Sree Iyer: Viewers, it is Friday morning and it’s a bright and sunny day in California here as is in New York. One of those days when the fall is right here and things are beginning to cool down a little bit. Our fires have come down, I’m not going to waste my time anymore explaining to you how the climate is here. I just want to set the context on what happened yesterday in the vice presidential debate, who won, who lost and to know more about that as well as what is happening in India, in Germany, US, on Iran’s banks, let’s go over to Sridhar Chityala. Sridharji, Namaskar and welcome to PGurus’s channel.
Sridhar Chityala: Namaskar and good morning to you as well sir, very good morning to you, early good morning to you, thank you.
Sree Iyer: Thank you, sir, what did you make of the VP debate, sir?
Sridhar Chityala: I think the VP debate was much more articulate and very specific after the initial rancour around scoring points. I think it was wonderful for Mike Pence to bring the discussion to five or six key points. The first point was around taxes, the 4.2 trillion incremental taxes versus 1.7-2 trillion tax cuts. The second thing was around the jobs. On the jobs front, Kamala Harris faulted. Kamala Harris faulted quite badly in terms of the number of manufacturing jobs. She got her numbers wrong, in fact in one stage she even slipped to talk about 300 jobs she probably meant 300,000 jobs. Therefore on the jobs front, it was very clear that Mike Pence was a winner. When you take the third, which is the Stimulus and the impact of the Stimulus, again he kind of won. The state of the economy and markets from the way they took over to where markets were pre-pandemic, you can see. So, around five specific themes – economy, jobs, subsidies, tackling china and the Supreme Court – what would be the composition of the Supreme Court and some of the cases and then, of course, the final point was around the green. Right now, what is the consequences of Joe Biden’s bill and then the fracking part of it, so he was able to wear the conversation to the policy areas which are very uncomfortable to the democratic candidates, therefore to me he was a winner. It was clear that most of the people’s outline assessment is very similar.
Sree Iyer: Viewers, you can read from various social media outlets as to who they thought won the debate. I for one turned off after a little bit because I did not see anything groundbreaking and that’s how VP debates are, so that didn’t really move the needle for me and I was chasing a few other rabbits. So sir, quick question for you – fracking. One line answer – at what price per barrel of crude is it profitable for the United States to do fracking and still make a profit?
Sridhar Chityala: The numbers vary from 19 to 24 dollars to 26 dollars. But I believe, around 19 dollar mark, they would be in in the right spot.
Sree Iyer: So today we are at 39 or so right, hovering around 39?
Sridhar Chityala: Yeah, but you’ve got to understand the capitalization, cost, maintenance etc. So it’s certainly not going to be around 30 or 34 dollars. The break-even point is much higher today in Saudi Arabia, whereas, when you factor in the cost of capital today relative to the cost of capital some time ago, again we talked about the long term capital cost which is 70 basis points to 150 basis points, so there’s sufficient amount of capital available in terms of putting the infrastructure to work on the fracking side of the business and then, of course, there’s also the United States trying to increase the volume of exports, right now it’s a net exporter rather than an importer so once the exports pick up then you can see the price coming down even further.
Sree Iyer: Yes indeed and the United States has become the safety valve of crude oil today, that it can elastically go up or down and make sure that the price of crude stays within a ban. This is my take sir. Let’s move on to the United States’ action against Iranian banks. What was the thing that the Iranian banks did that urged the ire of US administration?
Sridhar Chityala: There is a firm belief that Iran is trying to circumnavigate the system, mitigate the systems in terms of trade, in terms of demands, so they feel that the next target is the banking system, therefore, all banking transactions, financial transactions would be under scrutiny. It doesn’t matter who the bilateral trading partner is, it doesn’t matter what the currency is, so the United States is right. It is heading to the nerve centre of the trade which is banking; therefore, imposing the sanctions on the banking side is another step in terms of tightening the screws on Iran.
