Excess Returns

Brent Donnelly returns to Excess Returns to break down one of the most confusing market environments in years, where policy shocks, volatility, and positioning matter more than traditional fundamentals. He explains why markets can keep rising despite constant bad news, how traders should think about regime shifts, and what actually drives moves across equities, bonds, FX, and gold today.
Brent also shares practical insights from his trading process, including risk management, journaling, and how to think about positioning and asymmetric opportunities. The conversation spans macro frameworks, behavioral pitfalls, and the evolving nature of market edges, offering a detailed look at how a professional trader navigates uncertainty.
Spectra Markets
https://www.spectramarkets.com
Topics covered:
Why stocks need a steady stream of bad news to go down and what drives rallies

The impact of constant policy shocks on volatility, positioning, and mean reversion

How to distinguish structural trends from short-term trading opportunities

The “wall of worry” and why markets can ignore negative headlines

The importance of Mag 7 earnings and concentration in today’s market

How traders use reassessment triggers like the 200-day moving average

The complexity of central bank reactions to oil shocks and inflation

Why bonds still matter as a recession hedge despite recent correlation breakdowns

How positioning—not fundamentals—drives moves in the U.S. dollar

Gold, silver, and Bitcoin through the lens of flows, retail behavior, and debasement

The role of overconfidence and risk management in trading success

Brent’s journaling process and how writing clarifies thinking

How to identify asymmetric trades using potential headline scenarios

Why edges in markets are temporary and require constant adaptation

Timestamps:
00:00 Intro
02:05 Government policy shocks and market impact
05:10 Volatility, shocks, and trading frameworks
09:05 Why the economy remains resilient despite rate hikes
13:05 Market concentration and the importance of big tech earnings
16:05 The “steady stream of bad news” framework for stocks
18:30 Using the 200-day moving average and pattern recognition
22:10 Central banks, oil shocks, and inflation dynamics
24:35 Stocks vs bonds and the 60/40 portfolio outlook
26:05 Why dollar moves depend on positioning, not narratives
30:55 Gold, silver, and the retail-driven momentum cycle
34:05 The debasement trade and long-term gold thesis
38:10 Rationality vs overconfidence in trading
41:05 Risk management, journaling, and avoiding blowups
46:00 Thinking in probabilities, positioning, and market expectations
50:55 Journaling as a tool for clarity and discipline
55:00 Why traders lose discipline when over-earning
59:10 Brent’s new book and evolving trading frameworks
01:03:30 Where to find Brent and closing thoughts

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

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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