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Mass Excitement Over Lowered Numbers

07-31-2020

The early going saw a mini melt-up, particularly in tech land, as there was an epic celebration of last night's wins at the amazingly stupid Wall Street game of beat-the-number, with Apple, Amazon, and Facebook all being all deemed successful, while Google was penalized.

The Best Is Yet to Come Back A smart friend of mine shared with me his comments on the numbers, and they were so on point that I'm just going to just quote him.

"Everything looks like a blowout, but per my prior points, that is because estimates were hacked to the bone. Now that has happened, the sequential guidance from this point, is actually pretty tepid. With the exception of Amazon, which is a story unto itself due to lockdown, the year over year performance isn't even that good. Some might say, well it is pretty good in light of Covid. Well is it, when people get paid a ton of money (more than they were making) to stay home, and they have nothing to do, and a lot of people spend every cent they have, it is actually not all that impressive! I keep saying the worst thing for equity markets is people go back to work, because once they do they will not be spending free money that they didn't have, won't have all day to spend it, and won't be sitting around on Robinhood all day either! Here is a synopsis of some of the big names:

"Apple Blowout: iPhone revenue was up all of 1.7% Y-Y (I think against an easy compare), no forecast for next Q. Wouldn't be surprised by a lot of sequential flattening when the analysts are soft guided offline. And ohh the 4-1 stock split, so Y2K. Guess mgmt. is resorting to that trick. There are a bunch of stocks north of $1,000 now, why does the $400 stock need to do the split? "Amazon, special story unto itself during lockdown, revenue blowout, next Q guided sequentially flat, and AWS (the growth and profit engine) slowed again and missed numbers

"Facebook, revenue only grew 11% Y-Y and was its lowest since being public, guided next Q flat sequentially

"The easy money has been made, that is for sure! Numbers have now been taken up as well, no super low fake bar to clear this time either...back to reality!"

The Lowered Bar Is Open The net of all that saw the Nasdaq up well over a percent right out of the blocks, with the Dow/S&P lagging behind. From there, selling took over taking the Nasdaq to about a 0.5% loss. However, in the last hour a (month-end?) rally drove the Nasdaq to a 1.25% gain for the day, while the Dow/S&P lagged way behind.

Away from stocks, green paper was a little stronger, fixed income was flat, and the metals were volatile once again. Early on, gold was up 0.75% compared to about a 4% gain for silver. Then they were hit hard shortly after stocks opened before they rallied to close up 1% and 3%, respectively. The miners meanwhile were quite strong. Whether this had anything to do with the end of the month or the gold rally, it's kind of hard to say today.

Miners Show Off Their Bright Side On the topic of miners and yesterday's conference calls, I would say, in no particular order, that the Agnico Eagle call demonstrated the company has continued to do everything right. They're going to have some powerful earnings and cashflow numbers prospectively, and are almost certain to raise the dividend in the not-too-distant future. In short, everything is going as well as can be expected there and they demonstrated what a high-quality management team they are.

Turning to Kirkland Lake, it sounds as though the company is quite optimistic regarding how things may play out on the drilling front at its three main properties. When you add that to the powerful setup and earnings it has right now, all you would need is some halfway decent drill results at Fosterville or something substantial at the other two big properties and it could really get lively.

As for Alamos, that call and its results were just fine and the company is on track to have very strong earnings and cash flow growth over the course of the next year or two. I also talked to Fred Hickey, who listened to Newmont's call, and apparently all was fine there as well.

From Bright Side to Bright Spots One distinction, however perversely, vis-a-vis tech stocks for example, is that I don't think the people who run mining companies are as adept at playing beat-the-number as Wall Street-savvy tech titans. We have seen, and probably will see in the companies that are yet to report, that Q2 was squishy due to Covid-19. What's different though, compared to so many tech stocks, as pointed out in the quote above, is that virtually all the miners are going to have extremely powerful third and fourth quarters, unless the properties are once again impacted by the virus.

Thus, I think mining companies are as well-positioned as I have ever seen them. On that score, if folks want to learn why, they should probably listen to Sean Boyd's description of the industry during the AEM call. It's easy to find it on Agnico's website. Anyone involved in mining stocks ought to give it a listen, or for that matter, also listen to the Kirkland Lake call to see how well-setup they are.

Positions in stocks mentioned: long AEM, long KL, long AGI.