Turbulence in the Tata group

For some reason I have not been able to fathom, some of the best reporting on the Indian economy and Indian corporates happens in the foreign media.

The Indian media has flagged the board-level disputes in the group and the fact that the government has stepped in to arrange a resolution. But it hasn't quite spelt out what the issues are. FT's report yesterday does that.

i. Operational issues: The Air India plane crash in Ahmedabad last year was bad publicity. Then came the cyber attacks on JLR in the UK and the involvement of TCS, which manages JLR's technology backbone. TCS also was at the cetnre of the cyber attack on Marks and Spencer as it happens to be the service provider. Then, the job layoffs- estimated at 12,000- have spelt controversy. 

Analysts are asking whether top management has a grip over the sprawling empire.

ii. In-fighting in the board of Tata Trusts which ultimately controls the group: Noel Tata, chairman, could not succeed in getting an extension for Tata Trusts member Vijay Singh, former defence secretary. It appears Noel Tata has also not been successful in engineering an exit for the Shaporji Pallonji group at Tata Sons in which Pallonji owns 18 per cent.

iii. Listing of Tata Sons: The RBI thinks Tata Sons is an NBFC and wanted it to list by September. Tata Sons is resisting the move apparently because it doesn't want greater scrutiny of itself and also doesn't want to cede control. 

We do not know what the government has conveyed to the group. 

How Trump shook up NATO in his first term as President

Jens Stoltenberg was Nato  secretary-general during Trump 1. The Guardian carries an excerpt from his forthcoming account of his time as Nato chief. It's a terrific read. It brings alive Trump's interactions with European leaders during his first term and how he read the riot act to them on stepping up their contributions to Nato- I didn't know the US contributed 80-90 per cent of Nato's budget!

In May 2017, Trump visited the Nato headquarters. It was a new building that he was to inaugurate. He didn't approve of the expenditure at all:

“Do you really need such a big headquarters?” he asked. “What do you need all these people for?”

I replied that while the organisation itself isn’t that large, member states’ delegations also use the building – it makes it easy to meet with security measures in place, and everyone uses the same cafeteria. I told Trump who had designed the headquarters: architects Skidmore, Owings & Merrill, who also designed the Trump International Hotel & Tower in Chicago.

“I know those people. They’re extremely expensive,” Trump exclaimed. “I don’t understand why you chose those expensive architects. Extremely expensive!”

Later in 2018, Stoltenberg spoke over the phone. Again, Trump did some plain speaking:

Trump had recently met with Merkel, too, and told her things simply couldn’t carry on the way they were. “I said, ‘Angela, you have to cough up. You need to spend 2%.’ She said, ‘Maybe in 2030’ – and she laughed as she said it … She laughed!”

He said the United States was spending 4% of GDP on defence, and covered 80-90% of Nato’s expenses. “And we’re not doing it any more. We’re gonna pay what Germany pays.”

By the end of the call there was no mistaking Trump’s warning: “Look, if we leave, we leave. You need Nato, desperately. We don’t need Nato.”

Trump doesn't believe the US needs Nato; it is the Europeans who need it. And if they need it badly, they had better pay for it. Well, Trump has had the last laugh. Many Nato allies have met the 2 per cent target and the fresh target that Trump has set is 5 per cent.

Fed news: Economists back Waller, oppose Trump petition for Cook removal

Eight two per cent of economists polled by an agency want Christopher Waller to replace Jerome Powell. Only 20 per cent think it will happen.

Thirty nine per cent think Kevin Hassett, Director of National Economic Council, most likely to take over. 

Meanwhile, the who's who of economic policy have filed an amicus brief before the US Supreme Court opposing President Trump's move to remove her from office while her petition challenging her removal is pending before the Court. In other words, they want a stay on her removal untl her case is disposed of. 

The list of signatories includes for Fed chiefs Alan Greenspan, Ben Bernanke and Janet Yellen,  former Treasury Secretaries Larry Summers, Tim Geithner, Robert Rubin, Jack Lew and Hank Paulson and former members of the President's Council of Economic Advisers Jason Furman, Gregory Mankiw and Glenn Hubbard. 

U-turn on Ukraine?

President Trump stunned everybody with his remarks on Truth Social following his meeting with Ukrainian president Zelenskyy.

Trump wrote: 

“Ukraine, with the support of the European Union, is in a position to fight and WIN all of Ukraine back in its original form…With time, patience, and the financial support of Europe and, in particular, NATO, the original Borders from where this War started, is very much an option. Why not?”.

Trump also called Russia a "paper tiger".

These remarks seem to mark a U-turn from his position after the Alaska Summit with President Putin last month. Trump had said at the time that Ukraine would have to accept loss of territory to Russia as part of any peace settlement.

Trump also said Nato was free to shoot down Russian planes that introduced into Nato airspace.

So, what's cooking?

Well, the key point is that Trump refuses to commit any American support for Ukraine's war with Russia. The Europeans are free to purchase arms from the US and give these to Ukraine- no more freebies from the US. The US will not be directly involved in the conflict. Moreoever, Trump refused to commit any support to Nato if it shot down Russia aircraft- any American intervention would depend on the circumstances.

We need to connect these positions with Trump's earlier exhortation to Europe to impose tariffs of 50 to 100 per cent on Chinese exports to the EU and to stop purchasing Russian oil and gas altogether. There's no way the Europeans can do that- their economies would be wrecked. Similarly, there's no way the Nato allies can wage war on Russia on their own. 

