Whoosh! Bang! Flash! Fizz! Whistle!
U.S. stock markets delivered their own version of fireworks to celebrate the New Year. During the first week of 2018, the Dow Jones Industrial Average hit a new all-time high, moving above 25,000 for the first time ever. The NASDAQ Composite and Standard & Poor’s 500 Indices also rose to new highs.
2018 is off to an impressive start, but let’s pause for a moment and take a look back at 2017. It was a memorable year for global markets, but there are other reasons it was interesting, too. Here are the highlights of a few of The Economist’s most popular articles during the year:
There is a theme that appears to run through many of these articles. They explore new ways of doing things, such as cooling buildings and transporting people. The articles discuss the growing value of consumer data, which many people provide to companies for free, as well as technologies that may allow people to protect and monetize their data in the future (blockchain).
These new developments may be part of a process called creative destruction, which is a process of innovation that includes the introduction of new products and services that may eclipse existing ones. You don’t have to look far to find examples. Just think about the evolution of movie rentals, photography, or phones during the past couple decades.
Creative destruction was introduced in 1942 in Joseph Schumpeter’s book, Capitalism, Socialism and Democracy. He believed it was the essential fact about capitalism. More recently, MIT Professor Ricardo Caballero wrote, “Over the long run, the process of creative destruction accounts for over 50 percent of productivity growth.”
It seems, as Schumpeter suggested, we live in a gale of creative destruction.
Cryptocurrency may be expensive in unexpected ways. If you’re like many investors, you have probably spent some time thinking about the latest innovation in money: cryptocurrency. Cryptocurrencies, or digital tokens, are ‘mined’ using computer networks to solve complex puzzles. The Economist provided an example:
“A huge aircraft hangar in Boden, in northern Sweden, big enough to hold a dozen helicopters, is now packed with computers – 45,000 of them, each with a whirring fan to stop it overheating. The machines work ceaselessly, trying to solve fiendishly difficult mathematical puzzles. The solutions are, in themselves, unimportant. Yet by solving the puzzles, the computers earn their owners a reward in bitcoin, a digital ‘crypto-currency.’”
A hangar of computers is a lot of overhead expense, and it’s not all that’s needed to mine digital tokens, either. Experts in the field told The Washington Post mining a popular cryptocurrency, “…probably uses as much as 1 to 4 gigawatts, or billion watts, of electricity, roughly the output of one to three nuclear reactors.”
Weekly Focus – Think About It
“I offered a definition of bubble that I thought represents the term’s best use: A situation in which news of price increases spurs investor enthusiasm which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increase and bringing in a larger and larger class of investors, who, despite doubts about the real value of the investment, are drawn to it partly through envy of others’ successes and partly through a gambler’s excitement.”
–Robert Shiller, American Nobel Laureate and Professor of Economics
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https://www.barrons.com/articles/dow-25-000-how-high-can-it-go-1515213968 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-08-18_Barrons-Dow_25000-How_High_Can_It_Go-Footnote_1.pdf)
https://www.economist.com/news/top-ten-articles-2017 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-08-18_TheEconomist-The_Economists_Ten_Most_Popular_Articles_of_2017-Footnote_2.pdf)
https://www.economist.com/news/business/21722869-anti-establishment-technology-faces-ironic-turn-fortune-governments-may-be-big-backers (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-08-18_TheEconomist-Governments_May_Be_Big_Backers_of_the_Blockchain-Footnote_3.pdf)
https://www.economist.com/news/science-and-technology/21716599-film-worth-watching-how-keep-cool-without-costing-earth (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-08-18_TheEconomist-How_to_Keep_Cool_Without_Costing_the_Earth-Footnote_4.pdf)
https://books.google.com/books?id=ytrqJswoRCoC&printsec=frontcover&dq=schumpeter+creative+destruction&hl=en&sa=X&ved=0ahUKEwjI3vzTj8TYAhXn34MKHflSA6MQ6AEINjAD#v=onepage&q=essential%20fact&f=false (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-08-18_Schumpeter-Excerpt_from_Capitalism_Socialism_and_Democracy-Footnote_6.pdf)
https://books.google.com/books?id=ytrqJswoRCoC&printsec=frontcover&dq=schumpeter+creative+destruction&hl=en&sa=X&ved=0ahUKEwjI3vzTj8TYAhXn34MKHflSA6MQ6AEINjAD#v=onepage&q=gale&f=false (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-08-18_Schumpeter-Excerpt_from_Capitalism_Socialism_and_Democracy-Footnote_8.pdf)
https://www.economist.com/news/business/21638124-minting-digital-currency-has-become-big-ruthlessly-competitive-business-magic (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-08-18_TheEconomist-The_Magic_of_Mining-Footnote_9.pdf)
https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2013/shiller-lecture.pdf (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-08-18_RobertShiller-Speculative_Asset_Prices-Footnote_11.pdf)
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