by Franklin J. Parker, CFA
The Summary
- Markets were rattled on Friday (and Monday) by what appears to be the largest margin call ever. Bloomberg reports that the family office of Bill Hwang—a controversial Wall Street figure who previously pled guilty to insider trading—was behind the selling. Many stocks were effected, including the banks who lent Hwang the money, and traders are not sure if the sudden selling is over or if this could create systemic issues, yielding some nervousness in prices this morning.
- The Fed again reiterated its commitment to current policy. In a flurry of speeches last week, Fed officials basically said the same things they have been saying—they are going to wait until the actual economic data improves before normalizing policy. In a similar vein, the Biden administration is expected to reveal a $3 trillion infrastructure spending package, though quick passage seems unlikely.
- We get March jobs data on Friday, and consumer confidence tomorrow. The jobs data will be important because it is an indicator for Fed policy, and since consumer spending has waned recently a boost in consumer confidence could help bolster prices. Again: so long long as the Fed continues their current policy, our view is that the bias in prices is up.
The Details
Almost every economic growth model carries population growth as an input. All else equal, growth in population tends to fuel growth in the economy. Economists, then, spend quite a bit of time attempting to forecast how much the population will grow in the coming years.
As The Economist recently reported, Covid appears to have slowed the birth rates in developed countries, contrary to some predictions. The US and China, for example, saw a 15% decline in births in 2020. Of course, most developed countries have long had native birth rates well below the 2.1 children per woman required to maintain their population, so Covid has simply compounded a problem that has been in the works for some time: peak population. With the recent global deaths from Covid and the reduced birth rate, it appears the human population is now likely to peak and then begin declining sometime around 2050—about a decade sooner than previously expected.
And it isn’t the absence of labor force growth that is of most concern, that effect is likely to be offset by automation. It is the decline of innovation that carries the largest economic consequence. With fewer minds to solve problems, fewer problems will be solved. Standards of living could then begin to slow and reverse. If global fertility rates stabilize below the required 2.1 children per woman, mankind will have to learn to deal with a new problem: getting economic growth from an ever-smaller population.
There have been, of course, no shortage of doomsayers through the years proclaiming the coming decline of humanity. What those doomsayers repeatedly fail to remember is the power of unbridled innovation. Just when economists were predicting great famines across Europe due to lack of food, Fritz Haber invented a way to capture nitrogen from the air and make fertilizer. Crop yields massively increased and the famines were averted. Just when England had felled all her forests in support of the “great wooden wall” that was her navy, shipbuilders turned to steel and built inconceivably powerful ships.
In the end, I tend to believe in the plucky and inventive nature of mankind. We tend to solve problems, and I think this will be no different. Even so, population growth has slowed in recent years. One lesson that Japan has given us in recent decades is the drag on economic growth that ageing and shrinking populations can create in modern economies. While this is, in many ways, “tomorrow’s problem,” it is a large-scale force that we must consider as investors.
Chart of the Week
Despite all the market drama of the past month or so, the main stock market index, the S&P 500, was only down 5.8% peak-to-trough. After rallying back off of its low, it pulled back a mere 3.4% in the most recent two weeks. It is important to put these recent market moves in perspective, because once we do, it becomes clear that this is all pretty normal and shouldn’t be concerning to long-term investors.
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