D. Scott Peterson: The markets
U.S. stock markets delivered their own version of fireworks to celebrate the New Year. All indexes hit new all-time highs and shrugged any fear of a New Year hangover.
2018 is off to an impressive start, but let’s pause for a moment and take a look back at 2017. Here are the highlights of a few of The Economist’s most popular articles during the year:
The world’s most valuable resource is no longer oil, but data (May 6). One-half of the most valuable companies in the world are American technology firms. Some, including The Economist, are concerned about tech companies’ market power and dominance of consumer data.
Governments may be big backers of the blockchain (June 1). Blockchain may seem complicated and difficult to understand, but it may become a part of everyday life. “A blockchain expert at the Massachusetts Institute of Technology argues that governments will drive its adoption — an ironic twist for something that began as a libertarian counter model to centralized authority. Backers say it can be used for land registries, identity-management systems, health-care records, and even elections.”
The death of the internal combustion engine (Aug. 12). Rapidly changing battery technology and electric motors, in tandem with self-driving systems and ride sharing, may mark the beginning of the end for the internal combustion engine. It’s a change that is likely to disrupt markets and industries. The silver lining may prove to be less traffic and improved air quality.
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).
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.”
CRYPTOCURRENCY MAY BE EXPENSIVE IN UNEXPECTED WAYS.
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.”
D. Scott Peterson is CEO and head investment manager for Peterson Wealth Management. If you wish to contact him please call 775-673-1100 or visit PetersonWM.com.