Sree Iyer: Hello and welcome to PGurus Channel, because of the technical difficulty my face is not visible, but I think that is okay. We are here to listen to Sridharji. Sridharji namaskar and welcome to episode number 75. This is the 15th of January 2021.
Sridhar Chityala: Namaskarji and thanks to you and thanks to all viewers and supporters and subscribers to the PGurus program. This our 75th we have positioned it slightly differently this is Global Insights rather than the traditional format that Sree Iyerji uses which is the Fireside Chats and extensive review, so, very happy and thank you all for being part of this journey.
Sree Iyer: Sir, let’s jump right in, Biden has just announced what he calls as the American Rescue plan and it has a lot of features. First off, he’s trying to make up for the shortfall of $1,400 that was promised and now that’s going on the top items in his list. This is still preliminary information; I’m just going to put up the pie chart that shows, what is the way that 1.9 trillion is going to be dispersed. Sir, your initial thoughts on this
Sridhar Chityala: My initial thoughts are very cautious criticism if I have to use that language cautious criticism here is, there are two specific line items that bother me. One is the amount of capital that is allocated to the local and state administration, it’s about 350 billion dollars this was the subject of contention in stimulus 2 and this has to nuke 350 billion now. Mind you this 350 billion is not decked against PPP program that supports small business or corporate. If one listened to people in Georgia the two runoffs, there were a lot of small businesses complaining that they really need help in terms of the continuation of the PPP from augmenting and helping. So, most of the capital seems to be directed at this $1,400 incremental delta to the $600 that seems to be consistent with everybody’s aspiration. Also, the extension of the unemployment insurance of $400 plus the moratorium increase for rental and mortgage that was expiring, 25 billion in the previous stimulus allocated extending beyond January 31st to September 30th. I think those things clearly are supportive of what is needed in the economy. Forget what it costs to do overall debt and the interest cost on the expense side of the government balance sheet, but they are. But, these two items kind of stick out especially the 350 billion dollars on the local side. And I also noticed there are 170 billion dollars further towards this support of covid-19 vaccination etc.,
One has to remember there were an 83 billion dollars allocated already in stimulus 2 and then there was a 13 billion dollars allocated in stimulus 1 plus there was also 120 billion dollars allocated, 100 billion for the hospitals and 20 billion for other kinds of services. So, again this particular number kind of bothers me. Then, the other number that is the school’s is also close to 170 billion dollars. So, I may have got the schools and the covid numbers little bit mixed up, covid is is 50 and the 170 is for the schools. So, 170 plus 83 plus 13 that’s about 263 billion dollars has been allocated towards the kind of the schools. So, I think some of these numbers are headline numbers that kind of stand out. What is more also problematic here is they are now mandating $15 per hour as the minimum wage, which has been the Democratic plank whether the businesses can afford this $15 an hour at this stage when everybody wants a job. So, $15 per hour is laudable, agreeable and acceptable and so on.
The question is employment is an agreement between an employee and employer and generally, these small businesses are sympathetic. So, you have a double whammy for small businesses, which is the engine of the economy one is you don’t have a capital allocation to support the PPP and the second is the unit cost of Labor that is being mandated. So those are my initial observations and this is not passed by Senate. So, there would be a lot of discussion in the initial days. So, the focus is going to be fascinating and remember that there is Senate, there is an impeachment bill that is coming from the House to the Senate. And so whether, they going to be discussing and debating around the impeachment bill or whether they’re going to be discussing and debating around this stimulus package, which is much needed is on the political side of the budget.
Sree Iyer: Sir, let’s take a look at the other plan that Joe Biden has. Now this 1.9 trillion constitutes what he calls as first of two major plans, there is a second one that they’re working on that we touched upon it’s about creating jobs, reforming infrastructure combating climate change and advancing racial equality. So, these are all somehow nebulous to me, I can’t see the clarity. I can understand creating jobs and reforming infrastructure is up for reform. But, combating climate change is this that carbon credits that has been much talked about and people have alleged there is a big scam going on.
