Transcript
Sree Iyer: Viewers it’s my pleasure and honour to have Shri Sridhar Chityala for Episode four of our daily updates. Namaskaram and welcome to PGurus Channel.
Sridhar Chityala: Namaskaram and Good Morning
Sree Iyer: Viewers I hope you watch our teasers, so you have some idea about what we are going to talk about in our daily updates. According to our teaser we promised you we will talk to you about, what is going to happen with this Stimulus, first, we had Trump come out of Walter Reed Medical Centre then comes to White House and then calls off all the talks about Stimulus. Nancy Pelosi and Steven Mnuchin who are a little bit apart and then talks got called off but later in the evening, Trump seems to have changed his mind and he is going to approve 25 billion dollars allocation for Airlines and 122 billion dollars for Small and Medium Enterprises, so there was a bit of a thaw that the markets reacted to this and all about this and more. SridharJi, tell us what is the latest that is happening about the Stimulus package.
Sridhar Chityala: I think, the latest that is going they say, there are two prompt approaches that are at play. One is Trump is basically saying, I am back at the helm, I am not going to be pulled in to a bluff which is that all kinds of things and hold me to ransom to get this next Stimulus Package approved, so he is holding his line and he asked his three key people – The Senate house and Treasurer to call up the discussion. But then later, he came back and said, look these two industries are badly impacted, they are the drivers, especially the Airlines which move people and then the SME sector which is 45 % of the GDP, basically staking that let’s get the stimulus going with that. The markets seem to have reacted favourably, recognizing that they are two important things and people will at least reconcile. While that went on the doors still kept open Pelosi seems to have topped in the Treasurer and Treasurer seems to have topped on Pelosi. So there are still some discussions going on in the backdrop rather than an integrated The house, The Senate, and Treasury discussion with Nancy Pelosi and Chuck Schumer, so those discussions are reflected in markets, so there is inevitable stimulus but whether it can come before the elections and if so in what shape, that looms large, there is no clear decisiveness in the outcome. We may see either in snippets or wholesome the package being rolled out before the Elections. I think that’s where you see the positive sentiments. You have two theories, Liberal theory and the conservative theory. The liberal theory has stated that there is an inevitable trend towards Biden’s victory and a large stimulus package coming in. Then, there is the conservative theory which is saying that there would be a right kind of stimulus which encompasses the tax cuts that President Trump introduced during his tenure. There is no question of tax cuts being rolled back plus there could be another Tax cut coming into the picture which Trump had hinted. So this is what you see in Market movements and the discussions that are going on…
Sree Iyer: Sir, Could you please expand on the contrast between Biden’s approach towards Taxation and Donald Trump’s approach as we move into the next term starting January 2021 just give us the numbers and the contrast who wins who loses and what’s sort of Economic the United States can expect depending on which candidate makes it past the line.
Sridhar Chityala: Well, I think in headlines Trump about 1.7 trillion dollars tax cuts for them, Biden is about 4 trillion incremental taxes as a headline number, right so you know there was one guy putting more money in your pocket and the other guy is saying that I am taking money back this was evident even in yesterday’s vice presidential debate and then Kamala Harris, the vice-presidential candidate from the Democratic party basically only about 400 thousand. No, it says you have very categorically stated that you are rolling back the Trump tax cuts. As the headline the policy at policy-level people have to make a decision, which Pence’s at my tax cuts has added to $2,000 more money into the pocket of a family of four middle class middle-class Blue-collar worker so therefore we’re not taking it away we are put money and we may put little more money into the pocket of the middle class. Very contrasting kind of strategies where, one is a tax cut, other is incremental Taxes, 1.7 trillion dollars tax cut, 4 trillion dollars incremental taxes. With that, we should put the tax discussion to rest.
Sree Iyer: Viewers, we need to keep in mind that when democrats were in power, remember that, I am politically independent. I am just saying it as I see it, there was this malice of tax inversion, all the fortune 500 companies, almost all of them, were trained to seek to incorporate their businesses in lower-tax nations such as Ireland and take advantage of the 12% corporate taxation that was there versus the 35% as opposed in the United States. Now, Trump changed that. Today there is no better place than the United States of America to have a business because the taxations for corporates is much more realistic. I am just telling the way I see it. So, if Biden were to come back I can see that this tax inversion in its newer form might again emerge and again people will try to park their money abroad so that they don’t have to pay taxes. We still have trillions of dollars sitting outside from all thee fortune 500 companies especially the FAANG – remember the Facebook, Apple, Amazon, Netflix and Google – they have parked billions of dollars abroad and in fact, Apple was asking to give me one time 5% tax and I will bring it all in. Guess what, this gimmick played once and Apple did nothing with the money they got back. Therefore, this time Congress together – Congress, senate and the White House they know that nobody means what they say that’s an interesting play that’s going to come out if you want to add something to it before we move on to our next topic
Sridhar Chityala: I think the whole debate about the repatriation of parked Capital overseas. Close to 4.4 trillion dollars of money is parked overseas, a number that is being floated 4.4 trillion dollars and the alternate number is a trillion dollars. 4.4 trillion dollars may include on all types of investments as well, right not just the companies. To ignite the economy you don’t need borrowed Govt debt to fund the programs. The capital comes into the country according to the industry justifiable tax system. They can put that money to work in the economy without being reliant on the government. This is the whole thesis of govt saying, bring the money back and Trump administration – the conservatives saying – we will give you this moratorium – what moratorium, we will figure it out, with due consideration to all legal things, we can ignite the economy in the semiconductor manufacturing, we can ignite the economy in defence, we can ignite the economy in tech, we can ignite the economy in alternate energy sector etc. so, basically saying we do not need govt to inject capital but we can have the companies itself self-fund these programs. so I think that is the rationale, I don’t know if we can get to a full stage but we may get to a compromise position in terms of should trump come back for the next term.
