Daily Commentary

MarketMinder’s View: We almost just let this one lie since it is one proposal from one UK politician who may challenge Prime Minister Keir Starmer later this year. Markets move on probabilities, not possibilities, and campaign pledges aren’t automatically probable legislative changes—far from it, as even this piece notes late. But the claims here are market-related enough that they are worth taking on, especially with wealth taxes sparking more conversation globally. So let us look at former Health Secretary Wes Streeting’s capital gains tax proposal, with the reminder that we are politically agnostic, favoring no politician nor any party and assessing developments for their potential market and economic implications only. He floated raising capital gains tax rates to match income tax rates, calling it a “wealth tax.” Now, it isn’t actually a wealth tax, as it would apply only to realized gains, not ongoing appreciation. The phrasing seems mostly like an attempt to win support within his Labour Party’s further left factions. But setting that aside, would this change actually destroy the incentives to invest, as this article claims, and make entrepreneurs (in this case, AI startup founders) flee to tax-friendlier climes? We think the article kind of debunks itself on that front. One founder quoted here says “‘the biggest competitive advantage the UK has over California today is capital gains tax, and it’s the single reason the AI revival is happening here at all.’” Ok, but there is a big startup boom in California despite those higher taxes (federal plus state), so it seems to us taxes aren’t as much of a driver as people presume. An actual wealth tax would probably cause capital flight, based on other countries’ experiences, but the UK has had higher capital gains taxes in the past without enduring recessions or bear markets as a result. The main consequence, as the article notes, tends to be less selling, not less investment, taking government revenues down. The article delves into this, noting capital gains revenues fell after former Conservative Chancellor Nigel Lawson equalized capital gains rates with income tax rates in 1988 and fell below £1 billion in 1992 – 1993 (which coincides with the sterling crisis and a double-dip recession, some big extenuating circumstances). What it neglects to mention is that capital gains rates matched income tax rates from 1988 through 2008 (with gains adjusted for inflation through 1998 and gains longer than 10 years given lower rates from then on). By the time former Labour Chancellor Gordon Brown passed a flat 18% capital gains rate in 2008, capital gains revenues were rolling in, hitting £5.3 billion in 2007 – 2008 (per the Office for Budget Responsibility). The UK economy grew quite nicely in that 20-year window, with plenty of business investment and participation in the Tech boom. So we think the claims here are overstated. Higher taxes aren’t great, but we doubt they kill the UK’s thriving tech startup scene.

MarketMinder’s View: This is how commodity price spikes usually resolve themselves—and shows why the cure for high prices is high prices, not government meddling with price caps or rationing. Since the article mentions specific companies, please note MarketMinder doesn’t make individual security recommendations; the case-study examples provided are for illustrative purposes only. So what did chocolate purveyors do when cocoa prices soared? “After cocoa prices nearly tripled to above $12,000 a metric ton in 2024 thanks to adverse weather and disease, chocolate makers began shrinking bar sizes, adding more wafers, fruit and nuts and introducing chocolate alternatives. They also drew down cocoa stocks, raised prices and ramped up investments in products like ChoViva, a cocoa-free chocolate alternative made from sunflower seeds and oats. ... That caused a sharp drop in cocoa demand that experts say drove a 70% drop in bean prices from their late 2024 peaks. Demand could hit nine-year lows in the 12 months to end-September, said Steve Wateridge, a veteran analyst and leading world expert on cocoa. The fall in cocoa prices should, however, lead to a recovery in demand starting in the second half of the year, he said.” When prices of things you like or need skyrocket, it is frustrating to say the least. There is seldom any immediate fix or switch you can flip to quickly bring prices back to where they were (otherwise they wouldn’t have leapt to begin with). In cocoa’s case, it took more than a year before a combination of supply responses (efficiency drives to make limited stocks stretch further while innovating with “chocolate alternatives”) and demand reactions (substitution and less consumption) let prices come back down again. In the meantime, some may impatiently call for government intervention to control prices or limit transactions in some manner. But this rarely works because it doesn’t address the root supply-demand issues. Any intercession without that will backfire, likely worsening the problem and delaying the solution. High prices are the signal, and incentive, for producers to make more or find alternatives—the only lasting way to ultimately reduce prices for commodities that people continually demand. For more on puffed-up prescriptions for supply problems markets routinely solve better on their own, please see Elisabeth Dellinger’s 2024 column, “The Bittersweet Truth About Cocoa Speculation.”

MarketMinder’s View: This article clearly dives into politics and politicians, so please keep in mind MarketMinder favors no party nor any politician, assessing matters solely for their potential market effects—or lack thereof. And in a sense, that is what we like about this piece. It illustrates, using the Biotechnology industry, that personality politics’ influence over markets has waned—and is unlikely to sway stocks going forward. Biotech is particularly ripe for this kind of analysis, given the heavy influence the US Food and Drug Administration has over approvals, which are central to the industry’s ongoing innovation—critical to its survival as some drugs eventually fall off patent. So it is no surprise that, when the Trump administration took office, the installation of officials skeptical toward the industry teed up fear, leading to the lag illustrated early in the included chart. Since then? “A year ago, the departure of industry skeptics from senior regulatory posts would have sent biotech stocks surging. Instead, [Biotech] has declined with the broader market to start the week. Part of that reflects renewed inflation concerns and the fact that biotech stocks had already staged a massive rebound. But it also shows that investors have tuned out the FDA after relentless churn. [Outgoing FDA drug tsar Tracy Beth] Høeg was the fifth person to hold the drug-division role since President [Donald] Trump took office, making this one of the most chaotic stretches in the FDA’s recent history. The bigger point is that investors have moved past the chaos and now perceive MAHA’s threat as diminished.” Instead, consciously or unconsciously, they now look beyond this to other drivers, like profitability—which seems sensible to us. We don’t make individual security recommendations, so tune that part of this down. Instead, focus on the pattern: Initial expectations and fears proved excessive, which flipped early industry lag to outperformance. It is a lasting tale at the crossroads of politics and markets too few embrace and learn.