Why do companies make acquisition?

Today Coca-Cola is announced to buy Costa Coffee from Whitbread in a £3.9bn deal. Costa is a coffee chain which has more than 2400 shops in the UK and 1400 in more than 30 international markets. Previously, the parent company of Costa Coffee, Whitbread, announced to spin off Costa in April under the pressure from hedge funds. This is not the only merge story. In addition, AT&T’s acquiring Warner Media (Time Warner Inc. formerly) is another big story, AT&T is the world’s largest telecommunications company while Time Warner is a multinational mass media and entertainment producer, who owns CNN, DC Comics (batman), Warner Bros., HBO (the Game of Throne).  In addition, the tech giants are big players conducting acquisition. Alphabet has acquired DeepMind for its AI development; Apple has acquired Akonia Holographics, which is a holographic smart glasses producer, leading to people’s expectations of coming Apple Glasses.

Acquisition has these several functions. Firstly, acquisition can avoid potential competition from rising start-ups. There are many start-ups with huge potentials which are possibly challenging large players in their fields; however, since start-ups all face high risk, they have the incentives to be acquired by large companies, and give themselves more secure growth environment, so many of the start-ups will not resist being taken over as long as the prices are right. Secondly, acquisition can boost a company's growth in new fields. Large companies are good at what they are doing in their own fields but they can be new to some fields which they are not familiar with, especially when the fields themselves are new as well. By buying an existing in the new field, the large company can immediately boost its ability and competitiveness in this new field. For example, once Alphabet acquired DeepMind, it immediately boosted its development in the AI field. Thirdly, acquisition can allow companies to expand to other fields and create diversity for their business structures. Diversity can prevent a firm from being too vulnerable to several particular systematic shocks. Fourthly, acquisition can improve firms improve their tax efficiency, especially when the investment is wise. In some countries, companies are able to use investment including acquisition to subtract taxable profits in order to lower the amount of taxes paid to the government. Fifthly, companies have lots of cash and their targets are cheap. For example, there are talks about the possibility of Alphabet or Apple's acquisition of Tesla if Tesla does not reach profitability by 2019 and its market cap falls sharply, as Alphabet and Apple are both cash rich companies.

To conclude, there are various reasons of why companies acquire other companies, but the main purpose of any acquisition is to maintain a company's competitiveness and long term profitability.

How important is brand?

Brand influence is very important in some sectors where information is asymmetry. When customers do not have perfect access to information, they have to rely on the available suppliers’ brands (reputations). Brand or reputation contains mixed and complicated information. One key piece of information that the brand information contains is about suppliers’ specifically targeted customer groups. Such information tells much about the suppliers’ products. Firstly, target customer group determines the quality and price of the product. If a product targets high-end customers, the quality tends to be very good while the price will also be very high. Secondly, since different customer groups have different preferences, products with different targeted customer groups are differentiated. For example, laptops designed for businessmen are more portable than laptops designed for gamers, laptops designed for gamers and laptops designed for programmers and developers both have high specs but in different ways. Even GPUs used in these two types of laptops are specialised in different fields. Thirdly, suppliers target specific target groups based on their own production capacities. Suppliers which target high-end customers have to have the most cutting-edge technology as well as quality and quality control. And suppliers will be judged again and again on the brands and reputations they tend build for themselves.

However, in the field where information is perfect, brand and reputation are no longer so important. As customers have perfect access to information, they know everything about the products they potentially want, so they do not need to rely on the suppliers’ brands or reputations to make their purchase decisions.In addition, suppliers do not need to build their reputations or brands at all, all they need is to provide products to the market. Although such market is usually perfectly competitive, there is some room for the suppliers to make some profits, when the number of suppliers is small and all suppliers tend to differentiate their products.

Brands in the field where information is imperfect and asymmetry provides customers with a piece of processed and packed information that tends to direct customers to match their own types with the suppliers’ targeted types in order to make their purchases.

Land-tied wealth

According to the Office for National Statistics, land accounts for £5tn out of a total of £9.8tn worth of net wealth, more than a half, at market value in the UK, which is the highest proportion among G7 countries (data for the US and the Italy were not available). Why does this happen?

