While the past had seen the environmental activist as the primary driver of awareness and action toward socially conscious profit, society and investors are now demanding greater transparency and commitment to the social, economic, and environmental impact of sectors such as mining. The environmental, social, and governance (ESG) factors integrated into investment analysis and portfolio construction offer long-term performance advantages while offering funds and managers the opportunity to meet the new demands of their clients.

ESG portfolios are not just window dressing for investor pitches, but a serious and growing investment strategy. The idea is to build value beyond the standard compliance expected of companies. ESG portfolio managers look for a synergy between economic performance and social progress that combine in the right way to benefit the companies they invest in and all other stakeholders. Generating value this way requires companies to leverage shared value principles, innovation, analytics, digitization, and strategic and evidence-based solutions to deliver efficiency and competitiveness while balancing the socioeconomic impacts of projects.

Investor expectations continue to mount, and while mining companies may have used the ESG factors as a way to build greater social capital, there is growing and irrefutable evidence that prioritizing these factors builds value over the long term. Mining companies must still focus on delivering shareholder value, which is why some of the ESG initiatives planned often have trouble getting off the ground. Some companies have struggled to justify investing in non-revenue-generating activities in the past, like community infrastructure projects and sustainability initiatives.

As investors get serious about mining companies’ commitment to environmental remediation, energy efficiency, diversity, health and safety, and the fair treatment of community stakeholders and employees, organizations heavily dependent on investment funding must shift their values and operations to meet those expectations. Failing to do so could mean difficulties both financial and reputational. In a world where image matters more than ever, this would be a critical misstep that any company should avoid. 

Deep Dive Disclosure

Investor demands for the prioritization of ESG factors have meant that companies are facing greater demands for deeper disclosure from mining companies. When a vast majority of the world’s largest cobalt, copper, lithium, manganese, nickel, and zinc mining companies were found to have faced various allegations regarding human rights and the infringement of land rights – a tracking tool was launched that lets investors and other stakeholders trace allegations made against those companies. 

Greater accountability on top of the more in-depth disclosure investors now expect from mining companies has forced the change that may have been unwelcome in the past. Still, the benefits have outweighed the costs as more capital flows into mining companies getting ESG right, and investors continue to expand their ESG portfolios. 

Beyond Compliance

Investors have made it clear “that they will not advance funds unless companies can demonstrate a meaningful and measurable commitment to the principles so much of society holds dear. This causes mining companies to consider not only threats to public trust but also potential threats to investor trust”, says Dr. Leeora Black, Global Mining & Metals Value Beyond Compliance Co-Leader, Deloitte Australia. 

Earning Trust

For companies to gain trust with investors, they need to integrate and embed these principles into the mainstream of business rather than segregating them to a “charitable works” area managed by a small department, make social issues part of their strategic decision-making process, and address big issues by placing enmeshing their importance into their projects.

Natural Integration

Instead of creating a different department to pay lip service to ESG principles, companies now need to integrate these principles into their business at every level. Separating them and relegating them to a special section of their investor reports is not cutting it anymore. Investors want to see that it is a regular priority and not something to be trotted out when it suits the company. 

Make ESG Decisions

Making important social issues part of companies’ strategic decision-making process is a key element in attracting investors these days. Fixing problems as they arise when communities or other stakeholders complain isn’t enough. Companies should be proactively considering and discussing ESG principles in their day-to-day operations and taking into account those factors as they would costs or risks.

Of Equal Importance

Enmeshing the importance of ESG principles into the foundations of the projects a company is managing is the best way to show investors and the world that the social issues that are important to everyone are just as important as shareholder value. By tying those principles directly to the improved production and financial health of the company, companies can put their message forward through their work and not just their presentations. 

Andrew Lane, Mining & Metals Leader, Deloitte Africa, explains: “When companies make portfolio choices, they traditionally look at a range of factors—such as the assets, geographies, intrinsic value, shareholder value, and risks associated with these investments. But beyond those factors, they should think about the societal impact of their decisions by asking if their investments can also make the impact that society expects of them.”

Who’s Doing It Well?

The rise of the importance of ESG principles for miners is not lost on those that are performing best. The top producers and explorers are not just putting their best foot forward in their work, but how they do their work as well. Some of them even win awards for their commitments. 

First Majestic (TSX:FR)

First Majestic Silver Corp. has put together an operation that fulfills all of its ESG promises and coordinates their projects with a sense of responsibility to the communities they operate in, and the countries hosting their work. The company has accomplished that by winning the 2021 Socially Responsible Business Distinction Award for all three of its mines in Mexico.

First Majestic operates three mines in Mexico with the San Dimas Silver/Gold Mine, Santa Elena Silver/Gold Mine, and La Encantada Silver Mine. Located in the states of Durango, Sonora, and Coahuila, respectively, the mines have been steadfast producers for the company, and have received this award more than a few times before. The San Dimas operation received the Award for the tenth consecutive year. The company isn’t just cleaning up to look good; this is the modus operandi at First Majestic.

