Thursday’s dramatic spike doesn’t necessarily show that the stock market is about to bottom, but it does confirm that investors are so pessimistic that there isn’t a huge hurdle to overcome to turn things around. That’s one way to look at what is at stake from this week’s earnings from the likes of Netflix
NFLX,
Tesla
TSLA
and AT&T
T.
But there are questions for now and questions for a later. A new research paper circulated by the National Bureau of Economic Research asks a fascinating question — which region will come to dominate the world economy? One of the authors is Laurence Kotlikoff, the Boston University professor and American Academy of Arts and Sciences fellow who in the 1970s designed the model that economists use to track economies over time.
Drawing on United Nations demographic and International Monetary Fund fiscal data, they created what they call the Global Gaidar Model, drawing on the name of the Russian institute of one of the co-authors. They focus on five variables — population growth, population aging, productivity catchup, fiscal adjustment and automation.
As of 2017, Western Europe and China each accounted for about 17% of world GDP, with the U.S. at 16%. By 2100, they expect a very different story, with China and India becoming the world’s top two economic hegemons, accounting for 27% and 16% of world GDP respectively, with the U.S. and Western Europe share at about 12% each.
The real surprise could be Sub-Saharan Africa, where in another scenario, it vies with the U.S. for top billing. That’s based on a study which expects an almost complete end to Chinese, Indian, Russia, Eastern European and former Soviet Union catch-up labor productivity growth. While the authors call that scenario “implausible,” they also acknowledge that worker productivity growth in Western Europe, North Asia, the U.K., Canada and other countries has trailed U.S. growth in the last two decades after exceeding it in the five decades following World War II. “Hence, what seems implausible to us may be exactly on target. The one constant in the record of relative economic growth is its inconsistency,” they say.
In one final scenario, if the catch-up growth rates observed between 1997 and 2017 continue into the future, then India comes out on top, with nearly 34% of world GDP. In that scenario, China’s number two at 22%, while the U.S. is down at 10%.
The study also suggests there’s a pending capital glut, because of the high savings rate in China, India and other regions that are aging. “This simulated capital deepening dramatically reduces our baseline model’s world interest rate – from 5.98% in 2017 to 1.18% in 2100. Importantly, major capital deepening arises under all three sets of catch-up growth rates,” they say. Regions like the U.S. with low national savings rates will import capital, meaning that even if they maintain or increase their share of world GDP, their share of gross national income could decline.
The markets
A big drop in U.K. bond yields
BX:TMBMKGB-30Y
helped set the stage for a rise in U.S. stock futures, with the Dow
YM00
contract up nearly 300 points. The yield on the U.S. 10-year Treasury
BX:TMUBMUSD10Y
slipped to 3.95%.
The buzz
New U.K. Chancellor Jeremy Hunt said he will reverse nearly all of the tax cuts previously set out by the U.K. government and also review the energy price guarantee after April.
Bank of America
BAC
headlined Monday’s slate of earnings releases, and beat both earnings and revenue estimates. Goldman Sachs
GS
is planning a major reorganization, according to The Wall Street Journal.
News Corp.
NWS
shares jumped in premarket trade as the company said it may reunite with Fox
FOX,
which fell in premarket action. News Corp. is the parent company of MarketWatch, the publisher of this report.
The Hamm family of Continental Resources
CLR
founder Harold Hamm is offering $74.28 for each outstanding share. The family already hold 83% of the oil producer’s stock. Also in the energy space, BP
BP
is buying renewable natural-gas company Archaea Energy
LFG
for $4.1 billion including assumed debt.
The economics calendar features the Empire State manufacturing index.
Best of the web
American executives are in limbo at Chinese microchip companies after a U.S. ban.
The co-founder of former President Trump’s media company that is trying to merge with a SPAC
DWAC
has provided The Washington Post, and the Securities and Exchange Commission, with company messages and documents. Meanwhile, the rapper Kanye West is buying the conservative social-media site Parler.
Iran’s security forces have everything to lose if protesters topple the government.
Top tickers
Here were the most active tickers as of 6 a.m. Eastern.
| Ticker | Security name |
| TSLA | Tesla |
| GME | GameStop |
| AMC | AMC Entertainment |
| NIO | Nio |
| BBBY | Bed Bath & Beyond |
| AAPL | Apple |
| APE | AMC Entertainment preferred |
| CFMS | Conformis |
| TWTR | |
| AMZN | Amazon.com |
Random reads
Here’s the colorful quote from Nike’s
NKE
co-founder on why he’s donating so much to Oregon’s gubernatorial race.
Netflix’s The Crown is creating more controversy in the U.K.
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