Firstly, such investment strategy is conducted based on the tax system. When the returns from equities or other assets in the financial market are taxed heavily, it is wise for people to invest in land, as they receive continuous rents from land and can earn money from selling out their land in the future any time they want. Secondly, it is about the finance available. In the UK, people can get mortgage for “buy to let”, so it is more affordable for people to buy land than to buy similar value worth of other assets, such as equities. Thirdly, investment strategy is made based on the different return rates from investing in different assets. The US stock market is performing very well this year; however, the UK stock market is not that fascinating, due to the downside pressure from Brexit. Fourthly, the institutions love UK land as well. HNA has purchased many student accomodations in London, and other financial institutions also invest in student accomodations since the demand for accomodations in the UK is relatively inelastic, thus providing constant returns.

However, while more than a half of the total net wealth is concentrated in land, it means the economy as well as the financial system is very vulnerable to the volatility within the real estate market, since lots of loans and investment are concentrated in one single sector with a well diversified investment portfolio. Moreover, when so much money is concentrated in one sector, it is too hard for anyone to be certain that there is no bubble in this sector.

To conclude, the investment environment in the UK encourages investors enter the real estate market, and such concentrated investment is definitely to increase the economy’s vulnerability to the volatility in the real estate; moreover, it is impossible to say there is no bubble in the UK real estate market.

Trump’s attack on Google

It is a great way for the US stock market that the market hovers after US-Mexico trade breakthrough and extends its longest bull period; however, it is not a good day for Alphabet, the parent company of Google. On Tuesday morning, President Trump attacked Google on Twitter and suggested Google’s “leftwing media bias”; and even worse, Larry Kudlow, the president’s chief economic adviser, later said that the administration was taking a look at whether Google’s search results should be regulated by the government. Such news is negatively a piece of downside news as companies always hate more regulations, especially targeting regulations. Many tech companies, such as Google, Facebook and Twitter, are struggling to find the right balance between upholding free speech and filtering false or offensive content; however, in the US, the first amendment does not apply for private companies that private companies have the right to restrict their contents, so they cannot be prosecuted for restricting people’s freedom of speech at the moment. Moreover, I do not expect that the US government can make any effective regulation to manipulate the contents.

Though Trump cannot produce effective regulations to manipulate these tech companies’ contents, it shows that people can be unsatisfied about what they see from the contents of Google. Of course, Google and other tech companies use advanced algorithm to guess people’s expectations about what they want to see. Such algorithm is made based on people’s history, more history information is recorded, a better guess the algorithm can make. However, privacy is another big argument within our society that the EU has amended the policy regulation many times in order to protect users’ privacy. Customers need to balance their privacy protection and service quality; but many of them do not realise such problem that they want to protect their privacy as well as want convenient services. Here comes a question if it is possible for these tech companies to provide convenient services while protecting customers’ privacy.

It is not entirely impossible especially in where these tech giants have a long history of operation. When a tech company has already collected enough data, it is possible to run algorithm to predict the products their customers want based on historical data. However, using such method, these tech giants cannot design products that specifically target individual customers, they can only design products that match the demand of the majority of customers; therefore, in order to differentiate products and generate maximum profits, these tech companies always want to gather as much of their customers’ information as possible. If Google could collect enough of Trump’s information, while Trump was googling his news online, he would get the news he wanted and he would not have made any complaint on Twitter.

What is AI likely to experience before completely penetrating our society?

Many tech companies are developing all sorts of AI and seem to beat human beings that OpenAI developed an AI to beat professional players in solo games (but got beaten by professional teams in 5vs5 games) and DeepMind developed an AI to beat top go players. Many of us are afraid that one day, their jobs will be taken by AIs and they will be unemployed and lose life support. Such fear is not unreasonable that there have been some jobs which have been replaced by robots; therefore, the people with such fear will try their best to prevent AIs from penetrating their life. In addition, politicians may potentially use such fear to gain support to give themselves political strength and slow down the development of AIs and set up new restrictions. Of course, politicians are also likely to be influenced by those tech companies’ lobbyists to support AI development.

AI is being developed by many tech companies. These tech companies believe developing AI can boost productivity and replace people in some dangerous fields, such as mining. Boosting productivity is a great deal. Firstly, the world is entering a period of ageing population and the population growth rate is decreasing over time. Boosting productivity can help the world maintain the current development rate.Secondly, if AI can do better than human and never make mistakes, even improve its own ability over time by machine learning, then it is economically sensible for companies to replace ordinary workers with AI. Thirdly, AI can work longer and does not need holiday, companies can use AI to provide 24/7. This would be a huge upgrade in customer experience, especially in countries where the labour cost is very expensive.