Solaris Resources (TSX:SLS)

Solaris’s willingness and large-scale commitment to responsible and sustainable mining, while serving the communities it operates in, the health and safety of its people and the environment means that it will also benefit from investors’ increased appetite for clean energy, and the decarbonization trend sweeping the industry. With the recent announcement out of Ottawa that Canada is aiming to achieve net zero emissions by 2050, industries are ramping up their efforts to achieve those goals both at home and abroad. The appeal of a company taking care of their people, the environment, and their bottom line all at the same time is now a necessary selling point for any mining company today and in the future. Solaris is already ahead of the curve and is being rewarded for those commitments.

Collective Mining

To understand this company’s ethos, simply look to the name. Collective Mining’s “collective model” means they aim to work hand-in-hand with stakeholders to build a strong and mutually beneficial future. Their focus on ESG principles has created a principled approach towards the environment, sustainability, and governance. Their rapidly expanding copper-gold-molybdenum porphyry exploration is being advanced with those principles embedded in the project in the mining-friendly department of Caldas in Colombia. Collective’s approach to their operations has been socially-beneficial and geared towards the ESG goals that investors prize so much from the beginning. Their company and projects are sure to benefit from this well-executed foresight.

Redefining Value Now, and For The Future

Defining the concept of value as perceived by stakeholders including governments, host communities, employees, and investors should also include the principles that the mining community now shares with society. The priorities of the environment, community integration, grassroots collaboration, diversity, health and safety, and even water management are deeply important to investors who look for companies to deliver value to all stakeholders in order to contribute to the value received by shareholders. Investors will continue to keep their eyes peeled for the companies doing it best. 

Photo: Solaris Resources

2020 saw some of the most complicated operating conditions for the mining industry ever, but the subsequent economic recovery brought important and profitable changes for one particular new listing on the Toronto Stock Exchange. While Solaris is not new to the industry, the listing on the TSX is, and they couldn’t have timed it better. With copper prices rising, the decarbonization and electrification movements gathering speed, and a flood of new money in the markets, Solaris couldn’t have picked a better time to become a public company. 

It’s Raining Copper

Copper mining has been fraught with worry over an impending shortage, which Solaris has hedged against with a portfolio of exploration properties picked by the late David Lowell. The former Solaris consultant and strategic partner was known as the greatest copper explorer in the past century. Lowell helped develop the porphyry copper deposit model alongside John Guilbert in the early 1960s. This model is still dominant today and is implemented for something like 60% of the world’s copper supply. The company started with the best and is in just the right position to make their projects shine with a red tinge.

Around the World in Multiple Projects

Solaris’s portfolio includes projects in Ecuador, Peru, Chile, and Mexico. As projects get off the ground and start to expand, the market has noticed the ambition of the company and management to scale up quickly. The potential scale of the projects is hard to find these days, as most of the newer generations of projects are a fraction of the size of the projects in the existing supply base. 

The company has shown not only promise, but proven success and a stable track record to make it a good investment. The share price has grown significantly since its market debut in mid-2020 but remains a value buy because of the massive potential of its projects. Solaris currently remains focused on its flagship project, the Warintza Mine in Ecuador. This rich mine is a high-grade open-pit resource with a 5km by 5km cluster of outcropping copper porphyries. Of course, this copper project will remain the focus but there is also untested gold potential waiting in the wings.

Bringing Big Value…

Solaris is managed by Augusta Group, an incredible value-creating company that boasts annual returns of up to 308% (from the Solaris IPO and subsequent gains in the stock price) in 2020 on current projects, and returns of up to 12,960% on past sold projects. Having such a reliable and profitable partner gives Solaris the advantage they need to pull ahead in the sector. Their strong strategies and valuable projects paired with the formidable management both internally and from Augusta Group gives them the instant advantage over competitors even though they have only been a public company for less than a year.

The company is worth keeping on a watchlist for the growth and discovery potential, and investors have already begun paying attention to this aspect of the business. Investor appetite has not waned since the 2020 IPO, and as activity continues to pick up and production scales up, the stock will continue to be a good buy even as the price doubles or triples. The value of a sub-$10 stock with the potential for scale on so many exclusive and lucrative projects should not be overlooked, and so far investors have been rewarded by their eagerness to own a piece of this company. Trading around $7 at the time of writing, it is within an affordable range for investors across the spectrum from retail to institutional, and is likely only the beginning of a steady climb upward.

…And Keeping It Green

Solaris’s willingness and large-scale commitment to responsible and sustainable mining, while serving the communities it operates in, the health and safety of its people and the environment means that it will also benefit from investors’ increased appetite for clean energy, and the decarbonization trend sweeping the industry. With the recent announcement out of Ottawa that Canada is aiming to achieve net zero emissions by 2050, industries are ramping up their efforts to achieve those goals both at home and abroad. The appeal of a company taking care of their people, the environment, and their bottom line all at the same time is now a necessary selling point for any mining company today and in the future. Solaris is already ahead of the curve and is being rewarded for those commitments.