Sridhar Chityala: I can give you the number that has been floated in the budget side, its 450 billion of capital allocation for Paris accord, which is about green energy. It is about clean water and it’s about clean air. If you listen to the squad or their Alexandria Cortez, or if you listen to Ilhan Omar, you will be seeing that they are kind of saying ra, ra, ra,ra we need to have clean air and clean water clean and you all kind of future initiatives and a huge number is decked against it. It begins to wonder as to what exactly is the economic outcome is number one, number two is what exactly is the social and civilizational outcome as you look ahead when you allocate this kind of capital and often they have never had a measurement as to what exactly it has resulted by way of outcome. In other words has it postponed the melting of the ice in the Arctic by 25 years, by 100 years, by 200 years the specific program, have improved the portability of the water by so much, by spending this kind of dollars, there’s never ever been? This is like the United Nations and WHO type of programs, they draw in the capital, but when you ask about the impact, they say that impact is left with the countries. We only kind of set policies do field trials and tests. So you have this big allocation for this agenda of Paris Accord and its green initiative. There is also another one which is, I don’t know where they are going to fit in, this is the energy initiative, which is environmental safety making of buildings energy efficient. So there’s the consumption of power, is dramatically reduce where that fits in, I don’t know but, we’ll begin to look at it. As far as the jobs act is concerned, this is typical in terms of saying, we get the jobs going. Look we have unemployment rate right now around 6.9 to 7% having said that suddenly the number of unemployed went up from less than 800,000 or 770,000 to about 930,000 the numbers that were released yesterday. So roughly let’s say 900,000 plus, so you have that number keeping up. So, they say that you got to have immediate kind of jobs induced in the sector through this jobs act infrastructure development program. If you look at the FED numbers, FED is predicting an unemployment rate of 5% and the 5% numbers were calculated based on the money going into the PPP program and small businesses employing more people rather than government induce types of programs. So, philosophically we need to look at as to what exactly the compositions of some of these numbers are. Mind you these are all very typical, very traditional Democratic left policies. So, therefore, numbers will reveal the story.
Sree Iyer: Numbers will reveal the story indeed, next we want to take a look at the impact this is going to have on the overall fiscal deficit. Now you already had pass 900 billion and then on top of that, it was going to be an additional 30 billion or so per month or something like that, that adds up to this 1.9. I mean big picture mota-mota as they call in Hindi. We are looking at least a four trillion dollar addition to the United States deficit and this is not even looking at phase 2 of this. So what kind of a plan do you think Janet Yellen will have to combat this.
Sridhar Chityala: Janet Yellen will be saying as you pump more money, I’m very happy to receive it and put it back into the system. That’s what she will be saying. I’ll speak with Jerome and keep the interest rates low. And so you give me the authorization so, I can put the money into the system while Senators has to authorize for the treasury to inject capital. So, she’s going to inject Capital. So, it’s 2.1 first, 900 billion second stimulus, 1.9 the third stimulus that takes us to about close to five trillion dollars, but there’s one more coming, That’s my estimate is about 2 to 2.5 trillion for those programs. So, that’s about 7.5 trillion dollars is going to be added to the total debt of the balance sheet. And FED is continuing the 20 billion dollars, Asset purchase program so you have a double whammy you have the US Debt and you have a Fed balance sheet that is also kind of bulging as we speak. I mean she’s a great Economist and she did a fabulous job as the FED continuing from Ben Bernanke. So between Jerome and Janet, they just going to make sure that you know this economic and financial stability of the United States is managed and also communicate to the market, while the fiscal policy seems to be having lots of kind of challenges. Remember that when Steve Mnuchin funded the budget, between balancing the 10-year and the 30-year kind of US debt. He was able to reduce it to about 1.2% of the GDP as the cost that was the number budgeted into the balance sheet of the US.
Now with this edition of this new, whether it is going to blow to about beyond 3% or 3.5% in the middle of a covid crisis is number to be quantified, once the two programs are finalized one is the stimulus and the second is the next tranche of money that needs to come in. So, answer to your question, Janet and Jerome are going to manage the fiscal and financial stability to make sure that the markets are not going to dump.
