean sweep of the White House and both houses of Congress. There will also eventually be additional spending if we continue to have a divided government.
Louisiana was in the news as well because it’s on the cusp of asking the federal government for a bailout of its unemployment fund. Efforts are underway to avoid automatic business-tax hikes and cuts to services.
Any additional money the state receives will also need to be repaid from future state revenues. It won’t be the last state to seek assistance.
The Republicans’ logic is to wait and see how bad it is and provide assistance as needed. Meanwhile, the Democrats’ approach is to provide more than enough assistance now so we don’t find out how bad it is.
There is a middle ground, but the issue is highly politicized. Having missed every stimulus opportunity since July to reach an agreement, it makes sense to wait until after the election. That doesn’t mean it will.
Every politician seeking reelection wants voters to be in a happy place. No one is going to be pleased at breaking off negotiations. However, it’s important to demonstrate you’re willing to walk away. That means when you go back to the table, you’re in a better negotiating position because your counterparty knows you’re serious.
There will be a spending deal, and it will be in excess of $1 trillion. Even in today’s world of unimaginable numbers, that’s still a lot money. It’s enough to boost the stock market when it comes. That means any weakness we see over the coming days is likely to set up the next attractive buying opportunity.
All the best,