Sree Iyer: Namaskar and welcome to DGI addition 185. Today is June, 18, Friday. And we have a whole slate of news items to cover.
In US news, Al Qaeda in Afghanistan could threaten US Homeland within two years says a study. Sridharji, welcome to PGurus Channel and Daily Global insights and who said this, Sir and in what context?
Sridhar Chityala: This is a general, who has indicated that the withdrawal could pose a significant threat because we would not have Ground Intelligence. It’s only a matter of time whether it is two years or three years or one year, it doesn’t matter. They just keep this date. I think that’s where it’s come from. Lindsey Graham had stated when this was announced, we’re going to lose all the data that we have collected and we are back to where we started before 9/11.
Sree Iyer: in the next news, China says, Russia too big and too powerful for Biden to add insult to injury, Xi awaits Putin like Summit with Biden. So, we are now going to have a summit with Xi Jinping and they want to say something about what happened between Russia and the US, and with your permission sir, I am going to put the slide here, where it says that China is saying Russia too big or too powerful for Biden. What makes him think this and why is he saying anything? What is his business here?
Sridhar Chityala: Well, just initially their launch, what they call the wolves diplomats, a who went on an aggressive and offensive around the world on the China policy. Now, the wolves have been now, let go, now the lion and the tiger itself is coming into the forest to engage in a game of this roar and prowl. Xi Jinping, watch this drama unfold in Russia. He says, ahh, we started this in Alaska if you remember. And we went on the tirade between following the script at the press conference. Now Russia has done to Biden and made him look very small. So therefore Russia is too big and imagine if Russia is too big, we await him and we want a similar summit, so I can then put him to toast. This is reading Xi Jinping. Xi becomes very aggressive. July is their big communist hundredth-year communist reunions or anniversary celebration. So they’re firing on all cylinders, and you can see that there is absolutely zero response from the United States.
Sree Iyer: Well, I don’t know if there’s even one needed, you know, getting ignored also is an insult but then some people don’t understand that. So, let’s leave it at that. Russia is prepared to continue the dialogue if the US is willing. Putin says after his meeting with Biden. So, I’m taking that nothing happens in this meeting, sir.
Sridhar Chityala: What he is basically saying is you got to sit down and negotiate with me or talk to me, talk to me. But don’t come here with conditions and don’t come here with a checklist of actions, you know. I’m not here to comply with the checklist of actions. Actually, I think I covered this yesterday going back and saying to them, here’s a list of 12 infrastructure areas or items where you’re not supposed to launch the ransomware. It’s almost like saying, well you know, if you do elsewhere then we’ll just keep quiet but if you attack these 12 things, they just have not gone down very well even within the Democratic party as to how somebody prepped him and asked him to speak and give this list.
Sree Iyer: Don’t expect Turkey to take different steps on S400 and F-35. As the discussion between US and Turkey in stalemate, Erdogan tells Biden, in NATO Summit. So Biden is still in Europe and this is a new NATO Summit, sir.
Sridhar Chityala: NATO Summit is over sir, sorry, sorry to interject. NATO Summit is over, but sometimes the news filters a little late. Just as the Biden-Putin statement, sometimes it filtered late. So, the news is probably about days old, so you remember, he went and met with Cornwall’s. He went to NATO met with NATO leaders and then from Cornwall, he’s making his way back. So this is a statement coming out. So, Erdogan picture and Biden’s picture was shown in the meeting, where they were discussing. I mean now, Turkey becomes another country, which is reflective telling Biden to, I paid F-35, don’t give me conditions, deliver or face the consequences, don’t talk about S400s. S400 is a separate decision. So, therefore, we have made the decision. So, the United States is now facing Stark reality from China, Russia, Turkey and Iran. Iran is saying there are no preconditions for nuclear discussions. You go back to 2015, don’t put all these conditions, reduce these, reduce that don’t do this etc., So, we are seeing complete inaction from the United States, but except continue the path of discussions with these people and notwithstanding the fact that is the rhetoric that is coming out of the Nations. This generally is not the case, this is taking a very strong position in what it expects and what it demands and what it can do. But it’s very very unfortunate where we are right now.
Sree Iyer: Biden signs the Historic Juneteenth Bill, creating the first new federal holiday in decades. On June 19 1865 union soldiers arrived in the coastal city of Galveston, Texas to tell the enslaved people that they were free. This is the moment in history that’s been captured. So does that mean that now, from this point forward, June 19th will be also a Federal holiday?
