Excess Returns

In this episode of Last Call, we break down one of the most confusing market backdrops in years: AI-driven earnings optimism, rising oil and inflation risk, stretched options positioning, and the market impact of a potential SpaceX IPO. Jack Forehand and Matt Zeigler are joined by Aahan Menon, Ben Hunt, and Brent Kochuba to examine what macro data, political narratives, options flows, and index mechanics are saying about where markets could go next.
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Topics Covered:
Why markets are looking through war, oil shocks and valuation concerns

How earnings estimates are driving sector performance in the AI trade

Aahan Menon on growth, inflation, oil prices and macro regime signals

Why demand destruction from higher energy prices can take longer than investors expect

What a rising growth and rising inflation regime can mean for stocks, commodities and bonds

Ben Hunt on World War AI and the collision between AI market optimism and political backlash

Why opposition to AI data centers could become a major market and election issue

Brent Kochuba on call buying, implied volatility and signs of options market froth

Why CORE 1M and skew signals may be warning of a downside spasm

How the SpaceX IPO could affect index flows, active managers and mega-cap stocks

Timestamps:
00:00 Intro: AI, inflation and options risk in one market
05:40 Earnings estimates, AI optimism and why fundamentals still matter
10:31 Aahan Menon on a difficult macro backdrop
15:29 Why energy shocks and demand destruction take time
20:24 Why inflation can persist even if the oil shock eases
24:47 Ben Hunt on World War AI and the AI resource build-out
30:00 AI CapEx as the pillar holding up market optimism
34:00 The political backlash against AI data centers
38:00 Why data center opposition matters for markets
42:09 Why price action can distort the AI narrative
47:48 CORE 1M, stretched call prices and downside spasm risk
52:00 Why Nasdaq options are priced for upside crashes
56:11 Index rules, human judgment and the SpaceX IPO
01:00:34 The free float problem and rebalancing pressure
01:05:22 Space data centers, valuation and the size of the AI opportunity

Adam Parker returns to Excess Returns to explain why the market may be trading more on future fundamentals than investors think, how AI is reshaping stock selection, and why traditional valuation signals may be less useful than they once were.
We discuss AI revenue exposure, software vs. semiconductors, Mag Seven positioning, gross margins, estimate achievability, spinoffs, and Adam’s highest-conviction contrarian sector idea.
Adam Parker on X
https://x.com/Adam_Parker_Tri
Trivariate Research
https://trivariateresearch.com/
Trivector Research
https://www.trivectorresearch.com
Topics covered:
Why “sell in May” and other calendar-based market rules often lack statistical support

Why Adam thinks the stock market leads the economy, not the other way around

How to think about whether today’s AI market is a bubble

Why the market may be trading on 2030 or 2031 fundamentals

When investors may start demanding returns on AI capital spending

Why AI could create new jobs rather than simply destroy existing ones

How large AI-related IPOs like SpaceX could affect index mechanics and portfolio flows

Why gross margin expansion is one of Adam’s most important stock selection factors

Why Adam remains cautious on software and prefers semiconductors over software

How valuation, quality, and other traditional factors may have changed since COVID

Why estimate achievability and incremental margins matter more than simple beats and misses

How to think about the Mag Seven, Nvidia, and market concentration

Why spinoffs may become more important in an AI-driven market

Why healthcare is Adam’s highest-conviction contrarian sector idea

Timestamps:
00:00 Why the market may be trading on future fundamentals
04:37 Is today’s stock market an AI bubble?
08:45 When AI capex needs to show real returns
13:00 How trillion-dollar IPOs could reshape index mechanics
19:00 Why gross margin expansion is such a powerful factor
23:00 Why software companies face AI-driven margin pressure
27:21 Where AI semiconductor exposure goes next
31:54 Why valuation does not work for stock picking
35:03 What has changed in markets since COVID
39:22 Estimate achievability and incremental margins
43:06 How to think about the Mag Seven and Nvidia
47:55 Why healthcare could be the biggest AI opportunity

Eric Crittenden joins Matt Zeigler and Jason Buck for a deep dive into trend following and managed futures.
They discuss why systematic macro trend investing works, how risk transfer creates a return premium, and how trend can fit inside a diversified all-weather portfolio.
Standpoint Funds
https://www.standpointfunds.com/
Topics covered:
Why trend following can struggle during fast reversals and thrive after regime shifts

How systematic investors manage whipsaws, drawdowns, and emotional pressure

The trade-offs between short-term, medium-term, and long-term trend signals

Why Eric prefers simple, durable systems over complex models and constant tinkering

When it makes sense to remove a futures market from a systematic portfolio

Why trend following may earn a risk transfer premium from hedgers and commercial users

How copper producers, options markets, and insurance help explain trend following returns

Why rising interest rates and short bond positions can benefit managed futures

How trend following can pair with global equities in an all-weather portfolio

Why smoothing a trend strategy can reduce its value when investors need convexity most

The behavioral challenge of holding diversifiers that look wrong at the wrong time

Why investors and advisors often want alternatives but struggle to stick with them

Timestamps:
00:00 Why trend following opportunities appear under pressure
04:39 Pro-growth positioning before the whipsaw
09:32 Short-term vs long-term trend signals
13:46 The danger of tinkering with systematic strategies
18:43 What actually changes in a durable process
23:27 Rising rates, short bonds, and collateral yield
28:00 Copper hedging and why trend followers buy rising prices
32:00 Options, insurance, and risk transfer through time
36:28 Regime shifts and supply-demand imbalances
41:00 What investors choose when asset classes are anonymized
45:11 Building a portfolio for 30-year terminal wealth
50:06 Why portfolio construction is different than judging individual strategies
56:15 Why trend following and value investing require faith
01:00:42 Reducing errors vs chasing highlight-reel winners
01:05:36 Where to follow Eric and Standpoint