Sree Iyer: Narendra Modi, the prime minister of India made a statement in his ‘Made in India’ conference that India is beginning to change its mind-set. What do you make of that statement sir and where do you think India is headed?
Sridhar Chityala: I think it’s a very important and profound statement. The mind-set that he’s referring to is, historically India has believed that it cannot produce by itself and it is overly reliant on imports to meet any of exigent or emergent kind of needs. He is demonstrating on three fronts that India is now an exporter. One he articulated is the medicines to 120 countries on an emergent basis. India was able to export the medicines. The second that he’s saying is, a vast amount of the manufacturing that is happening is domestically meeting the defence and security needs of the country. That’s important, given the kind of threat that India is facing around its northern borders. The third is agricultural exports. Agricultural exports have gone up, so he has really tweaked the agro reforms and the agro market whereby you can now begin to see that to be an important link. So what he’s saying is if we can change our mind-set that we can not only produce to consume but we can also produce to be the global supplier then we can begin to rejig the economy so it’s in our mind it’s not about capacity or infrastructure within it. I think that’s the point that he’s trying to make.
Sree Iyer: Viewers, we are going to have a separate segment where we are going to talk about the potential of India and what are all the different initiatives that are still happening at the design stage that perhaps many in India are not aware of, which will essentially help India go towards the five trillion-dollar mark. We are going to do that thing separately. Moving on sir, there appears to have been a leak in the Intel intelligence gathering in Germany that a senior official seems to have suppressed some data about China, can you please elaborate quickly on that before we move on to the next segment.
Sridhar Chityala: I think that this goes back to about 2018 but we’re beginning to get some snippets of it, the veracity of it needs to be established, but the intelligence seems to indicate that there is a close nexus by the Chinese government not only across all tiers of government but also all tiers of the industry in terms of influencing the decisions in terms of Germany China preferential business partnership whether it compromised the interests of Germany which is an exporter right whether it compromised the interests of Germany and whether it could have impacted the policy thinking in Germany is the belief that the report was suppressed and the report did not reach Angela Merkel.
So there is a fear that whether that suppression could have gone astray but had said that Germany has changed course. The fact that Germany has agreed to join quad it is beginning to oppose the Hong Kong issues. It’s also beginning to oppose some of the decisions around one belt one road, is a reflection that even if the report had been seen the policy changes in hindsight today reflects there was a course correction, but, had the course not been corrected what would have been the consequences to Germany and whether that would have seeped into other parts of Europe is the issue.
Sree Iyer: Sir, on his return back from Japan, secretary of state Mike Pompeo appears to have stopped over at Taiwan and that again seems to upset the Chinese, what do you make of that visit what is the significance of that? Is Taiwan also mulling joining Quad?
Sridhar Chityala: Well, I think it’s a great question, Mike has been very very aggressive visiting Japan and he said Japan is the epicentre of the Quad, the other three nations could not participate because of the COVID situation but those sessions were conducted using the formats like zoom and tele-sessions rather than in person otherwise they would have been in-person attendance. So, effectively Mike’s view is that there is a united front now developing against China and his visit to Taiwan is emphatic that he recognizes Taiwan as an independent entity and not within the clutches of the Chinese. So, the fact that we have defence ties, they have now exported new equipment and they have armed themselves to be ready in the event of an intrusion from the Chinese. There was an intrusion just about a week ago and into Taiwan. The fact that he has gone there is not only symbolic but his statement that the world is uniting is implicit in its statement that Taiwan is part of the coalition.
Sree Iyer: And casting our gaze on the economy, Trump said that he will sign the 25 billion stimulus package for the Airlines and the 122 billion for the SME sector where do things stand now? Is there a meeting of the eye between the house and the senate? Would that bill be presented for the President to sign? Do you see this thing happening anytime soon sir?
