Excess Returns

This episode of our new market wrap show Last Call breaks down the biggest market drivers right now through three distinct lenses: macro, narrative, and flows. With an oil shock driven by geopolitical conflict, rising volatility, and conflicting economic signals, the discussion focuses on what actually matters beneath the surface and how investors should think about positioning in an environment where nothing is clearly priced in.
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Jack and Matt bring together Andy Constan, Ben Hunt, Brent Kochuba, and Eric Pachman to analyze the ripple effects of higher oil prices, the “common knowledge” shift in markets, the role of options flows in driving short-term moves, and why traditional economic indicators like unemployment may be telling a misleading story.
Andy Constan Twitter
https://x.com/dampedspring
Ben Hunt Twitter
https://x.com/EpsilonTheory
Brent Kochuba Twitter
https://x.com/spotgamma
Eric Pachman Twitter
https://x.com/epachman
Topics covered:
How oil supply shocks impact GDP, inflation, and consumer spending

Why higher oil prices act as a tax on the economy and shift growth dynamics

The difference between supply shocks and demand shocks in energy markets

Why central banks may be unable to respond to an oil-driven slowdown

The “common knowledge” framework and how narratives reshape markets

Why the Strait of Hormuz has become the key global economic bottleneck

Oil exporters vs importers and how that divide is driving asset performance

Why energy equities may outperform in a prolonged geopolitical conflict

How volatility is being driven by oil prices and geopolitical risk

The relationship between VIX and oil during crisis periods

Why $100 oil could trigger a major volatility spike and equity selloff

The JP Morgan collar trade and how options positioning can pin markets

How dealer hedging flows influence short-term price action

Why markets may appear disconnected from negative news

The limits of predicting what is “priced in” during uncertain environments

Why diversification matters more when macro visibility is low

How unemployment data can mislead by excluding people leaving the workforce

The difference between unemployment rate and labor force participation

Structural decline in rural economies and the migration to urban centers

How labor force trends explain the divergence in economic experiences across the US

Timestamps:
00:00 Oil shock as a GDP tax on consumers
00:16 Strait of Hormuz as global economic chokepoint
00:29 Why $100 oil could send VIX to 50
00:39 Why unemployment rate may be misleading
01:07 What Last Call is and how the episode is structured
02:28 Macro, narrative, and flows framework for markets
03:44 How oil supply shocks impact growth and inflation
06:00 Why higher oil prices reduce discretionary spending
07:00 Oil’s impact on inflation and central bank policy
09:39 Scenario analysis for oil prices and market outcomes
12:28 Is the oil shock priced into markets?
16:00 Why oil vs assets may be mispriced
20:00 Ben Hunt on the “common knowledge” market shift
25:00 Why the Strait of Hormuz changes everything
29:00 Portfolio implications: long energy vs global equities
33:00 Brent Kochuba on oil, VIX, and market volatility linkage
36:00 Why $100 oil is the key risk threshold for equities
40:00 JP Morgan collar trade and market pinning dynamics
44:00 Why options flows can override macro narratives short term
52:00 Eric Pachman on unemployment vs labor force reality
59:00 Structural decline in labor force across US counties

In this episode of Excess Returns, we sit down with Larry Swedroe to break down one of the most debated topics in markets today: private credit. Larry walks through what private credit actually is, why it has grown so rapidly since 2008, and where he believes the biggest misconceptions and risks are for investors.
We dig into the structure of the market, how liquidity and credit risk really work beneath the surface, and why the media narrative around private credit may be overstating systemic risks. We also explore how investors should think about diversification, illiquidity premiums, and the potential impact of AI on credit markets and software lending.
Larry Swedroe Twitter
https://twitter.com/larryswedroe
Larry Swedroe Substack
https://larryswedroe.substack.com
Topics covered
What private credit is and how it evolved after the 2008 financial crisis

Why private credit is not a single asset class and how risk varies across structures

The three key risks in private credit: credit risk, liquidity risk, and concentration risk

How illiquidity premiums work and why they can be a major source of return

Differences between private credit funds, BDCs, and open architecture platforms

Why diversification is critical and how concentration risk can be hidden

How rising interest rates are impacting defaults and underwriting standards

Media misconceptions around defaults, losses, and valuation marks in private credit

The real systemic risk of private credit vs the banking system

How liquidity actually works in interval funds and stress scenarios

What happens in a recession and how private credit compares to equities and high yield bonds

The role of software lending and how AI disruption could impact credit portfolios

How to evaluate private credit managers including scale, underwriting, and leverage

The importance of credit culture and avoiding “reach for yield” behavior

Whether private credit should be accessible to retail investors and the risks involved

The concept of earning “beta” in private credit vs trying to pick winning managers

AI’s growing role in investment research and the risks of overfitting and false signals

