I try to apply cold logic to investing. Allowing emotions to rule investment decisions has deadly consequences.

However, if you saw me interact with my twin grandsons, you’d repeat Claude Rains’ famous line to Humphrey Bogart in Casablanca: “As I suspected, you’re a rank sentimentalist!”

I dote on those toddlers to a maudlin degree. I was shopping for bikes with training wheels for them the other day, when a metaphor hit me. By raising interest rates this year, the Federal Reserve is taking off the training wheels. As they pedal on their own, will the markets fall over? The bull market has depended on Fed support its entire life.

Bad news still has the power to ding investor confidence. The Labor Department reported Wednesday that jobless claims rose 3,000 to 250,000 in the last week of 2017. Economists had forecast claims of 240,000. Major indices closed Wednesday in the red.

Also weighing on markets was a report Wednesday that China, the world’s largest holder of U.S. Treasuries, was considering slowing purchases. The Middle Kingdom expressed concern about America’s debt. U.S. Treasury yields jumped to 10-month highs.

What do other trends say about 2018? The data so far in January have been positive.

Consider the Purchasing Managers’ Indices (PMI) for the manufacturing sector. This month, America’s PMI showed new orders at their highest level in nearly 14 years; China’s PMI came in healthier than expected; and the euro zone’s PMI posted its highest level since the survey began in 1997.

However, markets already have priced in this growth. Let’s look at the cyclically adjusted price-earnings ratio (CAPE) of the U.S. market. This valuation metric uses a 10-year average of profits. It’s more reliable than conventional P/E ratios. CAPE now stands at 32.4.

CAPE has been higher only twice before, in 1929 and 1999. (That got your attention.)

But for now, investors are savoring a stellar 2017. Global stocks not only rose last year, they did so steadily.

The VIX was calm in 2017. Eerily so. But political volatility was off the charts. The headlines remain disturbing. Shocks arrive daily.

President Trump is unpredictable (to put it kindly). The new book Fire and Fury parts the curtains on a chaotic White House.

North Korea continually threatens nuclear war. Kim Jong-un’s haircut may resemble Moe Howard’s, but the rogue regime’s leader is no comedian. In America, polarization worsens. Democrats despise Republicans, and vice versa.

But investors have shrugged at these risks. The $1.5 trillion tax cut seems to trump (pun intended) everything else.

Political turmoil could still torpedo the markets in 2018. But the biggest risk? Rising interest rates. This fear hit home on Wednesday.

The Federal Reserve is unwinding its $4.5 trillion balance sheet. The Fed has been steadily hiking rates; it plans three more increases in 2018. The European Central Bank has been following suit. Low rates and quantitative easing have fueled the markets since the financial crisis of 2008-2009.

Inflation has yet to reach the Fed’s target of 2%, but it’s inching closer. Tighter monetary policy this year could pave the way for a bear market. The markets will be forced to stay upright, on their own power. Without training wheels.

Kodak’s moment…

Which is not to say that “rocket stocks” are a thing of the past. The biggest stock story of the past two days has been Eastman Kodak (NYSE: KODK). The 130-year-old company has jumped onto the cryptocurrency bandwagon.

KODK shares hit the stratosphere, on news that the firm has launched a cryptocurrency called “KodakCoin.” Think of it as digital money for photographers.

The currency will be part of “KodakOne,” the company’s new image rights and royalties management platform. KodakOne was developed in a partnership with WENN Digital.

Global Blockchain Technologies (OTC: BLKCF) is the lead investor with a $2 million investment in KodakCoin.

KODK shares rose 119.35% on Tuesday and 56.62% on Wednesday.

KodakCoin is a registered Initial Coin Offering (ICO). New cryptocurrencies have been the purview of microcaps. Kodak is the first major NYSE-listed corporation to implement a cryptocurrency.

Kodak has subscribed for all 8 million KodakCoins that were available in the pre-ICO Stage I. The Stage II pre-ICO opened on Wednesday, to a rousing reception. The ICO will open January 31.

Eastman Kodak started in photography. It has evolved into digital imaging and printing. Is the frenzy over KodakCoin overwrought? Or is KodakCoin a credible effort by Kodak to reinvent itself?

Potential competitors abound. Notably, Apple (NSDQ: AAPL) may stomp into the space with its own blockchain technology for the iPhone. For now, though, KODK shareholders are a lot richer.

Wednesday Market Wrap

• DJIA: -0.07% or -16.67 points to close at 25,369.13
  
• S&P 500: -0.11% or -3.06 points to close at 2,748.23
  
• Nasdaq: -0.14% or -10.01 points to close at 7,153.57
  

Wednesday’s Biggest Gainers

• Eastman Kodak (NYSE: KODK) +56.62%

Imaging firm’s new cryptocurrency entrances investors.

• Vince Holding (NYSE: VNCE) +8.33%

Luxury retailer reports strong holiday sales.

• Cloudera (NYSE: CLDR) +6.31%

Cloud firm enjoys analyst upgrades.

Wednesday’s Biggest Decliners

• Supervalu (NYSE: SVU) -13.70%

Food retailer issues weak guidance.

• Biohaven Pharmaceutical Holding (NYSE: BHVN) -10.28%

Analysts express pessimism over the biotech’s prospects.

• Signet Jewelers (NYSE: SIG) -6.89%

Jewelry retailer reports poor holiday sales.

Letters to the Editor

The sun also rises…

“Is Japan finally off the ropes?” — Terence F.

In the years since Japan’s once fearsome economy peaked in 1989, the country has grappled with a host of problems, including wage growth that puts the country at a disadvantage compared to lower-cost competitors, a huge public debt, and a graying population.

We’ve come a long way from the zeitgeist of the 1980s. Remember when American workers feared they’d become indentured servants to the smarter Japanese? You don’t hear that glib narrative anymore.

But low and behold, “Abenomics” is actually working. Prime Minister Shinzō Abe’s policy of stimulus has breathed life into the long-suffering economy.

Japan’s economy has racked up several consecutive quarters of growth. Business investment, export orders, and consumer spending are all rising. The outlook remains solid. The Land of the Rising Sun is participating in the global economy’s “synchronized” growth. The world’s third-largest economy is back.

Got questions about the global economy? Drop me a line: mailbag@investingdaily.com

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.