EP 190 | Daily Global Insights | Jun 25, 2021 | US News | India News | Global News | Markets

EP 190 | Daily Global Insights | Jun 25, 2021 | US News | India News | Global News | Markets

Sree Iyer: Viewers you can’t see me today, I don’t know why, but Sridharji is visible and let’s go with that. Namaskar, Today is June 25th, Friday, and Welcome to Daily Global Insights with Sri and Sree, Episode 190. We start with a bang – on The spy who defected or did he? Sridharji, Beijing releases the photo of Dong Jingwei, the official at the centre of the defection rumours. He was seen on June 23rd, attending the meeting of the Shanghai cooperation organization, meet. In the announcement, that carried a photo of Mr. Dong was seen sitting in the right corner. Sir, with your permission. I’m going to put the picture now and we can talk about that. So, go ahead, sir, I have the picture up now.

Sridhar Chityala: Good morning everybody. Happy Friday as we get to the weekend, it’s all good news. You know, as things have transpired yesterday, you know, everywhere around the markets and so on, but the most important news is coming from China which is there was tremendous speculation around this you know, a big name that supposed to have defected as it turns out, the name has popped out. His name is as Sreeji pointed out Dong Jingwei, he is seen, the Chinese for the first time, usually, they don’t do this show and tell they basically put the photograph of the meeting that happened on June 23rd. The SEO meet, it’s virtual meet up, some of the people attended life, especially from Beijing and sitting at the right-hand corner was the man at the Center of the controversy and his daughter, we supposed to have migrated, or we supposed to have defective, the United States, right from China via Hong Kong never happened doesn’t seem to have happened based on a photograph, begs the question, you know, how some of these intelligence reports, come out.

Sree Iyer: Yes, indeed. And let’s move on sustaining the war against China would be a significant challenge Joint Chiefs chairman says this, I’m assuming is a Joint Chief chairman of the United States sir.

Sridhar Chityala: Yes, indeed, the Joint Chiefs chairman addressing the budget meeting yesterday or the day before yesterday. Mark Miley made his presentation and said that you know, budgets are essential the biggest threat. We got two threats, one in Russia, which is less, but, the most significant one is China especially, defending Taiwan you know, which is looming as a big threat along with the South China Sea. But the first, you know, signs of trouble that could brew would be in Taiwan. So he has effectively stated that you know, sustaining and long war without significant investment would be a difficult proposition. For those who don’t know, or who need to be a little bit enlightened, the budget annual budget for defence is 753 billion dollars that cover a range of operations, doesn’t exclude any new operations. These are all defend, protect, maintain and manage. So in his briefing, he was alluding to this specific threat to China poses, but there is also in the same meeting. There has been yet, cut to the Navy budget and that was not very well received both by the Republicans or GOP and the media especially in the context of what needs to happen in the South China Sea and Taiwan Straits.

Sree Iyer: And the Chinese defence Ministry, says Taiwan Independence implies war. Taiwan must realize that its future lies in reunification with China and cannot rely on the United States. Sir, the sabre-rattling has gone up, one notch now.

Sridhar Chityala: The sabre-rattling is gone up. Also, I think China is laying down the framework, which is to say you are a small island and you can’t defend yourself, you know, we will railroad you. And you are part of the greater China that has been our vision. You only broke away. So, therefore, it’s right for you to rejoin, but all this stuff that you are doing is reliant on, you can see very clearly, there’s no mention of Quad, there’s no mention of Japan. There’s no mention of any other Nation around, he says the United States. You are reliant on the United States and the United States is not the most trusted ally. This is another shot that China is firing at the United States. Obviously, they have the intelligence of what’s happening on the budget side. You know, they are all watching what happens here but it’s a very very clear statement on Taiwan by China.

Sree Iyer: An Australian Senators support rallies in five cities Nationwide against Beijing, Winter Olympics. So, now this movement has started taking root. People are saying don’t go and, you know, participate in Beijing Winter Olympics. First of all, the 2020 Olympics itself has not been held yet. So this is again, I guess 2021 is when the Winter Olympics were planned and that also now is gathering momentum again. Sir, your thoughts, do you think the world needs these two games this time around?