As more news and reporting are sure to come down the pipeline, we will make sure you can stay updated about all of it right here on MiningFeeds. 

Photo: Kinross

Gold giant Kinross Gold (TSX:K) announced financial results last month for its fourth-quarter and year-end 2020. Investors are pleased with the company’s net earnings of $783.3 million (62 cents a share) in 2020. The Toronto-based company nearly doubled its net adjusted earnings in 4Q2020 with a boost from higher gold prices to $335.1 million (27 cents a share), compared with $156 million (13 cents a share) in 4Q2019.

Tough Times

Kinross was able to capitalize on a strong gold price despite 2020 being a unique and challenging year for everyone in the industry. In the middle of one of the most challenging years for the mining industry, Kinross had a free cash flow of more than $1 billion. 

While balancing the restrictions and complications in operations, the company still met its original guidance for the ninth consecutive year and was able to declare a quarterly dividend of 3 cents per share for 4Q. While the company saw lower production for the quarter with 624,032 ounces down from 645,344 ounces in the 2019 quarter, the results were not hit significantly and investors responded well to the news. 2020 production hit nearly 2.37 million attributable gold equivalent ounces compared with 205 million ounces in 2019. The company has excelled at maximizing operations and surpassing guidance even with consistently lower production in 2020.

Strong COVID-19 Risk Management

Management clearly has its eye on the ball and implemented operational and financial support to manage COVID-19 risks. The company implemented “…rigorous measures to keep our employees safe, maintain business continuity and support local communities,” Kinross President and Chief Executive Officer J. Paul Rollinson said in the earnings teleconference. He went on to thank employees worldwide for meeting the challenges. 

With strong leadership during the challenging year, Kinross put together a comprehensive and efficient plan for managing the risks of the pandemic while continuing to maintain productivity and earnings. The company provided roughly $6 million in 2020 toward community efforts geared toward combating COVID-19 in areas where they operate mines. Some of the loss in revenues was a result of the extra costs and investments related to operations during the pandemic, but being able to balance those costs with successful mining operations puts Kinross in the lead for the industry for 2020.

A Bright 2021

The company made it clear that they are looking ahead to 2021 and beyond with optimism and forward-thinking production plans. In its exploration update, the company planned to spend $6.5 million on Bald Mountain Mine for exploration. The company will focus on drill testing targets identified in 2020 to look for deposits that may be converted to mineral resources later, turning some of the seeded work from last year into gains for the company in 2021. 

$6 million in additional funds set aside for exploration at Round Mountain Mine, the first gold ounces produced at the Gilmore Project in January of this year, completed construction on the project on time and on budget, and spending of $120 million for all projects in 2021 is sure to build on last year’s performance. 

A Pass With Flying Colours

The stock trades at $8.38 as of writing and has climbed steadily over the last 12 months. While the gains have been attractive, it is the consistent dividend and profitable performance of the company that still makes this an attractive investment. With even bigger plans for the company looking ahead to the bright side of 2021, Kinross Gold has its finger on the pulse of the operations and is in fantastic health.

The mega-cap stocks that dominate the US markets are just finishing another monster earnings season. It wasn’t just profits that soared under Republicans’ big corporate tax cuts, but sales surged too. That’s no mean feat for massive mature companies, but sustained growth at this torrid pace is impossible. So peak-earnings fears continue to mount while valuations shoot even higher into dangerous bubble territory.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Required by the US Securities and Exchange Commission, these 10-Qs contain the best fundamental data available to investors and speculators. They dispel all the sentimental distortions inevitably surrounding prevailing stock-price levels, revealing the underlying hard fundamental realities.

The deadline for filing 10-Qs for “large accelerated filers” is 40 days after fiscal quarter-ends. The SEC defines this as companies with market capitalizations over $700m. That currently includes every single stock in the flagship S&P 500 stock index, which includes the biggest and best American companies. As Q2’18 ended, the smallest SPX stock had a market cap of $4.1b which was 1/225th the size of leader Apple.

The middle of this week marked 39 days since the end of calendar Q2, so almost all of the big US stocks of the S&P 500 have reported. The exceptions are companies running fiscal quarters out of sync with calendar quarters. Walmart, Home Depot, Cisco, and NVIDIA have fiscal quarters ending a month after calendar ones, so their “Q2” results weren’t out yet as of this Wednesday. They’ll arrive in coming weeks.

The S&P 500 (SPX) is the world’s most-important stock index by far, weighting the best US companies by market capitalization. So not surprisingly the world’s largest and most-important ETF is the SPY SPDR S&P 500 ETF which tracks the SPX. This week it had huge net assets of $271.3b! The IVV iShares Core S&P 500 ETF and VOO Vanguard S&P 500 ETF also track the SPX with $155.9b and $96.6b of net assets.

The vast majority of investors own the big US stocks of the SPX, as they are the top holdings of nearly all investment funds. So if you are in the US markets at all, including with retirement capital, the fortunes of the big US stocks are very important for your overall wealth. Thus once a quarter after earnings season it’s essential to check in to see how they are faring fundamentally. Their results also portend stock-price trends.