Sridhar Chityala: It is, it will be a Federal holiday this year, they are dealing it as a holiday which people can avail because June 19th is Saturday and it has come at such short notice. There’s a whole slew of activity that needs to be recalibrated. So they’re basically said, even if it’s not to June 19, but if you can, people can avail an optional holiday during the course of the Year, this is some institution. Some institutions may put a timeline but I think forget all of that. This is very historic, very emotional and a closure for a lot of people because you know the most horrible thing is slavery. The fact that it is being recognized as a Liberation and freedom and a day to celebrate in human history. Yeah. You can see the happiness and probably tears in the eyes of many people. Some of them have seen there somebody within their family, you know, lived and transition. You know, of course, everybody has an association with that, in some way, association with the History, but it’s a very emotional moment. I think one of the most positive things that have come out in the first 120 days of Biden’s administration. This is more or less unanimous support from both House and Senate when it was passed.
Sree Iyer: The Supreme Court, Rebuffs GOP’S, Obamacare Challenge and by 7-2 majority ruled that Texas and other states have no right to bring their lawsuits in Federal court. The law is Left intact. This is Obamacare and by the way, I personally am all for it. I believe that it makes the affordability of healthcare possible for all strata of society in the United States. I don’t know, your thoughts, sir on this particular decision. Will that now set to rest; I don’t think GOP should be chasing this. They have other things to follow.
Sridhar Chityala: Oh, I think the Supreme Court is not going to take up, you know. Of course, it doesn’t mean just like row and way, you know, in this will go on for years and years and years. But I doubt whether this will change in course, 30 million people have availed, the Affordable Care and they are deriving the benefits out of it, but it’s very interesting as to how the 7-2, Mr Brewer, who wrote the Judgment stated that which is to say, none of you either as an individual mandate, none of you have any reason to make a claim that they should be set aside. You have not given one good reason that it should be set aside. So, therefore, this is dismissed. So, therefore it stands for your inconvenience as a result of his for there is an injury that is caused as a result of this, you have not established. So let’s move on. It’s put to rest. I think that’s a fantastic verdict. Actually, even when John Roberts wrote the original verdict when Affordable Care was introduced was something that is, you know if you are in the legal field. It is basically saying it’s a tax and the tax is normal for the government. So, don’t come in here, talk about the tax part of it because it’s the way of transect work. But in response to your final question which is namely to say, well, I support the Affordable Care Act is likened, zero-sum game. Insurance is a zero-sum game in the United States. Somebody loses somebody has to pay for it. There is no networks. There are no insurance networks. There are Insurance, open insurance plans available, but the cost is so prohibitive. The cost escalation had been so prohibitive. Plus there was a caveat that came with it that will notice for the Obamacare or Affordable Care act insurance companies can give you an advance under the 19-20 days, notice and increase the premium. And premium, those who are in the private system have gone up on an average between 14 to 25%. We just received a notification to say, my premium is going to go up by 25%. I mean, I don’t want to give the numbers here but, you know, if you are living in the United States and till you get to retirement, or you get past that, you know, specific age, you know, no longer institutions covering. Health care is a very big cost, a very big fixed cost in the line item of expenses. So, that’s all my complaint would be.
Sree Iyer: Texas Governor Abbott has signed into Law a no-permit gun Carry bill, that allows Texans to carry guns in public places without a permit. What necessitated this?
Sridhar Chityala: Basically to say that Texas has historically had free-gun movement, you know, we have lived as a society, this is time-tested, you know, storyline and therefore, just by taking guns off, nothing is going to change or by keeping the guns, nothing is going to change, the status quo. There are going to be Shooters in the society and we are going to deal with it and whether we agree or disagree with it is, you know, there is a matter of opinion. But the facts are that Texas is saying, it is very similar to what we discussed yesterday. Whatever Trump says Democrats will oppose or whatever the Democrats say Biden says the Republicans will oppose. So, you’re going to see, be it racial theory, be it Gun Control, be it taxes, be it insurance premiums, be it law around the leases for the gas and oil companies. Be it the immigration surges that is happening, be at the unemployment benefits that are coming in. Take any of these things, you’re going to see polarized and opposing views and States passing laws. This is what happens when you don’t have a bipartisan view in framing the law. We have a bipartisan View at least you are, you will have the parties go back to the respective States and constituents and get a consensus. So you railroad something you are left with this with is what you call as a disaster.