Sridhar Chityala: Clearly, Japan is it’s too risky. In fact, I think that is not really needed in this specific hour especially when Japan is combating Covid and also the Covid variant, which is the more emerging Asia. As far as the Winter Olympics in Beijing is concerned, the boycott of the Winter Olympics in Beijing is quite amazing to see Australian states or the five major cities across the country where the rallies are going to be held against participation for a number of reasons. One is they have been pounding away at Australia with economic threats. Obviously, Covid has been one of the numbers of big, big, big kind of retractions and the anti against China. Nowhere one has seen as much of it as you see it in Australia. Even in the United States which has suffered such drastic economically as well as you know the impact of it on human life and the ecosystem, but you see the Australians rising and saying, you know, no more dealing with China.

Sree Iyer: Global food prices rise, 40% 12th month in a row and China’s surging demand is one of the big factors. Sir, these are China’s internal consumption numbers or is it for everybody?

Sridhar Chityala: China exports more than almost close to 60% of its food requirements from outside. So this obviously has the economic affluence in China grows, then you find that the demand for food products also grow. And so, therefore, there is China, is prowling all around the world to import items to meet the internal demands. So naturally, when the demand exceeds the supply, you have the price theory, so that’s one part of it.

I think the second part of it, that is the prime reason in the past 12 months, also markets are constricted in terms of movement, there are restrictions on imports exports. This restriction on supply as a result of the Covid situation, which is all contributing towards the rise in food prices.

Clearly, one can see around the people suffer. Somebody asked a question, you know, how do you deal with inflation?  We are in a very interesting phase of a world where interest rates are low, inflation is rising, and there’s more liquidity being put into the system which only implies the prices are going up, we will deal with this subject separately, when we have a fireside chat as to what this is doing to the ecosystem, you know, excess cash, you know, excess liquidity, raising prices, but low-interest rates.

Sree Iyer: In a follow-up to what happened in Ukraine Seas Russia says on the next occasion, it may fire to hit intruding ships if they fail to heed warnings and the United Kingdom in return says that it would send warships through Crimea again. So now the sabre-rattling has started from Russia too sir.

Sridhar Chityala: The sabre-rattling has started. I think that my own observation on, this is not warranted by Britain. Of course, you have to support Ukraine, you didn’t do so, when the Crimean War happened in the annexation of Crimea took place, they usually kept quiet impose some sanctions again. You know, Let it go. You remember, the Ukrainian jet being shot down and it was said that it is the Russian forces, but it’s it turns out. It’s not the case, whosoever it was. Nothing was done there again. So, you have a real challenge in as far as Russia is concerned and then, you have the gas firm which is going on, you know, sorry, Nord Stream – 2 pipeline goes into Europe where you are reliant on Russia for the energy. And you saw the dialogue around that between the US as well as EU on the topic. When you say, that what you want to do, do you want to kind of send your ships across and then provoke a guy who is just doing his stuff, what he needs to do, having said that, there’s a beautiful picture, which is shot by a Russian drone, or from a Russian plane of the British attack carrier just on the adjustment of the water into the Crimean region. So I think that this is not warranted at this stage. But then, you know, what can you do?

Viewers we are having a few technical difficulties today on Facebook and I just saw a small drop in YouTube and it has come back again. I have no explanation for this. These things happen, this is technology, so we’ll continue on Israel Hamas truce remains very fragile warns United Nations Envoy in an address to Security Council. Iran centrifuge facilities have been substantially damaged in the attack according to sources despite Iranian denial, your thoughts, sir.

Sridhar Chityala: Well, my thoughts are that the damage has been inflicted. There are pictures that are coming out which show that there is damage and now the intelligence sources confirm that it was the centrifuge that was hit and to some extent, it puts their program, you know, back by a good distance which has prompted, we covered this yesterday. Not only is Israeli pressure but also the Biden probably coming into gathering the same intelligence that the world is aware of. To say, Okay let’s delay the discussions with Iran for some more time. I have to say that if this was an Israeli strategy they are saying okay you don’t want to talk to us? No problem. We’ll know how to inflict damage we inflicted damage and will bring you to the negotiating table. That’s exactly what they seem to have done but we have no evidence or proof to substantiate that.

