AM Brew May 6, 2022

This morning's pre-market action is relatively quiet, which is welcome given the massive volatility of the last 2 trading days. Fear and caution seem to be prevailing, as the S&P500 futures are down -40 bps and Nasdaq futures are down -60 bps as of 7:00 a.m. By 8:55 a.m., things are even quieter with S&P500 Futures down -16 bps. Precious metals have caught a bit of a bid in the pre-market, and the FX markets are relatively flat. Crude is strong, breaching $110 on the upside and Crypto is weak with BTC sitting just above the critical $36,000 support level. Punters wanting a taste of risk assets might take a look at the BTC and Oil charts:

The question of the day is: what news would be a catalyst for getting long? Our take is that a few catalysts would turn things around:

• Putin overthrown or Russia pulls out of Ukraine

• Oil prices retreat to $75 a barrel

• The Federal Reserve ends the Tight Regime

• US Government Stimulus

• Massive earnings growth in Q2 ( reporting in July/Aug )

• Markets get dirt cheap and capital is compelled to flow in

Smart investors will wait until at least one of these actually happens. Markets are NOT dirt cheap. The S&P would have to fall another 20% for this to even be remotely close to cheap, and US 10-year yields would have to approach 6% to provide any type of real return normally required in fixed income. So we are not close to cheap. Massive earnings growth could happen but we have to wait another 80 or 90 days for confirmation, so investors will sit on the sidelines. US Government stimulus is not being talked about now, so no reason to be optimistic. They are too busy with trying to forgive debt, which is slightly stimulative but not enough to move markets. Energy retreating to $75 a barrel is one of the higher probability scenarios, but with China partially closed & poised to re-open, we doubt that this is in the cards until at least 2023. Russia will eventually reverse the Ukraine mistake, but that could take a decade.

We do not see any reason to get long anything right now. Often total consensus is wrong, but everyone agrees: there is no reason to get long anything right now. The skew on being a hero in this environment doesn't look great.

Pre-market action is a bit interesting today:

• TSLA up 1% on Shanghai production re-start optimism

• Chinese ADRs BABA, BIDU & JD all down 2%, no surprise there :-)

• PTON down: mgt trying to get PE to buy a 20% stake. Good luck with that but nobody will take a spin without more discount.

• NET down 9% despite raising full-year revenue guidance due to decelerating metrics. For a cloud company to raise some guidance then fall 10% is bearish for all of tech

• DBGI is an example of why you can't touch any micro cap with negative cash flow: down 50% after pricing a secondary in the hole. Generally the micro caps are investable every 8 or 10 years: April 2003, April 2009 and April 2020 were great times. Its another 5 to 10 years before this space makes any sense.

• SQ up 7% bucking the tech trend. Fade or stay away.

• Z down 6% but OPEN up 16% - so now electronic flipping is a good business? Memory refresh: Zillow exited electronic flipping & OPEN is an electronic flipper that got lucky with the Q1 rise in house prices. Fade fade fade Lol.

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