Many of the overarching trends we’ve been focused on in recent quarters made headlines this week.
Here’s a quick look at the ones that caught our eye:
(1) Gasoline glut.
Crude oil hit a two-month low on Tuesday on concerns about the growing supply of oil and refined fuels. At $44.65 a barrel, US crude oil for August delivery hit the lowest level since May 9, the 7/19 WSJ
stated. The article noted: “Gasoline prices typically rise during the busy summer-driving season, but even strong demand from road trippers has failed to shrink bloated inventories of gasoline. Some market watchers warn that gasoline prices could plunge at the end of the summer when demand drops, pushing oil prices lower.”
Cheap gas and a decent economy have prompted Americans to hit the roads in droves this summer. The amount of gas used has returned to the elevated levels witnessed before the recession, and the number of vehicle miles traveled has hit a new peak.
But strong demand hasn’t been enough to absorb the gasoline being produced, which has returned to levels not seen since 2007 and 2008
While US crude production continues to fall from its June 5, 2015 peak, the rig count has started to increase again and imports of petroleum products have picked up. As long as global players keep pumping
and US frackers are ready, willing, and able to jump back into the market at the first sign of an increase in the price of oil, we expect to see oil stuck in a range around $40-$50 a barrel.
(2) High Cloud.
We’ve highlighted the amazing growth in the Cloud computing industry as companies look to reduce their technology expenditures. Amazon’s Cloud business has grown dramatically, and this week we learned that Microsoft continues to successfully build out its Cloud offerings as well.
Revenue from Azure, Microsoft’s corporate Cloud platform, doubled y/y in the June quarter, Bloomberg
reported on 7/19. CEO Satya Nadella “well into his third year at the helm, has been reorienting Microsoft’s business around cloud and productivity services to fuel growth as traditional software sales shrink,” the article stated. “Annualized revenue from commercial cloud products was more than $12.1 billion in the recent quarter, a number that Microsoft has pledged will reach $20 billion by fiscal 2018.” Shares traded up 4.2% on the news after the markets closed Tuesday.
(3) Blockchain spreading.
In the past, we’ve focused on how banks and brokers were exploring the use of Blockchain technology to track financial transactions. The 7/14 WSJ
noted that IBM now is launching a Blockchain Cloud platform for supply-chain applications in companies that handle high-value goods that can be highly regulated.
Everledger, a startup that aims to help companies track the provenance of diamonds worldwide, is testing the IBM Blockchain service. Bill Fearnley Jr., a research director at International Data Corp., told the WSJ that by creating a permanent record that can’t be altered, Blockchain is well-suited for tracking diamonds and other goods for which buyers want to know the origins and previous owners. “‘Valuable assets of any kind could be tracked better, with an unerasable history, on a blockchain,’ he said. … ‘Supply chain is the most likely application for the technology after financial services, said Jerry Cuomo, IBM’s vice president for blockchain.’”
(4) Below expectations.
Netflix shares lost 13.1% Tuesday after the company reported that US and overseas subscriptions slowed in Q2. “During the second quarter, Netflix added 160,000 subscribers in the U.S. and 1.52 million in international markets, below expectations of 500,000 in the U.S. and 2 million abroad,” the 7/18 WSJ
reported. The company blamed a price increase that it was phasing in. CEO Reed Hastings said in a conference call that he’s “confident” that the softness in subscriber growth in the June quarter wasn’t due to increased competition from the likes of Amazon’s Prime video service. We’re not quite so sure.
As we noted recently, Netflix, Amazon, and others are creating tons of new content to win over couch potatoes. At Netflix, streaming content obligations — which includes obligations related to the acquisition, licensing, and production of streaming content — jumped to $13.2 billion in Q2 from $10.1 billion last year. Even so, the company reported adjusted EPS of 7 cents, down from 10 cents a year ago, but above analysts’ expectations for a 2 cent per-share profit, the WSJ noted. We’ll keep watching.
(5) Gamers on the Go.
While we haven’t discussed augmented reality (AR) before, this tidbit seemed too interesting to wait for another day: GameStop CEO Paul Raines told CNBC
on Monday that sales were up 100% at the 462 GameStop stores that are Pokemon Go stops. Now, we have no idea how to play Pokemon Go, but if it can result in a surge in sales, the virtual reality game may be a marketer’s dream. Shareholders certainly seemed inspired. GameStop shares were up 7.9% over Monday and Tuesday, and Nintendo’s shares, which trade in Tokyo, gained 112.2% over the past month.
Bloomberg did a banner job of explaining how the virtual reality technology behind Pokemon Go could be harnessed by corporate America: “Using cameras and sensors, more sophisticated AR can project computer-generated graphics on a user’s field of vision, typically through specialized goggles or visors. It can also show what the user is seeing to remote collaborators, who in turn can manipulate what graphics are displayed,” the 7/18 article
So factory workers could wear headgear that displays safety alerts and instructions for machinery. Headsets could both identify needed repairs and explain how to make that repair. It’s easy to imagine how headsets could be equally useful in hospitals or on construction sights.
“AR’s power is to project the limitless data of cyberspace onto the physical world. That will give people more information about their environment, new ways to manipulate it and a promising new venue for collaboration,” Bloomberg notes. “As such gear improves, it should cut costs, increase accuracy, save time and make workplaces safer.”
Some companies have already begun exploring AR’s potential. Lockheed Martin has tested AR in assembling fighter jets and Microsoft’s AR system was sent to the International Space Station.
Looks like Pokemon Go is just the beginning. Ready, set, Go!
Dr. Ed Yardeni
is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.
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