Sree Iyer: Let’s take a look at United States news, Biden announces, the bipartisan deal. The big story is to answer the direct question. We have a deal. Biden said from the White House, lawn. “We have made serious compromises on both ends.” No one got everything they wanted in the packet said Senator Krysten Sinema Democrat from Arizona. So, now I’m going to put up a chart that gives you the details of where things break down. Sridharji with your permission, I’m going to go put up the charts right now and we start with the allocation on roads and bridges sir.

Sridhar Chityala: Yes, sir it says 925 billion dollars. They’ve added another close to 400 billion dollars to the budget line. So roads Bridges and major projects get 109 billion dollars almost 10%. Clearly, this requires a major overhaul in the United States if you are all travelling around the roads and bridges you will probably begin to understand why. Safety, they have put in 11 billion dollars, you know, which is around the public safety measures that need to pull, be put in place, then the public transit, which is your MTA, if you are in California or the tubes, they have allocated, 49 billion dollars, passenger and Freight rail, they’ve allocated 66 billion dollars which is to enhance that railroad system. Electrical vehicle, EV infrastructure is one of the much talked about points, they have allocated 7.5 billion dollars, you know, we discuss this, you know, whether you really need this or whether you expect Tesla’s of the world to do to roll this out, whether you be government to spend this kind of money, electrical buses, and electrical Transit System 7.5 billion dollars, this is something that, you know, the remodification of the buses, the transportation, provided by the government is going on. So I think that’s a good measure. Reconnecting communities, I don’t know what this is but the story is, like a billion dollars, all I can think of is this is they have allocated some money for all these surges that are happening across the border. You need a budget to fund it. So they are pitching money from Covid here, there so, from infrastructure, so that’s the 1 billion dollars. Airports, if you recall, 25 billion dollars has been in the plan all the time, they did 25 billion dollars. When we did the 925 billion dollars, It’s in the December R &R rescue, and relief program stimulus that was launched and then ports and waterway 16 billion, that’s again, you know, acceptable. Infrastructure Financing is 20 billion that’s in my view, your pocket holder for, you know, all the constituents to get some piece of money for the infrastructure because you have already covered a lot of items under the infrastructure. water infrastructure 55 million. I have a feeling, they say, there is an element of clean water because the details of the project are not spelt out. So you have a 55 is a significant allocation. Broadband infrastructure, 65 billion. I mean, this is much talked about this is to every home to be connected and the reasons attributed is the Covid demonstrated that people are not connected with the right bandwidth and we’re handicapped as a result of everything moving online. So, I think there is a, there is a definitely strong felt need. Environmental remediation, 21 billion dollars, again this is you know the energy program or the Clean Air program or go green program as you know 21 billion dollars is significant money. They are talking about multi-billion dollars or something more is coming. Power infrastructure, including grid authority in the United States power infrastructure, is rather poor. Many of them have not been, you know upgraded. The question is we have to see the details of this 73 billion but it’s a huge number then, Western water shortages, this is your California areas where there have been acute droughts. They’ve allocated 5 million dollars.  Resilience, 47 billion dollars to me that again, a placeholder for allocation. So, you can see that there are some good numbers and which is Justified. And there are Place holders but this is not the end of it. Because Nancy Pelosi says that this is not a deal unless you have all the liberal priorities including.

Sree Iyer: Indeed and viewers, there was a bit of a challenge for us to try and get you all the numbers. We have tried the best possible way. I hope you could read the text that appeared as he was going from one section to the other such as water infrastructure, Broadband infrastructure, and so on. We tried to keep up with Sridharji. I hope you understood or you got it because viewing it on a smartphone might not be the easiest thing. You have a challenge. If you think you have a challenge, we have a bigger challenge. Thank you very much, for your patience.