Sree Iyer: The US invest 3.2 billion dollars in the quest for a Covid-19 pill and scientists calling for a probe of the Wuhan virus, were fearful of being associated with Trump, caused the delay, that means it is like they were thinking that if they say that there must be a probe of what happened or where the Covid virus originated, then they would immediately be associated with Trump as being a Republican and therefore they decided to keep quiet. This is astonishing sir or maybe it is dumb stupidity, I mean scientists of such intellectual heft to do something like this. You know it begs belief that you know if this is amazing, I just can’t believe that somebody would not speak up for truth.
Sridhar Chityala: Science, human dignity and human values seem to take a backseat when it comes to political alignment and politics. What we are left with is 4 million people dead and you know 35 million people affected. The world is in an economic crisis. Virus after virus is likely to be expected. Now, Asia is witnessing this Delta virus or the next variant that is engulfing the system there. And yet you have scientists and doctors and so on who have kept quiet because they feel that if they had spoken up, they would be part of mistaken for being aligned the Trump. I mean, I think you have expressed those words. I don’t want to say, but more and more as you have more and more discovery and truth. There’s nothing but leaves you dumbfounded.
Sree Iyer: In Indian news, Afghan and Indian diplomats discuss the changing situation in Afghanistan, including an Outreach to the Taliban. India’s Defence Minister inaugurates, 12 roads built by the border roads organization in Ladakh, Arunachal Pradesh and Jammu and Kashmir and India provide a 100 million dollar line of credit to the Sri Lanka government for solar energy projects. So, I think India is trying to retrieve some of the Lost ground to Sri Lanka, your thoughts and is it too little, too late?
Sridhar Chityala: Well, I think he has taken a very correct strategic view, which is to say that wherever there is an opportunity and makes commercial sense. Then, we’ll come forward and offer you the support, okay. With regard to the port city project, Columbo port city project, the reasons are that there was a joint proposal between India and Japan presented for Capital commitment and the development of the port. They chose the other way and they have taken the 1.2 billion dollars or whatever the number is that big number is the number that I’m hearing is 1.2 billion and considered ground. So, Sri Lanka is like South Asian diplomacy is very interesting. You know, whether it is Nepal whether it is Sri Lanka, the only country, where they some stability, is Bhutan and to some extent, you know, the Maldives. If you take these two outer lines, there seems to be a constant tussle. I don’t know what drives it, I don’t know whether it’s too little, too late, but at least in the right context, they have given the aid.
Sree Iyer: China conducts final trials on a new rail line built close to the Arunachal border. We have talked about this on an exclusive China’s fireside chat. One interesting thing about the gauge itself, I don’t think the Chinese gauge is the same as India’s broad gauge, and there’s a story in that. Let’s not go there. First, your thoughts on this and then we can move on to the next item.
Sridhar Chityala: It just basically points out that you have the BRO inauguration in the same area and then you have the rail infrastructure in the same area. So in other words, notwithstanding what many pundits say, India is going toe for toe with China on infrastructure be it planes, be it roads, be it airports, be it tanks, be it men on the ground or men in boots, be it rail, everything. I think it’s very clear India expects China to be very combative and opportunistic. So, therefore, I think India is prepared that, it’s not going to concede. What happened to Aksai Chin and pre-1962 is an entirely different story. But infrastructure is right now is being built and is being built to match. I think that’s the overall conclusion. And China is not going to stop, we discussed that yesterday.
Sree Iyer: India’s active covid-19 cases dropped to 826,740 and the number of vaccination doses, cross 265 million, the number of deaths is now at 381,903. So slowly but surely, I think India is getting a grip on its covid pandemic response.
Sridhar Chityala: I think it’s slowing getting its grip. It is building the infrastructure. I think it is also preparing itself for the next wave. Everybody in India thinks it’s imminent, they probably know something that we don’t. So therefore they’re preparing for an imminent Wave-3. I think they’re going to step up the vaccines. That specific number is again an astonishing number when you look at the world in an overarching context. Just to give you an example, 60 million doses have been given by Britain in the first dose, and only 30 million doses have been given as the second, which means a total of 90 million doses have been given in Britain which was one of the first places to have a vaccine out. Whereas India is around 263 million and it is not far off that India will cross 300 million. I have also seen numbers where the daily vaccinations range from 1.5 million on the lower side to about 3.8 million. India has not touched 5 million as yet. 3.8 million doses, what causes the variability, I don’t know, but the number of vaccine doses that are administered is fantastic and they can easily hit that 5 million number very, very soon.
