Excess Returns

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In this episode, Cem Karsan returns to Excess Returns to break down the market through the lens of liquidity, reflexivity, and options-driven market structure. We cover why he believes we are in a bubble but still early in its trajectory, the mechanics behind today’s volatility dynamics, the role of AI spending in sustaining the cycle, and why traditional 60/40 portfolios may face major challenges in the years ahead. Cem also explains how investors should think about tail risk, true diversification, and building portfolios for a world where liquidity flows dictate outcomes.

Main topics covered

• ​Why we are in a bubble but still likely to go higher first
• ​Fundamentals vs liquidity as drivers of returns
• ​Options as the “3-D” market and how they now drive equities
• ​Reflexivity and how option flows influence asset prices
• ​Retail adoption of options and misperceptions in the space
• ​AI investment boom, tail risks, and market liquidity feedback loops
• ​Historical valuation regimes and recency bias in markets
• ​Portfolio construction beyond the 60/40 model
• ​Tail hedging and the role of long volatility
• ​Importance of true diversification and managing interest-rate risk

Timestamps00:00 Bubble dynamics and why being bullish can coexist with danger 03:00 Fundamentals vs liquidity as market drivers 08:00 Rise of options and how they now influence markets 14:00 Reflexivity explained in simple terms 19:00 Mistakes investors make with options and structured products 24:00 AI spending, liquidity expansion, and similarities to 1999 31:00 Tail risks, China/Taiwan, private markets, inflation signals 38:00 Why 60/40 has worked recently – and why it may fail ahead 52:00 Inequality, cycles, crisis as a clearing mechanism 54:00 Building a portfolio for the next decade: diversification, tail hedging, box spreads, and non-correlated strategies 1:04:00 Closing thoughts and takeaway for investors

Kai Wu of Sparkline Capital joins Excess Returns to discuss his paper Surviving the AI CapEx Boom. In this episode, Kai breaks down the unprecedented level of investment in AI infrastructure, why today’s AI buildout mirrors past technology booms, and what it all means for investors. He explores the parallels between AI and historic bubbles, the implications of massive corporate CapEx spending, and where value might ultimately be captured as the cycle plays out.

Topics covered:

• Why big tech’s CapEx spending has exploded and how much they’re investing

• The trillions in revenue needed to justify AI infrastructure spending

• Historical parallels with the railroad and dot-com buildouts

• Why companies that invest heavily often underperform

• How the Mag 7 are shifting from asset-light to asset-heavy businesses

• The risks of “circular deals” and financial entanglement in AI

• Why the AI race resembles a prisoner’s dilemma

• Which layers of the AI stack may capture long-term value

• How early adopters and infrastructure players differ in capital intensity and returns

• Where investors might find opportunity beyond the obvious AI names

Timestamps:
00:00 Introduction and overview of AI CapEx boom
03:00 Why Kai researched AI investment cycles
05:00 Scale of big tech’s CapEx spending
07:00 Revenue needed to justify AI infrastructure
08:30 Market concentration and valuation risks
11:30 Historical parallels: railroads, internet, and AI
14:30 The capital cycle and overinvestment dynamics
17:30 “This time is different?” and lessons from bubbles
18:00 Factor investing and high-asset-growth underperformance
21:00 Sector and firm-level CapEx trends
22:30 Winner-take-all dynamics and competitive pressure
26:00 How the Mag 7’s business model is changing
30:00 Comparing tech CapEx to utilities
34:00 The circular deal problem and financial risk
37:30 The AI arms race as a prisoner’s dilemma
40:30 Will AI be winner-take-all?
43:30 Lessons from the railroad and dot-com eras
47:00 Where the value is captured in infrastructure vs adoption
48:00 Identifying early AI adopters and hidden beneficiaries
50:30 Sector and geographic AI exposure
54:00 Capital intensity and valuation differences between infrastructure and adopters

In this episode of Excess Returns, we speak with Nancy Davis, founder and CIO of Quadratic Capital Management and the mind behind the innovative fixed income ETFs IVOL and BNDD. Nancy shares her insights on how investors are unknowingly short volatility in their portfolios, the role of options and convexity in fixed income, and how her ETFs seek to hedge against inflation, interest rate shifts, and volatility in a unique way. We also discuss the bond market, inflation dynamics, and how investors can better understand and manage risks that are often hidden inside traditional portfolios.

