Excess Returns

Liz Ann Sonders of Schwab joins Excess Returns to break down how war, an oil shock, and shifting market dynamics are reshaping the investing landscape. She explains why the surface-level strength in markets is misleading, what’s really happening beneath the index, and how investors should think about inflation, the Fed, AI, and the evolving role of retail traders.
Follow Liz Ann on Twitter
https://twitter.com/LizAnnSonders
Liz Ann's Research and Commentaryhttps://www.schwab.com/learn/author/liz-ann-sondersTopics Covered
How war and oil shocks are impacting markets, inflation, and Fed policy

Why the US being a “net energy exporter” doesn’t protect investors

The hidden bear market beneath index-level resilience

Rotation vs. correction and what it means for portfolios

The rise of retail traders and the shift away from “dumb money”

Why better or worse data matters more than good or bad data

The K-shaped economy and its impact on consumption and markets

AI’s three phases and its real impact on jobs and productivity

Why this earnings season may be more important than usual

The shifting role of the Mag 7 and broader market participation

Why the bond market may be the true driver of equities

Risks in credit markets and what investors should watch

Labor market dynamics and challenges for younger workers

How investors and young professionals should think about AI

Timestamps
00:00 Intro and current market environment
04:05 Why the US isn’t immune to oil price shocks
05:35 Lessons from past oil shocks and inflation
07:22 Why markets seem resilient despite macro risks
08:00 The hidden drawdowns beneath the index surface
10:13 Rolling recessions and sector-level weakness
10:37 Are investors conditioned to buy every dip
12:58 What happens when the dip doesn’t get bought
14:36 Valuations, corrections, and market structure
15:12 Sentiment analysis in a new market regime
18:50 Retail investors outperforming institutions
20:08 Better or worse vs good or bad economic data
23:00 How markets anticipate economic turning points
25:22 Understanding the K-shaped economy
28:00 Wealth effects and risks from equity declines
29:09 AI as a transformative force vs macro risks
30:00 The three phases of AI development
33:04 Why this earnings season matters more
34:00 Earnings revisions and sector concentration
36:00 The future of Mag 7 leadership vs the rest of the market
38:00 Contribution vs performance in index returns
40:00 Sector sensitivity to inflation and supply chains
42:00 Fundamentals vs speculation in small caps
44:21 The Fed’s dilemma in an oil shock environment
48:00 Why the bond market is driving equities
50:05 Credit markets and systemic risk signals
53:26 Lessons from past bond market dislocations
54:19 Labor market challenges and younger workers
57:00 Career advice in the age of AI
59:26 How Liz Ann uses AI in her research process
01:01:00 Closing thoughts and where to follow Liz Ann

This episode features Jim Grant of Grant’s Interest Rate Observer on inflation, war, monetary policy, and the long arc of credit cycles. Grant explains why inflation is ultimately driven by monetary debasement and why war, fiscal policy, and central bank actions may be setting the stage for a more persistent inflationary regime than markets expect.
We explore how today’s environment compares to past inflationary periods, the hidden risks in credit markets and public debt, and what history teaches us about AI investment booms, oil shocks, and monetary disruption. Grant also discusses trust in financial systems, the role of gold, and why markets are always harder in real time than they appear in hindsight.

Grant’s Interest Rate Observer
https://www.grantspub.com/
Topics Covered:
Why war is inherently inflationary and how it strains the productive economy

The difference between measured economic stability and underlying systemic risks

How inflation shifted from a wartime phenomenon to a permanent feature of modern monetary policy

The Fed’s 2% inflation target as a structural form of currency debasement

Lessons from the 1970s inflation and oil shocks vs. today’s environment

Why inflation is a ratchet that erodes purchasing power over time

The importance of trust in credit markets and growing risks in private credit structures

Public debt, Treasury market dynamics, and early signs of strain in government financing

Historical parallels between AI investment and past technological booms like the internet

The role of gold as a hedge against (and investment in) monetary instability

The durability of the US dollar despite long-term structural concerns

Why investing is always difficult in the present—even when it looks obvious in hindsight

