The Market Outlook for the Week Ahead, or A Black Swan a Day

I’m writing this letter to you from Buenos Aires, the capital of Argentina. It was a grueling nine-hour flight down here from Miami. I slept through both meal services, so I landed starving. Here in the Southern hemisphere, the summer solstice has just passed, so it doesn’t get dark until 8:00 PM.

The people are thin, friendly, and most look like they just stepped off the boat from Europe. The streets are in terrible shape, jammed with traffic, with speed bumps every hundred yards. Steaks are to die for and dirt cheap.

From 1880 to 1940, Buenos Aires was one of the richest cities in the world as massive food exports supported a lavish lifestyle. The city became known as “The Paris of South America,” and the abundant Belle Époque buildings attest to this.

Then, in 1946, Juan Peron became president, and the wheels fell off as he diverted investment from agriculture into heavy industry and the military. The national debt soared, and the Argentine peso collapsed. Argentina became the poster boy for disastrous monetary policy.

Today, the inflation rate is 35%, down from 200%. Workers are paid weekly so they can spend it immediately, or they won’t be able to afford the soaring cost of food. A coffee at Starbucks is 8,000 pesos, a Big Mac is 14,100 pesos, and dinner for two at a modest restaurant is 100,000 pesos. Argentina has defaulted on its national debt no less than nine times. It was rescued from number ten a few months ago by a $20 billion loan from the US.

Washington, D.C., take note.

In the meantime, the US stock markets seem as confused as ever. A black swan a day isn’t helping, be it the attack on Venezuela, a potential takeover of Greenland, or the assault on Minneapolis. None of this is market-friendly.

Earnings seasons started out with a bang, with the banks all reporting great numbers. But only the investment banks Goldman Sachs (GS) and Morgan Stanley (MS), our top recommendations for the past six months, delivered good stock price performance.

The banks dragged because of Trump’s proposal to cap credit card interest rates at 10%. That will never happen, but if it did, it would deliver a major hit to bank earnings. (GS) and (MS) aren’t in the credit card business.

And while the main indexes are going nowhere, there is a definite rotation going on under the surface out of big tech growth and into small caps (IWM), industrials (XLI), and precious metals (GLD), (SLV). The markets are starting to behave like WWIII could break out at any time. Small caps are moving off a five-year base and should continue higher.

Software stocks continue to die a horrible death over fears that AI will eat their lunch. Money is pouring into AI hardware stocks for the time being.

Metals seem to be peaking here. Sometimes you just need to sit down and smell the roses, and take profits. We are well overdue for a 10%-20% correction. But the long-term forecasts for gold keep escalating, anywhere from $5,000 to $100,000. As I recall, Bitcoin forecasts similarly escalated to $1 million or better a year ago but eventually led to tears.

We get the Core PCE on Thursday, but at this point, government numbers are so corrupted that they have been rendered useless. The Bureau of Labor Statistics has laid off 80% of its staff, and most data just isn’t collected at all. Cities with no BLS staff are being marked as having zero inflation.

All Chinese goods have been taken out of the inflation calculation because, thanks to tariffs, they have the biggest price increases. The government shutdown provided massive disruptions, and there is another one on the way in a few weeks. It all puts our data on par with, say….Argentina.

Most portfolio managers are now relying on private data sources like the ADP weekly private jobs report, housing data from the National Association of Homebuilders, and the panoply of numbers out of Standard & Poor’s. You have to work with what you’ve got.

I closed out 2025 up +62.02%. That takes my average annualized return to +50.61%, and my performance since inception reaches a new all-time high of +813.96%. These are all non-compounded numbers. The past 24 consecutive months have all been profitable.

So far in January, we are down -0.34%.

I entered the New Year 100% in cash, waiting for the market to tip its hand on directions. That direction now appears to be up. I maintained longs in Apple (AAPL) and CrowdStrike (CRWD), taking advantage of 20% in both stocks. Both expire in four trading days on Friday.

That leaves me 20% long and 80% in cash awaiting the next market bottom, where I will try to increase risk. I am keeping risk to a minimum ahead of the Supreme Court decision on tariffs and a government shutdown on January 30.

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.

The Steaks are to Die for

Markets Tank on DOJ Criminal Investigation of Fed Governor Jay Powell, throwing Fed independence out the window. It’s really happening because Powell isn’t lowering interest rates fast enough. Powell was appointed Fed governor by Donald Trump. Good luck finding a new governor when prison time is on the table. Gold (GLD) rose 2% on the news.

As the US Withdraws, China is Taking Over. China has become the top provider of capital for new projects around the world, replacing the US. It may be why the Chinese stock market was up 44% last year, and the Chinese Yuan appreciated. Last week, the US resigned from dozens of international organizations. The US has retreated from the international scene, except for the three attacks on foreign countries in nine months. Uncertainty reigns supreme

Trump to Force 10% Caps on Credit Card Companies, forcing consumers into the hands of loan sharks, who charge much higher rates. Visa (V), where I was about to issue a trade alert to buy, plunged 5%. Master Card (MA) did the same. American Express (AXP) took an 8% hit.