Sree Iyer: So now quickly let’s go the tech sector, we now have three breaking stories, the first one is of AT&T – it is trying to sell its direct TV business for 20 billion something that they acquired from Scientific Atlanta if I am not wrong for close to 50 billion dollars. Sir, if you could just break down the logic behind that – why AT&T is taking it on the chin?
Sridhar Chityala: I think direct TV was from Fox, Rupert Murdoch. This is just a reflection of – horses left the stable and you are trying to bolt it, so I think it just puts this strategic framework of this whole what we call as mobility which is the integration of telecommunication fixed satellite as well as cable coming into your home. So whether the price that was paid, people felt that to have a wide reach, laying fixed-line pipes into your homes is a very cumbersome task but thanks to Warisan and AT&T itself, specifically Warisan, they have done a phenomenal job. Most of the homes have kind of cabled. When it puts into perspective what is the value of second-third-generation satellites. That’s one question. The second question is, now satellite business has become commercialized. You have India launching so many satellites. You now have commercial satellites contemplated by Amazon, Spacex through Tesla, even Google is contemplating. So, whether the technology has stepped ahead relative to the price that was paid at that point of time, more for getting subscribers and is that price justifiable and are the R-pools that were generated and that is to be generated justifies or you do a sale or you do a one-off write-off in your balance sheet is what AT&T is trying to figure out. In my view, old technology, a high price I don’t think they can extract more value out of that specific business.
Sree Iyer: Sir, we have about 3 minutes left and two more topics to cover, I just wanted to give you a time slot marker. Next one is the amazing marriage between Amazon and Whole Foods. Your thoughts sir.
Sridhar Chityala: Amazon and Whole Foods is another example of three essential things – one is knowing the customer, second is knowing the preferences of the customer and the product choices that they can tailor and deliver and third is the superior execution. And to its advantage or disadvantage or whatever one may see, the pandemic helped when the buying behaviour shifted from people going to the stores and purchasing relative to people buying online. It perfectly fits amazon’s model. So it has become a very perfect marriage and usually, Amazon also chooses its business where the average ticket price is the highest. So the Wholefoods with the kind of wholesale grocery and foods they are average ticket size is the highest. So the data, execution and the superior kind of knowledge of the customer all driven by technology is making Amazon – Wholefoods – this is acknowledged by the whole foods CEO that the technology has really enabled it to optimize not only his inventory but also deliver products of choice to its customers.
Sree Iyer: You made an excellent point. Viewers, the grocery business is a 3% margin before Amazon and Cavin started looking and acquiring Wholefoods. Whole Foods perhaps has slightly higher operating margins because it was high-end. But, taking the whole thing to a whole new level, and the fact that COVID hit the world helped. This is something that is going to be, perhaps, very difficult to match by the competition. Walmart is trying, we will try it, we will wait and see how it plays out.
Sir, last topic for today. We have got a minute and a half so that we can wrap this up. Tesla had this problem where they had to fire one rogue employee. Can you shed some light on what led to this, what is it that that employee did, what exactly is going on these kinds of situations?
Sridhar Chityala: I think it’s in their Fremont factory, we don’t know, obviously it’s not in the public domain in terms of the specifics but apparently it was discovered that there were malicious attempts made to compromise either IP or any other matter that relates to the automation of the factory. what it brings into foray is very stringent employment governance and internal kind of operating procedures that need to be put in place in companies such as Tesla, Facebook, any of these people because it’s very sensitive and its very competitively kind of disadvantaged. Tesla is a public company. So this is what it portrays that if you are not cognizant, it is not like a pure IT – software development kind of business, they are a full-fledged vertically integrated enterprise. So, that’s what it brings into the foray, the fact that Tesla went public with it and reported it yesterday is a good thing and it’s making people aware that we do have some problems.
Sree Iyer: Yes indeed and as a user of Tesla I can vouch for that it’s an incredible car, it’s a computer with wheels attached to it. It’s a nerds paradise because you can do a lot of things luckily Tesla doesn’t release the core software for people to enhance but that’s a topic for a different day.
Thank you very much Sridharji. It was a splendid discussion. Today we did not have much time for world news and world politics, but we will catch up with that tomorrow. Thanks for watching and subscribe to PGurus channel. Namaskar.
Sridhar Chityala: Namaskar and thank you
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