Although there is still a long way for AI to be equivalent to human being, when the time comes, companies will be the first to welcome the arrival of AI while the ordinary population will fight against AI for rescuing their jobs. Governments will not see many people lose jobs to AI so new laws and regulations will be made to guarantee there will be still some jobs left for human beings. However, under such circumstance, Only the jobs which help to develop new AIs will actually create values to the entire society, other jobs humans have are merely social benefits given by government regulations.

What does technology bring for our economy?

Technology innovation and invention are making our life more and more convenient and making production more efficient. More and more values are created to the global economy due to technology innovation and invention. The global GDP growth has started significantly since the Industrial Revolution, showing the importance of technology innovation and invention. In addition, technology innovation and invention could have a systematic effect on the global economy.

Technology innovation and invention add more competition to the labour market. Labours do not only compete with each other, but also compete with technology that if employers feel it is cheaper to develop new technology to replace human labours than hiring human labours then human labours will lose their jobs. In addition, technology innovation and invention also create trade barriers. Complicated technology can prevent less skilful labours from entering the market and also prevent some start-up companies from entering fields where require very complicated technology. Moreover, technology is a process of accumulation. When a tech company has more experience and accumulate more technology, its capability is improved dramatically, helping itself win competition with those which do not accumulate enough technology. Therefore, technology means more competition for labours but less competition for tech giants.

To conclude, when technology is developing so fast, it is easy for labours to lose competition in the labour market, so individuals have to learn new skills and knowledge more frequently in order to help themselves to maintain their competitiveness. Meanwhile, when a company has a technological advantage in a particular field, it can win the competition easily and use the profits earned to accumulate more technology in order to maintain its market power and prevent future competition.

What will stop the US stock market? 2

The US stock market has been bullish for 3433 days without a drop of 20 per cent, which is typically associated with a bear market. As I mentioned yesterday, there is a plenty of bad news which has the potential to drag down a stock market; however, since investors have the confidence in the US stock market and the US equities are the best choice among all sorts of investable assets, the US stock market is unaffected by the downside factors. Here comes a question: what will stop the US stock market?

A systematic collapse within the US financial sector will definitely trigger a financial crisis and drag the stock market down inevitably,  just like what we have seen from the last financial crisis. Such event is not foreseeable and often is a black swan event. However, because some investors may have this black swan event in their minds, they will always be aware of exit time. These investors could be scared by some minor events which make them think a major crisis is coming. If there are many of such investors, it is easy for investors to start playing greater fool game.

In addition, a significantly weak sign of the US economy may also trigger the US stock market's bear. One of the factors that support the current strong stock market performance is the strong Us economy. Almost every quarter, there are more jobs created, the wage level in the US increases, the unemployment rate falls. However, if there is an immediate shift in the US economic data, the US stock market will feel a shock and investors are highly likely to change their expectations thus changing their investment strategies.

Furthermore, a wide range of disappointment in companies' earnings reports can trigger the stock market's bear as well, especially investors feel substantially disappointed about earnings reports of all tech giants and major game changers (such as Bank of America). However, this is not very likely, given the strong US economic data.

To conclude, there are several factors which can potentially stop the US stock market strong performance; however, none of these factors are likely to take place in the very near future; therefore, the US stock market is highly likely to continue its strong performance in the coming quarter.

What will stop the US stock market?

There have been factors which seem to have the ability to potentially drag down the US equities: rising interest rates, a possible global trade war, losing confidence in some Faang companies and a possible impeachment of the US president. However, it seems the US stock market has not been affected by these factors and the stock indices reach new peaks these days. Meanwhile, the Chinese stock market has been deeply affected by the worry of economic slowdown and the trade war with the US. Why is the US stock market so special?

The US stock market is the market where has the most valuable companies from all over the world. Not only the US tech giants are publicly listed on the US stock market, but also some companies from other countries are publicly listed on the US stock market, such as the Chinese tech companies, Alibaba and Baidu. It is the centre of publicly listed companies. This makes the US stock market be the centre of global equity investment. It has a large number of financial instruments which allow investors to conduct various investment strategies.

