Welcome to Kingstown

The Credit Strategist - 2026 Outlook - Jan 2026 Issue

2026 Outlook

Welcome to Kingstown

“In this world, five percent of people are truly good. Five percent are evil. The rest of us, we wrestle between the two. Who we are, what we are, what we’re willing to do.”

Mike McClusky, Mayor of Kingstown

In the television series Mayor of Kingstown, Mike McClusky (brilliantly portrayed by actor Jeremy Renner) tries to keep the peace among warring factions inside and outside the prisons that constitute Kingstown, Michigan’s primary industry. He manages this bloody task by cutting deals with prison gangs; prison guards; the local police department; the district attorney; and the street gangs terrorizing the city. As a former prisoner himself, and a member of the family that kept peace for decades in Kingstown, Mike exercises power and moral authority in an immoral world by judiciously using violence and persuasion while placing himself and his family at great personal risk.

Mayor of Kingstown vividly portrays uncomfortable truths about our world. Brilliantly written and acted, its violent, unforgiving, cut-throat universe reflects the vicious, ugly, and at times violent nature of American politics as well as the amoral, backstabbing character of financial markets. Mike McClusky spends his days dealing with bloodthirsty killers whose promises are etched in blood. His world is different in degree, but not kind, from politics and finance where people lie without compunction and betray each other at the first chance they get.

That is hardly a happy note on which to open my forecast for next year’s financial markets, and certainly contrary to the happy talk dominating Wall Street these days. But we live in Kingstown, not Mayberry. Our government is propping up the economy on a tissue of lies and borrowed money while driving it straight into another financial crisis. Rather than address problems staring it in the face (unsustainable debt burdens, dangerously widening wealth inequality, rising inflation, etc.), it keeps borrowing trillions of dollars that it knows can never be repaid. And it does so while exhausting its diminishing credibility by generating phony economic statistics and engaging in political battles over minor matters meant to distract from the train wreck caused by years of incompetence and corruption. The confidence game can no longer hide the consequences of its failures; it can only delay them.

Without government support, markets would collapse. Trillions of dollars of fiscal and monetary stimulus drive stock and bond prices higher. But those prices are illusory and unsustainable. Individual stocks and bonds are still affected by the performance of underlying businesses, but many trade at inflated valuations due to their ability to attract capital through passive vehicles like ETFs and the willingness of investors to suspend disbelief and discount the future into infinity.

My forecast for the year ahead is based on my belief that we are living in Kingstown and that market stability is an illusion. A market crisis is still several years away (Ray Dalio places it at three years, I place it in the three-to-five year range), but the conditions for a crisis are deeply embedded and worsening by the day. They are based on the growth of unsustainable public and private sector debt. That is why I repeatedly urge readers to buy gold and save themselves. Further, everyone should avoid investing in places that treat them like the inmates in Kingstown’s prisons which are dark, ugly, dangerous places that many won’t leave alive.

With that introduction, the following should be treated as a thought-piece regarding the major trends and biggest issues facing markets in the year-ahead. Feedback is encouraged and appreciated either directly or through Substack Notes.