Apple Ties up with Google’s AI to Power an Upgraded Siri. Apple (AAPL) plans to use a 1.2 trillion-parameter artificial intelligence model developed by Alphabet’s Google to help power a revamp of its Siri voice assistant. After an evaluation, the companies are finalizing a deal that would have Apple pay about $1 billion a year for access to Google’s technology, the report said. Buy (AAPL) on dips as a big AI announcement is coming.

CPI Comes in Soft at 2.7%, less than expected. With 80% of the Bureau of Labor Statistics employees laid off, cities where data is no longer collected are being marketed at zero. Chinese products are no longer countered where tariffs have caused high price gains. Go to Safeway to learn what the true inflation rate is.

Canada Bans US Alcohol Imports. Several Canadian provinces pulled US wine and spirits from stores after President Donald Trump started a trade war, costing American booze-makers millions of dollars in sales, with almost three-quarters of Canadians still supporting the initiative. They are suffering in Tennessee, which has lost most export markets just when they were taking off.

Weak Japanese Yen is Pushing Nikkei Upward. Tokyo has returned from holiday with a bang, rising 3% to an all-time peak as investors welcome a weakening yen and the chance of even more aggressive fiscal stimulus. South Korea and Taiwan also hit records, while China scaled ‌a four-year top. Going the other way, the yen hit record lows on the euro and Swiss franc and multi-year troughs on a range of others. The shortening of the yen helped save the dollar’s blushes as it climbed to 158.65 and steadied from Monday’s wobble.

Silver Tops $92 an Ounce, sending the miners soaring, as confidence in US monetary policy collapses. In pre-market trade, U.S.-listed shares of Hecla Mining (HL), which owns Greens Creek Mine in Alaska, one of the biggest silver mines in the world — jumped 4.2%. Endeavor Silver was 2.5% higher, while First Majestic Silver was last seen trading up 2.7%. Coeur Mining, the operator of the Rochester mine in Nevada, gained around 2.6%.

Saks Fifth Avenue Files for Bankruptcy. The company has been running out of cash and struggling to pay its bills since its acquisition of Neiman Marcus for $2.7 billion in 2024. Saks had struggled to line up bankruptcy financing because some investors were concerned the company would not be able to successfully reorganize. It’s another step towards the end of brick-and-mortar retail. Long a drainer of my wallet, it was where I made a last-minute buy of a white dinner jacket for a Queen Mary 2 Cruise.

Mortgage Refinance Demand Soars 40%, after ten-year interest rates briefly fall below 6.0%. Refinance demand, which is most sensitive to daily rate changes, was 128% higher than the same week one year ago.

US Retails Sales Beat in November, as motor vehicle purchases rebounded and households increased spending elsewhere. Retail sales rose 0.6% after a downwardly revised 0.1% drop in October, the ‌Commerce Department’s Census Bureau said on Wednesday. Retail sales, which are mostly goods and are not adjusted for inflation, are advancing 0.4% after being unchanged as previously reported. The Census Bureau is catching up on data releases after delays caused by ‌the 43-day government shutdown.

Goldman Sachs (GS) Blows Out Earnings, on record stock trading profits, sending the shares soaring. Goldman’s investment banking revenue jumps 25% in Q4. Fees from asset management hits record of $3.09 billion. Buy (GS) on dips.

Existing Home Sales Jump 5.1% from November to a seasonally adjusted 4.35 million units. Sales were up 1.4% YOY. Inventory stood at 1.18 million, down 18%, up 3.5% YOY to a 3.5-month supply. The median sales price was $05,000. Higher-end sales are selling better.

Morgan Stanley Surges on Investment Banking Windfall. Morgan Stanley investment banking revenue surges 47% in Q4, led by debt and M&A. Reported record annual revenue of $70.65 billion, equity trading revenue at new highs. Wealth management reaches $9.3 trillion in AUM, close to the $10 trillion long-term goal. CEO Ted Pick says the bank has excess capital but will be patient in considering acquisitions. Buy (MS) on dips.

Weekly Jobless Claims Fall, down 9,000 to 198,000. The number of Americans filing new applications for unemployment benefits unexpectedly fell last week, but the drop was likely due to ongoing challenges adjusting the data for seasonal fluctuations around this time of the year. The labor market remains in what economists and policymakers have termed a “low-hire, low-fire” state. Economists say President Donald Trump’s aggressive trade and immigration policies have reduced both demand for and supply of ‌workers. Businesses are unsure of their staffing needs as they invest heavily in artificial intelligence, which is curbing hiring.

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, January 19, markets are closed for Martin Luther King Day.

On Tuesday, January 20, at 8:30 AM EST, the ADP Private Employment Report weekly is announced.

On Wednesday, January 21, at 8:15 AM EST, the Pending Home Sales is disclosed.

On Thursday, January 22, Weekly Jobless Claims are published. We also get the Q3 GDP Final Report and the Core PCE.

