#Episode6 Daily Updates with Sridhar – Crisp, Clear and Concise look at the day ahead

Is using the 25th Amendment a desperate move on part of the Democrats to unseat Trump?

Transcription:

Sree Iyer: It is a very Good Morning here, visitors, viewers and Welcome to our Episode no 6 of Daily Updates with Sridhar Chityala. Sridharji, Namaskar and a very Happy Morning to you.

Sridhar Chityala: Happy early morning to you as Sir and welcome me back for the second week.

Sree Iyer: Yes, indeed Sir, and what a week it is turning out be sir! The first thing that I would like you to touch upon is the 25th amendment of the US constitution that the Democrats are trying to use to unseat the sitting President. Why now, when there are just three weeks left for election. Isn’t there a danger that they could be polarizing the voters?

Sridhar Chityala: Well, I think its a great question and there are two ways is to respond to this. One is, either they are very desperate or that results in this type of callous decisions, which is appoint 17 guys from diverse fields, do an assessment and then oust the President and put somebody else in there who is far more favourable especially when the results are decided based on Electoral College votes and not on popular vote. So that’s one reason.

I think the second reason is, there is a growing feeling notwithstanding the fact the numbers, the concocted numbers or whatever you may want to call, there seems to be an undercurrent of concern that it would go the same way as it went in 2016. So what you’re saying is a set and series up actions that are around all this has gained momentum, especially after the disastrous debate between Mike Pence and Kamala Harris which of course Mike won quite decisively.

Sree Iyer: Well, it does impose a certain amount of strain on the whole methodology. If you’re going to do this kind of witch-hunt, even with the President sitting, one wonders is what will happen. If the Democrats were to come to power are they going to unleash the full might of the American Judiciary at Trump’s interest? What are your thoughts on that?

Sridhar Chityala: Well, I think if you recall when he won the elections, there was this furore that the whole election process somehow some lacked legitimacy and for almost first two years there was Russian investigation, then it was around other matters that occurred. So, this has gone on for almost 3 years plus and they came out empty. So the sense of frustration is continuing. They expected the economy to take a dip post-covid and that’s one thing that either of the economy or on the jobs or on the stimulus or on the incremental stimulus for the boosting the consumer confidence, small business confidence, Trump’s leading decisively. The present administration under Trump is winning decisively. Similarly, you have Amy, the judicial nomination. So we find that there’s a whole series of issues that don’t seem to be resonating and going against and so they say, “okay, this is the fatal plunge that we probably need to take and let me play one more weapon.” That seems to be the strategy and I think it’s very poor.

Sree Iyer: Well, we’ll have to wait and see the impact of that and how this will play out over the next few days. We will see about that. Moving on Israel seems to have objected to the sale of F-35s by the United States to Qatar. What is the deal behind that sir? And why is this objection coming now? Because if I remember correctly this happened a few years ago, isn’t it? I mean, the decision to sell them happened a few years ago, right?

Sridhar Chityala: Well, it’s a great question. Even for the UAE and Bahrain which are now peace signatories to Israel, there is some element of doubt and concern within the Republican set up within the Senate, which is to say that there is a treaty between the United States and Israel that any technology that provides strategic parity and disadvantages Israel is generally not passed or not approved. So now if that is the case with those guys who have signed the peace deal, though Qatar has not signed the peace deal. Qatar is now part of the Iranian, Turkey kind of an alliance, so there is naturally reaffirmation for Israel to say “Hey, you know, is this a country to whom you want to give this place?” It seems to me that, this is a geopolitical as well as the strategic deterrent.

Sree Iyer: Now I’m hearing some interesting news as far as the stimulus is concerned that the 1.8 trillion dollar package that from Trump offered, doesn’t appear to be cutting much ice and looks like we are back negotiating the 25 billion dollar bailout for the Airlines as well as 122 billion dollar bailout for the SME. What is the latest update on that sir?

Sridhar Chityala: Well, I think we have now got a third variant to that which is namely there is about 30 billion dollars of unspent stimulus, especially in the SME – small business segments. So the government is you know saying, okay that’s already allocated but not spent, let’s now release that money to make sure that it is reaching the industrial segment which needs more support given the unrelenting move of Covid with no end in sight. So they are saying, okay, you don’t want to do comprehensive. You don’t want to do the 1.8. You don’t want to do the selective 25 and 122 as you rightly pointed out at least release the money that is already allocated. That seems to be the trend that they’re moving to.

My view is that they will be some kind of executive action. Now that Trump is back at the helm, he is going to do something within the next week or so to make sure the funds are reaching the most wanted segments of the economy and none other than Neel Kashkari another FED Governor over the weekend made a plea which is to say, “Hey, you know, they’re still 11 million Americans impacted to whom the ADA has not reached, the economic benefits package has not reached. So be bold, be brave, and don’t play politics on the stimulus and let’s go ahead.” So this is another fed governor coming in and talking about, focus on the stimulus, of the increasing the stimulus, going ahead with the stimulus.

Sree Iyer: And for those of you who may not know who Neel Kashkari is, he was a vital cog in the wheel? During the 2008 crisis he worked with Tim Geithner closely and a much-respected person and he is now a Federal Reserve Governor of the Minneapolis region. He has also lent weight behind the idea that the stimulus must be done. So let’s wait and see how this plays out as far as the economy is concerned.

