CNBC/Yen Nee Lee
Covid pandemic could bring ‘a lost decade’ of economic growth, World Bank says

The global economy could be in for “a lost decade” with subdued growth after the Covid-19 pandemic triggered the worst economic recession since World War II, the World Bank said on Tuesday.

“If history is any guide, unless there are substantial and effective reforms, the global economy is heading for a decade of disappointing growth outcomes,” the Washington D.C.-based group said in its biannual Global Economic Prospects report.

The bank said economic prospects were already weakening before the pandemic due to an ageing population and low productivity growth. And the global Covid outbreak will likely worsen that slowdown, it added.

The World Bank projected that global potential growth — which assumes the economy operating at full employment and capacity — will slow to 1.9% a year from 2020 to 2029. Before the pandemic, potential growth was expected to be 2.1% a year over the ten-year period, said the bank.

It explained how the pandemic would hold back global economic growth over the long term:

Uncertainties and weak growth expectations may discourage companies from making new investments;

Persistent unemployment and worldwide school closures will result in a loss of knowledge and skills in the labor market.

Such a long-term slowdown in the global economy would come even as it is set to recover in 2021 from last year’s slump. After contracting 4.3% in 2020, the global economy is forecast to grow 4% this year, the World Bank estimated.

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Fox Business/Talia Kaplan
Georgia Senate runoff could lead Dow to drop by 1,000 points: Steve Moore

Former Trump senior economic adviser Steve Moore argued on Tuesday, the day voters in Georgia head to the polls for the Senate runoff elections, that a Democratic sweep could lead to the Dow Jones Industrial Average dropping by 1,000 points.

Moore stressed on “Cavuto: Coast to Coast” on Tuesday that he believes that a Democratic sweep will be “bad” for markets pointing to the historical record.

“I looked at the evidence of what’s happened in the last 60 years or so with respect to the stock market in terms of three different scenarios: One is Republicans control everything in Washington, the second scenario being Democrats control everything in Washington, the third being divided control of power and in general the best scenario for economic growth has been when you have divided power,” Moore said.

“The worst scenario over the last 50 or 60 years is when Democrats have control over all the levers of power so I would think the historical record is pretty clear on this, that a Democrat sweep tonight would be bad for markets,” he continued.

The Georgia races will determine control of the Senate. If both or one of the Republicans win, the upper chamber can serve to check Democrats’ legislative agenda. If both Democrats win their dogged fights, Vice President-elect Kamala Harris can cast a tie-breaking vote.

Moore acknowledged on Tuesday that he doesn’t think Democrats will gain control of the Senate, but noted that it was possible given the “races are looking pretty close.”

Biden has pledged to impose new taxes on corporations and wealthy individuals earning more than $400,000 annually, but he will almost certainly face a GOP roadblock if the Democratic candidates in the Georgia Senate races lose on Tuesday.

Biden has repeatedly said he would roll back President Trump’s 2017 Tax Cuts and Jobs Act and raise the corporate tax rate to 28% from 21%, restore the top individual tax rate to 39.6% from 37%, tax capital gains as ordinary income, cap deductions for high earners, expand the Earned Income Tax Credit for workers over the age of 65 and impose the Social Security payroll tax on wages above $400,000. Without a Democratic-controlled Senate, those tax hikes are likely off the table.

But should the runoffs end with a Democratic victory, the incoming president will have more leeway to implement his agenda, which includes higher income tax rates, an expansion of the payroll tax for Social Security, new tax credits and fewer deductions, as well as another round of massive government spending.

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Yahoo Finance/Ines Ferre
GMO’s Jeremy Grantham warns: The stock market is in a ‘fully-fledged epic bubble’

“The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble,” says GMO’s co-founder Jeremy Grantham.

“Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history,” wrote the investor.

He compares this period to the South Sea bubble, the 1929 market crash, and the dot-com boom of 2000.

“These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part,” he wrote.

He warns the bubble will burst in due time, “no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios.”

The markets had a wild ride in 2020, briefly going into a bear market after COVID-19 lockdowns were set in place. Soon after they recovered as the Federal Reserve made unprecedented moves to support the economy, and Congress passed a stimulus bill.

“I am not at all surprised that since the summer the market has advanced at an accelerating rate and with increasing speculative excesses,” wrote Grantham.

“But today’s wounded economy is totally different: only partly recovered, possibly facing a double-dip, probably facing a slowdown, and certainly facing a very high degree of uncertainty,” he added.

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Bloomberg/Ranjeetha Pakiam
Gold Holds Near Eight-Week High as Traders Await Georgia Results

Gold held near an eight-week high, aided by a weaker dollar and lower real rates, as investors awaited the outcome of U.S. elections in Georgia that will determine control of the Senate and President-elect Joe Biden’s agenda.

Bullion could benefit if Democrats win the two seats in the runoff contest as it would mean an easier path to approving more fiscal stimulus, according to Credit Suisse Group AG analyst Fahad Tariq. Traders are factoring in a greater chance of a Blue Sweep, with the U.S. yield curve steepening to multi-year highs on the prospect of more-generous government spending. The benchmark 10-year Treasury yield rose four basis points to just under 1%.

Gold is being supported in the new year after posting the biggest annual gain in a decade as the coronavirus continues to spread in some parts of the world and clouds the outlook for a recovery. Suki Cooper, a precious metals analyst at Standard Chartered Bank, said the bank doesn’t see the world returning to pre-pandemic growth rates anytime soon, despite the emergence of vaccines.

“We still think the broader macro environment for gold remains very supportive in light of low interest rates, accommodative monetary policy and fiscal stimulus,” Cooper told Bloomberg TV. “We’re going to see further dollar weakness into this year and that continues to set a favorable backdrop for gold. In fact, given the policy responses we’re likely to see around the globe, we’re likely to see that dollar weakness persisting beyond 2021.”

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