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Guest Contribution: “How Might Biden’s Anticipated Tax Changes Affect The Market?”

Today, we are pleased to present a guest contribution written by Daniel Soques (University of North Carolina Wilmington). The views presented represent those of the authors alone and do not reflect the views of their respective institutions. A recent…

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Today, we are pleased to present a guest contribution written by Daniel Soques (University of North Carolina Wilmington). The views presented represent those of the authors alone and do not reflect the views of their respective institutions.


A recent CNBC survey found that Wall Street investors largely believe a Biden presidency could mean lower stock market returns (https://www.cnbc.com/2020/12/28/investors-believe-the-stock-market-could-see-headwinds-under-a-biden-presidency-.html). Despite this view, the S&P 500 is up 11% since Election Day, with much of the focus on the announcement and roll-out of the various COVID-19 vaccines. But what should investors expect when the market’s attention turns back to standard macroeconomic policy issues, such as a potential tax increase?

To get a better sense of how the stock market is likely to respond to a change in tax policy, investors can look to what happened after the 2016 election.  The conventional wisdom is that Trump administration policies played an important role in the 25% increase that was observed over the following year.  And this concurs with President Trump’s view, “The reason our stock market is so successful is because of me,” as he stated on November 6, 2017. In a recent paper (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3727719), myself along with coauthors Anthony Diercks (Federal Reserve Board) and William Waller (Tulane University) evaluate this narrative in a comprehensive and exhaustive forensic analysis of this time period.

We analyze major financial news stories to make judgments about primary drivers on each of the 283 days between the 2016 election and the signing of the TCJA in late 2017. For robustness, we also conduct a machine-driven textual analysis based on the Bloomberg News Trend Function.  We conclude that tax news did play a positive role in the observed increase, confirming the president’s assertion about the performance of the stock market.  However, we find that the 52 days in which tax news was most important only contribute 1 – 2.5%, on net, to the 25% market return.  Instead, days associated with U.S. economic data, earnings, and news about monetary policy contributed a greater share to the large rise in the stock market.

Figure 1: Daily Human Attribution – This figure shows the category for which each day’s return is attributed based on our human-audited news approach. The height of each bar shows the daily CRSP value-weighted index returns from November 9, 2016 to December 22, 2017.

Figure 2: Days Attributed to Tax Policy News – This figure shows the returns for each day attributed to tax policy news based on our human-audited news approach. The height of each bar shows the daily CRSP value-weighted index returns from November 9, 2016 to December 22, 2017.

We argue that existing studies which focused on the beginning and ending of this time period provide an incomplete picture.  That’s because they miss key events that took place in the summer of 2017, when the prospect for tax legislation seriously declined following multiple failures to pass healthcare legislation and the announcement of Robert Mueller as special counsel.  Each of these events reportedly led investors to question the administration’s ability to pass tax legislation and were associated with the largest declines in the stock market over this time period.

Figure 3: This figure shows the probability of tax legislation based on the PredictIt market. The red line shows the probability of new corporate tax legislation by the end of 2017. The blue line shows the probability of new individual tax legislation by the end of 2017.

Further calling into question the importance of taxes over this window, we show that the Goldman Sachs High minus Low Tax Basket ended up lower, on net, indicating that high tax firms actually may have underperformed low tax firms.

Figure 4: This figure shows the relative return of high tax firms compared to low tax firms. The green line shows the cumulative return for the Goldman Sachs portfolio that goes long in the 50 highest-taxed S&P 500 firms and short in the 50 lowest-taxed firms. The blue line shows a similarly-constructed portfolio using all publicly-traded firms based on the quartiles of cash taxes paid.

How could a 14 percentage point drop in the corporate tax rate only translate to a 1-2.5% increase in the aggregate stock market? We illustrate through a simple Gordon Growth discounted cash flow model that this counter-intuitive result could be explained by four factors. First, most firms were not paying the statutory tax rate before the TCJA due to a number of loopholes and other deductions. Second, the legislation also included new limits on net interest deductions and the repeal of several other deductions in an attempt to broaden the base. Blanchard et al. (2018) and Wagner et al. (2020) find that the effective corporate tax rate fell only 4 to 5 percentage points. Third, investors likely did not view the corporate tax cut as permanent. Even assuming a relatively long horizon of 50 years for the TCJA corporate tax rate considerably reduces the implied return in the model compared to assuming a permanent rate cut. Lastly, a modest response from monetary policy (due to inflation concerns) would drive up the discount rate and reduce returns. The FOMC did in fact increase its SEP projections in the meeting following the election by 25 basis points. After accounting for these four factors, the modest stock market effect of the TCJA is perhaps unsurprising.