The strong performance of the US stock market attracts investors from other stock markets where have weaker performances. In addition, the returns of investing in American equities are very attractive, while the interest rates are relatively low (though some central banks are planning to increase interest rates), which makes American equities the best alternative to other assets (including bonds). Cash needs somewhere to be put in, and now around the global financial markets, the US equity market is the best place to put investors' money. When more cash flows into the US stock market, it will improve the performance of the US stock market further. Additionally, the US stock market seems independent of the current trade tension, because many of these American giants are multinational service providers which are affected by the trade policy less. Furthermore, even if a crisis hit the American economy, the entire world will be affected and no financial market will be exception; therefore, even under the worst case, the US stock market will not be worse than other stock markets.

Overall, because the US stock market becomes the best place for all types of investment, the US stock market becomes the centre of investment, leading to a stronger performance and further ensuring its status in the global financial market.

The power of the president's word

Trump has been making comments about politics, media and other matters frequently on Twitter since he became a politician (or even earlier). Some of Trump's tweets contradict his government policies or the US fundamental values. The US Federal Reserve is planning to raise rates and this could increase the value of the USD. However, the US president definitely does not like the Fed's plan that he openly criticised the Fed chair who was nominated by himself about his rate hike plan. When Trump was still the candidate, he already publicly said, "I'm a low-interest-rate person". He also criticised the quantitative easing policy.

Trump's tweets do affect financial markets, as markets believe his tweets provide implications about his policy plans. Today his criticising tweet affects the Forex market and lowers the value of USD, the market believes his tweet may imply he will put pressure on the Fed chair to lower the USD value. Although some of Trump's promised policies do not come true, because of his US presidential power, he has power over influencing many things. Therefore, his words are very powerful.

When the words are powerful, then they can play magic. Trump can use his words to deliver a result without delivering the actual policy. Just like this time, Trump does not make any monetary policy change (he does not have the power though), he creates a result in his favour (the USD depreciated today). This has the same logic as the central bank guidance. When Trump speaks about something and markets believe in his words, then markets will react in response to his words just like the actual policy is made, and markets become what Trump wants without making any actual policy. Moreover, when Trump speaks about something, other Republican politicians will back him and make comments more credible, this ensures the power of Trump's words, since credibility is the magic of a president's words.

Is Trump right this time?

Trump tweeted about scrapping the current quarterly earnings report system and instead using a six-month reporting system. This argument is not new and there have been bankers and entrepreneurs loving this six-month reporting system, because they believe a longer evaluation period will help companies to focus long term gains and lose some burdens from too frequent evaluation. From companies’ perspective, they definitely hate such system with frequent evaluation. Especially Elon Musk, the founder of Tesla, wants to take Tesla private because of the current stock market reporting system.

However, six-month reporting system does not benefit the stock market. Because stocks are evaluated less frequently, investors tend to bear higher risk, since uncertainty rises when the required evaluation period is longer. When the evaluation period is lengthened, the market will be more volatile. It does not mean the market will be shifted in one direction. A stock price is likely to increase more if the company is a growth potential company. However, a stock price is likely to fall more if the company is expected to decline; while a stock price is likely to stay constant if it is a dividend stock.

Overall, increasing evaluation period could benefit the business sector while increasing the stock martlet risk (volatility).

Why is Uber targeted by governments?

Transport for London tried to end operating licenses for Uber drivers but the court has approved licenses for Uber as the judge believed that Uber has made changed to make itself qualified for renewing its licenses. However, the major of London has asked for powers to cap the number of Uber drivers (and other private hire drivers). Meanwhile, New York City seems to take a similar route as London that the government is going to restrict the number of licenses for Uber drivers.

For governments, Uber seems to have lots of negative externalities. These governments believe Uber and other similar companies have created social instability as well as insecurity. Social instability occurs between the traditional taxi drivers and these private hiring drivers, social insecurity is worried by the governments that many of these private hiring drivers are not securely checked for their background. This is such an example that regulators and governments are not fully prepared for new things and technology.

The market is always aware of the newly arrived technology and companies are also trying to develop new technology. It does not mean that governments are sitting over there and doing nothing, governments are also greater inventors and innovators that many technologies are developed or funded by governments; however, the problem is no one is able to predict what new technology is capable of, many things are out of people’s minds. Under such circumstance, governments are always one or more steps lagged behind.

The impact of companies’ dominance on labours

Some economists argue that when the multinational giants increase their sizes and influence, the benefits created by the economic growth will not be fairly located to the labours. This claim makes a lot of sense. When the multinational giants are influential, labours are so powerless when facing these giants, so they have to face what their companies offer. Therefore, when the giants have the control over their employees’ wages, they can get more profits and cash from squeezing their employees for their shareholders, and we can see many of these tech companies have had massive share buyback schemes. It seems what the economists are arguing is happening at the moment.

