#Episode8 Daily Updates with Sridhar – Crisp, Clear and Concise look at the day ahead

Transcription

Sree Iyer: Hello and welcome to PGurus channel. It is a wonderful morning here. It’s episode number 8 of ‘Daily updates with Sridhar Chityala. Sridharji, namaskar and welcome to PGurus channel.

Sridhar Chityala: Namaskarji. Good morning to you. How are you, sir?

Sree Iyer: I’m doing very well sir. And I hope the weather is holding up in New York also. Sir, we have a very busy set of things to cover today. The first thing being stimulus and before I hand you over on your thoughts on stimulus, I don’t know if viewers got a chance to watch The Wolf Blitzer – Nancy Pelosi argument that took place yesterday and Nancy Pelosi could not convince Wolf Blitzer as to why the Democrats are still holding out on the 1.8 trillion package offer, and she could not also explain why she would not want to meet the President to iron out the differences because the differences are only about 400 billion dollars apart. But that was the last we had. We have some more updates, maybe Sridharji can update us with that and then there’s much more to cover. So here you go. Sridharji, take it away.

Sridhar Chityala: Thank you so much, Sir. The way we stand with the stimulus is this 2.2 versus 1.8 trillion dollars for all practical purposes, it seems now out of the window. They’re not just going to be able to accomplish it by end of October or November 3, which is the presidential election. And where we will leave is, we started with 25 billion to Airlines which need immediate assistance, 122 billion, which is the PPP, people said that’s very targeted and very limited. There are schools which need assistance, the hospitals which need assistance, there’s some help that is needed for the local governments, that also needs to be augmented and included in the package and the discussions recommenced. So that’s how we went from 1.6 to 1.8 trillion dollars when there was a gap of close to 600 billion dollars in the original proposal. Even that doesn’t seem to have clicked. So where we stand today is as per Mitch McConnell’s discussions last night, Tuesday, that they are targeting something like a 500 Billion dollars package which would cover the PPP program, which is very critical, then the taxpayers as well as the individual benefits program both targeted at taxpayers as well as extending the unemployment insurance and then, of course, the child subsidy and supported the local governments and some certain specific sector and also to the health care because Coronavirus, now with no vaccine breakthrough, there’s going to be more help needed to the hospitals in terms of providing services. So that seems to be the package that they are heading to. Republicans will pass it in the Senate irrespective of what the Democrats think and he made it very clear that Republicans don’t believe in the policy of doing something rather than nothing. So it has to be targeted, measured and impactful and I must say the original 2.1 trillion has delivered the benefits that it intended to achieve.

Sree Iyer: Thank you for that sir. And viewers might I point out that a former Presidential nominee candidate for Democratic party Andrew Yang, as well as Congressman Ro Khanna, split ranks with Pelosi urging her to take this deal. So there is a certain amount of disarray, dissension in the Democratic ranks. So we don’t know if that’s going to start reflecting itself in the elections to come, we’ll wait and see. Sir, the next topic that we are going to look at is the economy in terms of the economy overall. Now, the IMF is saying a few things. What is your take on that? I’d like you to speak quickly because I want to spend a lot of time on Amazon’s amazing performance.

Sridhar Chityala: Very simple, IMF’s forecast is that the world economy will be contracting. I have to quote ‘It will be less severe, but deeper in its impact.Now what they are simply saying is that there is going to be a contraction and they are scaled-down from minus 4.9% to minus 4.3% negative growth and it will not be greater than minus 4.9%. So in other words, it’s not going to be minus 8%, but there is going to be a recession, less severe recession, less severe contraction. Let me take back my words. There’s going to be less severe contraction relative to what was originally forecast. Now when you take IMF projection into context then look at what the economies of the United States and the rest of the developed nations are projected, that again re-emphasizes that economies by virtue of the stimulus program have been able to claw their way back in Q3. We expect Q4 to be something similar but concerning to Q3, they have clawed their way back based on the initial estimates. That’s again reflected when we transition to the next topic, the earnings.

