The Market Outlook for the Week Ahead, or Abandon Ship!

I am writing to you offshore from the Falkland Islands near the east coast of Patagonia in Argentina, at 51 degrees south latitude, 59 degrees west longitude. I just completed a hike to the highest peak in the islands, some 2,313 feet, and it was damp, cold, and windy. So, it will take some time for my hands to thaw out.

During my recent stay in Buenos Aires, I met with Concierge client Jose, the richest man in the country. Jose is quite a character and matched me story for story. He described how he gamed the black market for currencies during the 1980’s when the inflation rate was 200%, and the peso was collapsing. He went on about his many businesses around the world, from hotels to health care.

I thought asking the wealthiest man in the country where to invest now would be a good idea. Juan didn’t hesitate: Brazil. The country’s overnight interest rates are now at 15% and are expected to drop by 3% or more this year, and we all know that stock markets love falling interest rates. Thanks to the trade war, Brazil has replaced the US in agricultural exports to China.

This has caused the Brazilian Real to boom, which rose by 15% last year and is expected to accelerate this year. When investing abroad, rising currencies and rising share prices create a hockey stick-type leveraged effect on profits. There is also an election this year, and a more business-friendly candidate is expected to win.

Emerging Markets (EEM) were my second-best performing pick in 2025, after gold (GLD) and silver (SLV), and 2026 will provide more of the same. The US dollar is still in free fall. America’s international trade is on a self-destruction course. Other countries are lapping up the business.

How to play Brazil?

The easy way would be just to go out and buy the iShares MSCI Brazil ETF (EWZ), which was up an easy 50% last year. It has picked up another 22% so far this year. Its three largest holdings are NU Holdings (digital banking), Vale (iron ore and nickel mining), and Itaú Unibanco Holdings (banking).

I asked Juan what else he was buying these days. Again, he didn’t hesitate.

Rhodium.

Looking at the markets from my perch on the other side of the world, it is abundantly clear that investors are running for the hills (headed out to sea?). The technical damage is bad and getting worse.

The S&P 500 (SPY) is now below its 50-day moving average with a negative RSI (Relative Strength Index). It can’t seem to hold on to a rally for more than a day or two, and the moves down are traumatic. Closing the week with a Volatility Index over $20 is a clear SOS signal.

Defensive, get out of Dodge type sectors continue to lead, as they have done all year. These include Consumer Discretionaries (XLP), Utilities (XLU), REITs (XLRE) on falling interest rates, Energy (XLE) on the Venezuela play, Homebuilders (XHB) on falling rates, and Basic Materials (XLB) on the AI build out.

AI replacement and overbuilding have become a major market theme. It first infected software stocks like Salesforce (CRM) and has recently spread to financials (XLF), Logistics (LSTR), and even trucking (JBHT). Only regional banks held up, the last financial sector that will probably employ humans. Consumer Discretionary (XLY) keeps getting killed.

The flight to yield through safer high dividend stocks is evident. Johnson & Johnson (JNJ), Colgate (CL), O Realty Income (O), and NextEra Energy (NEE) have all had great moves. If you want to play this sector via an ETF, try (SCHD), which has risen a ballistic 20% so far this year.

Another sign that a market is in trouble is how poorly it reacts to good news. The Dow should have been up 1,000 points on Friday when the Consumer Price Index came in at a modest 2.4% for January, down 0.3% from the previous month.

Instead, the rally lasted only 15 minutes because nobody believed the numbers, and the Index managed only a measly 49-point gain. Is the CPI falling because tariff-induced inflation has been tamed or because the US economy is sliding into recession?

Abandon ship!

February stands at +0.25%. My 2026 year-to-date number remains at +2.22%. That takes my trailing one-year return to +59.06% and my average annualized return to +50.48%, and my performance since inception reached a new all-time high of +816.18%. These are all non-compounded numbers. The past 24 consecutive months have all been profitable.

With the market topping out, short positions are begging for attention. But who wants to sell short in front of falling interest rates, a weak currency, and the biggest government stimulus since WWII? That is the dilemma facing most traders today.

Some 65 of my 79 round trips in 2025 were profitable. That is a success rate of 82%. We were up every month for the second year in a row in one of the most difficult trading years in market history.

