The Market Outlook for the Week Ahead, or Buy the Black Swans

It was truly the week from hell.

Three out of five days posted moves in the Dow Average of over 1,000 points or more. Dueling comments designed to worsen the trade war were tweeted daily. A trader really had to pedal hard to earn his crust of bread.

However, the strategy on how to deal with this hostile environment quickly became clear to all.

BUY THE BLACK SWANS.

For you can count on another tweet, newspaper headline, or White House leak to reverse the direction of the previous day. It was a license to print money.

There are a couple of key dates coming up which could produce big swings in the market.

On October 21, we get Netflix (NFLX) earnings after the close which are expected to be spectacular. The company has won the streaming wars but the shares have gone nowhere for four months. If we get a “Sell the news” which happens frequently these days with good reports, you should buy it.

We get the reverse with the Tesla (TSLA) earnings on October 22. This is going to be the quarter from hell for the EV business and if the Q3 produces a rally, you should sell into it.

On October 24, the government publishes the Consumer Price Index, curiously the only federal statistic that will be released this week. I think the White House wants to remove any roadblock to the Federal Reserve cutting interest rates on October 29. We already know from private sources that the jobs data is horrific.

On November 5, California holds a referendum as to whether it should redraw its election map, a response to a move already taken by Texas. If it wins, the Republicans will lose 5-10 seats. I don’t know if this will influence the stock market or not.

The vote will have a low turnout and will be decided by the greater Los Angeles area where half the Golden State’s 40 million population lives. The city is currently occupied by the US Army and the Marine Corps, and is the primary target of ICE deportations, and is paying 30% more for labor and materials to rebuild Pacific Palisades and Altadena. We’ll see how that goes.

Also on November 5, the Supreme Court hears cases related to the Trump tariffs.

I don’t believe the market can resume the bull market until the government shutdown ends. That won’t occur until the end of October or the end of the year. Until then, we will chop in a range with high volatility, an option trader’s dream come true.

No one is selling now for more than a day because they don’t want to miss getting rewarded by the great liquidity surge of 2026. That will include the resumption of quantitative easing, lower interest rates, AI, and yes, the actual printing of a lot more paper money. A little pain now, a lot of pleasure later.

And if you are looking for another reason to be bullish look no further than housing. It accounts for 20% of US GDP and has been moribund for four years. If lower interest rates prompt it to rejoin the economy it could add 10,000 points to the Dow Average alone. Take the recent selloffs in (DHI), (KBH), (PHM), and (LEN) as manna from Heaven.

One can’t help but be impressed by the fabulous earnings reported by financials last week, which beat in a major way in every single case. The reality is that banking is entering a Golden Age, with a major re-rating upward on the way.

Credit remains solid. Credit quality is better than expected and improving so default risk is falling. Private credit exposure remains a risk, which has seen ballistic growth over the past four years. Stocks are at highs and consolidation is working. Merger approval time has shrunk from 16 months to 6 months. Managements are really positive about their outlooks, as they always are. Banks are still 30% cheaper than the S&P 500, and interest rates are falling. Upside momentum lives.

Tariffs are running at $100 billion a quarter, or $400 billion a year. That is 10% of total US profits going to the government.

Finally, just to give you an insight into how fast the global economy is evolving, I will relay an experience I had while booking my summer cruise with Cunard from New York to Southampton.

For a start, Carnival, which bought Cunard in 1998 for $702 million (a steal), is closing their California sales office for all eight cruise lines they own and telling their telephone salespeople to work from home. Personal SpaceX Starlink devices are banned on board, but they lowered the price of their onboard Wi-Fi from $1,000 a week to $210 and it is much faster.

The bad news: Americans now have to get visas to visit England which to my knowledge have not been required since the Revolutionary War ended. This is a retaliation to America’s new visa requirements for all foreigners. You can get your “electronic transit authorization” at www.gov.uk . The other bad news? All the owners’ suites are sold out.

Finally, the prize for the interview of the week has to go to my old friend, Howard Marks of Oaktree Capital, who I have known for yonks and deeply respect. Valuations are high but can go higher. The psychology of a bubble top, where stocks can only go up, is nowhere near. The key to excellence in investing is open-mindedness.

To listen to the interview at length, please click here.

October is down +1.50% so far. That takes us to a year-to-date profit of +57.75%. My trailing one-year return rose to +82.55%. That takes my average annualized return to +51.14%, and my performance since inception reaches a new all-time high of +809.64%. These are all non-compounded numbers.

