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A tax to boost share prices?

James Jeffords

Washington was in a tizzy last month after the sudden defection from the Republican party of senator James Jeffords of Vermont. Jeffords' historic move tipped control of an evenly divided US Senate to the Democrats and it came within a whisker of changing the fate of the Bush administration's tax proposals. But Jeffords decided to stay in the Republican fold for a few more days until Congress could finish work on that all-important bill. Big bucks had been riding on the outcome for Wall Street.

This political shocker came on the heels of the recent run-up in share prices. Last year's bubble, it seems, really hadn't burst after all, but transformed itself instead into some sort of living, breathing organism. The thing apparently was just exhaling when stocks went skidding in February and March. Now the question is: what has it been breathing in?

Share prices have defied old measures of value - P/E ratios, dividend discount models and the like - for years.

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