Excess Returns

On this episode of our new market wrap show Last Call, we examine the hidden rotation beneath calm stock market indexes, including sharp AI and semiconductor volatility, small-cap strength, forced fund liquidations, higher rates and changing Federal Reserve guidance.
Jack Forehand and Matt Zeigler are joined by Jim Paulsen, Ben Hunt, Brent Kochuba, Cameron Dawson and Dave Nadig to discuss stock market correction risk, the economics of the AI data center buildout, options flows, market leverage, regulation and what could drive volatility next.Follow Last Call on Spotify⁠⁠⁠⁠⁠⁠⁠
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Topics covered
Why market indexes can hide sharp rotation, dispersion and volatility in semiconductors and high-beta technology stocks

Jim Paulsen's Policy Pain framework linking oil, Treasury yields, dollar strength and lagged effects on stocks, bonds and economic growth

Why technology stocks could enter a bear market while old-economy sectors, small caps and value stocks hold up

Ben Hunt's World War AI thesis comparing the AI infrastructure buildout with inflation-adjusted World War II spending

How hyperscalers, equity issuance, private credit and government financing could crowd out consumers and businesses

Why data centers could consume nearly one quarter of U.S. electricity and lead to higher prices, rationing and government intervention

What the Situational Awareness fund liquidation and Citadel portfolio transaction reveal about forced market flows

How options correlations and narrow market breadth can separate a technical rebound from a fundamental AI bottom

Risks from speculative retail investments, weakened regulators, leverage and cyclical semiconductor profit margins

Why reduced Fed forward guidance could create surprise policy decisions and greater algorithmic market volatility

Timestamps
00:00 Market rotation and AI volatility beneath the indexes04:07 Jim Paulsen on Policy Pain and market vulnerability09:23 Why tightening hurts stocks before helping bonds14:23 Tech bear market risk and a possible leadership shift18:23 Ben Hunt on World War AI, private credit and systemic risk26:00 Data center electricity demand and the energy constraint31:29 Brent Kochuba on the Situational Awareness liquidation36:00 The forced buying behind the AI stock rebound40:00 Why the liquidation bounce may not signal an AI bottom44:00 How forced flows distort fundamental market narratives48:00 Retail investing pitches, liquidity and cycle FOMO52:00 Deregulation by destaffing at the SEC and CFTC56:00 Semiconductor operating leverage and fragile S&P 500 margins01:00:07 Jack's grievance with the YouTube algorithm01:04:29 What happens when the Fed stops giving forward guidance01:08:34 How markets could react to a surprise Fed decision
Learn more about the Excess Returns podcast network:⁠https://excessreturns.co⁠
No information discussed in this podcast should be construed as investment advice. Securities discussed may be held by the hosts and guests, their firms or their clients.

We are excited to announce the launch of a new podcast, Why Am I Reading This Now? with Ben Hunt. Stories and narratives are increasingly shaping markets, and Ben and his team at Perscient have developed a unique system for measuring how those narratives emerge, spread and change.
In each episode, Ben and Matt Zeigler will examine the major issues facing investors through this narrative lens, helping listeners better understand the stories driving markets and what they could mean for the economy, policy and investment outcomes.
We have included this first episode in the Excess Returns feed. To continue receiving new episodes, subscribe to the Why Am I Reading This Now? podcast on all major podcast platforms using the links below.
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Topics covered
Why AI CapEx and data center construction have become critical drivers of US economic growth
How hyperscalers are shifting from cash flow financing to debt, equity issuance and private credit
Why a slowdown in AI infrastructure spending could threaten markets, the economy and the financial system
How trillions of dollars in AI investment may crowd out consumer credit, business investment and government borrowing
Why data centers could consume a dramatically larger share of US electricity production
How energy shortages could lead to higher utility costs, rationing and price controls
Why the Iran war and higher oil prices may create a lasting increase in global energy costs
How Perscient tracks the return of bearish AI narratives and growing political opposition to data centers
Why both political parties may support government ownership, loan guarantees, bailouts and economic stimulus
How competition with China could become the narrative used to justify greater government control of the AI industry
Timestamps
00:00 Introducing Why Am I Reading This Now? with Ben Hunt
04:00 How debt, equity issuance and private credit are financing AI CapEx
08:06 Data center electricity demand and the energy crowding-out problem
13:21 Why an AI bailout may become politically inevitable
17:30 Oil shifts from a temporary shortage to a structural supply reduction
22:00 The bearish AI narrative returns as political opposition grows
26:00 Government ownership, price controls and the AI competition with China