Cliff Asness returns to Excess Returns for a greatest hits tour through some of his most important and entertaining investing ideas.
We discuss bubble logic, today’s AI market comparisons, why volatility still matters as a risk measure, private equity “volatility laundering,” international diversification, market timing myths, pulling the goalie, and how machine learning is changing quantitative investing.
Cliff Asness on X
https://x.com/CliffordAsness
AQR Capital Management
https://www.aqr.com/
Papers Discussed
Bubble Logic: Or, How to Learn to Stop Worrying and Love the Bull
https://www.aqr.com/Insights/Research/Working-Paper/Bubble-Logic-Or-How-to-Learn-to-Stop-Worrying-and-Love-the-Bull
Rubble Logic: What Did We Learn From the Great Stock Market Bubble?
https://www.aqr.com/Insights/Research/Journal-Article/Rubble-Logic
My Top 10 Peeves
https://www.aqr.com/-/media/AQR/Documents/Insights/Journal-Article/My-Top-10-Peeves.pdf
Volatility Laundering
https://www.aqr.com/Insights/Perspectives/Volatility-Laundering
I Did Not Predict What Is Going on in Privates
https://www.aqr.com/Insights/Perspectives/I-Did-Not-Predict-What-is-Going-on-in-Privates
(So) What If You Miss the Market's N Best Days?
https://www.aqr.com/Insights/Perspectives/So-What-If-You-Miss-the-Markets-N-Best-Days
International Diversification Works (Eventually)
https://www.aqr.com/Insights/Research/Journal-Article/International-Diversification-Works-Eventually
International Diversification - Still Not Crazy after All These Years
https://www.aqr.com/Insights/Research/Journal-Article/International-Diversification-Still-Not-Crazy-after-All-These-Years
Perhaps the Most Important Essay I Will Ever Co Author
https://www.aqr.com/Insights/Perspectives/Perhaps-the-Most-Important-Essay-I-Will-Ever-Co-Author
Main topics covered:
How the dot-com bubble created its own internal logic

Why Dow 36,000 and Cisco message boards captured bubble thinking

What investors learned, and failed to learn, from the tech bubble

How today’s AI market compares with the dot-com era

Why long periods of underperformance make even good strategies hard to stick with

Why Cliff still defends volatility as a useful risk measure

Why “cash on the sidelines” is a misleading market narrative

How private equity smoothing can make risk look lower than it really is

Why the private markets debate is not a short-term prediction

Why the “missing the best 10 days” argument against market timing is incomplete

Why international diversification can still matter after decades of US outperformance

What pulling the goalie can teach investors about risk, incentives and career risk

How machine learning changes quant investing without eliminating economic intuition

Timestamps:
00:00 Why certainty is dangerous in investing
04:58 Why Bubble Logic never became a book
10:18 Cisco, Yahoo message boards and bubble psychology
14:16 Rubble Logic and the lessons investors failed to learn
18:04 What today’s AI market has in common with the dot-com bubble
22:23 Why the long run can lie to investors
26:02 Volatility, permanent loss of capital and real risk control
30:19 Why there is no cash on the sidelines
34:00 Private equity, smoothing and volatility laundering
39:47 Why Cliff did not call the private markets downturn
43:19 The flaw in the missing the best 10 days argument
49:00 Why international diversification still works eventually
53:35 Why crashes are global but lost decades are local
57:30 Pulling the goalie and asymmetric risk
01:01:00 Why coaches and investors avoid optimal decisions
01:07:36 Machine learning, overfitting and economic intuition
01:10:50 Leverage, short selling and derivatives in quant portfolios
01:16:26 Where to follow Cliff Asness

Ben Carlson joins Excess Returns to discuss his new book Risk and Reward and the biggest lessons investors can learn from market history. We cover how to think about risk, inflation, market timing, bear markets, lost decades, diversification, compounding and why surviving volatility is the key to building long-term wealth.
Ben's Book
https://amzn.to/4dFHsQz
Ben Carlson on X
https://x.com/awealthofcs
Ben's Blog
https://awealthofcommonsense.com/
Main topics covered:
Why risk is hard to define and always involves trade-offs

How vivid risks like sharks and headlines distort investor decision-making

Why doing nothing can be one of the hardest parts of investing

How inflation should be viewed through personal finance, human capital and long-term investing

Why stocks can be an inflation hedge even if they struggle during inflation spikes

Why waiting for the market coast to clear often fails

What the world’s worst market timer teaches about saving and staying invested

How loss aversion shapes investor behavior

What the Great Depression, bear markets and 30-year returns teach about long-term investing

Why there is no perfect portfolio and the best strategy is one you can actually stick with

Timestamps:
00:00 Ben Carlson on why risk and reward are attached
06:35 Doing nothing, action bias and better investing behavior
11:51 Inflation psychology and lessons from the 1970s
16:55 Why stocks can hedge inflation over the long run
21:07 Why waiting for the coast to clear is a market timing trap
26:30 Time horizons, loss aversion and portfolio behavior
31:49 Government rescue, left-tail risk and unintended consequences
35:54 Recessionary vs non-recessionary bear markets
42:09 Why the stock market and economy can diverge
47:24 Why compounding is about holding, not trading
51:37 Starting valuations, lost decades and future returns
55:40 Risk, reward and the biggest lesson for investors