Now, let’s take a quick look at the markets. We’re doing a little bit ahead today which is a good thing, so we can spend some time on markets and tech. On the markets, the third-quarter earnings are coming due now and while there have been a v-shaped recovery, people are still expecting that many companies are not going to post rosy returns during the third quarter. What is your general thought on how you think the markets are going to react for the third quarter?

Sridhar Chityala: It’s a great question. Markets overnight in Asia were up by 0.6 – 0.3 depending on whether it is Hong Kong or Tokyo or other Asian markets. The markets are generally pricing in factoring the positive movement towards a stimulus that there would be a resolution. So that trend will continue; early market, free-market for S&P and Dow as well showing positive signs. So a stimulus is inevitable. As we come to the third quarter, economic jet reading we haven’t got the numbers we should get the numbers within next week or so, but early indications are the third quarter Saw resurgence in the economic activity and the estimates range from 30% to 35% and to finish 2020, not at 31.4% contraction that was witnessed in Q2, but somewhere between 5.6 – 6.2, even for India, which contracted. There’s a lot of controversy around India as to what the number was relative to the United States. The World Bank and IMF are predicting a contraction of only between -9% and -10% with the stimulus impact kicking in. When you have less contraction, how does that translate into preventing the contraction from the earning season point of view? Now when you look at the S&P, P&E at price-earnings it’s probably around the highest, PE is around 35 right now. Then we look at price to book and price to sales, all those numbers are pointing out to higher ratios relative to where we were six months ago, or maybe we’re two years ago. All that’s reflecting is that the low cost or 0% interest rate regime has effectively worked well for the companies in terms of cost of borrowing and very judiciously kind of allocating capital to spend in conjunction with the stimulus program. That is why we saw an uptick from Q2 to Q3. So you will see when you see the curve and Q2 was a dip Q3 back to the peaks.

Sree Iyer: Now, you see that the growth in companies is the broad base or is it restricted to more online companies such as the FAANG?

Sridhar Chityala: Growth is broad-based, no, I won’t use the word growth is broad-based. Growth is occurring in segments that are very relevant and very addressable within the context of the needs of the pandemic which is mostly online and integrated online and offline. One of the announcements that we may briefly touch on is the traditional retailers which all of them saw an uptick in earnings in Q3 in sales not in earning. You would have found that many of them benefited from people staying home and ordering online the volume increases. But those which are what you call as in footprints or In-store based naturally those companies have problems in terms of the outcome of the sales.

Sree Iyer: You know, if I look at my own bill the places that I have been visiting a lot lately. The places like Home Depot because there’s always home improvement projects that’s going on and you know what, there is an interesting dynamic at work here now. Let’s take a quick look at technology sector and if you look at what is the trend that’s emerging not just Amazon, but other companies such as Walmart, Target and so on all of them are now appearing to be varying towards a model, where you sort of order Online and this includes even Home Depot also, you order online and then you go there and pick it up. Do you see this trend increasing with the days ahead?

Sridhar Chityala: I think, it’s very fascinating, we take the whole retail and retailing industry that includes not just simply buying that just includes consuming but, any form of consumable content. One witness right through in the last two-quarters restaurants initially closed and then the restaurants open for take-outs. Order online or come in-store order online, but stay outside and pick up your order and go whether its lunch or dinner, the take-outs became very popular. There is a trained consuming Habit in terms of buying and consuming behaviour. Once you train and organize your activity around that then you have a natural propensity to extend to the next area which is your consumption of food, consumption of groceries, consumption of your beverages, consumption of activity as what you mentioned, which is Home Improvement. The traditional retailers who have a huge footprint are saying okay, right, how do we kind of compete with the super-prime Day Sale of Amazon? How do we Leverage and demonstrate it? They could do that exactly the same manner that they do, which is order online and make everything available on the curbside for people to come and pick it up. So they are combating Amazon with the new model of order online pick up offline.

Sree Iyer: Yes indeed. And in fact, it helps the companies because perhaps they may be able to manage their inventory better because they will know over a period of time that, a certain pattern is emerging and who knows they might be able to streamline things even better with this new method and we’ll have to wait and see how that plays out of. If you can perhaps summarize for our viewers where you think the next quad move is going to be because Mike Pompeo made a statement that 60,000 troops are amassing on the border of India from China, this could be something that’s leading to a bigger conflict. What are your thoughts on that? And with that, we will sign off this episode of daily updates.

Sridhar Chityala: I think, it’s just another reinforcement by Mike Pompeo to state that the United States stands behind India in combating. The whole quad itself is a strategy that was defined and designed by United States, Japan India and Australia to combat China in the South China Seas, Indian Ocean, Indo-pacific, Malacca Straits where they found that they have taken very aggressive postures and positions not only impacting the economies but also the sovereignty of many nations which make up the islands of those areas. So my view is that whether there is a war or not is a divided story, but they certainly a strategic deterrent and there is also an explicit and implicit warning notwithstanding the election season that’s going on. The United States is ready, willing and able to stand with India in the event of a conflict.

Sree Iyer: Well that is very precedent on the part of Mike Pompeo to make that statement coming so close to the elections. So one hopes that regardless of who comes to power in January that this policy will be continued. Thank you very much SridharJi will be back again tomorrow with daily updates.

Sridhar Chityala: Thank you ji, Namaskar

Sree Iyer: Namaskar