Stock Futures had started London trading positive but now have turned slightly negative in a very quiet morning. As we said yesterday, there is both significant positive and negative news. Nordstrom is trading up 9% pre-market, as they significantly outperformed earnings expectations, with high-end consumers still strong at Nordstrom stores. On the negative side, Abercrombie was down -29% yesterday. It seems like an economy with 2 bad data points outweighing each good data point.

Its probably not "news" but the Fed FOMC minutes are to be released today - expect a non-event. Rate hike expectations have come down a bit in the last few weeks. We suspect that the 2-year yield's rise from close to zero to 2.5% has put enough damper on the economy and aggregate demand to satiate the Fed's tightening needs.

Of course, inflation will only be under control when fossil-fuel prices stop rising. In a world where often only one variable matters, its fossil fuel prices that are the key variable for investors. Currently there are no short-term fundamental reasons for energy price relief, so its possible that higher rates are needed to curb aggregate demand. The upcoming heat wave is not helping. Did it really hit 125 degrees F in Pakistan this week? You need a lot of natural gas to power those airconditioners.

Its still a bear market, but, as our bottoming-setups post shows, there are some interesting longs out there at these lower prices. It doesn't feel like the time to get longer, but it is starting to feel like 2 markets out there: (a) the market for money losing over-valued companies and (b) good franchises finally trading at reasonable prices. One of ten stocks is now looking investable. It will be a market turn when most stocks are looking cheap OR we get a major catalyst like Fed dovishness or Russian withdrawal.

Cathie's largest position, ROKU, tumbled -14% yesterday. Having dropped from $400 to $80 stil doesn't excite us as its at 50x trailing cash flow in a tough environment for entertainment stocks. Cathie's second favorite stock, TSLA, dropped a cool -7% yesterday, so now its down about 50% from the $1200 peak. We are not bullish on TSLA yet. Its definitely a tale of 2 markets: overvalued companies getting killed and value stocks doing ok. For example, tech-lite IBM closed 2021 at $133 and its still at $133 - not bad for a 5% dividend yield stock in a bear market.

Its day 91 after the Russian invasion of Ukraine, and it appears that the West is pushing Russian debt default. China also recently forbade party officials from owning foreign assets in a pre-emptive signal that they are prepared for future sanctions.

BofA CEO Brian Moynihan told Davos that the US Consumer is in good shape and will keep spending. Not all data points are bad. Wendy's is up 12% in the pre-market as Trian said it is considering an acquisition of the fast food company. As we said yesterday, a true liquidity crisis would not have takeovers like WMWare or Wendys - despite the tighter money, liquidity is still ok.

In a day that is light on morning news, we want to remind everyone not to over-trade. Often less is more. We think investors should be preparing for the possibility of a career trade. In this age of flash-crashes, its possible that the S&P500 could do a full 8% reversal one of these days, dropping 8% then ten minutes later coming all the way back. Since things happen so fast, you have to be prepared and ready to act.

Another way to prepare is to anticipate the next upturn. Lets assume the current soft period lasts another year - generally the 3rd year of an election cycle is a favorable time to start getting longer:

Coming out of a recession, the cyclicals do particularly well. What happens when CCL drops to $3 ? You can prepare for this in advance. There is a decent possibility that CCL drops to $3 then goes to $20 in the rebound. Seem absurd? Lets see: CCL has $30 billion in debt. In the healthy years, CCL had over $5 billion in OCF with very little interest expense. Now interest expense is over $1.5 billion and rising. Assuming that CCL could somehow do $6 billion in EBITDA in an upturn, the stock could be worth about $18 to $20 in the upturn at 10X EBITDA. What about the possibility of $3 on the downside? CCL has burned over $1 billion in cash for 7 out of the last 8 quarters. It appears that CCL will burn $1.5 billion for each of the next three quarters, putting debt around $38 billion ( or 6x peak EBITDA which is a dangerous level ). So, yes, CCL can easily go to $3, as they struggle in this period of high energy prices and rising rates. CCL and all these other negative cash flow stocks are really out-of-the-money options with slow decay. The cyclicals are more interesting than the small caps and loser-techs because they have proven to be profitable in the past. Coming out of a downturn, cyclicals can easily rise 4x or 5x, and there are going to be some bargains out there. If CCL starts to approach $5, we will be back to you with a more detailed assessment of our opinions.

If you have been making consistent money over the past month via active trading, then now is actually a great time for you. If you have not been consistently generating trading profits recently, now is a good time to slow down and prepare for potential career trades that can arise over the next year.

Finally, the Russian Ruble is extremely strong, with a dollar buying just $56 rubles versus $76 prior to the Russian special military operation:

The media reports on Russian weakness ignore the significant impact of the strong Ruble. You want grain or energy? Pay for it in Rubles and we will get more of your EUR & USD that before. Now Russia is expected to service foreign debt in Rubles as Russia's finance ministry is claiming that sanctions prevent them from making debt payments in USD.