Sat, 10th December 2016

Anirudh Sethi Report


Archives of “Analysis” Category

Won’t allow H1B visa holders to replace US workers: Donald Trump

President-elect Donald Trump has said he would not allow Americans to be replaced by foreign workers, in an apparent reference to cases like that of Disney World and other American companies wherein people hired on H-1B visas, including Indians, displaced US workers.

“We will fight to protect every last American life,” Trump told thousands of his supporters in Iowa on Thursday as he referred to the cases of Disney world and other US companies.

“During the campaign I also spent time with American workers who were laid off and forced to train. The foreign workers brought in to replace them. We won’t let this happen anymore,” Trump vowed amidst cheers and applause from the audience.

“Can you believe that? You get laid off and then they won’t give you your severance pay unless you train the people that are replacing you. I mean, that’s actually demeaning maybe more than anything else,” he said.

Disney World and two outsourcing companies have been slapped with a federal lawsuit by two of its former technology staff, alleging that they conspired to displace American workers with cheaper foreign labour brought to the US on H-1B visas, mostly from India.

Maharashtra’s Manchester hit hard, 70% of units shut; 80,000 workers affected

Exactly a month after demonetisation, powerlooms in Ichalkaranji, better known as the Manchester of Maharashtra, are struggling to come to terms with the effects of the currency ban. Over 70% of the units in the town are shut and more than 80,000 workers engaged in the looms and yarning, sizing and processing units are either leaving town or are reluctant to come back after Diwali as there is no cash for payment their wages.

Most of the workers come from Uttar Pradesh and Bihar. “The last two years have been very difficult for the industry and we have been barely managing to survive despite making losses because of high rates of the raw material. Powerlooms have been running at barely 30% capacity in the last 8-9 months because production lines cannot be shut. The scrapping of the Rs 500 and Rs 1,000 currency notes has brought the industry to a halt.

“Traders have cancelled orders and the units now have nothing to work on,” Satish Koshti, president, Ichalkaranji Powerloom Weavers Cooperative Association said. From a daily turnover of Rs 45-50 crore, business has sharply dropped down to barely Rs 10-15 crore, he said.

Demonetisation has affected the entire cycle of production and supply. Ichalkaranji has over 1.25 lakh powerlooms some 25,000 semi-auto looms and 7,000 shuttleless looms providing employment to over 80,000 people. Ichalkaranji produces some 1.5 crore meters per day generating revenues of Rs 45-50 crore crore per day.

Ichalkaranji has some 25,000 small units in this sector. Around 15% of this is direct exports while another 40% is exported indirectly. Located around 200 km from Pune, Ichalkaranji has been a major textile hub in the country and sends ready cloth to Ahmedabad, Mumbai, Madhya Pradesh, Delhi, West Bengal and Karnataka. According to Koshti, the season usually begins after Diwali and continues till June every year and this time after a two bad seasons, the industry was looking forward to a good season because of good monsoons.

“Initially for a fortnight, traders were forcing the industry to accept the demonetised notes.

RBI : Plastic notes to be issued soon

With demonetisation having created a major cash crunch across the country, the government on Friday informed Parliament that a decision has been taken to print plastic currency notes and for which procurement of material has started.

“It has been decided to print banknotes based on plastic or polymersubstrate. The process of procurement has been initiated,” Minister of State for finance Arjun Ram Meghwal said in a written reply in Lok Sabha to a query whether RBI proposes to print plastic currency notes in place of paperones.

RBI for long has been planning to launch plastic banknotes after field trials. In February 2014, the Government had informed Parliament that 100 crore plastic notes of Rs 10 denomination would be introduced in a field trial in five cities selected for their geographical and climatic diversity.

The selected cities were Kochi, Mysore, Jaipur, Shimla and Bhubaneswar.

Plastic notes have an average life span of about five years and are difficult to imitate. Also, currency notes made of plastic are cleaner than paper ones. Such notes were first introduced in Australia to safeguard against counterfeiting.

Court tells govt: Spell out figure – Lens on withdrawal sum; govt bares retention plan

The Supreme Court today directed the government to spell out by December 14 a minimum weekly withdrawal limit that banks cannot deny to customers, after the Centre said the previously announced Rs 24,000-a-week limit was a “ceiling, not a minimum”.

Many banks have been refusing this amount citing a cash crunch and forcing customers to settle for sums ranging anywhere between Rs 3,000 and Rs 10,000, senior counsel and Congress politicians Kapil Sibal and P. Chidambaram had earlier told the court.