I entered the October 17 options expiration with a cautious 20% invested and 80% in cash. I stopped out of my position in Strategy Inc (MSTR) with a small profit after a 15% decline last week. Goldman Sachs (GS) and my short Tesla (TSLA) expired at max profit at the 4:15 close. I am now 100% in cash, awaiting the next market bottom where I will try to buy into the year-end rally.

Some 63 of my 70 round trips in 2023, or 90%, were profitable. Some 74 of 94 trades were profitable in 2024, and several of those losses were really break-evens. That is a success rate of +78.72%.

Try beating that anywhere.

Mad Hedge AI Market Timing Index Hits Six-Month Low, at 23. That means any new long you initiate here will have a 77% chance of making money on a one-month view. Any shorts you initiate have a 77% chance of losing money. The market should hit a short-term bottom in one or two days with the Volatility Index ($VIX) hitting a high of $30 in overnight trading in Asia.

The Trade War Escalates, as China imposes a raft of new retaliatory fees. The United States and China on Tuesday began charging additional port fees on ocean shipping firms that move everything from holiday toys to crude oil, making the high seas a key front in the trade war between the world’s two largest economies. A return to an all-out trade war appeared imminent last week, after China announced a major expansion of its rare earth export controls and President Donald Trump threatened to raise tariffs on Chinese goods to triple-digits.

Fed Beige Book Comes in Pretty Dour, reflecting sentiments from their meeting six weeks ago. The outlook changed little. Consumer spending is weakening, EV sales are up ahead of the expiration of tax subsidies, and international travel is down big. High-end consumers are still spending. Agriculture, energy, and construction are all down. Labor demand weak. Not exactly a report to run up the flagpole and salute.

US Import Taxes Hit $29.6 Billion in September, an all-time high and up 295% YOY. That is going to have to come out of your pockets and is also driving inflation upward. Interest payments on the National Debt have hit a record $970 Billion so far in the fiscal year. The piper is going to have to be paid someday.

Charles Schwab Books Record Profit, along with all other brokers. Schwab’s results offer an insight into the trends in the investment landscape, with its diversified business model spanning across brokerage services, asset management, banking, and other financial services. Buy (SCHW) on dips.

Goldman Sachs Q3 Earnings Rock, beating all expectations. The firm reported $2.66 billion in investment banking fees, a 42% surge from the same period last year, and revenue of $15.18 billion, its largest haul for that quarter in its history and its third highest overall for all quarters. Buy (GS) on dips.

Zions Bank (ZION) Takes a Big Hit, on fraudulent loans. The shares sank 6.4% after it disclosed a $50 million charge-off for a loan underwritten by its wholly owned subsidiary, California Bank & Trust in San Diego. It turns out that many of their customers are getting deported leading to mass defaults. These black swans from small banks can hit at any time, which is why I avoid them.

JP Morgan Earnings Beat. JP Morgan beat analysts’ estimates for trading and investment-banking fees, driven by a pickup in dealmaking and underwriting, with markets revenue climbing 25%. Investment banking fees rose 16%, adding $810 million to its reserves for potentially soured loans. Buy (JPM) on dips.

The Oil Glut Worsens, as a long-anticipated oil surplus is finally starting to emerge and is likely to depress prices, some of the world’s top commodity traders said. Brent oil has slumped 11% since late last month as the Organization of the Petroleum Exporting Countries and its allies — as well as nations outside the group — pour barrels into a market that’s widely viewed as facing an excess. The forward curve that traders use to gauge market strength is also painting a bearish picture in the US next year. Avoid (USO).

London Bullion Exchange Runs Out of Silver for Delivery, causing prices to go ballistic. Spot silver climbed as much as 3.7% above $52 an ounce, exceeding the old Hunt Brothers 1980 $50 high, while gold traded near $4,100, building on a record-breaking run of eight weekly gains. Platinum and palladium also jumped, amid signs that market stresses caused by surging investor demand are starting to spread to other precious metals. Silver could reach $100 an ounce in 2026.

Gold to Hit $5,000 an Ounce in 2026, says the Bank of America. Gold surged above $4,000 an ounce for the first time ever on October 8. Gold prices scaled to another record high at $4,079.62 on Monday as investors revved up their safe-haven bets after U.S. President Donald Trump renewed tariff threats against China, while expectations of U.S. interest rate cuts added to the metal’s allure. Buy (GLD) on dips.

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, October 20, the shutdown government will release no economic data.

On Tuesday, October 21, at 8:30 AM EST, the Redbook Index is released, a weekly, sales-weighted measure of same-store retail sales growth in the U.S., providing an early indicator of consumer spending trends.