Let’s move on to the next topic. FBI director, Christopher Ray urges companies not to pay Ransomware. The Department of Energy seeks 201 million from the government to step up security. A bipartisan Senate Bill seeks to reestablish or establish US-Israel Artificial Intelligence Research Center to combat new and emerging threats. Certainly, this is a clear and present danger. Sir, your thoughts. Do you think now the FBI is in a position to recover payments via Bitcoins for Ransomware?

Sridhar Chityala: Based on the current methodologies that are used, they seem to have got a good handle on taking care, but this is yesterday’s problem. Often security is going to be tomorrow and the day after. Whether they are sufficiently prepared, time will tell. Because right now, they are not, which is why they are asking for money. Second, many of the institutions or industries that were attacked such as the food industry, which is the meat industry, the gas pipelines, the power grids, and the other infrastructure elements that were attacked are still vulnerable. There are no mechanisms that are put in place to deal with these issues. So, therefore, I think that the institutions are getting their act together as a result of some of the intrusions that have happened. The AI is a very good initiative that has been put in place. One important point that the FBI made is, if the infrastructure is within the jurisdiction of enforcement such as in the United States, it makes the detection and reinforcement much easier but if it is located in providence or a location where the United States has no jurisdiction or must get the jurisdiction rights on must get the enforcement rights, it could make it even more complicated.

Sree Iyer: There are questions that surround the US plans to evacuate Afghan allies amid pull-out. These are Afghan Nationals who assisted the US wartime efforts. Massachusetts Democratic senator Seth Moulton, a marine veteran has raised this question. Sir, your thoughts. We have done this thing periodically, the United States will help people who helped them. For example, from Iraq, we’ve had many, many people come over during 2003 when the ouster of Saddam Hussein happened. So, the same thing is now playing out in Afghanistan, you think?

Sridhar Chityala: Seth Moulton has made a very good point. He basically says, who is in charge? There’s no person in charge, so there’s going to be confusion. That’s his point. Two Democratic and two Republican Senators have raised the issue and the issue is, Mr Biden you never thought about this. You announced the plans. Now, you are thinking as to how to operationalize it. What are you going to do to all these people who helped and potentially they could be slaughtered if they are left behind as a result of helping the United States against the Taliban through the course. Notwithstanding the fact, the US and Taliban have struck a deal. You know what happens when people are left behind.

Sree Iyer: Biden’s Department of Justice backs Trump era approval of laying three pipelines opposed by environmental groups. This is the environmental assessment of the Minnesota pipeline project. A US oil billionaire warns that the United States cannot cut shell plants. China and India continue to build coal plants. That is true because I think most of the electricity is generated out of a coal-fired plant in these two countries. Sir, your thoughts, where do you think this is going to end up?

Sridhar Chityala: Well, we discussed this Minnesota project pipeline that goes to debt right by kan energy company. This is right now in the middle course and the Army Core Engineers are constructing this. And, this came up, went into a legal challenge and the Department of Justice has effectively stated that look, the government has done an assessment of it and proved that there is no environmental impact caused by this specific pipeline. So it’s a red hearing in terms of these environmental groups coming up and protesting against it. So, what would be the decision? It will be interesting to see what comes out of it. We covered this topic in one of the DGI programs when we talk about various programs that are being conducted.

Sree Iyer: Texas sues Biden Administration over releasing covid-19 infected illegal immigrants. We have been warning about this for a long time now. Giuliani has been suspended from practising law in New York. What’s the reason for his suspension, sir? And first off, I think, now the law is beginning to play out as we had predicted.

Sridhar Chityala: Well, what’s going on in New York is a lot of political rhetoric because Democrats and Republicans do not just get along. This is to say that the reason why Giuliani is suspended is he tagged behind President Trump and made public pronouncements around voter fraud and the illegality of the 2020 election. So, therefore Mr Giuliani is suspended from practising law in New York. Does he care? He doesn’t care. He will go to Washington DC, or he’ll go to Texas and he’ll probably practice law provided he has a bar license. I’m sure he has, but given his age, he is more a legal advisor rather than… To some extent, there is political rhetoric behind this.

As far as Texas is concerned, Texas is going always one step ahead recognizing that there could be new riders thrown in by Biden, so effectively saying look you guys are infecting and creating a problem. So, therefore, we need to figure out a way by which we control the surges on the border.