While clarifying on the matter, attorney-general Mukul Rohatgi said the government had no intention of replacing the entire volume of the old notes in new currency: it would leave a gap of Rs 1.5 lakh crore to promote cashless transactions.

 The bench of Chief Justice T.S. Thakur and Justices A.M. Khanwilkar and D.Y. Chandrachud was hearing a batch of 32 petitions and applications from individuals, groups and political parties complaining about the hardship caused by demonetisation.

At the next hearing on December 14, the court will sift through them and frame the questions it needs to answer, including one on the constitutional validity of the demonetisation and the curbs on cash withdrawals.

Justice Thakur indicated that if necessary, the court might refer the matter to a five-judge Constitution Bench.

“We assume you (the government) are capable (of replacing the withdrawn currency). Your estimate shows you are in a position (to do so) but what has happened?” Justice Thakur asked.

Rohatgi said the government needed time till December 31.

“Are you agreeable that if there is a (lower) limit imposed by us, then no bank will deny withdrawal of the money? We will make sure that Rs 24,000 is withdrawn by each person?” the Chief Justice said.

Rohatgi clarified: “The Rs 24,000 limit is a ceiling, not a minimum limit.”

The bench then said: “If he (customer) has a legitimate right, then let there be a limit below which banks cannot deny.”

Rohatgi said the government would then have to rework the limit. “If not Rs 24,000, let it be Rs 10,000, but it must be given,” the Chief Justice said.

The court quizzed the government on the speed of currency replenishment. “How much money is being printed? How much is being infused?” it asked.

Rohatgi said the government had so far collected between Rs 11.5 lakh crore and Rs 12 lakh crore in old currency, having initially expected about Rs 10-11 lakh crore. “It (the government) may get another Rs 1 lakh crore.”

Justice Thakur said the court was conscious of the “larger objective” of the demonetisation but asked whether the government had “properly applied (its) mind” while undertaking the drive.

“Was there any material before you that were apprised? How much money will be lost? How we will meet the situation? Was there a plan (about what the) banks should have to take care of when a situation like this arises?” he asked.

“It is one thing to completely stop (the use of old notes) and another thing to intelligently regulate.”

Rohatgi acknowledged “some amount of inconvenience” to the people but cited the incentives for digital transactions that the government had announced yesterday by offering concessions at petrol stations and in insurance payments, among other things.

Cash Is No Longer King: The Phasing Out Of Physical Money Has Begun

As physical currency around the world is increasingly phased out, the era where “cash is king” seems to be coming to an end.Countries like India and South Korea have chosen to limit access to physical money by law, and others are beginning to test digital blockchains for their central banks.

The war on cash isn’t going to be waged overnight, and showdowns will continue in any country where citizens turn to alternatives like precious metals or decentralized cryptocurrencies. Although this transition may feel like a natural progression into the digital age, the real motivation to go cashless is downright sinister.

The unprecedented collusion between governments and central banks that occurred in 2008 led to bailouts, zero percent interest rates and quantitative easing on a scale never before seen in history. Those decisions, which were made under duress and in closed-door meetings, set the stage for this inevitable demise of paper money.

Sacrificing the stability of national currencies has been used as a way prop up failing private institutions around the globe. By kicking the can down the road yet another time, bureaucrats and bankers sealed the fate of the financial system as we know it.

A currency war has been declared, ensuring that the U.S. dollar, Euro, Yen and many other state currencies are linked in a suicide pact. Printing money and endlessly expanding debt are policies that will erode the underlying value of every dollar in people’s wallets, as well as digital funds in their bank accounts. This new war operates in the shadows of the public’s ignorance, slowly undermining social and economic stability through inflation and other consequences of central control. As the Federal Reserve leads the rest of the world’s central banks down the rabbit hole, the vortex it’s creating will affect everyone in the globalized economy.

With 65% of ATMs Non operational, Goldman Warns India Is “Returning To Barter System”

India continues to stagger from bad to worse followinhg Modi’s demonetization. With just 35% of ATMs nationwide operational, Goldman warns the shortage of cash continues to incentivize the use of alternate payments, including extension of informal credit and a return to barter systems. Addtionally, the slowdown in activity is dramatically reflected in lower tax collections and discounts offered by luxury car companies.

Goldman Sachs  recently introduced their India ‘De-monetization dashboard’ in which they track the progress of the Indian government’s recent currency reform announced on November 8 via a variety of high-frequency data, including money supply, credit/deposit, interest rates, physical asset premia, real economic activity, price indicators and capital flows.

