Bespoke Macro Strategist George Pearkes appeared on Bloomberg’s What Did You Miss on Tuesday evening to discuss where the global economy stands to start 2018.  To view the segment, click on the image below.

Bitcoin has seen some impressive growth in the latter half of 2017, but all that growth hasn’t been without growing pains. Due to the nature of blockchain tech, the network that underlies bitcoin will never handle transactions with the rapidity of a centralized authority like Visa. Currently the bitcoin network can only handle about 4 transactions per second at maximum capacity, which is unacceptably slow if it’s ever to be used as a global payment system.

Bitcoin Cash, a fork of bitcoin, attempted to solve this issue by increasing the maximum block size, but doing so is akin to putting out a fire by throwing larger logs on it. The competition to get transactions processed has led to the creation of an artificial “fee market”, where those who can pay higher premiums on their transactions are able to get them processed faster. The average bitcoin transaction fee is now over $40, painfully high for anyone who actually wants to use bitcoin to buy things. For a permanent solution, second layer “off-chain” solutions are required. Enter the Lightning Network.

If the Lightning Network launches successfully, it could transform bitcoin from digital gold into useful currency, enabling cross-border payments to happen in record time. The Lightning Network works by enabling the creation of bi-directional payment “channels” between two parties. The channel functions as an off-chain agreement between the parties on the state of their respective balances. To update the state of the balance, both parties must sign and time-stamp a new transaction. At any time, the state of the channel can be broadcast to the network by either party, which cements the balances permanently in the blockchain.

However, broadcasting to the blockchain only needs to be done in the case of a disagreement, where the blockchain effectively functions as a courtroom. Each party may submit their “evidence” (signed transactions), and the evidence with the most recent timestamp wins. With this setup, a network of channels can be created that allow any two people connected by the network to transact, and only take their transactions to the blockchain in case of a disagreement. For those interested in the nitty-gritty, the lightning network whitepaper can be found here.

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After a record run of weeks where bullish sentiment was below 50%, we have now seen two straight weeks where bullish sentiment has come in above 50%.  According to the weekly sentiment survey from AAII, bullish sentiment came in at 52.65% this week, and although it only represented a slight increase from last week, it is the highest weekly reading we have seen since November 2014!

As bullish sentiment has surged, bearish sentiment plummeted to 20.63% from 25.62%, which is the lowest weekly reading since November 2015.  The tide in sentiment has really started to turn!

Jobless claims came in higher than expected for the second straight week by staying unchanged from last week’s reading at 245K.  Economists had been expecting a drop to 240K.  Even if the print was higher than expected, claims notched their 147th straight week below 300K, which is impressive to say the least.  If claims stay below 300K for another 15 weeks, this current streak will go down as the longest ever.

While the four-week moving average got close to making a new low two weeks ago, the last two weekly prints have put that low out of reach for now.  As shown below, the average weekly reading over the last four weeks has been 237.75K, which is 6.5K above the cycle low of 231.25K from eight weeks ago.

On a non-seasonally adjusted (NSA) basis, jobless claims remained incredibly low.  This week’s reading of 321.9K was the lowest for the current week of the year since 1969 and more than 125K below the average of 450.2K for the current week of the year dating back to 2000.

The chart below is from our 2018 annual outlook report.  The full report is available now with any membership level using our Annual Outlook Sign-Up Special.

The set of charts below highlights the performance of the S&P 500 throughout 2017.  In the top chart, we break down performance by month.  The price line is green if the S&P posted gains during the month, and the line is red if the S&P posted a decline.  As you can see, the index was up in price in 2017 in every month except March, and in March it only fell 0.04%.  Talk about a consistently positive year!

The second chart in the set shows the daily change of the S&P 500 throughout the year.  While there were certainly more up days than down days, the thing that stands out most is that the index didn’t see a gain or decline of more than 2% on any trading day in 2017.

The final chart in our set highlights the S&P 500’s average percentage change by weekday through 2017.  As shown, every trading day of the week averaged a gain except for Thursday, which saw an average decline of 0.05% throughout the year.