We feel we should be clear: there is volatility to be worried about. An article on “accounting for survivorship” sought to explain the survivorship bias in looking at US international dominance when measuring “country-specific real equity market returns” from 1900 to 2019. As the Morningstar article points out, in 1900 the United Kingdom dominated the world equity market with a 25% share, while Germany, France and the United States held roughly 15% shares each. As we pointed out last quarter (see QMP Summer 2020), by 2020 the United States accounted for almost 55% of the world equity market itself. The authors of the article rightly point out that for equity markets in Germany, Russia and Japan, “being on the losing side of a world war or two, the overthrowing of capitalism or just prolonged poor market performance would have wiped out the capital investors.” Certainly.
US equity markets had a good third quarter (+8.9%) despite a rough (-3.8%) month of September. July and August were strong, driven primarily by the notion that much of our economy can function even with part of it disabled by a pandemic. Many of the same stocks that drove the market in April, May and June continued their strong performance, though the highest flyers suffered more in September. Volatility was up in September, with 17 of the 21 trading days showing a spread between the daily high and low of greater than 1%; two of those days had a spread in excess of 3 percent.
Will the Tax Bite Ease?
The day-to-day quest to lower the bite of taxes continues. Examination rates for the IRS now defy logic. For all individual returns the examination rate for tax year 2018 was 0.15 percent. For income over $100,000, progressing by categories to income over $10 million, the examination rate varied from 0.05% to 0.03% annually. This is where the money is. For incomes of zero, yes, that’s right, zero, the examination rate was 0.31 percent. Fraud, particularly regarding the earned income tax credit (EITC), causes the focus. Using the tax code for social engineering rather than collecting money does skew the system. Some other things require attention, but don’t get it.