Sree Iyer: Let’s now, take a look at India related news. Will Make India, Global Outsourcing hubs, BPOs having common Telecom resources serving customers worldwide to be offered India as the preferred destination. Electronic Private Automatic Private Branch Exchange EPABXs can be located anywhere including in data centres in India, making this a feasible scheme. So if I understand this news item correctly is that there is more flexibility for foreign operators to be able to have EPABXs perhaps in the place where they are running their operations? Is that correct, sir?

Sridhar Chityala: It is correct. With this cloud storage, as well, as the cloud services concept where the data centres can be located anywhere in the world connected through the EPABX infrastructure. So it is agnostic, the way it is. So if that is the case, it can be a great venue for locating many of the companies outsourcing facilities. India must make some amendment and adjustment to what they call the BPO service providers of Indian vintage versus the BPO service providers who are called the OSPs – the Other Service Providers who are not the Indian BPOs. I think they are delineating or they are compressing or narrowing the gap in terms of the differences. So that this specific opportunity can be leveraged by India and further build the BPO business to come out of India.

Sree Iyer: Reliance Industries batteries, hydrogen fuel cell plants coming up in India with more than 75,000 crores investment. That is impressive. Where do you think this is being put up, sir? Is it Gujarati or Maharashtra or somewhere else?

Sridhar Chityala: Jamnagar, Gujrat. You can see Reliance is not to be lagging behind Mr Adani. If Adani is in solar, Reliance is coming up with hydrogen fuel cells which are going to be the most important component of the EV infrastructure and Reliance is ready.

Sree Iyer: Chief Economic Advisor expects food inflation to stabilize with Monsoon and unlock. This is the Indian CEA and he thinks that food inflation will stabilize. My bigger concerns are, is the logistical network up and running completely now in India? Your thoughts on that because that is the other challenge, you can produce, but you need to make it reach the place where it consumes it, right?

Sridhar Chityala: That’s the reason why you have price inflation because the supply is not augmented. So there is demand, but the supply is not augmented because of the lock situation in the movement of goods. So, the unlock situation should help the movement of food and make the food available. Whether it brings the food inflation down remains to be seen. But if you look at the tomato prices and the picture, we probably did or did not show in which tomato farmers dumping kilos of tomatoes because the price has collapsed so badly that they don’t believe it makes any economic viability. Plus demand has been made, the supply is huge, the prices collapsed. Now India doesn’t have the facility to process and preserve for future supply. So those are some of the things that need to be addressed. But clearly, monsoon and unlock does help the navigation. But in some instances the supply is so huge, the question is that what will you do? The prices do come down in those circumstances. I think that’s the basis of the CEA’s opinion.

Sree Iyer: India crosses the 300 million doses vaccinated milestone on June 24th, with 6 million vaccines administered. So I’m a little confused. Perhaps you can explain what is the line here, sir.

Sridhar Chityala: The line here is that yesterday on June 24th, India crossed the 300 million mark and 8.6 million vaccines were done 2 days ago. They’re crossing an average of 5 to 6 million vaccines per day and the 300 million marks is a big milestone because there are only two countries in the world, in fact even 200 million, there are only two countries in the world, 300 million is narrowing the gap with the United States. The United States is around 320 million doses. India is around 300 million. So India is not far from going past the United States. Having been criticized that India didn’t have vaccines, yes, India didn’t have the vaccines to do 1.3 billion, but we have already announced that based on the data that is given by the government, from July-August India could step up. So the message here is 300 million is a milestone and they crossed another 6 million vaccinated on a given day. So they seem to be hitting 5 to 6 million with a peak that they hit on, a couple of days ago of 8.4 million vaccines.