The earnings numbers that we have seen yesterday and the numbers that just breaking story from Goldman, JP Morgan is stellar, Johnson & Johnson is great, Speedy bank is good, less than forecast, but good, Bank of America missed the earnings, and Goldman Sachs is crushing the markets, Amazon – great numbers is a reflection that the markets have absorbed the stimulus and is reflected in the earnings. Just to wrap up on that point, from economic markets as we transition, NASDAQ is up 30%, and S&P is up 3.6% for the year. That does not reflect to you that, there was a huge pandemic in this country in Q2 and the pandemic continues with no vaccine in sight and potential full recovery in 2022. So, the earnings, the contraction, and the reflection of the markets are only because of the stimulus package that has come in, and the ability of the people to absorb it.

Sree Iyer: Yes indeed sir. And one quick update on Covid. A couple of companies have either pulled back their vaccine or going slow. Could you please throw some light on that, please?

Sridhar Chityala: Johnson and Johnson was one of the companies which were mentioned by the President with their serum. It looks like there are maybe one or up to five cases of some abnormal behaviour, abnormal symptoms noticed so that has been pulled back. Eli Lilly was the second one. They also have observed some discrepancy. So both have suspended their pilot test trials in the market and it did put some element of the damper in terms of the responses of the markets yesterday and even but these are setbacks in clinical trials, which you would expect to be normalized as the time kind of goes on. That just simply means that the breakthrough that was expected in 2020 may not happen. It probably is in 2021.

Sree Iyer: Thank you, sir. And now on to our main topic, Amazon. Amazon has become the harbinger of the future of how companies will be running. This company was treated, you know, people used to say it’s crash, it’s imminent, but you notice that this stock has come from 280 dollars a share about 24 months ago to 3,000 plus I mean, there is something amazing that Jeff Bezos is doing. Sridharji, can you walk us through this amazing success story of Amazon because I’m hoping that this will kind of become a blueprint for those of us who are trying to start our own new startups.

Sridhar Chityala: You are talking about 380, I remember Amazon, when it was initially listed at $34 is now around $3480 and growing. It is meteoric and what is not factored into the computations is Amazon is not yet into a full-fledged marketing and advertising revenues, there’s still kind of marketing and advertising on the brand’s marketing on the platform in terms of the product, but they’re not still gone into the advertising revenue. Primarily the revenue is coming from their cloud services, which they offer as an extension of the technology to the merchants. Then, of course, the whole retail sales. Now to your question – The numbers are quite stunning, right? Once again 2020 as at today their sales are up 40% relative to 2019 as they commenced their Prime Day sales. Now, what does that tell you that this basically tells you that Amazon has Mastered, what its customer needs and what the customer demands are better than anybody else? If you talk to the Whole Foods CEO after the acquisition and the integration of WholeFoods into the Amazon kind of the architecture what the WholeFoods CEO will tell you is, there are three essential things that they have been able to benefit obviously Superior use of technology in terms of managing their retail their business. Number two to their ability to see the consumer buying patterns and preferences much better on-demand and cyclical they’re able to manage that. The third is the price, the price elasticity in terms of customer preferences and choices. And forth is still making the way is the whole construct around is the usage and the stockpiling. Minimize as much as stockpiling for goods that are not used or that are not in demand. The superior deployment of technology has helped Amazon to conquer every product either they buy or Source from outside or they do an acquisition and integrated it into their framework. So Superior customer excellence and backed by preferences and choices price cyclical, not cyclical demands and their ability to toggle the business in the event of a crisis like a pandemic. They can actually stock up in their warehouses and distribute the products fairly quickly that is reflected in the numbers.