Unfortunately my small financial-research company lacks the manpower to analyze all 500 SPX stocks in SPY each quarter. Support our business with enough newsletter subscriptions, and I would gladly hire the people necessary to do it. For now we’re digging into the top 34 SPX/SPY components ranked by market capitalization. That’s an arbitrary number that fits neatly into the tables below, and a dominant sample.

As of the end of Q2’18 on June 29th, these 34 companies accounted for a staggering 42.6% of the total weighting in SPY and the SPX itself! These are the mightiest of American companies, the widely-held mega-cap stocks everyone knows and loves. For comparison, it took the bottom 431 SPX companies to match its top 34 stocks’ weighting! The entire stock markets greatly depend on how the big US stocks are doing.

Every quarter I wade through the 10-Q SEC filings of these top SPX companies for a ton of fundamental data I dump into a spreadsheet for analysis. The highlights make it into these tables below. They start with each company’s symbol, weighting in the SPX and SPY, and market cap as of the final trading day of Q2’18. That’s followed by the year-over-year change in each company’s market capitalization, a critical metric.

Major US corporations have been engaged in a wildly-unprecedented stock-buyback binge ever since the Fed forced interest rates to deep artificial lows during 2008’s stock panic. Thus the appreciation in their share prices also reflects shrinking shares outstanding. Looking at market-cap changes instead of just underlying share-price changes effectively normalizes out stock buybacks, offering purer views of value.

That’s followed by quarterly sales along with their YoY changes. Top-line revenues are one of the best indicators of businesses’ health. While profits can be easily manipulated quarter-to-quarter by playing with all kinds of accounting estimates, sales are tougher to artificially inflate. Ultimately sales growth is necessary for companies to expand, as bottom-line earnings growth driven by cost-cutting is inherently limited.

Operating cash flows are also important, showing how much capital companies’ businesses are actually generating. Using cash to make more cash is a core tenet of capitalism. Unfortunately most companies are now obscuring quarterly OCFs by reporting them in year-to-date terms, which lumps in multiple quarters together. So these tables only include Q2 operating cash flows if specifically broken out by companies.

Next are the actual hard quarterly earnings that must be reported to the SEC under Generally Accepted Accounting Principles. Late in bull markets, companies tend to use fake pro-forma earnings to downplay real GAAP results. These are derided as EBS earnings, Everything but the Bad Stuff! Companies often arbitrarily ignore certain expenses on a pro-forma basis to artificially boost their profits, which is very misleading.

While we’re also collecting the earnings-per-share data Wall Street loves, it’s more important to consider total profits. Stock buybacks are executed to manipulate EPS higher, because the shares-outstanding denominator of its calculation shrinks as shares are repurchased. Raw profits are a cleaner measure, again effectively neutralizing the impacts of stock buybacks. They better reflect underlying business performance.

Finally the trailing-twelve-month price-to-earnings ratio as of the end of Q2’18 is noted. TTM P/Es look at the last four reported quarters of actual GAAP profits compared to prevailing stock prices. They are the gold-standard metric for valuations. Wall Street often intentionally obscures these hard P/Es by using the fictional forward P/Es instead, which are literally mere guesses about future profits that often prove far too optimistic.

Not surprisingly in the second quarter under this new slashed-corporate-taxes regime, many of the mega-cap US stocks reported spectacular Q2’18 results. For the most part sales, OCFs, and earnings surged dramatically. The big problem is such blistering tax-cut-driven growth rates are impossible to sustain for long at the vast scales these huge companies operate at. Downside risks are serious with bubble valuations.

The elite market-darling mega tech stocks continue to dominate the US stock markets. Most famous are the FANG names, Facebook, Amazon, Netflix, and Alphabet which used to be called Google. Apple and Microsoft should be added to those rarified beloved ranks. Together these half-dozen companies alone accounted for nearly 1/6th of the SPX’s entire market cap! That’s an incredible concentration of capital.

This highlights the extreme narrowing breadth behind this very-late-stage bull market. At the month-end just before Trump’s election victory in early November 2016, these same tech giants weighed in at 12.3% of the SPX weighting compared to 16.4% today. And if you go all the way back to this bull’s birth month of March 2009, MSFT, GOOGL, AAPL, and AMZN weighed in at 5.4%. FB and NFLX weren’t yet in the SPX.

Ever more capital is crowding into fewer and fewer stocks as fund managers chase the biggest winners and increasingly pile into them. And these 6 elite mega techs’ Q2’18 results show why they are widely adored. Their revenues rocketed 30.3% YoY on average, more than doubling the 14.0% growth in this entire top-34 list! Excluding these techs, the rest of the top 34 only grew their sales by 10.0% or a third as much.