Sree Iyer: Let’s take a quick look at Markets. Markets rode on the back of infrastructure deal. Strong economic growth in the first quarter with the Dow rising 322 points, S&P 24.65 and NASDAQ 97.98. The US economy expanded by 6.4% in the first quarter pointing to the fastest growth in years and working towards an annualized growth of 6%. $3 trillion stimuli that kicked in from December 2020 has been providing the acceleration. The FED gives US banks a thumbs up as all 23 lenders easily passed the 2021 stress test. These are the stress tests that are run on banks to make sure that the banks are healthy. And the most important thing, Microsoft crosses a two trillion market cap and with a 600% growth in stock during the Satya Nadella regime. I am putting up the stock chart here, sir. It is most impressive considering that Satya Nadella is a person of Indian origin. I think all of us should feel proud. Whether we own Microsoft stock or not, we definitely use their products, at least I do because I am a Windows person. I don’t know about you, sir. Your final thought before we end today’s program.

Sridhar Chityala: Just to respond to the last point. I, as a corporate, kudos to Satya Nadella, he took over in February 2014 and achieved a 600% growth in the stock. Today, it is a $2 trillion company. There are only two companies in the $2 trillion club. Obviously, Apple is one of them and of course, Microsoft has joined Apple. Its remarkable how many of the other tech companies have been left behind such as Oracle, IBM, and so on. So it’s a very very laudable outcome. So you when asked the question, he has obviously done little things right. In corporate growth you don’t need to do big things, you need to do little things right and make them big. One of the first things that he did was to integrate all the Microsoft Windows applications into the Apple platform. That was the kicker which went in, whereas there was a war between Apple and Microsoft during Steve Job’s regime. Then, of course, you have an old number of other things including LinkedIn, the cloud platform etc, that has been added by him. But most importantly, I think he has also provided leadership to Microsoft. Without people and leadership, you cannot transform the company. So kudos to Satya Nadella for doing that. He’s loved by both the corporate world as well as the markets in terms of the way he articulates and he communicates where he’s taking Microsoft.

There are two important news items. One is, all points to, this is the reason why India needs also a stimulus. The deficit budgets no longer matter in this modern covid-19. driven economy. $3 trillion went into the first quarter and Mr Biden has promised a $6 trillion budget with stimuluses in between. So we’re going to have plenty of liquidity, which gives the US economy a 6% annualized growth. 6.4% is the quarterly growth. But annualized over 12 months based on the future projections it is 6%. Remember, United States for a long, long, long period has not achieved the growth of 2%-3%. 3%-4%, it very seldom reaches in certain quarters. Right throughout, not to blame, it’s just a point that I’m making is during Obama’s period of eight years in the United States the growth rate never crossed greater than 2%. So again, the US is the market to be in and when the US is growing it simply implies that the US Stocks performed very well in the market, which’s reflected in the numbers. The stability of the banking system provides the framework for credit expansion and the banks are well-organized. Why? They are loaded with money. That has come from the stimulus. I think we have mentioned this several times, JP Morgan chairman made a statement, he’s got $2 trillion in his checking account, not in Money Market, not in his CDs, but just in the checking account, he has got $2 trillion dollars. So we have liabilities, which is the deposits then you have the assets which are loans. If you have a good liability side on the balance sheet, then you have a good edge to manage your assets, which are loans. So the money flushed into the system, going into the banking stream is very rare that we have all banks passing the stress test.

Sree Iyer: With that, we bring to an end, this week’s Daily Global Insight. We apologize for the technical difficulties. I still do not have my video up and running. It is difficult to make any changes while the podcast is live, that is where the constraint is. Sometimes things go right, sometimes they go wrong. And with that, we’ll have to conclude our Daily Global Insights episode for today. Thanks for joining. Please Subscribe. Hopefully, you have a great weekend and Sridharji, we will be back again, won’t we? On Monday and we’ll be back on episode 191. We will give you better numbers probably on the infrastructure. Hope you’ll enjoy this podcast. Please send in your comment, there is going to be a bit of a gap at the beginning. We were struggling to get the video up and running. But beyond that, I think, given all the other things that went wrong, I think we managed to do this podcast. Thank you very much, sir. Thanks for being patient.

Sridhar Chityala: Thank you, and have a wonderful Friday. Have a wonderful weekend. We look forward to seeing you all back again on Monday. Our economy is roaring and markets are roaring and everybody is smiling and happy, notwithstanding the inflation.




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