Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Amazon.com Inc. reported specific results for its cloud computing business for the first time Thursday and the results were spectacular – an almost 50-per-cent year-over-year gain in revenue.
There are few, if any, investment themes with more potential upside than cloud computing. There are significant risks – valuations for companies like Amazon, Salesforce.com and VMWare Inc. are prohibitive for most investors and overall corporate spending is declining at the moment– but simple logic suggests spending on cloud computing will explode.
To date, the sector has been held back by security concerns. But embarrassing security breaches at numerous companies including Sony Corp. and Target Corp. have shown that maintaining an internal network is no guarantee. Eventually, in my opinion, chief financial officers will realize that the mammoth cost savings available from the cloud are the only responsible path when there's marginal (or no) compromise in terms of security. Chief technology officers, of course, will fight this tooth and nail because the trend pretty much outsources their job.
"Amazon revenue beats, cloud computing more profitable than expected" – Reuters
"Cloud computing is the silver lining in Microsoft, Amazon's mixed earnings" – Report on Business
The frenzy in bond markets is starting to worry me a bit, although only a fool would stand in front of the runaway market train and predict imminent disaster. AT&T Inc. sold more than $17-billion (U.S.) in bonds yesterday almost immediately – the 30-year tranche was oversubscribed by a factor of five by noon Eastern time. Global bond investors are clearly desperate for any yield pickup in an environment where negatively yielding governments are par for the course.
Citigroup fixed-income analysts are clearly concerned about the state of the market and FT Alphaville's David Keohane helpfully cites one of their recent reports:
"More than yields, what matters is returns. Strong, stable returns – even year-to-date – have obfuscated the need for change.
But at some point, presumably, over the coming months, those returns will, at best, fade away, leaving only a puny amount of carry to drive performance going forward. That will have profound implications across € fixed income markets."
"AT&T Sells $17.5 Billion of Bonds in 3rd-Biggest Corporate Deal" – Bloomberg
"The end of days, or yield, or whatever" – Keohane, FT Alphaville
U.S. Companies Race to Issue Eurobonds – Institutional Investor
"Ontario's debt continues to climb, but investors will still buy it" – Report on Business
The Wealth of Common Sense blog posted a useful list of "Things People in the Finance Industry Don't Want You to Know." I would add an extra 10 items – most new issues will get cheaper in the three months following and never, ever, ever, do a private deal, for instance. The post's most trenchant points are "There's no such thing as 'smart money' " and "The bolder the pundit, the more people who listen to them."
"Things People in the Finance Industry Don't Want You to Know" – Wealth of Common Sense
The oil price has been strong recently but it's difficult to get excited about the sector outlook when the supply glut continues and contango abates. The Economist reports that fracking activity is still feverish:
"There is little sign of a bust in America's shale basins, where horizontal drilling and hydraulic fracturing (fracking) have led to a boom in oil and gas production in the past five years. Scott Nyquist of McKinsey, a consultancy, says the price drop has not caused the 'immediate distress' that was originally assumed. An analysis of 300 independent American oil and gas companies in the first quarter of this year showed that more than two-thirds had healthy balance sheets, with at least as much equity as debt."
"Unconventional but normal" – The Economist
Tweet of the Day: "@voxdotcom Who's the richest person in your state? bit.ly/1HsPb0Q http://t.co/s9WOxtXG1T"
Diversion: There's only one possible reaction to these photos – stupefied awe. "The Eruption of Chile's Calbuco Volcano" – The Atlantic
Scott Barlow