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US Markets Continue to be Pressured, Excess Body Weight is Responsible for 3.9% of Cancer Globally, France to go ahead with Digital Tax et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Dec 18, 2018 2:20 PM 6 min read
Editorial

Good evening reader,

 

An eight page document carrying much awaited guidelines around Charging Infrastructure for Electric Vehicles (EVs) was released over the weekend.

 

Charging points are a massive EV enabler. They, along with better battery tech minimize the so-called "range anxiety" faced by EV drivers i.e. a fear that your vehicle would run out of charge before you reach your destination or the next suitable charging point. Moreover, the advent of "Fast" charging has now ensured EVs don't really need to wait for long before they're juiced up. 

 

It is hence only natural that the industry (not just the big boys but nimble start-ups which typically innovate much faster) have been waiting with bated breath.

 

So what do the rules say?: Well, you can charge your EV at home now. You also don't need to be a licensed power distribution company to setup a public charging station (PCS). If you satisfy the laid out specs, you're good to go.

 

Verdict: Are the specs required to setup PCS too cumbersome for smaller players? Can EV manufacturers (and not only owners like in the case of trucks and buses) also setup captive charging infrastructure? What about parts of the country which are off-grid?

 

The Indian regulator has the reputation for overreach...before calming down. One convenient way to avoid that would be to perhaps address all the stakeholders. The big boys, sure. But also the nimble lot. More on this as the week progresses.

 

Moving on to Today’s Top 6 Business Stories through our End Of Day Wrap Up:

 

Analysts expect Govt to tap into RBI to maintain deficit. Rajan warns against transfer of excess RBI reserves to Govt, says may be credit negative. Deputy Governor Dr. Acharya suggests RBI Board would need reconstitution if it is to be made comparable to BoE, Fed.  

 

Ok, that's too much information: Analysts expect the Government of India would target the excess surplus reserve of RBI and/or various asset sales to ensure sufficient cash flow in a run up to General Elections 2019 along with maintenance of fiscal deficit at 3.3%. Overhanging upcoming expenses include $5.9bn recapilisation of PSBs, Ayushman Bharat, MSP requirements, and possible farm loan waivers. 

 

So what's the beef?: As per Former RBI Governor Raghuram Rajan, any significant tapping of RBI's excess surplus reserves may be credit negative for the Central Bank. Dr. Rajan adds, any downgrade to RBI would lead to a higher cost of capital in the future as well as the potential inability to conduct certain International transactions e.g. the Swap deal of 2013. S&P seems to broadly concur. 

 

And Dr. Acharya?: He commented separately (actually during last's week Board Meeting) that comparisons of RBI to BoE or the Federal Reserve only make sense if there's a significant reconstitution of the Board - including ensuring Directors are not conflicted and are able to grant maximum bandwidth to the affairs of the bank.

 

Huawei enters trials as DoT readies for 5G spectrum auction by August next year.

 

The What: The Indian govt has invited Chinese telecom company Huawei to participate in the 5G trials after initial reluctance. Nokia, Ericsson and Samsung are among others who were invited to the trials.

 

The Bigger Picture: The development comes at a time when US has asked its allies to refrain from using Huawei in their systems fearing threat to national security.

 

Sequoia may sell c. 7% of its stake in Byju’s for $185-190m.

 

Up Close: As per an Economic Times report, Silicon Valley-based venture capital fund Sequoia is likely to sell c. 7% of its stake in Byju’s to incoming investors South Africa’s Naspers Ventures and global growth equity firm General Atlantic for $185-190m.

 

What you need to know: The development comes shortly after Byju's raised $540m at a valuation of $3.6bn, led Naspers and Canada Pension Plan Investment Board and private equity giant General Atlantic.

 

Zoom Out: Sequoia has so far invested $50m in the ed-tech platform and will continue to be a major investor with a stake of 13-15%, after the founders, who control 38%.

 

US markets continue to be pressured; Chinese holding of US treasuries sees modest decline.

 

Dow Jones Industrial Average (DJIA) saw a 500pt+ downswing on Monday with concerns of weakening global economic growth showing no signs of abating.

 

Why?: The market-wide weakness appears to be further exacerbated by a widely expected rate hike on Fed’s final policy meeting of the year scheduled for Wednesday. As such, Monday’s sell-off follows a fairly sharp downtick on Friday which ultimately saw all three major US indices simultaneously enter into the correction territory.  

 

Does it matter?: While the proverbial “buy-the-dip” narrative could potentially offer some near-term respite, market participants appear to be looking for more fundamental signs of macro strength.

 

And this: As per data released on Monday, Chinese holdings of Treasuries are at their lowest level in over 18 months. US sovereign bonds constitute a substantial chunk of Chinese fx reserves and China has historically sold US treasuries to strengthen the Yuan.

 

Trend: In that context, this is a closely watched macro trend with meaningful fx ramifications. An added layer of complexity surrounds the fact that a substantial sell-off in US treasuries would drive US bond yields higher -  a pattern closely watched and widely believed to act as guideposts for predicting US recession.

 

Excess body weight is responsible for 3.9% of cancer globally. Also, % of US high school senior students using e-cigarettes doubled since 2017.

 

Let's start with Part 1: As per a study published in the journal Cancer, a strong relationship has been found between excess obesity and the risk of contracting 13 types of cancer. The total number of cases for women were nearly double that of men. Breast cancer is one of the largest contributors for women, with men suffering more from liver cancer. 

 

Now Part 2: Speaking of cancer, the percentage of U.S. high school senior students using e-cigarettes nearly doubled from 2017, as per a survey of the U.S. National Institute on Drug Abuse. Reported use of e-cigarettes specifically in the last 30 days nearly doubled among 10th and 12th graders.

 

Facebook goes offline to verify political ads in India ahead of the general elections in 2019. France to go ahead with Digital Tax on Google, Apple, Facebook, and Amazon starting Jan. 1 

 

The What: As per an Economic Times report, the social network giant has written to individual advertisers and agencies that they must provide scanned copies of address and identify proofs, which will be verified with visits by its India-based team. Alternatively, advertisers could opt for Facebook to send a verification code by post.

 

Perspective: The move comes after the Cambridge Analytica scandal, in which the analysis firm obtained personal data of 87 million Facebook users without their consent during Donald Trump’s US presidential campaign.

 

Also, this: France to go ahead with Digital Tax on Google, Apple, Facebook, and Amazon starting Jan. 1 

 

The What: The tax is expected to raise €500 million ($570 million) in 2019. In addition to taxing direct sales, France will also ask the companies to pay a levy on advertising revenues, websites and the resale of private data.

 

Zoom Out: France and Germany had originally pushed for an EU-wide 3% tax on big tech firms’ online revenues. The deal, which required the support of all 28 EU states has been stalled due to opposition from countries including Ireland.

 

RETRACTION

 

Earlier, we had made a statement: "The RBI is presently rated at AAA, whereas the Government is rated Baa."

 

Our choice of words was based on several news reports (The HinduThe Times of India) we'd curated while framing this point, in addition to Dr. Rajan's 2016 speech at St Stephen's college (Click here for Full Speech Text) .

 

We quote from his address: "The RBI Board has decided it wants the RBI to have an international AAA rating so that RBI can undertake international transactions..."

 

Dr. Rajan here clearly refers to a AAA rating for the RBI. However, upon receiving clarification queries from our readers, we checked with several prominent economists and academicians with regard to this particular reference.

 

The consensus view is that this reference was presumably used as a theoretical framework here, and not a truism as we'd interpreted.   

 

Our mistake.

 

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