Sree Iyer: Let’s take a look at the January 6th riots, we have a few updates, we kind of put together the thing as a tale of four cities will start with what has been showing up on Washington Post. Washington Post claims that Trump allowed foreign activists and dissidents responsible for the US Capitol to seize. What are your thoughts on this because you’re going to compare what WaPo says, what Gateway pundit says which is a right-wing WaPo is a known left-wing, then we will look at what CNN says, we also will look at what social media says about essentially the same event. Initial thoughts on WaPo sir.
Sridhar Chityala: Initial thoughts on WaPo is you know, you would expect because there was a lot of noise in the system that Antifa and BLM and other left-wing movement were active on the scene that day. And whether it is people who are sympathetic to the Democratic Party got wind of this. There are also reports floating around that people knew about this ahead of time. So, if that was the case if they knew about the head of time, why there was not enough security. There’s also a report which basically says that the guys who have moved around, had access to maps and navigational help inside in a complex building. You can’t just have the rioters landing to carry a huge infrastructure based Capitol Hill house and then navigate around and land directly in Nancy Pelosi’s office to kind of pick up. So that is being combated by Washington Post. They’re using their own intelligence and other kinds of journalistic sources to come up with a theory that this was all on orchestrated by Trump allies from overseas and that’s backed by to some extent by the left media in terms of their articulation.
Lack of clarity around everything. For example, the death of Ashli is unclear, who is responsible? Who shot is unclear. Now you have Jake Sullivan coming up and saying, you know the BLM, he was there. Then you have a guy having a confederate flag, he has been caught in Delaware, Father and Son have been caught. So, you have a whole bunch of both sides of people who have been caught. They are very delicately managing this investigation. So, we don’t have further kind of political and journalistic flare-ups and certainly, the media platforms have not been very helpful. There’s a report that’s been released, internal video of Jack Dorsey briefing is people which is to say our Target is one specific handle and that specific handle is going to be blocked, this is not the end, it is the beginning and there’s a whole swath of activities to follow and are asking the organization to prepare. So when you hear these kinds of things that’s why I say the tale of four cities, we say tales of four cities, because it is a tale of four cities, you have a left media, you have a right media, you have investigation agencies and then you have the tech platforms.
So all are playing different roles in this game and I think a more sensible approach has been proposed by on the political side, which is namely Lindsey Graham and Ron Johnson to say ‘How you cannot conduct an independent inquiry. This has to be conducted by Senate you have already made a decision that is instigated by Trump. So, therefore, we should conduct an independent objective inquiry so we can get to the truth.’ So to me, I think that that is the way and it doesn’t matter whether you’re a republican, whether you are a Democrat, whether you are carrying this, or carrying that, it’s sacrosanct, the house is sacrosanct, the Capitol Hill is a sacrosanct area. The reason why there is no security, it’s quite relaxed basically because people respected that but now that has been that respect or trust has been breached. So it’s important to get behind them and get to the truth. So we all can breathe freely that the true culprits have been arrested and this does not occur again, By the way, nowhere, you have a presidential inauguration, in the United States where you have Army as well as a national guard of 20,000 people protecting and safeguarding as the inauguration happens, that’s just quite astonishing.
Sree Iyer: Yes indeed. It was a people event where people get to see their president and have a heavy guard. So I hope that that event passes off peacefully. We know that Donald Trump is not planning on attending it there is some interesting information there. We will share that in the next few days. Let’s take a look at all the different things that have happened leading up to this event. The FBI says it’s tracking extensive online chatter about armed protests, dozens of individuals who are on the terror watch list were in DC on January 6. So if they knew all these things and they shared it, what were the local law and order agencies doing?