Main topics covered
• How Nancy’s experience trading volatility at Goldman Sachs shaped her investment philosophy
• Why most investors are short volatility without realizing it
• Understanding convexity and prepayment risk in bond portfolios
• The rise of passive investing and its impact on interest rate volatility
• How IVOL provides exposure to interest rate volatility and inflation protection
• The problem with relying on CPI as a measure of inflation
• Why gold is an inconsistent inflation hedge
• The yield curve as an alternative indicator of inflation expectations
• Why interest rate volatility is historically cheap today
• The relationship between bond volatility and stock volatility
• How to think about IVOL and BNDD in a diversified portfolio
• The long-term risks of shorting volatility and selling options for “income”

Timestamps
00:00 Introduction and overview of option selling in markets
02:15 Nancy’s background at Goldman Sachs and lessons on volatility
05:00 Understanding convexity and its importance in fixed income
06:30 Why investors are short interest rate volatility without knowing it
10:25 The hidden risks inside the bond market and the role of mortgages
11:00 Why most investors are short inflation in real life
13:00 Conventional vs. alternative inflation hedges
17:00 Why CPI is an imperfect inflation measure
18:00 How the yield curve reflects inflation expectations
21:00 Historical yield curve data and current inversion
25:00 Interest rate volatility after Silicon Valley Bank
26:30 Relationship between bond and stock volatility
28:00 Using IVOL in a portfolio
31:00 Discussion on the national debt and interest rate risk
32:00 BNDD ETF and how it complements IVOL
33:30 Why inflation-protected bonds are underused in the US
36:00 Closing questions – what Nancy believes most peers disagree with
37:00 Why selling options is not income and the risks investors overlook

In this episode of Excess Returns, Meb Faber joins the show to discuss valuations, diversification, trend following, value investing, and the evolution of markets and investor behavior over the past two decades. Meb shares insights from his upcoming book, lessons from 400 years of market history, and how investors can position themselves for the next decade. The conversation covers everything from international investing and concentration risk to ETFs, managed futures, AI, and long-term discipline.

Topics covered:

• The four historical periods of 15%+ annualized stock market returns and what followed

• Why current U.S. valuations don’t necessarily mean an immediate crash

• How global value stocks are now outperforming the S&P 500

• The role of international diversification and real assets in portfolios

• Trend following and managed futures as the “premier diversifiers”

• The benefits of blending trend and valuation-based strategies

• The permanent portfolio and how managed futures enhance it

• Concentration risk in U.S. equities and what history teaches about market leadership

• The parallels (and limits) between today’s market and the dot-com bubble

• AI’s potential role in investing and portfolio management

• The behavioral traps around performance chasing and when to sell

• Lessons from launching and running ETFs and the 351 exchange structure for tax efficiency

• The future of markets, retail investors, and Meb’s upcoming book “Time Billionaires”

Timestamps:
00:00 Intro and market performance context
04:00 Are U.S. valuations permanently higher?
09:00 The spectrum of future returns and investor playbook
12:00 International and value investing opportunities
15:00 Trend following and managed futures
19:00 The permanent portfolio and diversification
25:00 Concentration risk and market structure
28:00 AI’s impact on investing
32:00 Comparing today’s market to the dot-com bubble
37:00 The long-term case for value investing
41:00 When to sell and investor behavior
45:00 Lessons from running ETFs and industry evolution
51:00 Understanding 351 exchanges and tax-efficient investing
57:00 What’s changed most for investors over 20 years
59:00 Meb’s new book “Time Billionaires” and closing thoughts

Eric Freedman, Chief Investment Officer at US Bank Wealth, joins Excess Returns to discuss markets, the economy and his investment process. Freedman shares his “control the controllables” investment framework, why he’s maintained a glass-half-full view on the U.S. economy, and how data—not emotion—drives portfolio decisions. The conversation covers macro trends, inflation, the Fed, AI, valuation, and how to stay disciplined as an investor.