However, massive companies can also fail. For example, Nokia used to be the largest mobile phone maker in the world. However, since the launch of the first iPhone model, Nokia has quickly declined and disappeared from the main stage of the new smartphone era. The fall of Nokia was caused by a rapid market shift led by technology innovation. As these tech giants all went through this period, they must be aware this potential risk. Technology innovation is made by people and these giants know about it; therefore, the labours with extreme skills and knowledge are always what the giants are competitions for. For these highly skilled labours, they have the control over their own wages.

Therefore, the dominance of multinational giants will widen the wealth gap between shareholders and ordinary people, between highly skilled labours and ordinary people.

Platform and its participants

Social media was never as popular as nowadays, billions of people are playing around on social media platforms, from Weibo, WeChat in China to Facebook, YouTube in Europe, the US and many other countries. People are publishing their own contents on these social media platforms and trying to make themselves famous (or even infamous) on social networks.

The individuals who have significant numbers of subscriptions, so-called influencers, are the main content contributors on YouTube that they get over 80% of a total 1.7bn views on YouTube; while the influencers also get over 50% of a total 966m views on Facebook. According to Google, the parent company of YouTube, the number of channels making more than $100000 a year has increased by 40% year on year. Meanwhile, because these "unauthoritative" contents could mislead the public opinion, some social media networks are forced to remove inappropriate contents and be more responsible for promoting correct information. Facebook, Apple and YouTube have removed Alex Jones' videos and podcasts, and YouTube plans to invest $25m to give more weight to "authoritative" news in order to curb fake news.

These social media platforms are making lots of money from these individual content providers, but meanwhile the credibility is being damaged by inappropriate contents that even Isis uses some social networks to publish its recruiting advertise. A balance needs to be drawn between popularity and appropriate contents.

Why are the most popular also the least popular?

Tesla is the most shorted US stock of the past decade in dollar terms, while Alibaba probably is the most shorted stock in the history of the stock market. The biggest US shorts are surprisingly all large and popular companies. According to Markit, the top ten shorted US companies are Tesla ($13bn), Apple (over $8bn), Amazon (over $7bn), Netflix (over $5bn), Microsoft (around $5bn), Facebook (around $5bn), Microchip Technology (just under $5bn), Intel (over $4bn), Visa (around $4bn) and Walt Disney (over $3bn). Besides Apple, the first trillion-dollar stock, Faangs are all listed in this top-ten list, except Google; Visa has been a popular stock for many investors including institutional investors. It seems that the most popular stocks are also the least popular stocks in the market. Why does this happen? There are several explanations for this.

Firstly, these famous companies generally have very high market values, so a small proportion of the shares can be valued higher than a similar proportion of a cheaper stock. Secondly, the attention affect does not attract the short side, but also attract the short side. Thirdly, since these popular stocks are generally evaluated biased towards the positive side, the valuations of the stocks are more likely to be biased towards the upper boundary of the valuations. This creates an opportunity for the short side, as the potential gains are greater than the potential losses. Fourthly, people tend to believe after a peak, a company will decline. These companies are very massive, leading to people believe they are at their peak; therefore, some investors think their growth story has ended and they are more likely to enter a decline period (like General Motor), thus shorting these massive companies.

To conclude, we should not be surprised to see that the most popular stocks are also the least popular ones.

Which sector is attacked but benefitted by Trump?

Trump has caught a lot of media attention, it is even fair to say that Trump has caught the most media attention among all US presidents. Of course, Trump attracts so much media attention because of his scandals and unexpected actions; however, the current media influence is at the peak of our history. There are so many channels for media to spread their influence. Most publishers have their Facebook, Twitter, LinkedIn accounts to publish their contents. And because there are so many channels, people are confused about the contents they receive and easier to be misled by the false information.

Trump's success is built upon the current media environment, meanwhile the media is also benefited from Trump. Trump has created so many hot topics which are abnormal and worth talking.  There are many late night shows talking about Trump and most of them have very good ratings. One skill that the late night show hosts have to have is to imitate Trump's speeches.

It is almost win-win situation for Trump, if Trump merely wants to stay at the center of the media attention and the media gains very good attention because of their talking about Trump.

Go public or private?