Sree Iyer: Let us take a look at the Global News. Now the Global Competitive Index Course, the US holds its position. China moves up the ladder and Taiwan moves to the number 10 spot. Somehow, I have difficulty believing this. I’m going to put up the chart for this, sir, and it is up. Now, people can see it. Switzerland has moved to No. 1 from No. 3 in 2020. Sweden has moved to No. 2, and Denmark is at No. 3, Netherlands has stayed there, and the US also has stayed and so has India, sir. Your thoughts on this? Do you think this is real or is it another planted news?
Sridhar Chityala: It is news that is out there, so I decided that readers and viewers and others can do the same, there’s another chart which is called the Opinion of China Chart. So if you overlay these to the Opinion of China around the world has shifted from an acceptable percentage of somewhere around 60% to less than 20% in most countries. How can you have got a Competitive Index of China going up when you have an opinion index, one going south, one going north? So what they’re saying here it is, ‘Well, China is very good as long as you comply with all the Chinese Draconian laws that they impose on you, from Capital controls to intellectual capital to intellectual property rights to law and enforcement and as well as their own regulatory norms which they impose on many or almost all of the institutions and yet it is a very good nation and it has moved up on the competitive ladder. It is converging on the United States, So here is the dichotomy and I think your answer is, ‘I don’t want to say whether it is fake, it’s a data point, but people can make their own judgment.
Sree Iyer: Taiwan has signed two major contracts with American Institute in Virginia, for multiple M142 High Mobility Artillery Rocket Systems – HiMARS and Harpoon Coastal Defence System – HCBS. So Taiwan is starting to warm itself up. This only tells us that the intelligence being conveyed is perhaps Taiwan is where China is going to hit next, maybe not India. Who knows this month, maybe nothing or next month, nothing might happen because of their meet. Sir, in how many years do they meet, sir? The CCP, and after that maybe something will happen.
Sridhar Chityala: I think my thoughts are that Taiwan has seen repeated incursions. Taiwan has seen repeated violations of their Air Defense Zone. China has seen repeated violations of the economic division, economic diviner Zone in the Taiwan Sea or East Asia Seas. One has also seen a very combative nature of China. Basically saying, even in the Defence Ministers meet on they made a mention that Taiwan is off-limits. It is the same word that Russia is using for Ukraine, which is, it’s a red line. So, China is saying it’s a red line, which obviously means that there is an attempt. Hong Kong is done and dusted. Tibet, nobody talks about, notwithstanding the fact the money went in. So Taiwan seems to be the natural point. It’s an unfinished business that China has to settle. Once they do that they effectively control all of the gateways, the East Asian Sea, the South China Sea, Taiwan Strait, etc. I see Taiwan equipping and arming itself and at least one nation that the United States is putting a lot of resources in is Taiwan.
Sree Iyer: In fact, the US general has gone on to say that, China lacks the intent and ability to invade Taiwan, right now.
The Hong Kong police arrest, Apple Daily Executives in a Nationals Security law raid. Is Apple Daily, a newspaper in Hong Kong, sir?
Sridhar Chityala: Correct. It is the freedom journal until such time, the complete suppression of human democracy and human rights most recently. If you remember they re-enacted the laws for the Hong Kong Legislative Council and they also came up with new norms and conditions. So until that recent time Apple Daily, even Epoch Times which used to operate with a great sense of latitude, with some amount of controls post the transition of power between the UK and Mainland China, but now it’s all Draconian. So, therefore, the raid is consistent with the policy of either, you obey me or I come and take you over.
Sree Iyer: In the news related to the Myanmar coup, the United Nations voices alarm over burned villages. A day after the Biden-Putin Summit, Putin says Ukraine joining NATO would be a red line for Russia which is what you just touched on, sir. Beijing backed Colombo Port City project raises eyebrows in India, with India hoping that Sri Lanka is mindful of Maritime security. This is part of a much-criticized BRI initiative. So somewhere, something, China keeps the pot boiling around India, isn’t it?
