By William Davis


Quick cryptocurrency quiz. Virtually circle a correct answer. Only one, or maybe four, choices can be right. Mark your answer to eight decimal places.

Bitcoin is:

  1. A currency
  2. An equity
  3. A social network
  4. Internet gold
  5. A way to get fired

The definitive answer is we have no idea if any, or all, of these are correct. From where we sit, Bitcoin is a mysterious payment system nobody understands, created by a mysterious entity nobody has ever seen, and mysteriously managed by, well, nobody. Sounds like a terrific idea. At least until it doesn’t.

“This is the greatest technology since the Internet. This is a sociological transformation, it’s a movement.’’ Tim Draper, venture capital investor

Mystifyingly enough, evidence is mounting that Wall Street is warming to the digital token thing. For reasons lost totally on folks like Warren Buffet, the great Goldman Sachs said it’s considering setting up a trading operation for digital currencies. And exchange operator CME Group announced plans for a Bitcoin futures contract.

“Bitcoin is the very definition of a bubble.” Tidjane Thiam, Credit Suisse Group AG Chief Executive

And volatile Bitcoin price are. Six years ago, a token was valued at $2. Three years ago, it was $300. Last week, the bewildering digital currency – following a nonsensical gain of more than 600% just this year – topped $7,000 for the first time. By way of confusing comparison, Bitcoin over the past 15 months has surged almost eight times as much as the tech-heavy NASDAQ did in the final 15 months of the tech bubble.

“It’s worse than tulip bulbs, it won’t end well. Someone is going to get killed.” Jamie Dimon, JPMorgan Chase CEO

The argument goes that Bitcoin is an elegant and modern replacement for the entire concept of money, and that its value comes from the way it simplifies the exchange of goods and services. Maybe it is. But while we contemplate that incredibility, “entrepreneurs” around the word are flooding the market with Bitcoin copycats – more than 1,270 digital coins or tokens are now available, with a total value of a couple gazillion dollars.

The Dutch were wild about the tulip plant when the Ottoman Empire introduced it to the Continent almost 400 years ago. At least until they weren’t.

What the equity markets have been doing…

Following a relentless eight-week march higher, equities finally took a breather this period. Stocks of the small-cap variety, which tend to benefit most from faster U.S. growth, seemed to show the most weariness. Among the sectors, Financials underperformed amid diminishing hope for tax cuts, while Consumer Staples benefited from investors’ growing defensiveness and Energy stocks profited from rising oil prices.

With little activity to follow on the economic calendar, traders looked to less quantitative happenings like tax reform for direction. On the whole, they found little to like. As prospects for any real congressional action on taxes continued to diminish, so, too, did any real enthusiasm for the markets. Large-cap indexes took a good hit on Thursday following the Senate’s attempt to draft a plan, and never really regained momentum.


INDEX Friday’s Close One-Week Point Change Year-to-Date Change
DJIA 23,422.21 +93.58 +18.52%
S&P 500 2,582.30 +7.09 +15.34%
NASDAQ 6,750.94 +121.89 +25.41%


What the fixed income markets have been doing…

The scarcity of economic data left most fixed income investments largely unchanged for the period. Treasuries and investment-grade corporates went sideways despite good demand, while municipals acted only a little better amid the talk of tax changes. Many of the House proposals, not least of which eliminating the deductibility of revenue bonds, would substantially narrow the playing field for muni investors. Action was a little more interesting in the high yield market, where a number of sectors were a drag on the performance.

FIXED INCOME Period YTD 12 Months Yield
U.S. Treasuries
2.0% 0.8% 2.4%
U.S. Investment Grade 0.1% 5.0% 4.5% 3.3%
U.S. High Yield 0.5% 6.6% 9.1% 5.8%
U.S. Municipals NC 5.3% 3.4% 2.2%
Non-U.S. Developed NC 8.1% 2.9% 0.8%


What the numbers are saying…

  • 20%

Snap’s maximum share-price decline after the Snapchat parent said its quarterly loss more than tripled and revenue fell short of forecasts

What the pundits have been saying…

“People who say this market has gone on too far forget that the NASDAQ went nowhere for 17 years.”

  • Joseph Fahmy, Managing Director at Zor Capital, LLC

 What people have been saying…

““We know what we need to do, and it’s showtime.”

  • John Flannery, CEO, General Electric, on cutting the company’s dividend for only the second time since 1938 and divesting the remainder of the lighting business created by Thomas Edison

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