On Wednesday, October 23, at 8:30 AM, the MBA Mortgage Applications are printed by the Mortgage Bankers Association.

On Thursday, October 24, at 8:30 AM, Existing Home Sales are released by the National Association of Realtors.

On Friday, October 25, at 8:30 AM, we get the Consumer Price Index, cherry-picked to be the only data point published by the US government this month. For reasons I can’t possibly imagine. At 10:00 AM, we obtain the Baker Hughes Rig Count.

As for me, I am often told that I am the most interesting man people have ever met, sometimes daily. I had the good fortune to know someone far more interesting than myself.

When I was 14, I decided to start earning merit badges if I was ever going to become an Eagle Scout. I decided to begin with an easy one, Reading Merit Badge, where you only had to read four books and write one review. I loved reading, so “Piece of cake”, I thought.

I was directed to Kent Cullers, a high school kid who had been blind since birth. During the late 1940s the medical community thought it would be a great idea to give newborns pure oxygen. It was months before it was discovered that the procedure caused the clouding of corneas and total blindness in infants.

Kent was one of these kids.

It turned out that everyone in the troop already had a Reading Merit Badge and that Kent had exhausted our supply of readers. Fresh meat was needed.

So, I rode my bicycle over to Kent’s house and started reading. It was all science fiction. America’s Space Program had ignited a science fiction boom during the early 1960s and writers like Isaac Asimov, Jules Verne, Arthur C. Clarke, and H.G. Wells were in huge demand. Star Trek came out the following year, in 1966. That was the year I became an Eagle Scout.

It only took a week for me to blow through the first four books. In the end, I read hundreds of books to Kent. Kent didn’t just listen to me read. He explained the implications of what I was reading (got to watch out for those non-carbon-based life forms).

Having listened to thousands of books on the subject, Kent gave me a first-class education and I credit him with moving me towards a career in science. Kent is also the reason why I got an 800 SAT score in math.

When we got tired of reading, we played around with Kent’s radio. His dad was a physicist and had bought him a state-of-the-art high-powered short wave radio. I always found Kent’s house from the 50-foot-tall radio antenna.

That led to another merit badge, one for Radio, where I had to transmit in Morse Code at five words a minute. Kent could do 50. On the badge below the Morse Code says “BSA,” which stands for Boy Scouts of America. In those days, when you made a new contact you traded addresses and sent each other postcards.

Kent had postcards with colorful call signs from more than 100 countries plastered all over his wall. One of our regular correspondents was the president of the Palo Alto High School Radio Club, Steve Wozniak, who later went on to co-found Apple (AAPL) with Steve Jobs.

It was a sad day in 1999 when the US Navy retired Morse Code and replaced it with satellites and digital communication far faster than any human could send. However, it is still used as beacon identifiers at US airfields.

Kent’s great ambition was to become an astronomer. I asked how he would become an astronomer when he couldn’t see anything. He responded that Galileo, inventor of the telescope, was blind in his later years.

I replied, “good point”.

Kent went on to get a PhD in Physics from UC Berkeley, no mean accomplishment even for sighted people. He lobbied heavily for the creation of SETI, or the Search for Extraterrestrial Intelligence, once an arm of NASA. He became its first director in 1985, and worked there for 20 years.

In the 1987 movie Contact, written by Carl Sagan and starring Jodie Foster. The movie was filmed at the Very Large Array in western New Mexico. The algorithms Kent developed there are still in widespread use today. I’ve never been there because I never had the time to drive an hour and a half down a dirt road.

Out here in the west, aliens are a big deal, ever since that weather balloon crashed in Roswell, New Mexico in 1947. In fact, it was a spy balloon meant to overfly and photograph Russia, but it blew back on the US, thus its top secret status.

When people learn I used to work at Area 51, I am constantly asked if I have seen any spaceships. The road there, Nevada State Route 375, is called the Extraterrestrial Highway. Who says we don’t have a sense of humor in Nevada?

After devoting his entire life to searching, Kent gave me the inside story on searching for aliens. We will never meet them but we will talk to them. That’s because the acceleration needed to get to a high enough speed to reach outer space would tear apart a human body. On the other hand, radio waves travel effortlessly at the speed of light.

Sadly, Kent passed away in 2021 at the age of 72. Kent, ever the optimist, had his body cryogenically frozen in Hawaii where he will remain until the technology evolves to wake him up. Minor planet 35056 Cullers is named in his honor.

There are no movies being made about my life…. yet. But there are a couple of scripts out there under development.

Watch this space.