Timestamps
00:00 Why private credit is less risky than banks for systemic stability
01:12 Introduction and episode overview
03:00 What private credit is and how it grew after 2008
05:21 Who provides capital to private credit funds
07:11 Why private credit is not a monolithic asset class
08:00 The three key risks in private credit
09:00 Illiquidity premium and why it can be a “near free lunch”
12:00 Credit risk and importance of senior secured lending
16:00 Concentration risk and why diversification matters
18:11 Are defaults rising and what the data actually shows
21:00 Media narratives vs actual credit losses
23:50 Could private credit cause a financial crisis
25:50 How to analyze portfolios and why most investors can’t
28:44 Should investors think about indexing private credit
30:12 Can private credit work for retail investors
32:26 Mass redemption risk and liquidity stress scenarios
36:00 Sources of liquidity inside private credit funds
41:37 Software lending and AI disruption risk
47:00 Private equity valuations and spillover into credit risk
49:43 Key checklist for evaluating private credit investments
56:30 How AI is changing financial research and investing

This episode of Excess Returns features Bob Elliott discussing the growing fragility in the global economy as an oil shock collides with a shift from an income-driven to a savings-driven system.
The conversation explores why markets may be mispricing the economic impact of higher oil prices, how inflation and growth dynamics could unfold, and what this means for investors navigating an increasingly volatile macro environment.
Bob also breaks down how to think about global macro investing today, including why traditional portfolios may be poorly positioned for a wider range of outcomes, how macro managers are adapting to shifting conditions, and how AI-driven productivity gains could impact economic growth, labor, and markets.
Bob Elliott on Twitter
https://twitter.com/BobEUnlimited
Unlimited Funds website
https://www.unlimitedfunds.com
Topics covered
The shift from an income-driven economy to a savings-driven economy and why it creates fragility

Why an oil shock acts as both an inflation driver and a tax on real consumer spending

How higher gas prices mechanically reduce discretionary spending and economic growth

Why markets may be underpricing the economic impact of the current oil shock

The link between oil prices, inflation expectations, and real demand destruction

How global markets respond to shocks through deleveraging and volatility spikes

Why gold and other winning trades can fall during risk-off environments

The sequencing of inflation first and growth slowdown later in shock-driven cycles

How central banks are likely to respond to a stagflationary shock

Lessons from 2022 and 2008 for understanding today’s macro environment

Why stocks and bonds may both be mispriced in the current regime

The difference between consumer surplus and true productivity gains from AI

Why AI-driven job losses and economic growth cannot coexist without major dissaving

The most likely path for AI as a productivity enhancer rather than a job destroyer

How to think about measuring productivity in a technology-driven economy

The role of second- and third-order effects in macro investing

How global macro strategies identify mispricings across asset classes

The concept of using the “wisdom of the crowd” from hedge fund positioning

Why macro strategies can perform in both rising and falling markets

How macro fits into a portfolio as a diversifier versus long-only assets

Why the future investment environment may require broader strategy diversification

Timestamps
00:00 Oil shock meets a savings-driven economy
01:00 Framing the macro environment: oil, inflation, and growth
02:12 What a savings-driven economy means for market fragility
04:46 Why household income vs spending divergence matters
07:00 First principles of an oil shock and demand inelasticity
08:00 How oil price spikes flow through to inflation
13:00 Global market reactions and emerging market dynamics
14:00 Deleveraging and volatility driving asset price reversals
15:44 Why gold declines during macro stress events
17:17 Institutional positioning and ETF flows in gold
17:34 Inflation first, growth slowdown later: sequencing the impact
19:24 Is the economic damage already done
22:00 How macro investors operate in low-conviction environments
29:19 What the Fed should do versus what it will do
31:00 Comparing today’s environment to 2022 inflation dynamics
33:00 Why markets are pricing in almost nothing
34:00 AI and the link between labor, income, and spending
37:11 Productivity vs consumer surplus in AI adoption
40:00 Why better tools don’t necessarily mean higher productivity
s
46:00 How global macro strategies are constructed
48:00 Using hedge fund positioning as a signal
56:00 Why the opportunity set for macro may be expanding