Rupert Mitchell of Blind Squirrel Macro joins Matt Zeigler to explain how surging AI capital spending, mega-cap share issuance and expensive U.S. technology stocks could reshape global equity leadership. They discuss the case for equal-weight stocks, energy equities, gold, UK small caps, Uzbekistan and Turkey, along with the risk that a surprise Federal Reserve hike could trigger a broader unwind in leveraged markets.
Rupert Mitchell on X
https://x.com/SquirrelMacro
Blind Squirrel Macro
https://www.blindsquirrelmacro.com
Topics covered
Why the S&P 500 versus the rest of the world remains Rupert's chart of truth

How the Bushy portfolio uses international equities, gold, commodities and hedges as an alternative to a traditional 60/40 portfolio

Why positive stock-bond correlation has weakened the diversification case for long-duration bonds

How AI data center spending, mega IPOs and new share issuance could reverse the buyback-driven de-equitization of U.S. markets

Why Rupert is long the equal-weight S&P 500 and short the Nasdaq 100 as market leadership broadens

How China's growing power in oil markets may create a price collar that supports energy producers, refiners, midstream companies and offshore services

What a surprise Federal Reserve hike or death shot could mean for technology stocks, private credit, private equity and leveraged risk assets

Why deeply discounted UK small and mid-cap stocks may benefit from buybacks, takeovers, pension capital and investment trust activism

The opportunity in Uzbekistan's privatization program and the role of Templeton in improving governance

Why Turkey's inflation-tested companies, strategic geography and cheap valuations may offer an attractive emerging-market setup

Timestamps
00:00 Intro
04:00 Bushy portfolio changes across energy, commodities and precious metals
08:54 How AI capital spending and equity issuance threaten the buyback era
13:00 Equal-weight valuations and the long RSP, short QQQ trade
17:02 China's oil price collar and the energy equity re-rating
22:18 The Fed death shot and the danger of an unpriced hike
30:06 Peak populism and the historic valuation gap in UK equities
34:10 M&A, pension capital and UK investment trusts
38:50 Uzbekistan's privatization opportunity
43:39 Turkish equities, inflation and geopolitical leverage
49:13 Why stress-tested businesses may offer better value
53:39 Blind Squirrel Macro and Benny and the Squirrel
Learn more about the Excess Returns podcast network:
https://excessreturns.co
No information discussed in this podcast should be construed as investment advice. Securities discussed may be held by the hosts and guests, their firms or their clients.

On the latest 100 Year Thinkers, Robert Hagstrom joins Matt Zeigler and Bogumil Baranowski to revisit the 25th anniversary edition of The Warren Buffett Portfolio and explain why volatility is not the same as investment risk.
They discuss concentrated portfolios, active share, business valuation, behavioral finance, complex adaptive systems, and Warren Buffett’s warning that the market’s casino can overwhelm its cathedral.
The Warren Buffett Portfolio – 25th Anniversary Edition
https://amzn.to/3TVXoru
Robert Hagstrom on X
https://x.com/RobertGHagstrom
Equity Compass
https://www.equitycompass.com/
Topics covered
Why Markowitz’s definition of risk as variance shaped modern portfolio theory

Why Buffett views permanent capital loss, not volatility, as the real investing risk

What Hagstrom’s study of 3,000 portfolios revealed about concentration and market outperformance

The difference between know-something investors and investors better served by indexing

How benchmark awareness creates closet indexers and weakens active management

What loss aversion and prospect theory explain about investor behavior

Why Darwin, William James, and complex adaptive systems offer better models for markets