That vast outperformance is reflected in their market-cap gains too, which again normalize out all the big stock buybacks. Overall these top SPY companies’ values surged 23.5% higher YoY, nearly doubling the 12.2% SPX gain from the ends of Q2’17 to Q2’18. But these top 6 tech stocks’ stellar average gains of 57.5% YoY dwarfed the rest of the top 34’s 16.2% annual appreciation! These stocks are loved for good reason.

The same is true on the profits front, with AAPL, AMZN, GOOGL, MSFT, FB, and NFLX trouncing the rest of these biggest US stocks. These 6 tech giants saw staggering average earnings growth of 289.1% YoY, compared to 30.9% for the rest of the top 34. That former number is heavily skewed by Amazon’s results though, as its profits skyrocketed an astounding 1186% from $197m in Q2’17 to $2534m in Q2’18.

Netflix had a similar enormous 484% YoY gain in earnings from a super-low level. Interestingly the rest of these big 6 tech stocks saw average growth of just 16.0% YoY, only about half that of the rest of the top 34. That proves the enormous surge in mega-cap-tech stock prices over this past year wasn’t driven by earnings as bulls often claim. Stock-price appreciation has far outstretched profits growth, an ominous sign.

In conservative hard trailing-twelve-month price-to-earnings-ratio terms, the big-6 tech giants sported an incredible average P/E of 107.3x earnings exiting Q2! That is deep into formal stock-bubble territory over 28x, which is itself double the century-and-a-quarter average fair value of 14x in the US stock markets. Again AMZN and NFLX are skewing this way higher though, with their insane 214.8x and 263.9x P/E ratios.

P/Es are the annual ratio of prevailing stock-price levels to underlying profits. So they can be viewed as the number of years it would take a company to earn back the price new investors today are paying for it. A stock bought at 200x earnings would take 200 years to merely recoup its purchase price through profits, assuming no growth of course. Buying at these heights is crazy given humans’ relatively-short investing lifespan.

Assuming people start investing young at 25 years old and retire at 65, that gives them about 40 years of prime investing time. So buying any stock above 40x implies a time horizon well beyond what anyone actually has. And provocatively even excluding the crazy P/Es of Amazon and Netflix, the rest of these big 6 tech stocks still average extremely-high 41.2x P/Es. And ominously that is right in line with market averages.

Without those elite tech leaders, the rest of these top 34 SPY stocks had average TTM P/Es of 41.0x when they exited Q2. History has proven countless times that buying stocks near such extreme bubble valuations has soon led to massive losses in the subsequent bear markets that always follow bulls. So these stock markets are extraordinarily risky at these valuations, truly an accident waiting to happen.

When stocks are exceedingly overvalued, the downside risks are radically greater than upside potential. After everyone is effectively all-in one of these universally-held mega tech stocks, there aren’t enough new buyers left to drive them higher no matter how good news happens to be. And these investors who bought in high and late can quickly become herd sellers when some bad news inevitably comes to pass.

Q2’18’s earnings season has already proven this in spades despite the extreme euphoria surrounding the stock markets and elite tech stocks in particular. Fully 3 of the 4 beloved FANG stocks showed just how overbought stocks react to news. The recent price action in Amazon, Netflix, and Facebook following their Q2 results is a serious cautionary tale for investors convinced mega tech stocks can rally indefinitely.

Everyone loves Amazon, but it is priced far beyond perfection. Its stock skyrocketed 75% YoY to leave Q2 with that ludicrous P/E of 214.8x. When any stock gets so radically overbought and overvalued, it has a tough time moving materially higher no matter what happens. Normally stocks shoot higher on blowout quarterly results as new investors flood into the strong company. But Amazon couldn’t find many buyers.

After the close on July 26th Amazon reported a monster blowout Q2. Its earnings per share of $5.07 was more than double analysts’ estimate of $2.50! Revenues, operating cash flows, and profits rocketed up an astounding 39.3%, 93.5%, and 1186.3% YoY. AMZN’s revenue guidance for Q3 at a midpoint running $55.8b also hit the low end of Wall Street expectations. Any normal stock would soar the next day on all that.

But while Amazon stock mustered a decent 4.0% gain at best the next day, that faded to a mere +0.5% close. AMZN was priced for perfection, so not even one of its best quarters ever was enough to bring in more buyers. Everyone already owns it, so who is left to deploy new capital? AMZN slumped 1.7% over the next several trading days, though it has since recovered to new record highs with the strong stock markets.

Netflix was the best-performing large US stock over the past year, skyrocketing 162% higher between the ends of Q2’17 to Q2’18! It had an absurd TTM P/E of 263.9x leaving Q2, more extreme than Amazon’s. But man, investors love Netflix with a quasi-religious fervor and believe it can do no wrong at any price. So Wall Street was eagerly anticipating NFLX’s Q2 results that came out after the close back on July 16th.

And they were really darned good. EPS of $0.85 beat the expectations of $0.79. On an absolute basis, sales and profits soared 40.3% and 484.3% YoY! Netflix did report negative operating cash flows, but it has been burning cash forever so that was no surprise. Yet despite these strong results this priced-for-perfection market-darling stock plunged 13%ish in after-hours trading! Good news wasn’t good enough.

