Daily Commentary

MarketMinder’s View: This piece, which is chock full of speculation, also plays a bit fast and loose with facts and technicalities, so please allow us to provide some context (as well as a reminder that we are politically agnostic, preferring no party nor any politician). It presumes the UK will have a major tax revenue shortfall because wealthy expats have fled the country after losing preferred tax status allowing non-domiciled residents to avoid tax on their earnings outside the UK. Then, it speculates on the ways Chancellor of the Exchequer Rachel Reeves could compensate for this, noting in passing that “she could become the first Chancellor in 50 years to increase income tax rates.” That statement’s veracity depends on how you define “increase.” While it is true the statutory Basic and Higher Rate haven’t risen since the 1975 – 1976 tax year, the lowest earners got hit in 2008 by the abolition of the 10% Starting Rate, which bumped them to Basic Rate at 20%. And let us not forget the creation of the Additional Rate in 2010, which raised the rate on incomes over £150,000 from 40% to 50% (it is now at 45%). And with tax bands frozen since 2021 as high inflation pulled everyday folks unto the Higher and Additional Rates, we reckon most folks would tell you income taxes have gone up. Look, all facts are friendly, and we think having all relevant information is important so investors can assess the gap between sentiment and reality. As for the rest, we guess it is entirely possible Reeves could raise the existing rates, hike National Insurance Contributions (again) or tax pension contributions in order to raise revenue. But it is also possible tax revenue beats grim expectations as economic growth surprises. In the meantime, all the chatter helps markets pre-price any changes well in advance, as they did with the last round of small tax hikes.

MarketMinder’s View: One of the oldest stories in the book, folks. Government launches new policy at warp speed. Government then discovers there are some unpleasant side effects. So government waters down new policy. In this case, when the Trump administration slapped 25% tariffs on all auto and auto parts imports, with the goal of incentivizing companies to make more cars and trucks in America, it whacked domestic auto plants because needed components suddenly got more expensive. Especially when you consider the steel and aluminum tariffs companies feared they would have to pay on top of parts tariffs. Production lines idled. Car companies complained. So now, it appears the administration will reduce tariffs on some parts and ensure the new duties aren’t stacked on top of one another. Which is nice, but we doubt the on-off-on-off and ad hoc nature of all this really helps anyone. We say this not from a political standpoint (we are always agnostic, preferring no party nor any politician and assessing developments for their economic and market implications only) but from a practical one. When the rules are constantly in flux, it creates an incentive to wait and see how things settle, which discourages risk-taking—the lifeblood of investment and commerce. The longer this goes on, the more of a toll it could take. Mind you, we think stocks have priced worst-case scenarios to a very great degree already, but the extended uncertainty bears watching.

MarketMinder’s View: This is a short rundown of some scholarly research showing returns of companies targeted by activist investors aren’t great shakes. In theory, activist investors push companies to unlock higher cash flow and earnings, boosting returns if they are successful. But when studying returns of all US companies targeted by activists in the last 10 years, the researchers found: “Most of the returns an investor can extract by following an activist campaign come in the first two to three months. The median peak excess returns for an activist campaign occur two months after an announcement, at around 2 percentage points. After month two, excess returns dissipate and go negative by month five.” Average returns are higher than median, but that stems from skew from a tiny number of successful campaigns—basically picking a needle in a haystack. “And investors should know that this strategy of following an activist campaign does come with risks. If an activist campaign fails—for instance, if the sale of a company isn’t achieved—then we note that returns can quickly evaporate or turn negative.” But let us put a finer and philosophical point on it: Markets quickly discount all widely known information, including activist campaigns. They become widely dissected the instant they are public, and the activists have a long history of being quite vocal about their aims. Markets price this quickly and move on. As Fisher Investments founder and Executive Chairman Ken Fisher taught in his classic bestseller, The Only Three Questions That Count, the way to get ahead in investing is by knowing something others don’t. By definition, this is impossible if you are chasing activists.