Timestamps:
00:00 Intro and Jim Grant on the true causes of inflation
04:04 Why war drives sustained inflation and current geopolitical risks
08:00 Historical perspective on inflation before the 1970s
12:00 Oil shocks, Volcker, and lessons from past inflation cycles
16:00 Why inflation never reverses and purchasing power declines
20:00 Trust in markets and the foundation of credit systems
24:00 Private credit risks and the modern credit cycle
28:00 Public debt, Treasury markets, and fiscal sustainability concerns
32:00 Treasury auctions, yields, and early warning signs in bonds
35:25 AI capex boom and lessons from past technological bubbles
38:17 Air conditioning, internet bubbles, and delayed economic payoffs
40:00 The Fed, Treasury, and hidden financial interdependence
44:14 Asset allocation, gold, and monetary disruption
48:44 The dollar’s strength and global dominance
53:41 Why investing is always difficult in real time
59:00 Advice on markets, newsletters, and enduring uncertainty

Subscribe to the OPEX Effect on Spotify⁠⁠
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This episode of The Opex Effect breaks down why markets have remained surprisingly resilient despite geopolitical chaos, an oil shock, and extreme headline risk. Brent Kochuba joins Jack Forehand to analyze what’s really driving the market beneath the surface—from options flows and gamma positioning to the collapse in volatility and what it signals for the next move.
They explore how the options market is shaping price action in ways most investors miss, why the VIX collapsed despite elevated risk, and what positioning tells us about the path forward as we head into earnings and the next major options expiration.
Topics covered:
Why markets have stayed near highs despite war, oil spikes, and macro uncertainty

The “taco trade” and why investors expect bad news to reverse quickly

How options flows and dealer hedging are influencing stock prices

Why call options are historically cheap heading into earnings

The mechanics of gamma, delta hedging, and market maker positioning

Why options expiration (OpEx) can act as a turning point for markets

The divergence between oil prices and equity volatility

What the collapse in the VIX reveals about investor positioning

The role of zero-DTE options in reinforcing short-term market ranges

Key resistance levels forming from call selling and what they mean for upside

Timestamps:
00:00 Why markets aren’t reacting to geopolitical chaos
04:18 The “taco trade” and shifting market expectations
07:30 How options flows influence stock market movements
11:10 Why OpEx can drive market turning points
13:05 Volatility compression and the gamma-volatility relationship
15:30 How large options positioning shapes market behavior
18:05 Why positioning has shifted toward calls
20:00 Why this OpEx may be less impactful than prior ones
22:00 Market positioning into earnings and key drivers ahead
24:10 Using gamma maps to identify support and resistance
27:00 Revisiting the JP Morgan collar trade and March lows
30:00 Correlation spikes and the oil-volatility relationship
33:00 Why oil has stopped driving equity volatility
34:30 The breakdown between oil and VIX correlation
36:00 Why volatility may reprice higher after OpEx
37:05 The oil curve and expectations for a short-term shock
39:40 One of the largest VIX collapses ever
41:00 How options positioning drove the volatility unwind
43:00 Why selling volatility has become a dominant strategy
45:00 The feedback loop between rising markets and falling volatility
For more information on SpotGamma and Brent’s work:
https://spotgamma.com
Follow Brent on Twitter:
https://twitter.com/spotgamma

This episode of Excess Returns features GMO’s Tom Hancock on how to think about AI as an investment opportunity and what truly defines “quality” in today’s market. The conversation breaks down the AI value chain, challenges common assumptions about where value will accrue, and ties it all back to building durable portfolios in a rapidly changing technological landscape.
Tom walks through his “Hype vs High Conviction” framework, explaining why identifying the right layer of the AI ecosystem may matter more than simply betting on the theme itself, and why balance sheets, durability, and capital allocation remain critical even in the most exciting growth environments.
Hype vs High Conviction
https://www.gmo.com/americas/research-library/hype-vs-high-conviction_insights/
Topics Covered:
Why AI may be the most important investment decision today