Investors weren’t happy because subscriber growth was slowing. NFLX reported 5.2m net new streaming subscriptions in Q2, below the 6.3m expected and 7.4m in Q1. Netflix itself had provided earlier guidance of 1.2m US adds, but the actual was way short at 0.7m. So NFLX stock plummeted as much as 14.1% the next trading day before rebounding to a still-ugly -5.2% close. It couldn’t rally on great Q2 financial results.

And universally-held big stocks not responding favorably to quarterly results can quickly damage traders’ euphoric enthusiasm for them. The selling in Netflix’s stock gradually cascaded following that big hit on Q2 results. Over the next couple weeks, NFLX dropped 16.4% from its close just before that Q2 earnings release! The mega tech stocks aren’t invincible, and are very risky trading so high with everyone all-in.

With the possible exception of mighty Apple, Facebook was widely considered the least risky of the elite tech stocks as Q2 ended. Its 32.5x P/E was almost low by mega-tech standards, only bested by the 17.9x of Apple which is in a league of its own. FB reported after the close on July 25th, and shared great results led by a modest EPS beat of $1.74 compared to $1.72 expected. But the absolute gains were really big.

Facebook’s sales, operating cash flows, and profits soared 41.9%, 17.5%, and 31.1% YoY! That top-line revenue growth in particular was huge, nearly the best out of all these top 34 SPY stocks. And FB’s profits were growing so fast that it was the only elite mega-tech stock to see its TTM P/E actually decline YoY, retreating 14.2%. So FB looked much safer fundamentally than the other FANG stocks dominating the SPX.

But Facebook’s stock effectively crashed in after-hours trading immediately after those Q2 results, falling as much as 24%! The reason? It guided to slowing sales growth in Q3 and Q4 in the high single digits. FB was obviously priced for perfection and universally owned too, leaving nothing but herd sellers when anything finally disappointed. The next day FB stock plummeted a catastrophic 19.0%, stunning investors.

That wiped out an inconceivable $119.4b in market capitalization! That was the worst ever seen in one day by any single company in US stock-market history. More than ever investors and speculators need to realize that their beloved FANG stocks along with MSFT and AAPL aren’t magically exempt from serious selloffs. When any stocks are way overbought and wildly overvalued, it’s only a matter of time until selling hits.

Without these mega tech stocks, the US stock markets never would’ve gotten anywhere close to their current near-record heights. The flood of investment capital into Netflix over this past year was so huge it catapulted that company well into the ranks of the top 34. Its symbol is highlighted in light blue, along with a few other stocks, because it is new in the SPX’s top 34 in Q2. Outsized tech gains can’t happen forever.

Interestingly I found something else in their quarterly reports I haven’t yet seen discussed elsewhere. The total debt of these top 6 mega tech stocks soared an average of 36.5% higher YoY! That is way beyond the rest of the top 34 excluding the giant banks which have very-different balance sheets. Those other 18 top-34 SPY companies saw total debt only climb 6.0% YoY. Mega-tech debt is rocketing at 6.1x that rate!

While the elite tech stocks do have huge cash hoards, their spiraling debt is ominous. With the Fed deep into its latest rate-hike cycle, the carrying costs of debt are rising fast. With each passing month and each bond companies roll over, their interest expenses increase. At best those will cut into their profits, which will push their nosebleed P/Es even higher. They will have to slow debt growth and eventually pay back much.

We are talking huge amounts, $588.2b of total debt across Apple, Amazon, Google, Microsoft, Facebook, and Netflix alone! The main reason most of these companies are ramping their debt so fast is to finance massive stock buybacks propelling their share prices higher. They will have to really slow or even stop their huge buyback campaigns if their total debt or the carrying costs on it grow too large, a serious threat now.

These top 34 SPX stocks collectively had an extreme average trailing-twelve-month price-to-earnings ratio of 53.4x leaving Q2! That is nearly double historical bubble levels, exceedingly dangerous. There are far-higher odds the next major move in these hyper-expensive stock markets will be down rather than up. The next couple quarters face very different psychology and monetary winds than this rallying past year.

In both Q3 and Q4 last year, traders were ecstatic over the Republicans’ record corporate tax cuts that were excitingly nearing. In Q1 and Q2 this year, traders were dazzled by the incredible profits growth largely driven by sharply-lower taxes. While that will continue to some extent in Q3 and Q4 this year, the initial exuberance has mostly run its course. Big US stocks are facing tougher comparables going forward.

But the real threat to these bubblicious extreme stock markets is the Fed’s young quantitative-tightening campaign. It started imperceptibly in Q4’17 to begin unwinding the staggering $3625b of quantitative-easing money printing the Fed unleashed over 6.7 years starting in late 2008. Total QT in Q4’17 was just $30b. But it grew to another $60b in Q1’18 and then another $90b in Q2’18. And it is still getting bigger.

