Just last month, the Nasdaq was above 5,000 for the first time since the dot-com bubble burst – and yesterday, the index powered past that mark, hitting a record high. The boost was fuelled by earning reports from digital giants including Google, Microsoft and Amazon, and gives us another opportunity to contemplate the world of tech, from enormous valuations for startups (and a frothy market in Chinese tech), to the empire-building of some of the industry’s biggest, brightest and most ubiquitous.
In Canada, the TSX got an 80-point boost yesterday (pushed by broad-based gains in all 10 sectors), as the loonie rose half a cent, and oil pushed upwards: this morning, West Texas Intermediate is above $57. There will be more news out from Greece today, as the country’s leaders meet in Riga, Latvia, with their eurozone cohort. Will we get more clarity on Greece’s finances? Will we know the state of contingency plans for a “Grexit,” which is looking increasingly likely? We’ll wait and see – but when it comes to Greece, clarity is increasingly hard to see.
Meanwhile, there’s the mysterious death of a Bay Street fixture in Mongolia, a couple of high-profile cases of bad finance, and some really angry grape farmers. Ottawa’s budget balance will be out today, as Bank of Canada governor Poloz speaks in D.C., and in the states, we’ll see durable goods orders. Earnings today include Restaurant Brands International – which owns Tim Hortons and Burger King – as well as Xerox and Siemens.
Fifteen years after the bubble burst. A decade and a half after the dot-com bust, the Nasdaq hit a record high once again – after rising 20 per cent just since October. While indexes across the world have been hitting record highs lately, as global growth has largely slowed but governments have resorted to more monetary easing, the tech industry is a slightly different beast. It’s been fuelled by all those very basic, obvious changes in the way we live our lives, which have become so common place that (I, at least) forget that 15 years ago some of the biggest digital giants – Google, Facebook, Twitter – weren’t even around. Meanwhile companies that were around, like Apple – now a member of the Dow – have reached new heights. But there are still questions of whether another tech bubble is in the works, lest we forget the enormous valuations for companies as varied as Snapchat and Pinterest, many of whom are not making money, and have vague sources of long-term revenue. (Bloomberg has a great piece on the faces of the tech-boom then and now, from Pets.com, to Alibaba.)
There’s also another element, if we head further west than San Francisco: Chinese technology stocks. As Chinese markets have seen an incredible (and according to many, very unstable) rally, tech stocks are leading the way: with average valuations 220 times their earnings (compared to the dot-com height in the U.S. of 156.)
Google and Microsoft report their earnings. So what was driving the Nasdaq yesterday? Big-time earnings. On Wednesday, we saw Facebook earnings come in under expectations – building an empire ain’t cheap – and Google, too, came slightly under expectations. Nonetheless, the company’s revenue was actually up by 12 per cent (it was expected to be higher), and costs rose only 13 per cent – which isn’t bad when you’re rolling out, again, an empire. Latest projects have included a cheap wireless project called Project Fi, as well as pilot projects in high-speed Internet, and big investments in infrastructure for their own servers. The company said that despite lower ad pricing on YouTube, increased volumes would make up the costs. Meanwhile, Microsoft and Amazon both beat expectations – revenue was up six per cent at Microsoft, and net sales were up 15 per cent at Amazon. Microsoft credited an increase in sales of hardware and its cloud computing services for balancing out falling demand for PCs, and the cloud was the answer for Amazon, too. Sales of the company’s Amazon Web Services, a cloud-computing service, was up by more than half in the past year. All three companies, however, said the strong U.S. dollar had undercut their profitability, as the greenback has risen steadily against most major currencies this year.
Bad Finance. Want happens when finance – from the massive banks, to the independent trader – comes up against the law? If you love a good conflict, there are two for you to watch right now. First, Deutsche Bank has officially been slapped with a record fine of $2.5 billion for their part in the exchange-rate fixing drama known as the Libor scandal. That DB would pay a record fine has long been clear, although they are only one of seven banks that have been fined since revelations emerged that traders had been colluding to fix the “fix,” the daily window at which the crucial London interbank overnight rate is set. The fines were spread across U.K. and U.S. regulators, and were particularly large due to what the U.K.’s main authority says was the seriousness of the collusion, as well as apparent attempts by the bank during the investigation to mislead regulators. Meanwhile, if the debate over high-speed trading is your particular passion, the arrest of a U.K. trader over his alleged part in the 2010 “flash crash” – where markets fell sharply and bounced back within 20 minutes, losing a lot of people money in the process – feels like a scene right out of Michael Lewis’s Flash Boys. (A book that’s pretty much despised by people who run high-speed exchanges.) The trader, who operated out of his parents’ home in suburban west London, says he is not part of the high-speed trading world, which uses algorithms to trade. Instead, he says he is just quick-witted and “old school”: really, really fast with a mouse. One of the charges he faces is for “spoofing,” a practice of putting out lots and lots of orders, creating an appearance of demand, which are then cancelled before they can be processed.
A Bay Street death in Mongolia. The head of a Canadian mining company was found dead in Mongolia yesterday. Jim Doak was head of Khan Resources, a uranium exploration company, which had recently won an arbitration agreement against the Mongolian government over cancelled licenses and expropriated land. Khan had been awarded a $104-million award in arbitration, and was meeting with the government over the payment of that money. The Globe and Mail reported his death last night. Local officials have said there is no evidence of foul play. But the case will highlight the mining industry in Mongolia: the country’s famous Gobi desert is believed to have one of the largest untapped mineral reserves in the world, and Mongolia is a source of not just uranium but rare earth minerals, used to create the insides of our smartphones and tech gadgets. (The BBC has an interesting piece on inner Mongolia and rare earth minerals here.)
Give back our raisins! The U.S. government has a Strategic Raisin Reserve (no, actually, they do), and grape farmers are sick of it. Laws dating from the late 1930s and ’40s dictate rules for managing the supply of raisins and boosting prices (so much for the free market). In 2002-03, the government took almost half the grape crop and didn’t pay market costs, the next year, Mashable reports, they took 30 per cent of the crop and paid nothing. The issue at hand is whether grape farmers benefit enough from the artificially high raisin prices for the system to be worth it. (But as a consumer, you might want to up sticks and try paying for another dried fruit.)
Need to know:
TSX: 15,392.35 (+87.58), Thursday
Loonie: 82.33 (+0.55), Thursday
Oil (WTI): $57.65, Friday (4 a.m.)