The Market Outlook for the Week Ahead, or The Government Shutdown is Here 

It looks like the government is going to shut down again for the tenth time since 1976. Whereas earlier shutdowns elicited panic in the markets, this time, we are getting little more than a snore. On average, the S&P 500 index has been virtually unchanged during previous government closures.

The biggest decline we have ever seen was the 4.9% hickey in October 1979 over the abortion issue and congressional pay rises. Investors have long since been trained like Pavlovian dogs that closed governments always reopen. Once the money flow out of Washington, DC to the heartland stops, you can measure its resumption with a stopwatch.

What a shutdown does is choke off the supply of government data right when it is most crucial. Those include releases for Weekly Jobless Claims, monthly Nonfarm Payroll Reports, and all important inflation data like the Consumer Price Index. The longest shutdown was for 35 days in 2018 during the first Trump administration. That was overfunding for a border wall with Mexico, so we may be in for another long one.

Can the Federal Reserve cut interest rates when the government is closed? I doubt it. The next Fed meeting is on October 29, in 28 days.

It’s easy for investors to be complacent. Current government policy is to hire an Arthur Burns clone whose greatest achievement was to cut the Federal funds rate from 12.9% to 5.5%. A new Fed governor from next May is likely to also resume “Quantitative Easing” through massive long-term bond buying, taking the Fed balance sheet from the current $6.6 trillion to $10 trillion or higher.

“Quantitative Tightening,” aimed at taking the Fed balance sheet down to zero, was abruptly halted in the spring. This will create so much cash that there will be nowhere else for it to go but the stock market.

If you don’t know what “Quantitative Easing” is, please click on the link below to watch a six-minute animation explaining quantitative easing to a 12-year-old, using cute little cuddly figures. It is a remnant from the last time the Fed tried quantitative easing, which ended in 2022. Is Trump really trying to blow up the entire world economy?

Since the video has gone viral, some 6 million viewers have found out by clicking here.

What should we be buying ahead of the next great explosion in the money supply? Last week’s rotation told us a lot. The trade was simply out of expensive and into cheap. That meant selling off the Magnificent Seven tech stocks and bitcoin and buying all the interest rate plays, precious metals, and energy sectors, which I have been pushing for months. Even despised pharmaceuticals caught a bid, despite a new 100% tariff on imported drugs designed to put them out of business.

And if this rotation continues, with the Mag Seven going to sleep and domestic recovery plays racing to new highs, the stock market indexes (SPY), ($INDU), (IWM) could easily reach lofty new highs in 2026.

I received several calls from Concierge members this last asking if the recent weakness in Visa (V) and Master Card (MA) is a signal to get back in. I have been trading these stocks from the long side for a decade, as they are the perfect money-making machines.

However, not so fast this time.

The companies are under threat from a new raft of stablecoins coming out this year, which promise to do what credit card companies do, except stablecoins do it for free or token amounts of money. (V) and (MA) could do this as well, but it would mean sacrificing their own hefty 1% processing fees.

This may take a long time to play out, but traders are worried about it right now. Only American Express (AXP) shares have continued rising because they have an enormous 3% fee hated by all merchants, supported by a plethora of international travel services which I have been using myself for 60 years. There are just too many better fish to fry right now, like other interest rate plays.

It is interesting to note that Berkshire Hathaway has recently rejoined the party. For decades, investors worried about how much of a premium the stock commanded just because of Warren Buffett’s presence. It turns out that the premium was 20%. Now that this unknown is gone, the stock has rejoined the rally. The company is still using the same winning investment strategy, just with faces that are 40 years younger.

What is gone for good is Buffet’s sterling reputation, which enabled him to scoop up fantastic bargains during perennial market crises unavailable to anyone else. I would have picked up 10% yielding Goldman Sachs convertible bonds at the 2009 market bottom in a heartbeat. I bet you would too.

It’s not very often that coal is the top-performing sector in the market, but that was the case last week, up 4%. Peabody Energy (BTU) was in free fall as recently as April and was looking like an imminent bankruptcy candidate.

It isn’t just coal that has come back from the dead. Natural gas (UNG) looks like it has finally put in a bottom, thanks to an unusually cool summer on the West Coast. Uranium stocks (CCJ) have gone ballistic. Oil stocks (XOM), (OXY) are crawling off a very long period of underperformance. Duke Energy (DUK) has just had a tremendous run.

Even some solar stocks have been on fire (TAN), (FSLR), and that is in the face of the administration wiping out every green energy subsidy out there.

What do all of these subsectors have in common? They are all used to produce electricity.

This all warns us that a major threat to the US economy is setting up just over the horizon. The demands for electricity by Artificial Intelligence are so great, they are about to crowd out the rest of the economy.

AI providers can pay anything to get the power they need, as energy costs are minuscule compared to the revenues they can generate, which is in the trillions of dollars. Consumers, on the other hand, are already getting priced out of the market after several years of back-to-back 10% a year price increases.

Having covered the sector for 50 years, I am well aware of its shortcomings. For a start, it is impossible to bring on a large supply of new electricity in a hurry. New coal mines, oil fields, solar arrays, and power plants can take a decade to bring online. That means those companies that are already locked in reliable long-term supplies are sitting pretty, and so are the above stocks.