In this current Q3’18, another $120b of QE is going to be wiped out by QT. And finally in Q4’18, this new Fed QT will hit its terminal speed of $150b per quarter. That’s expected to last for some time. If the Fed merely wants to reverse just half of its extreme QE, it will have to run QT at that full-speed $50b-per-month pace for fully 2.5 years. That extreme monetary-destruction headwind is unprecedented in world history.

Today’s enormous stock bull grew so extreme because the Fed’s epic QE levitated stock markets, driving their valuations to nosebleed heights. What Fed QE giveth, Fed QT taketh away. At the same time the European Central Bank is tapering its own colossal QE campaign to nothing too. Between the Fed and ECB alone, 2018 will see $900b less central-bank liquidity than 2017! That’s certainly going to leave a mark.

The odds are very high that a major new bear market is awakening. Stock markets inexorably levitated by long years of extreme central-bank easing now face record tightening as that easing finally starts to be unwound. Thanks to that extreme QE as well as the Fed’s radically-unprecedented 7-year-long zero-interest-rate policy, this SPX bull extended to a monster 324.6% gain over 8.9 years as of its late-January peak!

That is nearly the second-largest and easily the second-longest stock bull in all of US history. Stock bulls always eventually peak in extreme euphoria, and then give way to subsequent proportional bears. With today’s valuations so deep into dangerous bubble territory, not even blowout earnings will be enough to keep stocks from sliding. Normal bear markets after normal bulls often maul stock markets down 50% off highs!

And after this epic QE-fueled largely-artificial monster stock bull, the inevitable bear to come is very likely to prove much bigger and meaner than normal. If the Fed’s QT doesn’t spawn it, peak earnings will. The past year’s extreme growth rates in sales and profits at the largest US companies from already-high base levels aren’t sustainable mathematically. Traders will freak out when they see growth slow or even reverse.

Investors really need to lighten up on their stock-heavy portfolios, or put stop losses in place, to protect themselves from the coming central-bank-tightening-triggered valuation mean reversion in the form of a major new stock bear. Cash is king in bear markets, as its buying power grows. Investors who hold cash during a 50% bear market can double their stock holdings at the bottom by buying back their stocks at half-price!

SPY put options can also be used to hedge downside risks. They are still relatively cheap now with complacency rampant, but their prices will surge quickly when stocks start selling off materially again. Even better than cash and SPY puts is gold, the anti-stock trade. Gold is a rare asset that tends to move counter to stock markets, leading to soaring investment demand for portfolio diversification when stocks fall.

Gold surged nearly 30% higher in the first half of 2016 in a new bull run that was initially sparked by the last major correction in stock markets early that year. If the stock markets indeed roll over into a new bear soon, gold’s coming gains should be much greater. And they will be dwarfed by those of the best gold miners’ stocks, whose profits leverage gold’s gains. Gold stocks skyrocketed 182% higher in 2016’s first half!

Absolutely essential in bear markets is cultivating excellent contrarian intelligence sources. That’s our specialty at Zeal. After decades studying the markets and trading, we really walk the contrarian walk. We buy low when few others will, so we can later sell high when few others can. While Wall Street will deny the coming stock-market bear all the way down, we will help you both understand it and prosper during it.

We’ve long published acclaimed weekly and monthly newsletters for speculators and investors. They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks. As of the end of Q2, all 1012 stock trades recommended in real-time to our newsletter subscribers since 2001 averaged stellar annualized realized gains of +19.3%! Subscribe today and take advantage of our 20%-off summer-doldrums sale before it ends.

The bottom line is the big US stocks’ latest quarterly results again proved amazingly good. Sales and profits soared year-over-year on those record corporate tax cuts and the widespread optimism they fueled. But earnings are still way too low to justify today’s super-high stock prices, spawning dangerous bubble valuations. That portends far-weaker markets ahead, led by serious selling in market-darling mega techs.

These near-record-high stock markets are reaching buying exhaustion, when stocks can’t rally much on good news and plummet on bad news. Earnings are likely peaking with the corporate-tax-cut euphoria as well, with deteriorating profits growth ahead. As if that’s not worrisome enough for hyper-overvalued stocks, these priced-for-perfection markets face accelerating Fed QT in coming quarters. Talk about bearish!

It was another strong week on the street with the TSX and the TSX-V moving to the upside.

It was another big week in the markets with positive gains across most of the world’s major exchanges. The TSX and TSX-V were no exception up 4.1% and 3.7% respectively. But we’re not interested in single digit returns, we’re taking a look at the top three mining companies that posted the biggest percentage gains this week on both exchanges.

1. Minco Gold Corp. (TSX: MMM) up 40%

On absolutely no news to speak of, Minco Gold posted this week’s top percentage gain on the TSX for mining companies closing the week at $1.26. Evidently, speculation alone may be sufficient to move the stock. Back on July 7th, 2011, Minco Gold announced the commencement of an initial diamond drill program of the Shajinba zone on its 100-per-cent-owned Yejiaba property, part of the Longnan project, located in Gansu province in China. The drill program consists of 2,000 metres of core drilling, and is designed to test the zone of gold mineralization discovered by the company in 2010. Minco Gold owns 13 million shares (approximately 22.25%) of sister company Minco Silver (TSX: MSV) which, like Minco Gold, was also quiet on the news front this week.

