Excess Returns

In this inaugural episode of our new show, The Intangible Economy with Kai Wu, we explore how AI, intangible assets, and unprecedented capital investment are reshaping the future of markets. Michael Mauboussin joins Kai to break down why today’s AI expectations may be historically unmatched—and what that means for investors trying to assess risk, returns, and who ultimately captures value.
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The conversation moves from base rates and AI growth expectations to competitive dynamics, capital cycles, and the fundamental shift toward intangible-driven business models that are changing how we think about valuation, moats, and market structure.
Papers and Resources Discussed:
Bayes and Base Rates: How History Can Guide Our Assessment of the Future
https://www.morganstanley.com/im/en-us/institutional-investor/insights/consilient-observer/bayes-and-base-rates.html
The Impact of Intangibles on Base Rates
https://www.morganstanley.com/im/publication/insights/articles/article_theimpactofintangiblesonbaserates.pdf
Measuring the Moat: Assessing the Magnitude and Sustainability of Value Creation
https://www.morganstanley.com/im/publication/insights/articles/article_measuringthemoat.pdf
One Job: Expectations and the Role of Intangible Investments
https://www.morganstanley.com/im/publication/insights/articles/article_onejob.pdf
Capitalism Without Capital: The Rise of the Intangible Economy
https://books.google.com/books/about/Capitalism_without_Capital.html?id=J3SYDwAAQBAJ
A Better Estimate of Internally Generated Intangible Capital
https://pubsonline.informs.org/doi/10.1287/mnsc.2022.01703
Underestimating the Red Queen: Measuring Growth and Maintenance Investments
https://www.morganstanley.com/im/publication/insights/articles/article_underestimatingtheredqueen.pdf
Explaining the Recent Failure of Value Investing
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3442539
Guest Links:
Michael Mauboussin Twitter
Topics Covered:
Why OpenAI’s projected growth would be unprecedented in market history

How base rates provide a reality check on AI expectations

The role of diffusion models and adoption curves in forecasting technology

Why massive capital investment in AI may follow past boom-bust cycles

Lessons from large-scale infrastructure projects and why timelines break

How intangible assets change the distribution of business outcomes

The rise of “fat tails” and why more companies now massively win or fail

Who captures value in AI across the stack from chips to applications

Why competition may drive AI profits toward consumers, not producers

How accounting distorts intangible investment and misleads investors

Timestamps:
00:00 Intro and OpenAI growth expectations vs historical base rates
04:32 Why no company has ever achieved 100%+ sustained growth at scale
08:47 Lessons from megaprojects and AI infrastructure buildouts
13:18 Intangible assets and why outcomes now have fatter tails
18:36 Why big tech is growing faster than historical precedents
23:52 Where value accrues in AI and why consumers may benefit most
28:21 Barriers to entry in AI including capital, talent, and scale
32:47 The risk of overinvestment and historical parallels to past bubbles
37:26 Game theory and competitive signaling in AI capital spending
41:58 Why investment returns—not “asset light” narratives—drive value
46:12 How accounting fails to capture intangible investment properly
50:44 Breaking down SG&A into maintenance vs investment spending
55:03 Why understanding reinvestment and ROI is the core investing skill
59:18 Final thoughts on uncertainty, expectations, and base rates in AI

This episode of Excess Returns features Aahan Menon of Prometheus Research breaking down the growing risk of an inflation shock driven by energy markets and what it means for investors. The discussion explores how a potential shift toward stagflation could challenge traditional stock and bond portfolios and why commodities, trend following, and systematic frameworks may be better suited for the current environment.
Prometheus Research
https://www.prometheus-research.com
Aahan Menon Twitter
https://x.com/@AahanPrometheus
Why the current inflation shock may be one of the most significant in recent history

How oil prices and geopolitical conflict are reshaping macro expectations

The growing risk of a stagflationary environment and what it means for portfolios

Why traditional 60/40 portfolios may struggle in sustained inflation regimes

How expected returns differ across equities, bonds, commodities, and FX

Why commodities and energy markets offer the most attractive opportunities today

The role of backwardation and supply shocks in driving commodity returns

Why consensus earnings expectations may be too optimistic relative to macro reality