Sridhar Chityala: I think in and around all strategic areas of interest China has got its toe. The question is, which toe is going to be bitten first before the feet is taken is something that we will know very soon. Clearly, the feet are not going to kick everybody out or each of the toes are not going to kick the captive just like that out. So, therefore, you can’t have, I don’t want to mention parallel going back to the World Wars but clearly, China is not doing these things in a proper way. We can confront the whole world and then assume that things will be falling in place. But to your point, there is clear naivete on the part of Sri Lanka to have gone down this path.
Sree Iyer: Let’s take a look at the markets now. The Mortgage rates spike following Powell’s comments, eating their highest level in months. The 30-year rate climbs to 3.25%, it was at 2.6%. So it’s a big spike here. The Federal officials’ Median expectation for GDP growth jumps to 7% from 6.5% in March. Unemployment is seen at 4.5% and inflation at 3.4% against a March product projection of 2.4%. Taken in hold inflation is going up, interest rates are going to go up, which means that the housing prices are going to start cooling down. In fact, they might even head south. But overall, what is going to be the impact on the economy in your opinion, Sridharji?
Sridhar Chityala: There is plenty of liquidity, I think we discussed this. So the liquidity is going to flush the market and keep it going. Just to put things in context, close to almost $1 trillion went into the markets in the second half of 2020 to the first half of 2021. $354-$360 billion went into the markets and that basically tells you that this is a lot of gains achieved by markets in the last two years, especially last year. 2019 and 2020 were big boost years. The money is being put to work especially at the low cost of capital. So, therefore, the market is what you’ll see in the next chart which will show very soon. Overall, what can I say, 2021 is the year of stocks. So if you have put money early in 2021 then you already have seen gains between 14% to 15% depending on whether you are S&P or whether you are in the Dow Jones index. NASDAQ went up. Whenever there are interest rate hikes, you see the tech stocks going up which makes up the NASDAQ. I also see this effect going into 2022. I think the trouble will start probably in late 2022 or early 2023 when the liquidity runs out of steam and when the realizable gains have been accomplished, basically, as a result of the low cost of interest. And when the interest rates go up, which is from 2023 and you’ll see some early indications, that’s when they will be pulled back on investments on capital items as well as the expansion programs around employment. Also, remember that in the United States like the world is coming out of pandemic, there is also this reopening demand that is creating this aberration in the upward movement of 2021 outcasts by way of sales and revenues.
Sree Iyer: Sir, I had the S&P chart, so people can see that thing. And now let’s go back to the Markets. The market recalibration, with a medium-long term, look at tech and long-term bonds. So, there is going to be some recalibration of tech stocks at least. And do you think that the long-term bond is going to go up or down?
Sridhar Chityala: Well, I think in Fixed income interest there would be a shift. If there was a reallocation for fixed income towards the equity markets, which happened in the second half of 2020, and clearly, right now that’s where it is. But you will begin to see that money moving back from equities into long-term bonds whenever there is an interest rate hike. Obviously, you are going to get a better yield out of the market, so that’s one part of it. Now obviously, you’re not going to see much value, you’re going to see a lot of opportunity in a growth stock. Tech is a growth stock. So that’s where it goes up. So when you have revenue then you have fewer dividends, when you have fewer dividends, then you go to the interest paid coupon that is generating the higher yield. So this is the calibration that we will begin to see as interest rates decision is absorbed and people recalibrate their portfolios and Investments are done. The only thing is if you are seeing that specific chart you would have seen the point that we were trying to make, is the last seven or eight months or so you can see on the top chart on the top portion is the S&P curve. Going on the bottom, you will see a red graph shows the dips and S&P at any given point in time. You can see almost 3-4 years of data there. Most notably in the last 7 or eight months, we have not seen it below 5% on the S&P. That basically says that there has been a very stable growth. That’s reflected in year-to-date growth of around 40% in S&P and around 15% in the Dow Jones Index.
Sree Iyer: With that, our daily Global Insights Episode 185 comes to a close. Have a great weekend, folks. And we’ll be back bright and early on Monday morning Namaskar.
Sridhar Chityala: Namaskar. Thank you. Have a wonderful weekend and enjoy the newly announced Juneteenth day commemorating the Liberation that took place from slavery. So enjoy and have a good weekend and we’ll see you on Monday.
Sree Iyer: Thank you, sir.
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