The Dow Rose 55 Points Because the U.S. and China Are Talking Trade Turkey

All three main U.S. stock indexes closed with modest gains on Tuesday, adding to Monday’s record highs. U.S.-China trade negotiations continued ahead of the Thanksgiving holiday, as representatives from both countries made another high-level call on Tuesday. Consumer confidence slipped again in November, but still remains at a relatively high level. In today’s After the Bell, we…

  • watch U.S. and China negotiators push trade talks a step further
  • gauge Trump’s position on Hong Kong’s pro-democracy movements;
  • and check on how American consumers feel in November.

Time to Be Thankful

Stocks edged up again on Tuesday as trade negotiators from the U.S. and China hold another high-level phone call to resolve core issues. The Dow Jones Industrial Average gained 55.21 points, or 0.20%, to close at 28,121.68. The S&P 500 added 6.88 points, or 0.22%, to finish at 3140.52, and the Nasdaq Composite increased 15.44 points, or 0.18%, to close at 8647.93.

Carney press conference after BoE remains on hold

Mark Carney

  • Recent Brexit deal creates a possibility of a pick up in UK growth
  • World risks slipping into low growth, low inflation but many of these dynamics occurred first in the UK
  • Both reduced Brexit uncertainty and stronger world economy assumed in BoE forecasts, but neither is assured
  • Now evidence that households are doing precautionary saving before Brexit
  • Brexit uncertainties are weighing particularly heavily on business investment
  • Reduced chance of a no -deal Brexit has pushed up sterling
  • Brexit agreement reduces risk of no deal significantly
  • pick up in UK growth likely to be limited by a lack of supply capacity in the economy
  • New BoE Brexit assumptions assume transition occurs over 3 years vs previous much longer transition.
GBPUSD pushing down towards 1.2800, but that level is holding for now

What happens now that Boris Johnson has managed to strike a Brexit deal?

We have been down this road before

Johnson

A Brexit deal is only as good as its chances to pass a vote in parliament. Just ask Theresa May how that worked out for her.

For all the optimism we’re seeing in the pound over the past week, all of that now hinges on whether or not Boris Johnson can get this deal through a parliamentary vote.
So, what are the key signs to watch for that?
The most obvious telltale sign is to watch for the stance adopted by the DUP. Just be reminded that Johnson doesn’t have a working majority in parliament so he will need all the support he can get at this point in time.
As it stands, the DUP isn’t quite on board yet so that means there is still a high chance of the deal failing to get through a vote in parliament.
What would that mean if we see such a scenario? Again, it just puts us back to a similar position when Theresa May was trying to get her Brexit deal through a vote – where she failed three times by the way.
Another possibility is if Johnson decides to couple his deal with a referendum vote in order to sway Labour lawmakers to get on his side. But that is likely a long shot and one he is almost certainly not going to pursue.
Otherwise, I still reckon it is a tall order for this Brexit deal to pass a vote in parliament at this juncture. But if the DUP and ERG gets on board, I think the pound has the potential to first head towards 1.33 before looking towards 1.35 next.

EU said to see Brexit deal as impossible unless the UK moves

The pound sinks further on the headlines

  • Technical Brexit negotiations said to have reached an impassse
  • Brexit negotiations may collapse amid DUP resistance towards a deal
  • Fate of Brexit negotiations said to hinge on a move from London now
This is coming via Bloomberg and reaffirms the earlier sentiment that we’re reaching a bit of a sticking point as the DUP is failing to get on board with the proposed Brexit deal.
The pound has fallen further on waning optimism with cable dropping to a low of 1.2658 from 1.2730 before recovering to near 1.2700 currently.

Here is UK PM Johnson’s cunning plan to stop Brexit extension beyond October 31

Earlier post on the UK media report on Prime Minister Boris Johnson plan to sabotage Brexit extension

  • UK press reports on UK PM’s plan to sabotage any Brexit extension
The background to this is Parliament have voted to require the PM to request an extension from the EU beyond October 31 (conditions apply but that’s the gist of it). Johnson plans to send an accompanying letter saying the UK government does not want the extension, that is it wants an exit on October 31.
Also, more from the weekend here:
  • EU officials adamant on no further Brexit extension
Earlier post on the UK media report on Prime Minister Boris Johnson plan to sabotage Brexit extension

Book Review: Priceless

This book, Priceless: The Myth of Fair Value (and How to Take Advantage of It), covers rationality in decision making, and how markets and marketers take advantage of the deficiencies in rationality in average people.

There are many in the investment community that admire behavioral finance, and many who say that it might be true, but where are the big profits to be made from it?

This book doesn’t cover behavioral finance per se, but it does cover its analogue in pricing and marketing.  In a negotiation, the first person to put a price on the table tends to push the final price agreed to closer to his price.  Leaving aside no-haggle dealerships, why do car dealers post high prices for vehicles?  Because only a minority does the research to understand what the minimum price is that a dealer will accept.  The rest pay more, often a lot more.  Personally, I do a lot of research before I buy a car, and it helps me spot dealer errors in pricing.

The book is replete with examples of how there is no “fair” way to price things out.  What are the proper damages for a jury settlement?  The attorney for the plaintiff is incented to come up with the highest believable amount for the jury, because they will render a verdict less than that.  Make the ceiling as high as possible, and the plaintiff will get more.

We call placing the first price on the table “anchoring,” because it pulls the final result toward itself.  The book is filled with experiments dealing with anchoring.

The book also spends a lot of time on the “ultimatum game,” where a person gets $10, and must offer some of it to a second person, but if the second person turns him down, the first person gets nothing.  The main lesson here is that pride is stronger than greed.  Yes, it can be construed as a question of fairness, but when someone gives up money to deny money to someone else, it is not fairness but envy.  Why pay to make someone else worse off?  To teach him a lesson?  What an expensive lesson.

Much of this book was a walk down memory lane for me.  I discovered Kahneman and Tversky in the Fall of 1982, and I found their ideas to be more cogent than much of the “individuals maximize utility” cant that was commonly heard from most professors teaching microeconomics.  People are far more complex than homo oeconomicus.  Small surprise that most tests of microeconomics as a system are not confirmed by the data.

Kahneman and Tversky showed via a wide array of examples that the decisions people make are affected by the way they are presented to them.  People can be manipulated in limited ways in order to affect the decisions that they make. (more…)

There is A Solution for Everything…..

There was a father who left 17 camels as an asset for his three sons.camel

When the father passed away, his sons opened up the will.

The Will of the father stated that the eldest son should get half of 17 camels while the middle son should be given 1/3rd (one-third). The youngest son should be given 1/9th (one-ninth) of the 17 camels.

As it is not possible to divide 17 into half or 17 by 3 or 17 by 9, three sons started to fight with each other. So, the three sons decided to go to a wise man.

The wise man listened patiently about the Will.

The wise man, after giving this thought, brought one camel of his own and added the same to 17. That increased the total to 18 camels.

Now, he started reading the deceased father’s will.

Half of 18 = 9. So he gave the eldest son 9 camels

1/3rd of 18 = 6. So he gave the middle son 6 camels

1/9th of 18 = 2. So he gave the youngest son 2 camels.

Now add this up: 9 plus 6 plus 2 is 17 and this leaves one camel, which the wise man took away.

The attitude of negotiation and problem solving is to find the 18th camel i.e. the common ground. Once a person is able to find the common ground the issue is resolved. It is difficult at times. However, to reach a solution, the first step is to believe that there is a solution. If we think that there is no solution, we won’t be able to reach any!

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