Topics covered:

• Data-driven investing and the “control the controllables” framework

• Why the U.S. consumer remains resilient

• Inflation outlook and how sticky prices impact portfolios

• The Fed’s next moves and what investors should watch

• Global diversification and the case for international stocks

• How to think about inflation protection and real assets

• The diffusion of AI and separating winners from pretenders

• Market concentration, valuations, and managing risk

• Life lessons from a CIO: discipline, process, and informed decision-making

Timestamps:
00:00 Introduction
03:00 Controlling the controllables
06:00 Why Eric remains optimistic on the economy
10:00 How portfolio decisions flow through US Bank
15:00 Data-driven insights vs. gut feel
18:00 Consumer strength and scorecard
22:40 Inflation outlook and Fed challenges
30:00 Bond market risk and the “Brazilian steakhouse” analogy
34:00 Global competition and diversification
38:00 Inflation protection and real assets
41:30 The reality of AI and productivity
47:00 Market concentration and the Mag 7
52:00 Valuations and long-term returns
55:45 Lessons for investors

In this episode of Excess Returns, we welcome back Rick Ferri, founder of Ferri Investment Solutions and host of the Bogleheads on Investing podcast. Rick shares timeless insights on the evolution of an investor’s education, the pitfalls of complexity, and how to build portfolios that are simple, low-cost, and behaviorally sustainable. The discussion covers how investors can think about macro forecasts, indexing, factors, international diversification, and the right withdrawal rates in retirement.

Topics covered:

• Why macro forecasting rarely works as a long-term investment strategy

• The four stages of the index investor’s education: darkness, enlightenment, complexity, and simplicity

• How financial advisors and Wall Street profit from unnecessary complexity

• The case for international diversification and how to size it correctly

• The pros and cons of factor investing and why behavioral discipline matters more than factors themselves

• Why passive investing isn’t “too big” and why indexing works over time

• How to think about valuations and investor psychology

• Tips, gold, and how to think about inflation protection

• Rethinking the 4% withdrawal rule and why goals for heirs matter more than formulas

• The one piece of advice Rick would give to young investors today

Timestamps:
00:00 Introduction and the four stages of an index investor
03:00 Why macro forecasting fails as an investment tool
07:00 The evolution from complexity to simplicity
13:00 Complexity as job security for advisors
18:00 Should investors own international stocks?
23:00 The behavioral challenge of factor investing
32:00 Is passive investing too big?
34:00 What to do (and not do) with market valuations
37:00 Managing investor behavior through small adjustments
39:00 Inflation, TIPS, and the role of gold
46:00 Why indexing works and what makes it unbeatable
49:00 The 4% rule and smarter withdrawal strategies
57:00 Advice for young investors and what Rick wants his legacy to be

In this episode of Excess Returns, Matt Zeigler talks with macro strategist and author Remi Tetot, known as “The Mad King.” They explore how liquidity, policy, and narratives have reshaped markets over the last decade, why fundamentals have lost their grip, and how investors can adapt to a fractured global cycle. The conversation spans macro themes like fiscal dominance, housing, crypto, and AI — and ends with a deeper reflection on human capital, autonomy, and the behavioral side of markets.

Topics covered:

• How liquidity replaced fundamentals as the market’s main driver

• Why investors must adapt to desynchronized global cycles

• The impact of debt, fiscal dominance, and government policy on markets

• Housing as the next driver of the business cycle

• How AI, robotics, and quantum computing are shaping the next growth wave

• The maturation of crypto and what comes after the “altcoin season”

• Why narratives now drive price and how to read them effectively

• The risks and opportunities in trading liquidity and fiscal policy

• The cognitive and behavioral shifts driving modern investing

• Protecting human capital in the age of AI and automation

Timestamps:
00:00 Liquidity and the end of fundamentals
06:17 Three continents, three policies, one fractured world
12:20 Housing as the next driver of the cycle
16:39 Crypto’s evolution and fiscal dominance
23:26 Portfolio positioning in a policy-driven market
29:44 AI, human capital, and the risk to autonomy
36:00 How narratives shape markets and investment themes
52:00 Building a macro narrative and market framework
58:00 Lessons for investors and closing thoughts

In this episode of Excess Returns, Larry Swedroe returns to discuss the biggest risks and opportunities facing investors today. From tariffs and immigration to AI and private credit, Larry shares evidence-based insights on how to think about markets without relying on forecasts. He explains why diversification is essential, how investors can “sin a little” with duration and valuation, and why only 4% of stocks drive the equity risk premium. The conversation blends timeless investing wisdom with today’s most important macro themes.