So if taxes weren’t the driver of the run-up in the stock market during 2017 then what was? Our analysis finds that global growth played a substantial role. For example, the Eurozone and China were having some of their best economic performances in over half-a-decade.  Likewise, the value of the dollar fell dramatically in 2017 — coinciding with the decline in the prospects for tax legislation — and this boosted multinationals (40% of revenues for S&P 500 is foreign) and export demand for manufacturers. Additionally, we argue the deregulatory policies of the Trump Administration may have also been a factor in boosting stock market returns.

This new paper speaks directly to investors’ concerns about the stock market effects of a potential Biden tax increase. Our findings imply that the prospect of future tax increases will likely be associated with a lower stock market.  However, our analysis also suggests that the net effect of a tax hike on the stock market is likely to be very modest.  All in all, other macroeconomic factors, such as U.S. economic data, global economic data, and factors related to the COVID-19 pandemic will likely play a relatively larger role in determining the performance of the overall stock market moving forward.

 


This post written by Daniel Soques.

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Are Voters Recoiling Against Disorder?

Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super…

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Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super Tuesday primaries have got it right. Barring cataclysmic changes, Donald Trump and Joe Biden will be the Republican and Democratic nominees for president in 2024.

(Left) President Joe Biden delivers remarks on canceling student debt at Culver City Julian Dixon Library in Culver City, Calif., on Feb. 21, 2024. (Right) Republican presidential candidate and former U.S. President Donald Trump stands on stage during a campaign event at Big League Dreams Las Vegas in Las Vegas, Nev., on Jan. 27, 2024. (Mario Tama/Getty Images; David Becker/Getty Images)

With Nikki Haley’s withdrawal, there will be no more significantly contested primaries or caucuses—the earliest both parties’ races have been over since something like the current primary-dominated system was put in place in 1972.

The primary results have spotlighted some of both nominees’ weaknesses.

Donald Trump lost high-income, high-educated constituencies, including the entire metro area—aka the Swamp. Many but by no means all Haley votes there were cast by Biden Democrats. Mr. Trump can’t afford to lose too many of the others in target states like Pennsylvania and Michigan.

Majorities and large minorities of voters in overwhelmingly Latino counties in Texas’s Rio Grande Valley and some in Houston voted against Joe Biden, and even more against Senate nominee Rep. Colin Allred (D-Texas).

Returns from Hispanic precincts in New Hampshire and Massachusetts show the same thing. Mr. Biden can’t afford to lose too many Latino votes in target states like Arizona and Georgia.

When Mr. Trump rode down that escalator in 2015, commentators assumed he’d repel Latinos. Instead, Latino voters nationally, and especially the closest eyewitnesses of Biden’s open-border policy, have been trending heavily Republican.

High-income liberal Democrats may sport lawn signs proclaiming, “In this house, we believe ... no human is illegal.” The logical consequence of that belief is an open border. But modest-income folks in border counties know that flows of illegal immigrants result in disorder, disease, and crime.

There is plenty of impatience with increased disorder in election returns below the presidential level. Consider Los Angeles County, America’s largest county, with nearly 10 million people, more people than 40 of the 50 states. It voted 71 percent for Mr. Biden in 2020.

Current returns show county District Attorney George Gascon winning only 21 percent of the vote in the nonpartisan primary. He’ll apparently face Republican Nathan Hochman, a critic of his liberal policies, in November.

Gascon, elected after the May 2020 death of counterfeit-passing suspect George Floyd in Minneapolis, is one of many county prosecutors supported by billionaire George Soros. His policies include not charging juveniles as adults, not seeking higher penalties for gang membership or use of firearms, and bringing fewer misdemeanor cases.

The predictable result has been increased car thefts, burglaries, and personal robberies. Some 120 assistant district attorneys have left the office, and there’s a backlog of 10,000 unprosecuted cases.

More than a dozen other Soros-backed and similarly liberal prosecutors have faced strong opposition or have left office.

St. Louis prosecutor Kim Gardner resigned last May amid lawsuits seeking her removal, Milwaukee’s John Chisholm retired in January, and Baltimore’s Marilyn Mosby was defeated in July 2022 and convicted of perjury in September 2023. Last November, Loudoun County, Virginia, voters (62 percent Biden) ousted liberal Buta Biberaj, who declined to prosecute a transgender student for assault, and in June 2022 voters in San Francisco (85 percent Biden) recalled famed radical Chesa Boudin.

Similarly, this Tuesday, voters in San Francisco passed ballot measures strengthening police powers and requiring treatment of drug-addicted welfare recipients.

In retrospect, it appears the Floyd video, appearing after three months of COVID-19 confinement, sparked a frenzied, even crazed reaction, especially among the highly educated and articulate. One fatal incident was seen as proof that America’s “systemic racism” was worse than ever and that police forces should be defunded and perhaps abolished.