Subscribe to the 100 Year Thinkers of Spotify⁠
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In this episode of our new show, 100 Year Thinkers, Robert Hagstrom and Chris Mayer explore how investors should think about base rates, extreme outcomes, and the realities of long-term wealth creation in markets. Applying the work of Michael Mauboussin, the conversation challenges conventional ideas like mean reversion and highlights why a small number of companies drive most stock market returns—and what that means for portfolio construction.
This episode brings together Robert Hagstrom and Chris Mayer to explore how investors should think about base rates, extreme outcomes, and the realities of long-term wealth creation in markets. The conversation challenges conventional ideas like mean reversion and highlights why a small number of companies drive most stock market returns—and what that means for portfolio construction.
Topics covered
• Why markets are driven by extreme outcomes and power laws, not averages
• The Best & Bessembinder research showing a handful of stocks create most wealth
• Base rates vs outliers and when to trust historical probabilities
• Why the 100 bagger framework focuses on studying winners, not predicting them
• Portfolio construction as a way to capture asymmetric upside
• Buffett’s approach to consistency, durability, and long-term operating history
• Inside view vs outside view and how narratives distort investing decisions
• Why AI may be breaking traditional base rate assumptions in software and tech
• The limits of mean reversion and why it can lead investors astray
• Return on invested capital and how competition erodes excess returns over time
• Identifying durable moats and why most advantages eventually get attacked
• Winner-take-all dynamics and how they shape long-term investing outcomes
• The twin engines of returns: earnings growth and multiple expansion
• Return on incremental capital as a key driver of long-term compounding
• Intangible assets and why accounting understates true business value
• Amazon as a case study in misunderstood profitability and reinvestment
• AI CapEx cycle and why current spending may not be sustainable long term
• Why great businesses matter more than great management in long-term investing
Timestamps
00:00 Why extreme outcomes drive stock market returns
01:00 Base rates vs studying 100 baggers
03:00 Power laws and why markets are a game of outliers
05:00 Just 46 companies created half of all market wealth
07:00 Buffett on consistency and long-term operating history
10:00 How to think about base rates in AI, energy, and macro cycles
12:00 Does AI invalidate historical base rates?
15:00 Inside view vs outside view in investment decision making
19:00 Buffett’s “certainty at a discount” framework
23:00 How often investors should evaluate businesses vs prices
29:00 Mean reversion myths and where it breaks down
33:00 Return on invested capital and competitive pressure
36:00 Moats, winner-take-all markets, and long-term dominance
41:00 Twin engines of compounding: growth plus multiple expansion
43:00 Return on incremental capital and forecasting future returns
47:00 Intangibles and why accounting distorts real business value
50:00 Amazon, CapEx cycles, and hidden profitability
53:00 AI infrastructure buildout and the future of returns

Subscribe to the OPEX Effect on Spotify⁠
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This episode breaks down the growing tension beneath the surface of today’s markets, where volatility signals, options positioning, and macro risks like war and inflation are increasingly misaligned. Brent Kochuba and Jack Forehand explain why markets appear calm despite heavy hedging, and what that disconnect could mean for a potential volatility spike and downside move ahead.
Brent Kochuba on Twitter
https://twitter.com/SpotGamma
SpotGamma Website
https://spotgamma.com
Topics covered in this episode
• Why volatility looks elevated beneath the surface even as markets remain relatively calm
• The growing gap between implied volatility VIX and realized volatility and what it signals
• How options expiration OPEX can create turning points in both price and volatility
• Why current positioning is unusually put-heavy and what that means for downside risk
• The role of market makers and hedging flows in driving market moves
• How geopolitical risks like the Iran conflict are changing options behavior and hedging demand
• Why correlation is spiking and what it says about investors moving from stock picking to asset allocation
• The breakdown of traditional diversification including the 60/40 portfolio
• How credit markets and liquidity risks could amplify equity volatility
• The impact of zero DTE options and why traders are shifting to longer-duration hedges
• The significance of the JP Morgan collar trade and key levels to watch into month-end
• Why volatility spikes often follow periods of suppressed market movement
• The potential for a sharp upside rally if geopolitical risks suddenly resolve
• How options positioning can help both traders and long-term investors with timing decisions
Timestamps
00:00 Volatility premium vs low market movement disconnect
01:00 Why markets feel calm despite rising risks
05:20 Explosion in options volume and impact of Monday Wednesday Friday expirations
07:00 How market maker hedging flows drive price movements
08:40 Dynamic hedging and why options impact evolves over time
09:20 Why OPEX can trigger market turning points
10:30 VIX expiration effects and short-term volatility suppression
13:00 Negative gamma and how it amplifies market volatility
14:10 Why hedging demand remains high despite OPEX clearing
16:00 Jump risk scenario and potential VIX spike to 40
17:10 Shift from zero DTE trading to longer-term hedging
18:00 Put-heavy positioning across equities and indices
20:40 Size and significance of the current OPEX event
22:20 VIX spike dynamics around expiration
23:40 JP Morgan collar trade and key SPX levels
25:00 Why OPEX often marks short-term market lows or highs
28:30 Review of prior OPEX signals and market setup
30:00 Rising correlation and shift to asset allocation mindset
32:00 Dispersion breakdown and implications for equities
34:00 Software sector volatility and AI disruption narrative
36:30 Using options signals for better timing decisions
39:00 Correlation spike and risk-off behavior across markets
41:30 Why investors are avoiding calls and piling into puts
44:30 Cross-asset correlation breakdown and bond hedge failure
48:00 Credit market risks and spillover into equities
49:00 Extreme VIX vs realized volatility spread
50:50 Why realized volatility remains unusually low
52:30 Oil, inflation, and macro feedback loops