How inflation flows through the economy from energy to consumer demand

The Fed’s dilemma between inflation control and economic slowdown

A simple rule for when to own treasuries based on inflation trends

Why correlations across asset classes are breaking down in crisis environments

How systematic investors manage risk when markets are driven by news and geopolitics

The case for trend following as a core portfolio strategy

How Aahan’s free trend system works across stocks, bonds, gold, and Bitcoin

The behavioral advantages of systematic investing during volatile markets

Risks of trend following including whipsaws and false signals

How portfolio construction is evolving to include crisis protection and energy overlays

00:00 Inflation shock and why equities and bonds may struggle
01:03 Setting up the macro backdrop before the oil shock
03:12 Labor market slowdown vs strong GDP divergence
04:45 Consumer spending driven by de-saving
05:35 Oil-driven inflation shock as a recession catalyst
07:32 Preparing for stagflation vs disinflationary growth
09:18 Why commodities outperform in inflation regimes
10:45 Expected returns framework across asset classes
12:05 Why commodities and FX offer the best opportunities
14:05 How commodity carry and backwardation work
16:42 Trend following and commodities as pro-cyclical exposures
17:43 Ranking expected returns: energy, FX, bonds, equities
18:51 Challenges of systematic investing in news-driven markets
20:15 Extreme correlations and oil dominating asset pricing
23:47 Earnings expectations vs macro reality gap
28:30 Why the Fed faces an impossible policy tradeoff
30:00 Real-time CPI estimates and inflation pressure
32:00 A rule for when to own treasuries based on CPI
37:30 Stock-bond correlation regime shifts
39:34 How the trend following system works
45:10 Benefits and limitations of trend strategies

This episode explores Harris “Kuppy” Kupperman’s framework for “inflection investing” and how he identifies asymmetric opportunities across global markets. The conversation dives into why he believes U.S. equities are structurally challenged, where he sees better opportunities globally, and how macro, politics, and capital flows drive major investing inflections.
Inflection investing and identifying asymmetric opportunities
How macro and politics create winners and losers in markets
The Argentina case study and why the stock exchange may outperform the country
How to structure trades with limited downside and multi-bagger upside
Time horizon advantages versus short-term Wall Street thinking
Portfolio construction, capital allocation, and when to sell positions
Managing risk, leverage, and liquidity during crises and wars
Building a “shopping list” during market dislocations
Country ETFs vs individual securities in global investing
Why Kuppy prefers international markets over the U.S.
The structural imbalances in the U.S. economy and stock market
Why AI may lead to profitless growth and economic disruption
The impact of AI on jobs, margins, and economic demand
How inflation distorts economic data and investor perception
Finding opportunities in “left for dead” markets like Brazil
The role of elections and policy shifts in market inflections
How to think probabilistically about investments
Avoiding unforced errors and emotional decision-making
The importance of long-term thinking in volatile markets
Psychology and discipline in global macro investing
Harris Kupperman Twitter
https://twitter.com/HedgeyeKuppy
Praetorian Capital Website
https://praetorian-capital.com
Timestamps
00:00 Why the U.S. stock market is structurally overvalued
01:14 What “inflection investing” means
02:54 Top-down vs bottom-up investing framework
04:31 Using politics to identify winning trades
05:00 Argentina trade setup and execution
06:20 Why the Argentine stock exchange is the best play
08:00 Earnings inflection and multiple expansion potential
10:37 Time horizon and holding period strategy
13:00 When to exit positions and recycle capital
18:41 How and when to raise cash
19:41 De-grossing the portfolio during crises
23:14 Real-time decision making during war scenarios
27:00 Building a shopping list during dislocations
29:32 ETF vs individual stock decision process
33:22 Why the U.S. is less attractive than global markets
38:17 The problem with AI-driven “growth”
43:31 Monitoring vs acting across global opportunities
48:14 The psychology of long-term investing and edge

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.
Follow Last Call on Spotify⁠⁠⁠
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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