On Friday, January 23 S&P Global Manufacturing PMI is published.

At 10:00 AM EST, we obtain the Baker Hughes Rig Count.

As for me, it has been a lifetime desire of mine to fly a Supermarine Spitfire, the Royal Air Force fighter that won the 1940 Battle of Britain.

When I lived in London 40 years ago, there were only 15 flying examples in the world owned by the RAF and a handful of British billionaires who only flew them themselves. They were just too valuable to lend out.

By comparison, there were over 200 American P51 Mustangs, which you could buy from the government for scrap for $500 after the war ended.

Now in 2022, there are 75 flying Spitfires. A global network of warbird enthusiasts has rescued them from bogs, jungles, and scrapyards around the world and restored them to flying condition. It helped that the market value of these planes has shot up from $1 million to $5 million since 1982.

So when a Mad Hedge Concierge member, Peter, offered me his Spitfire for a day, I couldn’t wait to return to England.

There are very few people in the world who can fly prewar tailwheel-configured airplanes. I have flown over a dozen different types. They are prone to ground loops, nose overs, scraping wing tips, and crashes. The airframes are usually made of Norwegian spruce and Irish linen, and the wings can fall off at any time.

No wonder the fatality rate was so high in the old days. It helped that I went armed with my old British Aerobatics license along with a phalanx of American civilian and military licenses.

It was a cool and blustery afternoon when I showed up at Biggin Hill south of London, one of the top RAF fighter stations during WWII, and told Peter, “Major John Thomas reporting for duty, sir.” He laughed and set about giving me my preflight briefing. Flying 80-year-old airplanes can be deadly. 70-year-old pilots are even more dangerous.

I was cautioned to move the stick gently as the controls are famously sensitive, thanks to the plane’s unique elliptical wing tips. No rudder was needed at all.

If the engine failed, I had the choice of parachuting out or risking a hard landing. I chose the latter, as Southern England is basically one big grass landing strip. Plus, I’ve had plenty of practice with this kind of maneuver.

For good measure, I brought along a safety pilot. They’ve moved the London control zone around a bit over the years, and I wanted to make sure you keep receiving the Mad Hedge newsletter for the indefinite future. We took off, banked right, and headed for the English Channel.

While the plaque on the control panel read “DO NOT FLY OVER 350 MPH”, I dared not go faster than 250 MPH, given the age considerations of both the plane and the pilot. Another plaque reading “EMERGENCY BOOST PUMP” was wired shut. The Merlin V-12 1,250-horsepower engine purred. Later versions of the plane with the 2,000-horsepower Griffin engine flew over 450 MPH.

The Spitfire could outmaneuver any plane the German Luftwaffe threw up against it. When Hitler asked my late acquaintance, Luftwaffe General Adolph Galland, what he needed to win the Battle of Britain, he replied, “A squadron of Spitfires.” German losses in the battle topped 2,000 planes versus 900 for the British.

But German crew losses were ten times that of the British. That meant an RAF pilot could get shot down and be in another plane in hours. That is what decided the Battle of Britain. The pilots were worth more than the planes. In the end, the British shot down two-thirds of the German Air Force, a loss from which they never recovered.

We found a clear piece of sky over the White Cliffs of Dover between two big, fluffy cumulus clouds and commenced a full-on aerobatic flight test. Pilots always want to see what I can do in these old planes, and this time was no different.

I executed multiple loops, barrel rolls, chandelles, lazy eights, Immelmann turns, and wing overs, careful never to exceed 1G lest, yes, the wings fall off. Spitfires can dive like crazy. We dropped from 8,000 feet to 2,000 feet in seconds.

While I was limited to one-inch moves of the stick, wartime diaries speak of full right, full left, and steep dives to escape marauding Messerschmitt 109’s and Focke Wulf 190’s, where pilots suffered 10G’s of force or more. The punishment those kids took was amazing.

The plane carried only two hours of fuel, so after I passed my test with flying colors, it was back to Biggin Hill. Spitfires lacked IFR instruments because in 1938, they hadn’t been invented yet, so we were careful to avoid clouds. I made a perfect three-point landing on runway 27, as usual, and taxied up to the hangar where Peter greeted me.

Back at the hangar, it took two men to haul me out of the plane, stinking, drenched with sweat, and elated. I felt like I had just done 15 rounds with Mike Tyson, but it was worth it.

Then it was off to the nearest pub for a well-earned pint of Guinness, as has long been the tradition of the RAF. The walls were adorned with the pictures of wartime Spitfire pilots who never made it back, some looking no older than teenagers, which they were.

That’s another bucket list item off the list. The time to get them all is running out, and I keep adding new ones, so I’d better get a move on.

I’ll be back next summer, for sure, because the commanding general of the RAF has invited me back to fly their sole surviving WWII Avro Lancaster four-engine bomber. It’s part of the Battle of Britain Memorial Flight, the fruit of contacts made during my NATO military duties. It is a national treasure.

It seems they’re short of pilots.

To watch a two-minute video of my epic flight, please click here.