The four-layer AI stack: applications, LLMs, hyperscalers, and infrastructure

Why investors confuse secular trends with investable opportunities

Following the money through the AI value chain

The hidden risks of investing lower in the stack

Why today’s tech leaders differ from the dot-com era

Growth vs maintenance capex and what it means for AI economics

Why software may be more resilient than markets think

How GMO defines “quality” and why it matters in volatile markets

Portfolio construction: where GMO is investing (and avoiding) in AI

Timestamps:
00:00 Intro and framing the AI investment debate
00:00:55 Tom Hancock background and focus on quality investing
00:02:00 What investors are getting wrong about AI
00:03:23 Breaking down the four layers of the AI ecosystem
00:06:45 Applications vs infrastructure: where value may accrue
00:08:45 Why predicting AI winners is still difficult
00:11:00 Following the cash flows through the AI stack
00:13:00 Why AI funding is more stable than past tech bubbles
00:16:00 Big Tech strategy differences and capital allocation decisions
00:17:34 Are today’s tech companies higher quality than in 1999?
00:19:00 Growth vs maintenance capex and implications for Nvidia and others
00:22:00 Depreciation, chip lifecycles, and hidden risks in capex assumptions
00:24:00 Capital intensity vs quality: when heavy investment is a feature
00:27:00 Why incumbents may benefit most from AI
00:28:30 Risks in the LLM layer and potential commoditization
00:30:10 Software disruption fears: overdone or justified?
00:34:06 Defining “quality” in investing
00:36:00 Balance sheets vs return on capital
00:38:32 Why GMO sold Oracle and the risks of leverage
00:40:18 What happens if AI spending slows down
00:41:35 Where the biggest risks are in the AI stack
00:44:26 Where GMO is positioned vs the S&P 500
00:48:00 How new ideas enter a quality portfolio
00:51:00 Sell discipline and portfolio turnover
00:53:00 International vs US quality investing

This episode of Excess Returns features Jim Paulsen breaking down the current macro environment through a series of powerful indicators, including oil, interest rates, consumer behavior, and market sentiment. The discussion explores whether today’s environment signals a slowing economy—or the early stages of a new bull market hidden beneath the surface.

Subscribe to the Jim Paulsen Show on Spotify⁠

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Jim walks through a wide range of charts and frameworks, from the Walmart vs. luxury retail signal to private credit stress, productivity trends, and policy uncertainty, offering a data-driven perspective on where markets and the economy may be headed next.
Paulsen Perspectives Substack
https://paulsenperspectives.substack.com
Topics Covered
Why the recent oil spike hasn’t impacted inflation and interest rates as expected

Slowing economic growth vs. recession risk and what the Fed might do next

The Walmart vs luxury retail indicator and what it signals about the economy

Private credit risks and how they differ from traditional credit crises

Why many indicators point to a new bull market rather than a bear

The role of sentiment, volatility, and uncertainty in driving market returns

Market rotation from mega-cap “new era” stocks to broader market leadership

Corporate profits divergence and the opportunity in the rest of the economy

Liquidity, cash levels, and positioning as potential fuel for markets

Productivity trends and whether AI-driven gains are real or overstated

Timestamps
00:00 Intro and current macro backdrop
01:05 Oil spike and limited impact on yields and inflation
04:45 Growth outlook and why recession may still be avoided
07:10 Fed policy and the stagflation question
10:15 Walmart vs luxury retail indicator explained
13:40 Private credit stress vs traditional credit cycles
17:00 Why this isn’t 2008 and how balance sheets differ
19:50 Private credit risks and market spillover effects
22:15 Bear market fears vs signs of a new bull
23:45 Consumer confidence and its impact on returns
25:05 Oil spikes historically as buy signals
26:15 VIX, volatility, and market bottoms
27:05 Yield curve steepening and market implications
28:05 Sentiment indicators and what they really reflect
30:00 Market rotation and broadening beyond mega caps
32:45 Passing the baton from tech to broader markets
35:15 Corporate profits divergence and future potential
37:00 Policy uncertainty and why it can be bullish
42:05 Liquidity, cash levels, and risk allocation
43:20 Options positioning and put-call signals
44:05 Gold vs commodities and risk appetite
45:10 Consumer credit contraction and market signals
46:20 Polymarket recession probabilities as sentiment
47:30 Economic sentiment collapse and contrarian signals
48:10 Interest rate expectations and positioning
49:05 Unemployment trends and historical market bottoms
50:25 Productivity trends and AI impact on the economy