The Europeans have been urging Trump to get tough with Russia, impose more sanctions and to step up support for Ukraine. Trump is now telling them: if you think you can this war, go right ahead and fight the Russians, I'm not going to join you.

Trump's remarks amount to a dare and a taunt to Europe. As he made clear in his address to the UN earlier this week, he has very little regard for Europeans- he knows they will chicken out of a confronation with Russia sans American involvement. 

America's economy defies gloom- Economist

I have reproduced the headline of the Economist's piece- and the Economist is no fan of Trump's.

Some eight months into Trump's administration, the US economy is far from plunging into the abyss as his detractors had forecast (and continue to forecast).

The Economist spells out the positives in the US economy:

Growth has certainly slowed. But dig deeper in the data and you do not have to be an uber-bull to see reasons for hope. The slump has been modest and no longer seems to be worsening. America’s 1.4% annualised GDP growth in the first half of the year would be a happy surprise for many Europeans. And the 2% growth America has managed over the past year is better yet in comparison

The jobs situation is not bad because demand for jobs has been reined by the crackdown on immigaation:

The Congressional Budget Office (CBO) has revised down its estimate for net migration in 2025 from 2m to 400,000. Researchers at the American Enterprise Institute and the Brookings Institution, two think-tanks, peg the figure at between -500,000 and 100,000. Customs and Border Protection reported just 8,000 “encounters” with illegal migrants on the southern border in July, against 100,000 in the same month last year and nearly 200,000 the year before.

Slower population growth lowers the “breakeven” rate of job creation (that needed to keep the employment rate stable), meaning even weak employment figures could be consistent with a healthy economy......For his part, on September 17th Jerome Powell, the Fed’s chair, guessed the breakeven rate was “between zero and 50,000”.

Then, there is greater clarity on tariffs:

Now the outlines of the import-tax regime look more certain. Tariff revenues, after rising sharply, seem to have stabilised in the past few months. Uncertainty measures have fallen, even if not all the way back to the levels of last year.

The Economist thinks Trump's campaign against the Fed could give rise to problems. It is likely to be proved wrong- as it has been proved wrong so far. 

Stephen Miran makes his presence felt on the Fed

Stephen Miran, who has joined the Fed board on leave as Chairman, Council of Economic Advisers, made his presence felt at his first FOMC meeting. He voted for a 50 bp cut in the policy rate while the others voted for a cut of 25 bp. 

Seven members of the FOMC indicate they do no expect any rate cut for the rest of the year. Another two expect  just one cut. Miran projects a drop of another 1.25 bp by the end of the year. Trump's two appointees, Michelle Bowman and Christopher Waller, voted for 25 bp cut. Waller did so despite being in contention for the Chairman's post when it falls vacant next year.

Trump's bid to get the Fed to make a steeper cut in the rate has not succeeded. Looks as though the Fed will not change tack as long as Powell is at the helm. 

What would be Trump's next move?

Brits grit their teeth over Trump's state visit

The UK laid out the red carpet for Donald Trump on his second state visit to the UK, the first one being in his first term.

It is a clear attempt by UK PM Keith Starmer to ensure the 'special relationship' endures, however much the UK may be uncomfortable with Trump's policies. The Guardian's columnist sums up the sentiments of many Brits:

No, it is not ideal. The era of shared values is ebbing fast. Keir Starmer did not need to play the state visit card so soon or so generously. He should have made Trump wait for the invitation, extracting a higher price for it, and offering hints that it might be offered in return for the right deal. But Starmer is not alone in struggling to read a president who is both unserious and utterly serious at the same time. All nations are still trying to work out how to respond.

What does UK want out of Trump now? Here goes:

Three things will matter in particular when Trump meets Starmer on Thursday for the political half of the visit: trade, the Middle East and Ukraine......On the Middle East, meanwhile, the immediate goal must be to prevent Trump exploding when Britain and others recognise Palestine next week.

So raison d’état says that pressure on Trump over Ukraine needs to come first. Russia’s threat to Europe is existential. Long term, the solution to that is in Europe’s own hands. The idea that the US should continue to be primarily responsible for Europe’s security 80 years after the second world war is now barely credible. But Starmer still needs to do whatever he can to press Trump to arm Ukraine more now.

Well, what better can you expect of a vassal state?

Trump fires Fed Governor Lisa Cook.... but markets are hardly rattled

President Trump has fired Fed Governor Lisa Cook in what is a first for an American president, the removal of a serving member of the Fed.

Analysts see Trump's move as an assault on the independence of the Fed. They say- and they have been saying this for several months now- that Trump's remarks and actions carry the risk of seriously upsetting the financial markets. 

The stock market and the bond market, they say, will not take kindly to a move that undermines the ability of the Fed to effectively battle inflation.

Well, that is the theory. 

The outcome so far is turning out to be very different. 

The markets seem quite unfazed by Trump's latest move or his earlier broadsides against Fed Chairman Jerome Powell. The media notes that the stock market reaction is "muted". The Financial Times seems seriously disappointed that the markets have not fallen off the cliff. It comments:

some analysts are concerned that investors aren’t taking Trump’s cumulative threats on the Fed’s independence seriously enough. Although bond yields jumped on Tuesday, they eased back somewhat over the course of the day.....investors also have shown signs of being lulled into a false sense of complacency.. Ultimately, more severe market ructions might be what is needed to force Trump to pull back from causing greater damage to the central bank and the US economy at large

Well, the "greater damage" just ain't happening. 

Could it be that the markets think that Trump is right? That the economy will benefit from cuts in the interest rate? That the fear of inflation getting out of control is exaggerated?