Try beating that anywhere.

Inflation comes in Soft, at 2.4%. Wall Street got a degree of relief as relatively tame inflation data spurred bigger bets on Federal Reserve rate cuts, with bond yields falling and stocks rising at the end of a wild week for markets. Bitcoin jumped 5%. Treasuries climbed across maturities, with two-year yields dropping toward their lowest since 2022. Money markets priced in higher chances that the Fed will slash rates more than twice this year. Economically sensitive sectors outpacing technology. The Russell 2000 small-cap index climbed 1.9%. The US Dollar underperformed most major currencies.

Software Selloff Spreads to Apollo and Blackstone. Alternative asset managers, which mainly invest outside traditional stock and bond markets, have not been able to shake off fears that emerged late last year about risks in private credit. Now, a selloff in software stocks has driven the money managers’ own shares still lower, despite billions of dollars of new client money and a resurgence in mergers and acquisitions that analysts say should translate to more revenue and profit.

Buy the Gold Pullback, says Wells Fargo, expecting the bull market to resume soon. The recent pullback appears to be a healthy correction after an exceptionally strong run. Gold also traded over 30% above its 200-day moving average from January 22 to January 29, a difficult level to maintain and one that has often triggered profit-taking. A period of consolidation usually follows such rapid gains.

Gold Surpasses Tech Stock Value for the First Time. All the gold in the world is now worth $42 trillion, while tech stocks are worth only $40 trillion. Which would you rather buy more of as an asset protection strategy? I vote for the barbarous relic.

CBO Raises National Debt Projection by $1.4 Trillion over 10 years. That takes the national debt from 101% to 120% of GDP. The deficit will be 5.6% of GDP in 2026. Job growth was zero in 2025, the worst since the Pandemic and the Great Recession before that. That is not what strong economies are made of.

Existing Home Sales Dive 8.4% in January, the worst report in three years. Inventories are up 3.4% YOY to a 3.7-month supply. The median home price is $396,800. It’s taking 46 days to sell a house versus 41 days a year ago. First-time buyers jumped from 28% to 31%. The West saw the biggest drop.

A Delayed Nonfarm Payroll for January comes in at 130,000, down 50% YOY, and the headline unemployment rate is at 4.3%. The January data reinforces Federal Reserve officials’ inclination to keep interest rates on hold for now, with many traders pushing out their timeline for the next rate cut to July from June.

Tariffs Cost States $200 Billion. New data shows that from March 2025, when the Trump administration began implementing wide-ranging tariffs, through last November, tariff bills paid across U.S. states reached the $200 billion mark collectively, and top states in 2026 midterm election races paid over $134 billion.

Crypto Speculation May be Dead, says whale Michael Novogratz. Bitcoin is down more than 21% so far this year, and nearly 50% from its peak in October. Precious Metals are stealing all the thunder. It’s going to be real-world assets with much lower returns. Avoid all crypto.

US Retail Sales Stall for Christmas. U.S. retail sales were unexpectedly unchanged in December as households scaled back spending on motor vehicles and other big-ticket items, potentially setting consumer spending and the economy on a slower growth path heading into the new year. The Commerce Department also revised down retail sales for October, suggesting consumer fatigue amid rising cost-of-living challenges that have been partly attributed to higher prices due to tariffs on imports. The weak report, together with a marginal rise in business inventories, prompted economists to downgrade their economic growth estimates for the fourth quarter.

Consumer Delinquencies Hit Decade High, on loans rising to 4.8% of all outstanding US household debt in the fourth quarter. The rise in defaults was driven by delinquencies in mortgage payments, particularly in lower-income zip codes, and student-loan delinquencies. Overall household debt balances climbed 1% from the previous quarter to $18.8 trillion, with the share of credit-card loans at least 90 days delinquent rising to 12.7%.

Boeing is Beating on Deliveries. Boeing begins 2026 with 46 deliveries in January and 103 net new orders. US planemaker beat Airbus in deliveries and orders in January. Boeing landed big orders from Delta and Aviation Capital Group in January. Buy (BA) on dips.

Japanese Conservative Election Win Sends Nikkei Soaring, topping 57,000. The ruling Liberal Democratic Party captured a two-thirds supermajority in the 465-seat lower house, public broadcaster NHK reported. A decisive win for Takaichi could be the “best outcome” for markets over the medium term, as strategic investments and tax reform bolster equities.