This week’s update shows that cash availability at ATMs is still low. On real economic activity, there were no major data releases this week. However, PMIs and auto sales data released last week suggested a significant slowdown in activity. Separately, anecdotal evidence suggested continued weakness in activity as shown in the lower indirect tax collections and various discounts given by luxury car companies.

Monetary infrastructure

According to Livemint, 95% of ATMs (out of 200,000 in the country) have been re-calibrated to accept new notes but only 35% of the re-calibrated ATMs are operational. Banks are preferring to make cash available in their own branches instead of making cash available at ATMs. Daily data from ATMs in the four key metro cities – namely Bengaluru, Delhi, Kolkata and Mumbai – show that people are still facing a ‘cash crunch’ in about half of the ATMs. The shortage of cash continues to incentivize the use of alternate payments including electronic payment systems, extension of informal credit and a return to barter systems. The government has further announced various measures to promote digital and non-cash transactions including discounts on digital purchase of fuel, suburban train tickets, and service tax exemptions on transaction charges up to INR 2000 on December 8.
Exhibit 1: Shortage of cash in ATMs continues

Upcoming Week :Watch For Fed , Trump and BoE

With a December rate rise pretty much in the books, investors will turn their attention to signals about future moves when the Federal Reserve meets next week.

Here’s what to watch in the coming days.

Federal Reserve

“We do not expect a change in the dot plot from the September meeting,” Michelle Meyer, economist at Bank of America, said. “That said, the risks are asymmetric in that there is a better chance of a move higher than lower in the trajectory.”

And with central banks around the world now expecting the baton to pass from monetary to fiscal policy, investors will also watch for her remarks on proposals ranging from tax reform to deregulation. “It is too early for the Fed to change its outlook based on Donald Trump,” Alan Levenson, Chief Economist at T. Rowe Price, said. “The Fed won’t talk about Mr Trump and fiscal policy and not just during the press conference, but also during the meeting, [as] that could show up in transcripts.”

Instead, most expect Ms Yellen’s Congressional testimony from November to serve as a blueprint. She is expected to urge lawmakers to focus on boosting productivity and to note the importance of regulatory reforms in helping stave off another financial crisis.

Bank of England

Overnight US Market :Dow closed + 142 points.Now just 243 points away to kiss 20k

Not even the threat of an interest rate hike next week from the Federal Reserve could derail the U.S. stock market’s record-setting run as Wall Street posted its best five days since the presidential election and doubled down on its bet of better times ahead under new political leadership at the White House.

The bullish vibe on Wall Street is best illustrated by the blue chip Dow Jones industrial average, which surged nearly 600 points, or 3.1%, on its way to posting a fresh all-time high on each trading day of the just-ended week.

The Dow, which is up 13.4% this year, is now within 243 points of Dow 20,000, a milestone few imagined was possible at the bottom of the bear market back on March 9, 2009, when the Dow fell to 6,547.05.

The Standard & Poor’s 500 index, Nasdaq composite and small-stock Russell 2000 also finished the week at record levels.

The big gains came even though Wall Street is pricing in a nearly 100% chance of an interest rate hike from the Federal Reserve Wednesday, its final meeting of the year. Wall Street is expecting a quarter of a percentage point rise by the Fed, which would mark the U.S. central bank’s first rate hike of 2016, despite forecasts at the start of the year for three or four hikes.

Following the Fed’s meeting Wednesday, Wall Street’s attention will turn to its policy statement, its updated projections for the economy, inflation and future rate hikes, as well as Fed chair Janet Yellen’s comments during a press conference with reporters.

The big run-up in stock prices, up to this point, has been based mainly on hopes that Trump’s policies will boost economic growth as well as corporate sales and profits

Mexico seen contributing to non-OPEC oil output cuts- Sources

Sources cited.

Mexico could contribute as much as 150,000 barrels per day to non-OPEC oil cuts – OPEC source. 
Russia has already said they would cut output by 300,000.
The non-OPEC  members meet with OPEC members in Vienna  tomorrow.
in other Mexican news Fitch  downgrades outlook for Mexico to negative.
As per Fitch:
The revision in Mexico’s Outlook reflects increased downside risks to the country’s growth outlook and the challenges this could pose for stabilization of the public debt burden. Growth has been under-performing rating peers and the general government debt burden has been increasing steadily in recent years. The victory of Donald Trump in the U.S. presidential election has increased economic uncertainty and asset price volatility in Mexico as the President-elect has alluded to renegotiating or terminating the North American Free Trade Agreement (NAFTA) with Mexico and tightening immigration controls. 
For the full report, CLICK HERE