Sridhar Chityala: Right from Monday, ever since Trump got back into White House from Walter Reed, every day there have been different statements; this is one way by which Trump keeps people on the edge. We had on Tuesday complete pull out which is namely to say hey you know to pull back, then we had Wednesday, well hey let’s test with passing two bills which is the emergent bill for Airlines, 25 million dollars and 122 billion dollars for the SME sector which is fundamental in terms of keeping the drivers of the economy, particularly the SME sector going, he yesterday he flipped again and said Steve Mnuchin has continued the discussions, you need a much broader stimulus package but Nancy Pelosi doesn’t seem to hunker down on this, so she’s taking the grandstanding which is namely the time is not enough, we don’t have opportunity to now complete and do the package. My view is that he will probably sign an executive order to get these two things moving which is Airlines and SME sector that is what is reflected in the minor uptick in markets yesterday in the United States and an uptick in the markets overnight in Asia that there is an inevitable stimulus.
Sree Iyer: So, regardless of who is going to be in power in 2021 the markets are saying that there is going to be a stimulus and that’s why we are seeing an update because markets always look forward. Sir, moving on Japan appears to be a better market destination than Hong Kong and Singapore. Can you elaborate a little bit more on this, what is the thing that Singapore has done now that makes it less favourable than Japan?
Sridhar Chityala: Historically, there’s always been a clash about which is the Asian economic hub, it’s was always Japan and prior to the advent of China. The finance centre discussion always revolved around Sydney in Australia, Singapore in southeast Asia and Hong Kong in North Asia, so this has been the subject matter of discussion. Hong Kong was the finance echo centre under the British. What has happened now is two things – the continued turbulence and interactions between China and Hong Kong has cast aspersions plus the sanctions imposed by the US government. Singapore post-COVID situation to get out of the economic recovery is trying to put a restriction on the number of jobs and restriction in the number of people that can work in Singapore on a temporary basis, which ideally now opens the door for Japan to step in because Japan is now looking for more outward because of the demographic shift and ageing population so there is a potential opportunity for Japan now to look at whether it can expand its immigration policy and provide incentives. They are doing it already for industries moving out of China into Japan.
Sree Iyer: You are hinting something to people who are technically accomplished in India to learn a certain language and that will serve you well. Moving on, sir the last section for today, technology, it appears that Apple gives a one-year free subscription to those who sign up to buy Apple products, I did not know that I have an Apple 6+ watch. I did not know that I could have enjoyed subscription it’s about five months into the time that I bought it. I’ll find out but Apple is now jumping headlong into this online platform. Is it because of COVID or is it that it already had this plan all along sir?
Sridhar Chityala: So I’ll give a 30-second answer and then probably we’ll continue this discussion tomorrow being conscious of the time. Apple is now what we call a pervasive ecosystem. I have Apple TV at home and the fact is that I have Apple embedded in all my devices wherever I touch. I have my television come on and reminds me that there is an Apple TV you know for me to kind of click on the other simple truth is that Apple has got between Apple and Google. They have close to a billion registered users with a credit card payment mechanism within their ecosystem so it’s a natural propensity for it to be an e-commerce kind of player from a content consumption point of view. So given the COVID situation the evolving online space in terms of consuming content, I think Apple is saying I’ll give you one more year free and see how things shape up. I think we’ll have a detailed kind of, maybe spend five more minutes on this specific topic this is very important. Yesterday another announcement was made which is 35 per cent of the workforce are now going to shift from office to remote working, so that has a consequence to all this digital kind of consumption happening at home. We can discuss that tomorrow.
Sree Iyer: Absolutely and we managed to just stay over the limit for about a minute and a half. Thank you once again Sridharji we’ll be back again on Monday with our daily updates have a nice weekend and again viewers thanks for listening in and please pass the word around. This is a serious 15-minute news capsule that we cap it for you for the next day, We are always one step ahead. We are at the tip of the spear and please please please subscribe to our channel.
Namaskar and see you all on Monday.
Sridhar Chityala: Thank you, Have a good weekend
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