We may be about to enter the golden age of electric power generation.

As for me, I’ll be just fine. My 31.865 KW (DC), 72 solar panel array with six Tesla 2.0 13.5 KW PowerWalls has made me grid-independent since 2015. In fact, PG&E sends me a check every year for the excess electricity I sell them. And the government paid for a third of it with generous tax subsidies. You can come by any time you want to charge your laptop or smartphone. The cost is one bottle of wine per device.

I prefer a 2014 Camus Cabernet.

My September performance closed out at +2.21%. That takes us to a year-to-date profit of +56.01%. My trailing one-year return rose to +87.14%. That takes my average annualized return to +51.02%, and my performance since inception reaches a new all-time high of +807.90%. These are all non-compounded numbers.

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-even. That is a success rate of +78.72%.

Try beating that anywhere.

Core Inflation Holds Steady at 2.9%, allowing a sigh of relief for stocks. The Personal Consumption Expenditures Price Index posted a 0.3% gain for the month, putting the annual headline inflation rate at 2.7%, the Commerce Department reported Friday. Excluding food and energy, the more closely followed core PCE price level was 2.9% on an annual basis after rising 0.2% for the month. The headline annual inflation rate was a slight increase from 2.6% in July, while the core rate was the same.

The Options Market is Turning Hyper Bullish, with trading volume hitting a new all-time high after the Fed meeting, mostly on the call options side. Big-cap tech names are leading. Out-of-the-money calls are now showing an inverse skew, which means they are more expensive than at-the-money, from 3% to 12%, which is unheard of.

GDP Comes in Hot, showing a gain of 3.8% in the second quarter, up half a percentage point from the prior estimate due to an upward revision to consumer spending. That’s the fastest pace in two years. Long-lasting items such as airplanes, appliances, and computers increased 2.9% in August, compared with the forecast for a decline of 0.4%.

Existing Home Sales Fall -0.2% in August, and up 1.8% YOY. These figures are based on June and July closing when interest rates were 0.50% higher. Inventories are down 1.3% to a 4.6-month supply after rising all year. The median price sold is at $422,600, up 2% YOY. Homes are staying on the market for 31 days versus 26 days a year ago. Thirty-year mortgages are at 6.37%.

New Home Sales Rocket 20% in August on falling interest rates. It is also the largest one-month gain since August 2022. Sales were 15.4% higher than in August 2024. This count is based on people out shopping in August and signing deals, when the average rate on the 30-year fixed mortgage was higher than it is today. That rate started in August at 6.63%, according to Mortgage News Daily, and didn’t really move much during the month.

Is Gold the New “Safe” Asset? The barbarous relic has rallied in every bear market of the last 50 years. Bitcoin matched the downside 70% of the time. You decide what is “safe”.

US Consumer Spending Powers On, US personal spending rose at a solid clip in August for a third month, suggesting consumers continued to power the economy despite elevated inflation. Consumer spending, adjusted for changes in prices, increased 0.4% last month, according to Bureau of Economic Analysis data on Friday. Never underestimate the ability of Americans to spend money.

OPEC+ Oil Production Falling Below Target. OPEC+ has delivered about 75% of the extra oil output it targeted since the group started production hikes in April, and the level may fall closer to 50% later in the year as producers hit capacity limits. OPEC+, which produces 50% of global oil and brings together the Organization of the Petroleum Exporting Countries and allies such as Russia, has been pumping almost 500,000 barrels per day below its targets. The shortfall, equal to 0.5% of global demand, has defied market expectations of a supply glut and supported oil prices.

Weekly Jobless Claims Surprise at 218,000, down 14,000 from the prior week’s upwardly revised figure and significantly less than the consensus estimate for 235,000. Two weeks later, bad Texas data is still rippling through the system.

Freeport McMoRan Halts Exports of Copper from Indonesia, knocking the stock down 10%. It temporarily halted mining in Indonesia’s Grasberg mine after a large flow of wet material blocked access to parts of its underground mine, restricting evacuation routes for seven workers. The incident occurred late on Monday at one of five production blocks in the Grasberg Block Cave underground mine in Central Papua, the company said. Buy (FCX) on dips.

China Announces Construction of 17 New Nuclear Power Plants, in addition to the 100 they already planned. The Middle Kingdom intends to become the world’s largest nuclear producer. Buy (CCJ) on dips.

My Apple LEAPS are up 60% in Three Weeks. I’m referring to the December 2026 $230-$240 vertical bull call debit spread I sent out to all of you on September 6th. LEAPS are the killer trade in the business and what every options market maker executes for their personal accounts.

$100,000 H1B Data Fee to Cost US Tech $14 Billion, and is causing turmoil in the tech industry. Amazon alone has 10,000 of these. Foreign workers rushed back to the US to avoid getting barred from the US, causing chaos at airports. More than 141,000 H1Bs were issued in 2024, adding to a total of 400,000, including some for the Mad Hedge Fund Trader. Silicon Valley has relied heavily on H1Bs for decades to make up for the shortfalls of the US education system. It puts small companies at a real disadvantage; they can’t afford the punitive fees.