Sree Iyer: Thank you, sir and viewers yesterday, Apple released its series 12 products – four product 699, 799, 999 and 1099. The interesting thing about this really was not that Apple was releasing a product but it was that it was releasing a 5G technology-based product. You know, there is a subtle change in the way the messaging took place yesterday. Sridharji, can you please unravel this for us? Because 5G has now become one of the funk crumbs of the Quad. I mean somebody says how is quad related to technology a little bit of that and also why Apple has brought 5G technology to the front and centre in their new product release.

Sridhar Chityala: I think it is a fascinating insight to listen to Steve Cook when you look at the redesign that has happened to Apple after the Apple X product offering, which was much expected. The whole communication was around marketing is about the experience rather than a fundamental change either in the design or adding some kind of exceptional features. We kind of take a look at what the two or three things that Apple has done in the Apple 12 Range; one is as you rightly pointed out the expansion of the product set. Number two, the whole theory was about the future, we are loading 5G into Apples, which means your phone is ready even before the 5G is in the market. By the wherever you go, where you are selective testing up of 5G going on, your phone can still work leveraging the 5G infrastructure that’s prevalent in the country.  Apple is always about experience and future, I think that’s the message they were delivering on the 5G piece. The second is that I’m told now, they have included because of the superior chip, I’m not a games guy but they’ve included these most popular Legend game into the Apple 5. So obviously, you know, it has got a young audience. I’m sure games are played by everybody, but they have embedded this. The third is I think, they have basically said that is about packaging, they are kind of trying to environmentally conscious and now, the headsets is no longer in the packaging. They’re saying they’re environmentally kind of cognizant. It’s much more about socially responsible as well as about future and vision that seems to be the underpinning theme of the communication of what Apple 12 is all about.

Sree Iyer: Thank you very much, that was a very very crisp summary of what transpired yesterday. By the way viewers, I must tell you that from Apple 11 onwards, the number of cameras has gone up on Apple. Not only that now, can you use this 11 or 12 to have a professional two-person conversation. You don’t need any more those expensive video cameras that people have to Lug around if you want to make conversations, you can do it with this. I’m hoping that more and more people order this because it’s actually going to give you 4K quality or even from 11 onwards. It’s one of those things that I had my eyes on because I wanted to have one of these phones on my next trip to India, you know carrying a phone like this is a lot simpler than you know, lugging a professional video camera.

Sridhar Chityala:  Going back to Amazon or going back to Goldman or going back to JP Morgan or going back to one of these other companies Disney, which we talked about. Essentially, any business ecosystem is driven by three fundamental principles. One is around Capital allocation, where do you put Capital, once you put the capital into specific segments of business driven by certain IRR and strategic kind of rules. The second thing that one looks at is the capital deployed creating inherent risks. And how do you kind of manage and contain risk this varies from business to business? If you are an apple it’s different, If you are an alphabet its different, if you’re an Amazon it’s different, If you are a bank, it’s different, if you are a Disney, it’s different. But, you can see that the question of capital allocated, managing the risk in terms of any derailers that come in. And then the third is how you generate economic returns through operational excellence. So there’s a common theme that is emerging around the capital, around the risk and around the efficiency.

Now the US government is moving to some extent towards that model as a kind of an American citizen. If I say this then, people would say Hey, you know, you guys are kind of posting too much about yourself, but that’s the truth. When you have Capital allocated if it is directed to your program and the wastage is contained that is, you don’t kind of waste the dollars that are deployed, that’s the risk management. You find that the economic outcomes that you target are accomplished. Amazon is an example, JPM is an example, Goldman is an example, and Apple is an example. I think the US government is to some extent in demonstrating that it can absorb more debt in its balance sheet and still service it while achieving the economic outcomes for the people.

Sree Iyer:  and now you know, why the Deep state in America is kicking and screaming because of Trump being at the helm of affairs. Thank you very much, sir. That was a wonderful summary and you know, 101 for people who want to start their own businesses. Once again, thank you very much. Do join us tomorrow. Same time same specialist, and we’ll be back Namaskar.

Sridhar Chityala: Thank you, Namaskar.