As usual, I watch a lot of headlines – from a number of different sources. I’ll admit I don’t always read all of every article — in most cases a glance at headlines often gives a pretty good idea of the content. This is certainly true when scanning the news to learn the latest thinking of economists, a number of whom seem to be easily surprised.

I note that the number of people filing unemployment benefits last week came in ‘unexpectedly’ low. Expected claims were 240,000. And, actual claims came in at 236,000.  Better than expected? Well, I guess that’s good. But, who was doing the guesswork on setting the expectations? Can’t help but think we have been fed an over-supply of expectations of under-performance.

Now, 240 vs 236 is not a ‘yuuuge’ difference, but it is just another of many examples I have seen recently of either poor economist’s expectations, or something else. One statistic is never a big deal — unless it is part of a pattern.

ADP reported that payrolls ‘unexpectedly’ climbed 190,000 (November) vs. the 185,000 predicted by analysts. More people with jobs… Consumer confidence ‘unexpectedly’ hit a 17-year high in November. Markets react positively. Labor costs ‘unexpectedly’ fell in the third quarter (as productivity surged: falling cost of labor does not mean workers’ pay went down, it just means they made more stuff in the same number of hours. So, the unit cost of the stuff they made went down.)

Retail sales in October ‘unexpectedly’ rose vs. economists’ projections that had stated flat expectations.

There have been more, but this trend appears to have started almost immediately upon the election of the current president. Add to that – the Economic Optimism Index has been positive for 15 months straight. And now it appears that overall economic growth for this entire year could be – (drum roll please!) ‘unexpectedly’ HIGH! How can that be?

Economists have been continually underestimating the positive happenings in our economy. So, I ask you again, ‘Are these economists really lousy at their jobs, or are they perhaps ideologically biased?’ I note that we have now had 3 quarters of ‘unexpectedly’ high growth. Is it really unexpected, or are these people just expressing their editorial views? Are they just attempting to downplay the positive news going on in the US economy?

Market Minute 12/15/2017 –  Is Bitcoin the Next Digital Tulip?

 We have now had a number of people ask us about the Bitcoin craze. Is it the next big opportunity, or is it another example of another mania — ready to burst and leave many people holding the digital bag? 

 I’ve often recommended the book ‘Extraordinary Popular Delusions and the Madness of Crowds’ by Charles Mackay to friends and clients. Published in 1980, the book described a number of historical market manias. The most famous (remember that this was published in 1980) was the Tulip craze that happened in Holland in the 1600s.

 The newly introduced tulips were so popular that people went from investing in them, to investing in futures in tulips and ultimately to a point where the price of a single tulip bulb was bid up to ten times what a skilled craftsman earned in a year! Let that sink in.

 Some made incredible fortunes, and some lost their life savings. Seems hard to believe, but then we had the craze when prices for certain tech stocks went thru the same lifecycle (1990’s). And of course, there was the real estate ‘boom and bust’ cycle of the 2007-8 era, aka the financial bust that ushered in the Great Recession. 

 There is a lot of difference of opinion here, but this is what a bubble looks like to me.

Bitcoin and other cryptocurrencies will likely remain popular, but they are a very risky investment. They are popular, so we’ll likely see a lot of regulatory action going forward.  But humans are prone to getting caught up in a speculative investment craze about once every generation. (Remember the parabolic rise in the price of gold in the 1970’s?) I think we’ll continue to see wild price swings. Some may make fortunes but there will likely be many who will experience significant losses, as well. A word to the wise.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051

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