2. Uranerz Energy Corp. (TSX: URZ) up 33.8%

No news is also good news for the TSX mining sector’s second biggest gainer this week. Uranerz Energy is a near-term uranium producer based in Wyoming. The company’s first in-situ recovery mine is under construction and production is projected to start by mid 2012. The company has already entered into long-term uranium sales contracts with two of the largest nuclear utilities in the U.S., including Exelon. So what can we attribute this price move to? Two weeks ago it was announced that, as of Sept. 26, 2011, Robert Disbrow indirectly owns 2.6 million common shares and exercises control or direction over an aggregate 5,186,800 common shares of Uranerz Energy (for a total of 7,786,800 common shares). This equates to approximately 10.1% of the issuer’s issued and outstanding common shares and may have been the catalyst behind the recent upswing.

Robert (“Bob”) Disbrow is a well know Vancouver-based venture capital professional and made his mark on the markets as part of a group of brokers at First Marathon Securities that were under scrutiny from the Cartaway Resources scandal in the mid-1990s. The First Marathon brokers acquired roughly 7 million shares of Cartaway for around $0.10 in 1994 and rose to a high of $26 per share in early 1996. But on May 17, 1996, Cartaway announced that new assay results from its Voisey’s Bay property did not support earlier tests. Heavy trading in Cartaway shares ensued, crashing the Alberta Stock Exchange system. When trading in Cartaway resumed on May 21, the stock opened at $2.78 and ultimately collapsed. In July, 1998, Robert Disbrow, then First Marathon vice-chair and former Vancouver branch manager, agreed to a $110,000 fine and three-month suspension for his role in the Cartaway affair.

3. Champion Minerals Inc. (TSX: CHM) up 32.7%

In what appears to be a delayed response to drill results and a new resource estimate released last week, Champion Minerals was the third biggest mining-mover last week with a gain of just over 30%. Champion Minerals is a Canadian-based iron ore exploration and development company with properties located in Quebec and Labrador. Last week, the company announced drilling results from its Lake Moire property in Labrador which included 503.4 metres grading 31.2% total iron (FeT). Champion also provided a NI-43-101 updated resource estimate on its Fire Lake North project in Fermont, Quebec. The company reported measured and indicated resources total 400.1 million tonnes grading 30.6% total iron and inferred resources total 661.2 million tonnes grading 27.7% total iron. Tom Larsen, Champion’s president and chief executive officer, commented, “The updated resources at Fire Lake North have resulted in a substantial improvement over the initial estimate and far exceeded our expectations. These results will have a major impact on the updated preliminary economic assessment on the Fire Lake North project which is expected to be released next month.”

Not to be outdone, mining companies on the TSX-V Exchange actually posted the biggest gains on the week. We look at the top three widely-traded juniors and take a look at the factors that may have influenced their respective gains.

1. PMI Gold Corp. (TSX-V: PMV) up 87.3%

The stock that posted the biggest overall gain in the week ended October 14th, 2011, was PMI Gold. This move was in direct response to news issued on Thursday in which PMI Gold announced a  270% increase in the NI 43-101 gold resources estimates from  its flagship Obotan gold project in Ghana, West Africa, to measured 1.22 million ounces, indicated 2.00 million ounces and inferred 1.29 million ounces. The Obotan gold project was previously operated by Resolute Mining (ASX: RSG) and closed in 2002 after producing a total of 730,000 ounces at an average grade of 2.2 grams per tonne gold when the price of gold was averaging US$350 per ounce. Shares of PMI Gold closed on Friday at $1.03, up $0.45 on the day, on volume of 13.9 million shares.

2. Leven Resources Ltd. (TSX-V: LVN) up 53.4%

Number two this week on the Venture board was North American exploration company Leven Resources. Last week, the company’s shares were trading at $0.88 when the company announced the grant of stock options for the purchase of up to 425,000 common shares at a price of $1.50 per share to directors, employees and consultants of the company. That’s right, $1.50 a share which translated into a 70% premium to the market. Evidently the market may have liked the confident approach of management and the company’s stock rallied this week closing on Friday at $1.35 per share.

3. Coral Gold (TSX-V: CLH) up 48.5%

Last but not least is Coral Gold. Coral posted a 48.5% gain on the week on no news. Perhaps the move might be attributed to a “sell” recommendation from newsletter writer Jay Taylor in late September issued when the stock was trading at $0.49. After the recommendation, the company’s shares traded down sharply to $0.30 on above-average volume but this week rebounded to previous levels closing the week at $0.49.

Coral Gold Resources is exploring a portfolio of claim blocks along the Cortez gold trend in north-central Nevada, collectively known as the Robertson Project. The company’s project is near Barrick Gold’s Cortez Mine, a low cost gold mine with reported proven and probable reserves of 13.4 million ounces of gold.

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