Main topics covered:

• Why forecasts don’t work and what investors should do instead

• The real economic risks of tariffs and immigration restrictions

• How AI may (or may not) impact productivity and market winners

• How to build anti-fragile portfolios around macro risks

• When and how to “sin a little” on bond duration and valuation

• Lessons from past tech booms and investor overconfidence

• The 4% of stocks that drive all long-term equity returns

• The risks of concentration in the S&P 500

• Hidden costs of passive investing and large index funds

• When index and factor funds get too big to trade efficiently

• Value investing, interest rates, and inflation relationships

• The evidence on simple value strategies like Piotroski and Magic Formula

• How to think about growth exposure using quality and low volatility

• The opportunities and dangers of private credit and interval funds

• Why illiquidity premiums exist and how to capture them prudently

• Behavioral discipline, diversification, and long-term compounding lessons

Timestamps:
00:00 Forecasting failures and market humility
03:30 Why Larry doesn’t make macro predictions
07:00 The real impact of tariffs and immigration on inflation and growth
11:00 AI, productivity, and the question of who the real winners will be
14:40 How to manage duration risk and “sin a little”
18:00 Investor overconfidence and lessons from past tech booms
21:00 Why only 4% of stocks explain all equity returns
24:00 Market concentration and S&P 500 risk
28:30 Why diversification still matters
30:00 The hidden trading costs of index and factor funds
38:00 How big fund size changes execution and exposure
41:00 Is passive investing too big?
42:30 Value vs growth and interest rate relationships
45:00 Evidence on simple value strategies and Buffett’s alpha
51:00 Factor diversification and one-over-N strategy
54:00 Private credit: opportunity and risks
58:00 Illiquidity premiums and fund structure concerns
01:00:00 Behavioral discipline, patience, and staying diversified

Adam Parker, founder and CEO of Trivariate and Trivector Research, joins Excess Returns to discuss how fundamental, quantitative, and macro perspectives intersect to shape markets today. Parker shares his long-term bullish case for U.S. equities, why traditional valuation signals no longer work, the biggest risks he sees for investors, and how AI, inflation, and market structure are reshaping opportunities and risks in real time.

Main topics covered:

• Why combining fundamental, quantitative, and macro analysis gives a clearer view of markets

• The case for the S&P 500 reaching 10,000 by 2030

• Structural reasons why market multiples may stay higher for longer

• The key bear cases: hyperscaler CapEx risk, fiscal deficits, and AI-driven unemployment

• Comparing today’s market to the dot-com era

• Why traditional recession indicators have failed

• How COVID changed the economic cycle and business synchronization

• Inflation, tariffs, and what the Fed is really watching

• Why valuation is a broken signal for stock picking

• The quant factors that matter most today

• ETF factor exposures and hidden risks

• How to think about the 60/40 portfolio, diversification, and private markets

• Why U.S. innovation and margins make it the dominant equity market

• Key lessons and philosophies for long-term investors

Timestamps:
00:00 What really drives equity investing
03:00 Adam Parker’s background and multi-lens approach
05:00 Why he’s long-term bullish and sees S&P 10,000
08:00 Structural margin expansion and AI productivity
09:00 The three major bear cases
14:00 How today compares to the 1990s tech bubble
18:00 Why the economy has stayed resilient
20:00 COVID’s impact on business cycles
23:00 Market structure, inventory, and margins
24:00 Inflation, tariffs, and Fed outlook
29:00 Deficits and why timing macro risks is hard
32:00 Large vs small cap dynamics
37:00 Why valuation doesn’t work
41:00 Key quant factors to watch
43:00 ETF grading and hidden exposures
46:00 The 60/40 portfolio and asset allocation
51:00 U.S. vs Europe and innovation advantage
55:00 Lessons for investors and closing thoughts