Uranium Prices Hit New All-Time High, and shortages threaten the new nuclear renaissance. Demand for yellow cake is expected to rise by a third to 86,000 tonnes by 2030, and 150,000 by 2040, according to the World Nuclear Association. The explosion of AI will soon be causing electricity shortages and brownouts in the US. Yellow cake has been in short supply since Russia, which carries out much of the world’s processing, invaded Ukraine. Buy (VIST) and (CCJ) 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, September 29, at 8:30 AM EST, Pending Home Sales are out.

On Tuesday, September 30, at 8:30 AM, the S&P Case Shiller National Home Price Index is announced. We also get the JOLTS Job Openings Report.

On Wednesday, October 1, at 8:30 AM, the US Government Shuts Down for lack of funding. No new economic data will be released from now on, except from private sources. The ISM Manufacturing Index is out at 8:30 AM EST.

On Thursday, October 2, we get Weekly Jobless Claims, but only if the government reopens.

On Friday, October 3, at 5:30 AM, we get the Nonfarm Payroll Report for September, but only if the government reopens. At 10:00 AM, we obtain the Baker Hughes Rig Count.

As for me, during the 1980s, my late wife and I embarked on a National Geographic Expedition to the remote Greek islands, including Santorini, which in those days didn’t have an airport.

At dinner, we sat at our assigned table, and I noticed that the elderly gentleman next to me spoke the same unique form of High German as I did. I asked his name, and he replied, “Adolph.”

And what did Adolph do for a living? He was a pilot. And what kind of plane did he fly?

A Messerschmitt 262, the world’s first combat jet fighter.

What was his last name? Galland. Adolph Galland.

I couldn’t believe my luck. Adolph Galland was the most senior Luftwaffe general to survive WWII. He was one of Germany’s top aces and is credited with 109 kills. He only survived the war because he was shot down during the final weeks and ended up in a military hospital.

And that was the end of the cruise for the rest of the table, as Galland and I spent the week dominating the conversation with the finer points of flying aircraft from the 1930s.

It was made especially interesting by the fact that I had already flown most of the Allied planes that Galland went up against, including the P-51 Mustang and the Spitfire.

Galland started life as a Versailles Treaty glider pilot and joined the civilian airline Lufthansa in 1932. He transferred to the Luftwaffe in 1937 to fight with Franco in the Spanish Civil War and participated in the invasion of Poland in 1939.

He flew a Messerschmitt 109 as cover for German bombers during the Battle of Britain. In 1941, he was promoted to the general in charge of Germany’s fighter force until 1945, when he was sidelined due to his opposition to Goring and Hitler.

It was a fascinating opportunity for me to learn many undisclosed historical anecdotes. Germany actually had a functioning jet fighter in 1939. But Hitler, with a WWI mindset, diverted development money to twin-engine bombers and artillery.

Krupp A.G. eventually produced the Heavy Gustav, a cannon 150 feet long that weighed 1,500 tons and fired a monster 31-inch-wide, 12-foot-long shell. It was so heavy that it needed double railroad tracks to move anywhere. It required several hundred men to operate. The canon was virtually useless in a modern war where mobility was essential and was a colossal waste of money. Galland believed the decision cost Germany the war.

The ME 262 was a fabulous plane, far ahead of its time. But it was too little too late. Of the 1,000 produced, 500 were destroyed on the ground, and most of the rest were shot down during takeoff and landing. Squadrons of American fighters would spend all day circling over their fields.

A big problem with the plane was that its jet engines were made out of steel and would only last ten hours. Turkish titanium needed for longer-lived engines was embargoed by the allies.

Today, a beautiful example hangs from the ceiling of the Deutsches Museum in Munich.

Galland negotiated the handover of his jet fighter wing to the Americans from a hospital bed so they could be used in what he believed was an imminent war against the Russians. The atomic bomb ended that idea.

Galland was one of the few German generals never subjected to a war crimes trial. Pilots on both sides saw themselves as modern knights of the air with their own code of conduct. Parachuting pilots were never attacked, and lowering your landing gear in combat was a respected sign of surrender.

After the war, Galland emigrated to Argentina to train Juan Peron’s Air Force. He also taught the Royal Air Force how to fly their new Gloster Meteor jets. He participated in the 1972 film, The Battle of Britain, and many WWII memorials. By the time I met him, his eyesight was failing. He died in 1996 at 84 of natural causes.

I give thanks to the good luck I had in meeting him, and that I had the history behind me to understand the historical figure I was sitting next to. It isn’t everyone who gets six dinners with Germany’s top fighter ace.

A year later, I saw myself on a top-secret mission flying from Cyprus back to the American air base at Ramstein in Germany. I plotted my course directly over Santorini.

When I approached the volcanic island, I put my Cessna 340 into a steep descent, dove straight into the mouth of the volcano, and leveled out at 50 feet above the water, no doubt terrifying the many yachts at anchor.

Greek Military Air Control gave me hell, but it was my own private way of honoring my memory of Adolph Galland.

Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader