Daily Commentary

MarketMinder’s View: According to Bank of America’s Global Fund Manager Survey, some 56% of responding managers are underweight French stocks. This is counterintuitively bullish news. Yes, the CAC 40 has underperformed eurozone stocks and the MSCI World this year. Yes, there are fears over French deficits and debt. And yes, some worry an extreme right- or left-wing candidate will win next spring’s presidential election. But for markets, the question is always whether such concerns are pre-priced, i.e., whether investors have already acted on them. The lag, plus this survey showing a record share of managers have a pessimistic view of the country’s markets, suggests they are largely pre-priced. Then the question becomes: Is reality likely to match the fear? Given France’s tax revenue easily funds debt service and the country’s deep political gridlock, we think a more benign reality than feared is likely. For more, see our October 5 commentary, Budgeting for French Debt Fears.

MarketMinder’s View: This interesting discussion of the potential liability (or lack thereof) for AI firms namedrops a couple of specific companies, so please keep in mind MarketMinder doesn’t make individual security recommendations. With the Hugging Face hack and several AI workers’ claims of existential risk from a technology they claim can’t be controlled well enough making headlines, the concept of who can be held legally liable when things go wrong is a worthy consideration. “AI companies have so far avoided major lawsuits over recent incidents in which they’ve failed to keep AI agents — systems capable of working autonomously with little oversight — contained to their testing environments. But some legal experts and policymakers say it’s pretty clear: The companies can and should be held responsible.” Fair enough. But this goes on to discuss companies’ efforts to use “going rogue” language as a preemptive defense. Others back legislation that would, to some extent, shield AI firms. This is a broad overview of that, and it is a factor that could slow frontier model development to an extent. But user adoption is an understated part of this, too. There are myriad theories about AI agents displacing banks by automatically porting your savings from one to another in search of yield. Or financial advice. Or legal advice. Or or or. But with no clear answer to the question of who is liable if things go awry, we struggle to see mass adoption of this as very likely. Part of the reason people hire a professional in financial, legal or tax services is they want a security blanket if, for example, the IRS audits them. Limiting AI firms’ legal exposure may cut against that. For more, see Fisher Investments founder and Executive Chairman Ken Fisher’s August 24 New York Post column here.

MarketMinder’s View: With the approach of October 28’s UK Budget reveal, talk of tax changes has been hot and heavy lately, as the government floats trial balloons to gauge public response. One such idea, backed by several senior members of the Labour government, has been raising the lower tax rate charged on realized capital gains—equalizing it with income tax rates of 20% - 45%. (Obviously, this touches on politics, so please note MarketMinder favors no politician or party, weighing only policy changes’ economic and market effects.) There is significant disagreement over the effects on tax receipts from this. One Treasury study hinted at herein found it would cut receipts by some £3.6 billion, as people defer realizing gains and wealthy people leave the country. Other analyses say it will raise billions. But now, no matter which camp you side with, it seems you can ditch that worry. Chancellor of the Exchequer John Healey has scrapped the idea of matching income and capital gains tax rates. This should lower uncertainty some ahead of the Budget’s release, but it doesn’t vanquish all capital gains uncertainty: There is a wide gulf between the current 18% - 24% capital gains rate and the 20% to 45% income rates. He could still raise capital gains rates a bit, even after popping this trial balloon. That said, given where the fears were, this should still prove a relief for markets, which will get Budget clarity in a mere two weeks.