2020 was “the year America went crazy,” I wrote in January 2021, a year in which police funding was actually cut by Democrats in New York, Los Angeles, San Francisco, Seattle, and Denver. A year in which young New York Times (NYT) staffers claimed they were endangered by the publication of Sen. Tom Cotton’s (R-Ark.) opinion article advocating calling in military forces if necessary to stop rioting, as had been done in Detroit in 1967 and Los Angeles in 1992. A craven NYT publisher even fired the editorial page editor for running the article.

Evidence of visible and tangible discontent with increasing violence and its consequences—barren and locked shelves in Manhattan chain drugstores, skyrocketing carjackings in Washington, D.C.—is as unmistakable in polls and election results as it is in daily life in large metropolitan areas. Maybe 2024 will turn out to be the year even liberal America stopped acting crazy.

Chaos and disorder work against incumbents, as they did in 1968 when Democrats saw their party’s popular vote fall from 61 percent to 43 percent.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.

Tyler Durden Sat, 03/09/2024 - 23:20

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Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The…

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Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The U.S. Department of Veterans Affairs (VA) reviewed no data when deciding in 2023 to keep its COVID-19 vaccine mandate in place.

Doses of a COVID-19 vaccine in Washington in a file image. (Jacquelyn Martin/Pool/AFP via Getty Images)

VA Secretary Denis McDonough said on May 1, 2023, that the end of many other federal mandates “will not impact current policies at the Department of Veterans Affairs.”

He said the mandate was remaining for VA health care personnel “to ensure the safety of veterans and our colleagues.”

Mr. McDonough did not cite any studies or other data. A VA spokesperson declined to provide any data that was reviewed when deciding not to rescind the mandate. The Epoch Times submitted a Freedom of Information Act for “all documents outlining which data was relied upon when establishing the mandate when deciding to keep the mandate in place.”

The agency searched for such data and did not find any.

The VA does not even attempt to justify its policies with science, because it can’t,” Leslie Manookian, president and founder of the Health Freedom Defense Fund, told The Epoch Times.

“The VA just trusts that the process and cost of challenging its unfounded policies is so onerous, most people are dissuaded from even trying,” she added.

The VA’s mandate remains in place to this day.

The VA’s website claims that vaccines “help protect you from getting severe illness” and “offer good protection against most COVID-19 variants,” pointing in part to observational data from the U.S. Centers for Disease Control and Prevention (CDC) that estimate the vaccines provide poor protection against symptomatic infection and transient shielding against hospitalization.

There have also been increasing concerns among outside scientists about confirmed side effects like heart inflammation—the VA hid a safety signal it detected for the inflammation—and possible side effects such as tinnitus, which shift the benefit-risk calculus.

President Joe Biden imposed a slate of COVID-19 vaccine mandates in 2021. The VA was the first federal agency to implement a mandate.

President Biden rescinded the mandates in May 2023, citing a drop in COVID-19 cases and hospitalizations. His administration maintains the choice to require vaccines was the right one and saved lives.

“Our administration’s vaccination requirements helped ensure the safety of workers in critical workforces including those in the healthcare and education sectors, protecting themselves and the populations they serve, and strengthening their ability to provide services without disruptions to operations,” the White House said.

Some experts said requiring vaccination meant many younger people were forced to get a vaccine despite the risks potentially outweighing the benefits, leaving fewer doses for older adults.

By mandating the vaccines to younger people and those with natural immunity from having had COVID, older people in the U.S. and other countries did not have access to them, and many people might have died because of that,” Martin Kulldorff, a professor of medicine on leave from Harvard Medical School, told The Epoch Times previously.

The VA was one of just a handful of agencies to keep its mandate in place following the removal of many federal mandates.

“At this time, the vaccine requirement will remain in effect for VA health care personnel, including VA psychologists, pharmacists, social workers, nursing assistants, physical therapists, respiratory therapists, peer specialists, medical support assistants, engineers, housekeepers, and other clinical, administrative, and infrastructure support employees,” Mr. McDonough wrote to VA employees at the time.

This also includes VA volunteers and contractors. Effectively, this means that any Veterans Health Administration (VHA) employee, volunteer, or contractor who works in VHA facilities, visits VHA facilities, or provides direct care to those we serve will still be subject to the vaccine requirement at this time,” he said. “We continue to monitor and discuss this requirement, and we will provide more information about the vaccination requirements for VA health care employees soon. As always, we will process requests for vaccination exceptions in accordance with applicable laws, regulations, and policies.”

The version of the shots cleared in the fall of 2022, and available through the fall of 2023, did not have any clinical trial data supporting them.

A new version was approved in the fall of 2023 because there were indications that the shots not only offered temporary protection but also that the level of protection was lower than what was observed during earlier stages of the pandemic.

Ms. Manookian, whose group has challenged several of the federal mandates, said that the mandate “illustrates the dangers of the administrative state and how these federal agencies have become a law unto themselves.”

Tyler Durden Sat, 03/09/2024 - 22:10

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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