Many companies are seeking for IPO opportunities while Tesla's founder, Elon Musk, wants to take Tesla private. The owners of companies can get a lot richer if their companies become publicly listed. Lei Jun, the founder of Xiaomi, became the 87th richest in the world after Xiaomi's IPO. There have been questions surrounding if a company should go public or private. When a company is private, its ownership and management are generally concentrated, it is easier to manage the company. While if a company is publicly listed, it has to publish its earnings every quarter, and any major event has to be made public and even require its board to have a vote, which can take quite long, so the efficiency of management is relatively poor than the efficiency of management if the company is private. In addition, because a public company's performance is evaluated every quarter, this forces the company to take actions to generate short term performance boosts. Of course, the investment made for long term purposes could be understood by shareholders; however, many of the shareholders only want to squeeze companies' profits as well as cash flows out of the companies to put inside their own wallets as soon as possible; therefore, in general, it is not easy for public companies concentrate at generating long term growth.

Being publicly listed means financing is a lot easier. Once a company is publicly listed, it is easier for the company to borrow from banks while the company can finance itself from the equity market. If a company can have an easy access to funding, it is easier for a company to operate smoothly in order to generate sustainable profits and growth. Of course, a successful private company can also get sufficient funding to help itself to grow; however, when a private company and a public company are at similar levels, the public company definitely can get more funding than the private company.

There is not a clear judgment to say whether one is better than the other; however, for a starting company or a fast-growing company, being publicly listed might not be a good idea, though it can help the company to get an incredibly large amount of funding in a very short period, since such company should focus more on long term growth rather than short term earning boosts.

Is Tesla going private?

The founder of Telsa, Elon Musk, created an outcry in the stock market by his tweets on Tuesday. His tweet, "Am considering taking Tesla private at $420. Funding secured", pushed the stock up by over 10%, though the stock price did not reach $420 due to the existing of uncertainty. Some stock commenters argue that if Tesla does not go private eventually, the short side is likely to sue Elon Musk for manipulating the market; even if Tesla goes private later, some people point out that if the funding is not secured at the moment, Elon Musk could be accused of spreading fake information to manipulate the stock. Because of the legal problems, if Elon Musk is aware the legal issue his tweets could cause, the information from his tweets should be true. Moreover, the Saudi Arabian fund is just found to increase its stake in Tesla, it might be a source of funding for the privatization.

Then we need to ask if Elon Musk has the incentive to take Tesla private. Elon Musk has the control over the board, since his brother is the director sitting in the boardroom. Elon Musk is not getting well with the Wall Street, as last time, he rudely interrupted the Wall Street analysts' questions during the earnings call. He seems that he has been bored of answering the Wall Street analysts' questions and wants to take 100% control of the company without the influence of the financial institutions. Therefore, Elon Musk has a plenty of incentives to take Tesla private, and he has asked for it for years.

To conclude, the probability of Tesla going private is high.

Gender discrimination

A Japanese medical school, Tokyo Medical University, is found to rig its entrance exams to discriminate against women for more than a decade, as the university seems to hold the belief that giving the education resources to women is a waste of resources due to the low participation of women in the labour force. Japan has a culture that has a serious issue of gender discrimination. It is stuck at 114 out of 144 countries on the World Economic Forum's rankings of gender inequality and the female participation rate in the labour force is significantly low, despite the current Prime Minister Abe is progressing his program of "womenomics" targeting increase female participation in the labour market.

If the environment is constant, then it is unfair to say Tokyo Medical University is wrong because if it is certain that the majority of women is not going to the labour force, the medical school should give more resources to those who are more likely to go to the labour market. However, the environment is not given, it is created by everyone in the community. If everyone takes the environment as given, then the environment is constant and cannot be changed. However, if people in the community are trying to do anything to improve the general environment, then the environment is changeable. Therefore, standing at the social responsibility point of view, the act of Tokyo Medical University is not socially desirable and does not hold social responsibility.

From Tokyo Medical University's rigging entrance exams to discriminate against women, we can see that the gender inequality in the Japanese community is very serious and has made people feel hopeless, some people already give up their efforts to improve the gender equality in the community.

Price competition

The launch of the first zero-fee fund by Fidelity can be a trigger to start a widespread price competition in the fund market. Usually, a price competition is started by one player in the market starting to lower its price; such move can force everyone else in the market into a price competition. Price competition can be brutal and crazy that suppliers squeeze their profits in the hope of winning larger market shares and earning much greater profits in the future, and sometimes suppliers may even sell at the prices below the costs, which is known as "dumping".