Alphabet to Issue 100-Year Bond to finance AI build out, in the first such issue since the 1990’s. The 100-year bond will be denominated in sterling, and the main buyer is expected to be insurance companies and pension funds. The sale is part of a larger debt issue by Alphabet, which is raising funds to finance its ambitions in artificial intelligence, with capital expenditures expected to reach as much as $185 billion this year.

My Ten-Year View – A Reassessment

We have to substantially downsize our expectations of equity returns over the next four years. My new American Golden Age, or the next Roaring Twenties, is now looking at multiple gale-force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old. My Dow 240,000 target has been pushed back to 2035.

On Monday, February 16, is Presidents’ Day, and markets are closed.

On Tuesday, February 17, at 8:30 AM EST, the ADP Private Employment Report weekly is announced.

On Wednesday, February 18, at 2:00 PM, the US Housing Starts are released. At 2:00 PM, we also get the FOMC Minutes.

On Thursday, February 19, Weekly Jobless Claims are published.

On Friday, February 20, the Personal Consumer Expectations is printed. We also get an update to the Q3 US GDP. At 10:00 AM, we obtain the Baker Hughes Rig Count.

As for me, I had the good fortune to live with a Nazi family in West Berlin during the 1960’s. While working at the Sarotti chocolate factory in Templehof, my boss took pity on me and invited me to move in with his family. I jumped at the chance of free rent and all the German food I could eat.

What I learned was amazing.

Even though the Germans had lost WWII 20 years earlier, they still believed in the core Nazi beliefs. However, they loved Americans as we had saved them from the Bolsheviks, especially in Berlin. President Kennedy had delivered his famous “Ich bin ein Berliner” speech only seven years earlier.

There have been thousands of books written about wartime Germany, but almost none about what happened afterwards. I absorbed dozens of stories from my adopted German family, and I’ll tell you one of the most unbelievable ones.

In the weeks after the German surrender on May 7, 1945, Berlin was shattered. The city had been the subject of countless 1,000-bomber raids, and the population had shrunk from 5 million to only 1.5 million. Most of the military-aged men were absent. Survivors were living under the rubble.

What’s worse, everyone knew that the Allies would soon declare the German currency, the Reichsmark, worthless and replace it with a new one, wiping out everyone’s life savings. So, they had to spend it as fast as they could. But with the economy in ruins, there was nothing to buy. In any case, the only thing they really wanted was food, which they could get on a thriving black market.

It turned out that there was only one thing they could buy in unlimited quantities:

Movie tickets.

When Hitler came to power in 1933, one of the first things he did was ban American movies. The industry was taken over by propaganda minister Joseph Goebbels, who only permitted propaganda films promoting Nazi values for domestic consumption.

The only American film permitted in Germany during the 1930’s was The Grapes of Wrath because it highlighted U.S. weaknesses. Movie production was shut down completely in 1943 because of the war’s demands on supplies.

When the war ended, suddenly, the iconic movies of the Great Depression became available, such as the works of the Marx Brothers, Shirley Temple, The Wizard of Oz, Gone with the Wind, and King Kong.

Impromptu movie theaters were thrown up against standing walls of destroyed buildings. Within two weeks of the surrender, half of Berlin’s prewar 550 theaters had reopened. Of a population of 1.5 million, 850,000 movie tickets were sold every weekend. The summer of 1945 became one long film festival. The Germans laughed, cried, and were enthralled.

Every weekend was a sellout. The only movie that bombed that summer was a U.S. Army documentary about the concentration camps. But even that one sold 400,000 tickets.

The movies had a therapeutic effect on the German people. It distracted them from their daily privations, starvation, and suffering. It also allowed them to reconnect with Western civilization. Ask any Berliner about what they did after the war, and all they will talk about is the movies.

The Allies finally withdrew the Reichsmark in 1948. Individuals were only permitted to convert $40 out of the old currency into the new Deutschmark, which was then worth 25 cents. Only those who had title to land maintained their wealth, and most of those were farmers in the new West Germany.

I hope you enjoyed this little fragment of unwritten history, which I find amazing. But then, I find everything amazing.