Small Cap Stocks Will Outperform In a Trump Administration

Small cap stocks are the place to be in a Trump Administration. Trump’s economic policies will negatively impact large multinational corporations like Apple. Small cap stocks are all about domestic companies.

Small cap stocks generate most of their profits inside the US, exactly where Trump’s economic agenda is targeting.

Since Election Day, small cap stocks on the Russell 2000 Index have surged 12.3%, far better than the 3.05% gain for the large-company S&P 500 stock index, and the 3.6% gain for the Nasdaq.


A massive amount of money is moving into small caps. The Russell 2000 has closed up for 14 days straight since Trump won the election.


Verizon Gets Approval For XO Communications and 5G Deployment

Can I Just Say It, Autonomous Driving Is Stupid To Average Consumers

Autonomous driving is dumb. In my surveys of asking family members and friends, there’s a whole ZERO percent interest in autonomous self-driving cars.

Most Americans don’t even want a chip on a credit card let alone a car that drives itself.

Technology companies think they are smarter than consumers. Tech companies believe that once they wow us with the reality of self-driving cars, we’re all just going to go out and buy one like a bunch of sheep, sheep led to the slaughter like this guy.

Josh Brown, a Navy Seal who served on Seal Team 6 (the unit that killed Osama Bin Laden), died from autonomous driving technology.

The big news last week was that Intel announced that it would be joining the push to create fully autonomous vehicles, investing over $250 million in the next two years to facilitate this development.

Tech gone wrong is tech that develops without much concern for producing what the public wants. Reality check: the average person doesn’t care about autonomous driving and believes it’s downright dangerous.


How are autonomous cars going to respond to an ambulance racing through an intersection? What about an electrical component on a circuit board in the autonomous driving car going out? Are you going to have about 2 seconds to grab the wheel to take control before a crash occurs?

Capitalism sometimes gets out of whack where you have greedy geniuses running around trying to force the public on a ‘fantastic’ new technology. Remember the tech wearables market that was supposed to explode higher? The only thing it did was implode. Intel is laying off a major portion of its wearables group.

Technology bloggers like to write about new technologies like autonomous driving cars. Mainstream media groups like to report on autonomous driving cars because it’s something interesting that people like to read about in horror and fascination. But where the rubber meets the road is what consumers want. In all the self-driving car hype, I see little evidence that consumers are willing to spend thousands of more dollars on a self-driving car.


I see billions of dollars being spent on autonomous driving technology and I see tepid consumer interest at best. That’s a dangerous combination for investors, and I think we could see the autonomous driving car fad die out after tech companies finally realize that most of the public doesn’t trust or want self-driving cars.

Biotechnology Won Big On Election Night Here’s Why

Hillary Clinton and Democrats promised to wage war on pharmaceutical companies and do things like price controls on drugs and products of the biotechnology industry.

In California, there was a ballot measure to impose price controls on the sale of pharmaceutical drugs in the state.

Both Hillary Clinton’s probability of winning, and California’s ballot measure to impose price controls on the sale of drugs, weighed on pharmaceutical and biotechnology stocks leading up to the election.

Donald Trump did not promise a war on pharma. Trump promised increased funding for research and development and modernizing the FDA to ease the development, commercialization, and costs of bringing life-saving drugs to market.

Donald Trump won, and biotech stocks have been rallying ever since.


Democrats created shortages in the health care industry with ObamaCare, and they almost created the same shortages in pharmaceutical drugs. Let’s look at why price controls create market shortages.

Price Control

A price control (or a price ceiling) occurs when the government puts a legal limit on how high the price of a product can be. For a price control to be effective, it must be set below the natural market equilibrium.

Using a hypothetical perfectly competitive market called pharmaceutical drugs, let’s examine the microeconomics of price control.


When a price control or price ceiling is set, a shortage occurs. The red horizontal line markets the price ceiling that is set by the government.


The price control forces the price down from P to P2. At the lower price, more people can afford the drug and so the quantity of the drug demanded goes up from Q to Q2 (point A).


The suppliers of the drug (pharmaceutical company) immediately cut back on supply (point B) as they are now paid below what the equilibrium market price established. Instead, these suppliers focus on supplying most of their drugs to other consumers, perhaps in other states that pay the full market price for the drugs they make. A shortage is created by the difference in the quantities of drugs demanded, versus the quantities of drugs supplied as illustrated by the shaded area. Shortages within the pharmaceutical industry would likely result in deaths, depending on the drugs needed.