If every supplier has the same capacity of production, then a price competition makes no sense because everyone is only able to lower its price up to the same level and the only result a price competition gets is everyone gets zero profit. However, if suppliers have different capacities of production, then the story changes. The suppliers who can produce their products more efficiently will win the price competition. In addition,  if there is a supplier that can produce the product at the lowest cost in the market and also is capable to produce the product for the entire market, this supplier can win the entire market through a price competition.

Cost of production can change over time. If all suppliers expect that their costs of production will decline in the future, then they have no fear of lowering prices below their costs of production. Furthermore, those who hold more confidence are likely to be more aggressive in the price competition, and the risk for them is also going to be higher.

As we can see a price competition is only beneficial for the companies with efficiency advantages, a price competition is likely to only occur when there is a clear efficiency gap within an industry.

A forecast of the near future American stock market

Apple has become the first trillion-dollar company while Facebook suffered the biggest single day loss in the US stock market last week. People are talking about Maga instead of Faangs, showing investors are making different expectations about these tech giants. Moreover, since the market seems to have biased interested in these tech stocks. While Facebook’s and Netflix’s share prices fell significantly, people were crying if the tech stocks were back to the earth. After seeing Apple’s trillion-dollar market value, I think that we can come to a conclusion that these tech stocks are still above other stocks.

In addition, as the market focuses their attention on tech stocks. The stocks with more market attentions will increase much more significantly than other stocks, widening market value gap. Furthermore, the uncertainty caused by the trade tension at the moment make the attention effect more significant, as investors are seeking the stocks which are less affected by the trade tension.

The US stock market is enjoying the Trump’s administration’s tax cut and the government is thinking about giving more tax cuts to people who hold stocks. The tax cuts will make stock investment more attractive.

To conclude, in the near future, Maga share prices are highly likely to increase at significant rates.

The price competition in the financial sector

Today Apple became the first trillion-dollar company and won the race against other MAGA companies. While the market is celebrating this event, asset management firms seem to be forced into a price competition, as Fidelity launched the first zero-cost index funds in the US on Wednesday. The share prices across the asset management industry fell today in the response to Fidelity's move.

The zero-fee funds are index funds; since they are passive funds, their management costs are relatively low, this makes zero-fee funds possible. Of course, other asset management companies can also launch zero-fee funds and maintain their current market shares. However, this will significantly lower the companies' profitability. Therefore, for the asset management industry, they have two options, either they enter the price competition and launch zero-fee funds, or they leave the passive fund market and gain their profits from the active fund market.

Whatever asset companies choose, the competition in the fund market will increase inevitably. When the companies choose to stay in the passive fund market, the competition is obvious that they have to launch zero-fee funds. If some decide to leave the passive fund market and focus on the active fund market, they have to outperform the passive fund market (which is difficult at the moment as many active funds are underperforming passive); moreover, the number of active funds will increase, more efforts are made in the active fund market. This will force active funds to perform better and lower their management fees.

To conclude, Fidelity's launch of zero-fee funds will lower the fees of all funds in the industry, including both passive funds and active funds. This is highly likely to affect the wage level in the asset management industry, as the companies are facing lower incomes from fees.

The changeful market

After Apple reported a strong quarter report, the share price climbed to $201.32 per share. The market stops talking about Faangs (Facebook, Amazon, Apple, Netflix and Google) and starts talking Maga (Microsoft, Apple, Google and Amazon), since these four companies have delivered strong earnings reports this quarter while Facebook and Netflix show slowing growth. Though I do not think that the entire market will shift their attention completely in such short period, it shows how changeful the market can be.

Because of the attention effect, once a stock is losing its attention, the stock price will fall significantly, as investors change their attentions to other stocks, they will switch the stock to other more popular stocks. Meanwhile, those which gain more market attention will increase in their share prices. In addition, as we can see that the number of the core stocks decreases from five to four, this means fewer companies are gaining more attention, this could lead to a concentration of market attention as well as market capitals. This will make larger stocks becoming larger and smaller stocks becoming smaller, leading to widening the market value gap.

Because of the concentration of market attention and capital, I think that we are not far from seeing companies which are worth trillions of dollars, and even trillionaires, as rich people's wealth is closely related to stock performance.