Sridhar Chityala: I think that is when you have the Right of Information Act, ROI was filed, and that was declined and the Capitol Hill Police apparently have taken a position which is to state that, ‘look we are well covered and we don’t expect any major untoward event. This contradicts with the FBI’s observation that there was expected to be a problem, based on the chapter that you are pointing out. So all these people, either one day prior, apparently the chat one day or two days or three days prior, there was this chatter. But we can’t specify any bit of information because that information is not authentic and it is not corroborated by the agencies. But for example, the Armed Forces are investigating whether there are people with extremist views within the Army because some of the vets were present. The FBI and DOJ we talked about yesterday is investigating specific cases, but also whether they were people who were in the chatter groups and who are on the tracking list, why, how come they landed on that specific day? And so there are all these activities that are going on which begs the question, ‘Where was the failure? Is the failure on the part of the security which is supposed to manage this in the Capitol Hill? Is it at the Washington DC Capital? Is it the DC police? Is it the internal security agencies? There is clear ambiguity in terms of the where to pin this responsibility and why there was this significant failure?
Sree Iyer: Let’s take a look at the globe. China regime saw unprecedented efforts to crush human rights in 2020, as reports a US Commission. I think the US Commission is the USCIRF, this must be in their latest update. We know this thing has been going on for a long time and we have done extensive coverage in PGurus by bringing subject matter experts. The China regime doesn’t seem to stop, isn’t it?
Sridhar Chityala: It doesn’t. It has very able allies. Here are my three observations. The first observation is Hong Kong and Uyghur. Has anybody in the world do anything which will mitigate and deter their actions? The only person who has done that is President Trump. With regard to the human rights violations in Hong Kong and all the activities that are going on, he has been going after various individuals. Hong Kong has been delisted, Hong Kong exchange has many listed companies are delisted, the last two institutions who complied with are Goldman Sachs and BlackRock, which we covered. Then you have no precipitous action from any institution. If you take the Uyghur, I mean Uyghur is going on and on and on and on and this is one of the issues that many Indian Communities have which is to say you’re talking about human rights violations. India is a democratic society if India is violating human rights but then what about China, you are trading in billions and billions of dollars. And basically what is it that you’ve done in terms of the violation. There is another report on the Chinese side, which is the Turks are trading Uygurs who are in Turkey for vaccines. This is a report from one of the most leading Publications when you get behind it, so I don’t think that there is an easy answer and it’s not going to be very helpful with. I don’t know what Biden is going to do what President Biden is going to do but historically, Obama-Biden Administration has not been very strong as far as dealing with these issues on China is concerned.
Sree Iyer: A few episodes ago we mentioned about how the president of the United States acts as a CEO of a corporation and he works till his last day and we are seeing evidence of that. The United States has barred entry to Chinese Navy officials and business Executives who oversaw at South China Sea militarization. And I’m going to add one more thing and then you can’t are touch upon both these things. US has now added CNOOC which is a Chinese oil conglomerate. It is also added Xiaomi and a bunch of other companies to Blacklist saying that these things are also aiding China in its aggressive behaviour towards its trading partners. So at least you know Trump is acting even now, I mean, even though there is a lot of other stuff that he is getting distracted with, he is pushing forward with sanctions on China.
Sridhar Chityala: Well, I think that there are two important implications here, one is Mr Pompeo made travel to all the Strategic locations and he has been travelling over the past two to three weeks, this obviously a lot of intelligence activity that one is observing in this strategic spots, particularly, Taiwan and the South China Sea. So it’s very very poignant that he has made the South China Sea as an important area to focus on and he has targeted both companies which are helping the Personnel especially the PLA Personnel plus also the business people who are investing in the disputed waters fishing for trouble. So he has targeted them for the fear that there is a gap in the leadership transition and they should not be further incursions for all the good work that they have done in the past four years in terms of the whether you call it as the Quad region or the Quad partnership or the Indo-Pacific partnership as one would collate. The target of Xiaomi, as well as Xenon, Xenon is a prestigious brand, is one of the largest energy conglomerates very similar to from India, which is Reliance or very similar to Enron in the United States so it’s a powerful arm. So fact that he has put a tag on that is very telling. Xiaomi is one of the leading mobile phones, so he’s going after them in terms of both as a brand as well as 5G which is the cause for concern for the world so you can see him as you rightly pointed out sir that you know, he’s like a CEO. These are the guys who are troublemakers and let me go and tackle them. So it’s both on a security side, but it is also a punishment for all the stuff that is going on in violation of human rights both in that specific Zone as well as in the Hong Kong area.