Buffett’s cathedral and casino metaphor for business ownership versus speculation

The El Farol problem, Jim Simons, and why successful market models stop working

Why options trading, leveraged ETFs, and record single-stock dispersion may be strengthening the casino

How to evaluate portfolios using cash flow, return on invested capital, and look-through earnings

Why permanent capital and System 2 thinking are essential for focused investing

Timestamps
00:00 Intro
04:00 Why Markowitz defined risk as variance
11:47 What 3,000 portfolios revealed about concentration
17:17 Know-something versus know-nothing investors
22:23 Kahneman, loss aversion, and modern portfolio theory
26:58 Darwin, pragmatism, and adaptive markets
32:28 Buffett’s cathedral and casino metaphor
37:37 The El Farol problem and why markets resist prediction
42:08 Why investors crave market forecasts
46:16 Why investing is most intelligent when businesslike
51:38 Record stock dispersion, options, and leveraged ETFs
56:00 Measuring portfolio progress through business economics
01:00:43 Why permanent capital enables focus investing
01:04:43 How markets survive widespread investor mistakes
Learn more about the Excess Returns podcast network:
https://excessreturns.co
No information discussed in this podcast should be construed as investment advice. Securities discussed may be held by the hosts and guests, their firms, or their clients.

Wes Gray joins us to explain how factor investors should think about high market valuations, S&P 500 concentration, value investing, small caps, artificial intelligence and the behavioral challenge of staying invested for the long term. He also breaks down Section 351 ETF exchanges, including how appreciated portfolios can move into an ETF without an immediate taxable sale, why direct-indexing portfolios are a major use case and how the ETF wrapper is reshaping asset management.
Wes Gray on X
https://x.com/alphaarchitect
Alpha Architect
https://alphaarchitect.com
ETF Architect
https://etfarchitect.com
Long-Only Value Investing: Does Size Matter?
https://alphaarchitect.com/wp-content/uploads/2022/11/AA-JBISFactorInvesting22LongOnlyValueInvesting.pdf
Even God Would Get Fired as an Active Investor
https://alphaarchitect.com/wp-content/uploads/2021/08/Even_God_Would_Get_Fired_as_an_Active_Investor.pdf
Topics covered
Why high valuations may lower long-term expected returns without providing a reliable market-timing signal

How S&P 500 concentration creates a major large-cap, quality and growth factor bet

Why earnings and operating income may be better value metrics than book-to-market in an intangible economy

Why valuation may matter more than company size for long-only value investors

How unprofitable companies and low-quality stocks can distort small-cap value indexes

Whether AI has changed the historical relationship between growth and value investing

How AI may eliminate short-term trading edges while leaving long-horizon opportunities intact

Why even an investor with perfect foresight could suffer severe drawdowns and get fired

How passive investing flows may affect market prices and factor returns

How Section 351 exchanges can solve problems created by appreciated SMAs, tax-loss harvesting and direct indexing

The 25/50 diversification rules, cost-basis transfer and tax-deferral mechanics of ETF conversions

Why assets continue moving from mutual funds, hedge funds and separate accounts into ETFs

Why enduring underperformance may be necessary to earn higher long-term returns

Timestamps
00:00 Alpha Architect, ETF Architect and building an ETF platform
04:00 Can factor investors time a market bubble?
08:03 Intangible assets and the problems with book-to-market
13:42 The quality problem inside small-cap value indexes
18:18 Has technology changed the growth-versus-value equation?
23:25 Can AI create lasting investment alpha?
27:42 Are investors behaving better today?
34:39 How Section 351 ETF exchanges work
39:48 The diversification rules for tax-deferred ETF conversions
44:34 How cost basis and deferred taxes carry into the ETF
49:07 Mutual fund, hedge fund and SMA conversions
54:13 Why investors should embrace underperformance
Learn more about the Excess Returns podcast network:
https://excessreturns.co
No information discussed in this podcast should be construed as investment advice. Securities discussed may be held by the hosts and guests, their firms or their clients.