The government set a price ceiling of P2 and so quantity supplied contracted to point B. However, at that supply level, consumers would be willing to pay a price of P3. Since P3 is greater than P2, deadweight loss occurs. The deadweight loss is the elimination of trading between both suppliers and consumers.

Price controls are a bad idea. If the government sets a price ceiling, there will be a shortage.

Microeconomics of the Monopoly

Donald Trump said he would block the AT&T and Time Warner merger if he becomes president, arguing that such media combinations leave too much power concentrated among too few companies. What Trump is describing is monopolistic behavior. As Bloomberg writes

Trump also suggested he would favor a breakup of NBC and Comcast Corp., a merger completed in 2013. Such deals, he said, are “poison” to democracy and result in companies “telling the voters what to think and what to do.”

The problem of monopolies is growing beyond just the media industry.

Technology giants are continuing to gobble up the competition. As Bloomberg reports

30.3 percent of the market capitalization of the Nasdaq is now accounted for by just five companies — Apple Inc., Alphabet Inc. (Google’s parent), Microsoft Corp., Inc. and Facebook Inc.

Let’s examine what a monopoly is from a microeconomics perspective using a hypothetical Lemonade market.


Here’s the market for Lemonade in a perfectly competitive equilibrium at a price of Pe and the quantity of Qe. Now, because there are numerous buyers and sellers in this perfectly competitive industry, what do you suppose will happen if any one firm tries to raise its price above Pe?


In a perfectly competitive market, any Lemonade vendor that attempts to raise his price above the equilibrium established by supply and demand would see his quantity demanded quickly fall to zero. Such a vendor would rapidly lose market share as his customers would go to the cheaper priced competition.


The consumer surplus is the triangle C, and the producer surplus is the triangle E. Consumer surplus measures the difference between what consumers would have been willing to pay and what they actually pay. The producer surplus is the difference between the price at which producers would have been willing to supply a good and the price they actually receive.

Now suppose a monopolist corners the Lemonade market and raises the price to Pm. In this case, quantity falls to Qm.


Consumers have to pay more for less quantity, and the rectangle B is transferred to the monopolist. That means consumers are poorer and the monopolist is richer.

What portions of consumer and producer surplus represent the loss of allocative efficiency from monopoly pricing?


The efficiency loss on the consumer side comes from the consumption of lemonade that is forgone under monopoly pricing. The loss of efficiency on the producer’s side comes about by a reduction in output and an undersupply. The loss of consumer surplus is measured by the triangle C while the loss of producer surplus is measured by the triangle E. Together, the triangles C and E measure the loss in allocative efficiency from the monopoly pricing. The loss in allocative efficiency from the monopoly pricing is called the deadweight loss.


A monopoly exists when there is only one seller in the market selling a product for which there are no close substitutes.

In such a case, the monopolist is not a price taker as was our perfectly competitive Lemonade firm. Instead, it is a price maker which means that it exerts considerable control over what the market price will be. The monopolist has this power because it controls quantity supplied in the market.

The market structures of most industries in the US fall somewhere in between a monopoly and pure competition as illustrated below.


From this example, you can see why relatively free, democratic governments do not like monopolies. Monopolies not only transfer income from the many to the few, monopolies also create an efficiency loss in the process.

Through microeconomics and supply and demand graphs, we have proven that a perfectly competitive market yields the most efficient use and allocation of resources, as embodied in productive and allocative efficiency. For further reading, I did another lesson on monopolies here.

Trump Administration and Tariffs Versus Quotas

Protectionist policies in the form of tariffs and quotas are coming from a Trump Administration. It seems appropriate then that we examine tariffs and quotas from a macroeconomics perspective.

The two most common ways of restricting trade are with tariffs and quotas. From a political point of view and to prevent a trade war, a Trump Administration should consider the use of quotas over tariffs in some cases.
Continue reading “Trump Administration and Tariffs Versus Quotas”

Sofi AI Market Sentiment Gauge

Sofi AI Market Sentiment Gauge

Market is neither overbought or oversold.