Sree Iyer: Before we wrap up our today’s segment, let’s take a quick look at markets. Sridharji, Big Tech has lost close to $51.2 billion in combined market value since the Trump ban, I think that took place about nine days ago. So Twitter has reacted to that. They are seeing their stock value fall quite significantly and I’ve seen Facebook also. I think FAANG companies are taking it on the chin right now, maybe less for someone more for the others. When do you think the stock market is going to make Jack talk differently from what he’s talking right now?
Sridhar Chityala: He’s already talking differently.
Sree Iyer: I led you up to that. Didn’t I?
Sridhar Chityala: He is already talking differently? So, I think you are closer to Silicon Valley. Maybe you know, he has heard your vibes which is ‘we got to change.’ There’s always two sides of the coin and it’s probably not very relevant. The Ugandans suspended their Internet Service plus also banned activities from Facebook and Twitter and so on in that specific. So he came out and expressed Right to Freedom and Freedom of Expression and blah blah blah. He went on those kinds of the language that you typically hear from the left and there’s no doubt he is left and all one needs to do is look at his contributions in terms of his preferences but anyway, the point is that he’s already beginning to make statements like, the platform should maintain freedom and should not take such types of actions’. On the contrary, he has not condoned or condemned the actions that he has perpetrated on himself by virtue of this luck. Banning one specific handle is fine but they have targeted and chosen, if you get a chance please go read the extensive report that has been published based on the video or you can listen to the video where he has stated that this is not a standalone handle. We have a whole swag of programs behind. So we’re going to take down much more and more to come. That’s in his briefing to the staff. So the markets have reacted. You can see the flight of social media customers to various forms, and that I think you elaborated quite extensively yesterday where all customers are migrating to. So I think that I just don’t see any immediate change in the trackability or the reversibility of this trend of the shift because the trust has been broken so and your political bias has proceeded. Banning one handle is different from banning all people associated with the input in the ecosystem. So I think that’s what I would say.
There are only two observations I have 20 seconds. One is the interest rates will continue to remain flat for foreseeable future. We already forecast because of the present they don’t see any inflation in the market, so you will see that going. That’s the first part. The second part that I want to say is that this is the time to invest in Markets looking at the tips. They will be gyrations as this budget numbers come out, but you’re going to see some in a good boom. This is the prediction by the Central Bankers, not the market pundits. Central Bankers are predicting that they will be a gyration in the market apart, one will see the economic growth. They are not talking about stocks but economic growth back on the agenda. Remember 4.2% is the predicted economic GDP growth for 2021 by FED and 5% is the predicted growth by Goldman Sachs.
Sree Iyer: We are coming off of trough so there is going to be significant growth. Also, I found it amusing that a few months ago, I came across a news item which said that some of the country’s Central Bank’s, I’m not talking about the US I don’t know about the US were actually buying the Facebook stock because it was doing so well. So the reason is really going out the window and it’s really surprising that they would consider taking a stake in company stock, essentially Facebook. It is the amplification of one side and attenuation of the other side. So anyway, that’s my thought, if you would like to add something, otherwise, I’d like to bring this program to a close, sir.
Sridhar Chityala: No, sir. I think thank you so much. I think we have covered a lot.
Sree Iyer: Viewers that brings us to the end of this week. Have a great weekend. We’ll be back again bright and early next Monday and Happy Sankranti to you. Today’s the 15th. They also call it Kanu Pongal. I don’t know if I’m saying it right but there are functions that the poojas that get performed even on the day after the Sankranti. Many many places have kite festivals. Be careful out there and we will again see you next Monday. Namaskar.
Sridhar Chityala: Namaskar. Thank you.