Excess Returns – “Lowest Cash Levels Ever | Kevin Muir on Markets at Extremes”

Date: February 4, 2026
Guest: Kevin Muir (“The Macro Tourist”)

Episode Overview

This episode of Excess Returns dives into market extremes, particularly through the lens of investor sentiment, market rotations, and the macroeconomic landscape, featuring returning guest Kevin Muir. The discussion explores the record-low cash levels among institutional investors, the implications of rotating markets, the role of gold and other commodities, the volatility in global currencies, and the potential impact of the new Fed Chair. Muir brings his nuanced and often contrarian perspective on current market conditions and where risks and opportunities may lie for savvy investors.

Key Discussion Points & Insights

1. Sentiment and Risk: “Buy Your Straw Hats in the Winter”

[03:26 – 08:27]

• Extreme Bullishness: Institutional investors’ cash positions are at historic lows, indicating “everyone is all in.” (B, 02:43)
  • “If you look at things like their cash level in terms of institutional investors… it's the lowest level ever.” (B, 00:22)
• Sentiment Surveys: AAII and Bank of America surveys reflect exceptionally high market enthusiasm and risk-taking.
• Disconnect Between Sentiment & Price: Despite all the optimism, indices like the QQQ (Nasdaq 100) and S&P 500 have gone largely sideways for months.
  • “What I'm really looking for is a consensus that is not being confirmed by the market.” — quoting Bruce Kovner (B, 07:25)
• Perspective from Experience: Wise market veterans express a sense of unease—something “feels not quite right.”
  • “I'm getting nervous about the stock market, and these aren't the kind of, like, doom at 11 guys... just fellows that I respect... have seen a lot of different cycles.” (B, 04:59)
• Kevin’s Stance: Now is the time to hedge or protect, not chase risk.

2. Market Internals & Rotation: Healthy or Harbinger?

[09:28 – 16:17]

• Unusual Rotation: Since the start of the year, marked outperformance of small caps and equal-weighted indices compared to mega-cap tech (“Mag 7”).
  • “They went up the most they’ve ever gone up versus the NASDAQ 100 in terms of number of days…” (B, 10:06)
• Distress for Quants: Quantitative strategies got “destroyed” in early 2026, missing the magnitude and direction of the rotation.
• Portfolio Flows: Large institutional rebalancing may have driven much of this action (“sometimes it’s just the fact that someone big has changed their position”).
• Cautious Interpretation: Is this a “healthy” broadening or the last gasp before a market rollover?
  • “Is this a healthy rotation into the rest of the market… or is this kind of just the final last grasp as people chase the last few stocks… before we roll over?” (B, 12:47)

3. Rolling Bubbles & Violent Rotations in Commodities

[16:20 – 20:19]

• Gold Miners’ Mania: Gold miner stocks, once hated, became a “rolling bubble”—and such bubbles are “getting just more and more violent.”
• Advice on Bubbles:
  • “If you hear yourself saying ‘it’s gone too far too fast’…put that pink ticket away and wait another couple weeks. Because it can always go farther than you can imagine.” (B, 18:32)
• Stanley Druckenmiller Example: Even seasoned pros can exit trades far too early (“Druckenmiller sold his Nvidia…like a double ago.” (B, 18:55))

4. Cross-Asset Volatility & Risk Parity Regime Change

[19:45 – 26:03]

• Rebalancing Gets Messy: Frequent and outsized policy portfolio rebalancing in pensions and large allocators creates new instabilities.
  • “The last basically six months of these policy portfolio rebalances… is just happening too fast.” (A, 15:44)
• Breakdown of Old Correlations: For the first time in decades, US stocks, bonds, and the dollar are all falling together (“Liberation Day" moment). This undermines classic risk-parity constructs.
  • “For the first time in decades, we saw a situation where the US Dollar, the US Bond market, and the US Stock market all went down together. And…I think that's underappreciated…” (B, 22:41)
• Gold as New Hedge: Gold is becoming the preferred “ballast” in portfolios as bonds lose their hedging role.

5. Global Flows, Currency Effects & US Relative Performance

[26:03 – 31:30]

• Asian Retail Flows: Persistent buying of US tech by Asian retail investors has kept the US market bid, but policy is now nudging a reversal (e.g., Korean tax law changes to encourage money back home).
  • “To me, that’s just the chasing of the final gasps of an AI bubble.” (B, 27:20)
• US Underperformance in Global Terms: Once FX-adjusted, US stocks have substantially lagged the rest of the world’s equities on both nominal and risk-adjusted (Sharpe ratio) bases.
  • “The MSCI World ex-US Index… had three times the sharp as the S&P 500 in 2025.” (B, 29:42)
• FX as the Overlooked Driver: Currency moves, not just local equity fundamentals, explain much of country-level returns outside the US.

6. Commodities, Energy, and Underinvestment

[31:08 – 40:33]

• Energy Out of Favor (But Not Forever): Muir had previously avoided energy stocks (“felt the pain”), but turned bullish when US policy changes (regarding Venezuela) didn’t pan out as “oil bearish” as expected.
• Commodity Cycles: Underinvestment in supply across many commodities is key—when demand finally hits, response is limited and price spikes are sharp.
• China’s Shift to Scarcity Pricing: For the first time, China is less willing to underprice global commodities, altering the long-term supply/demand dynamics.
• Bullish Thesis: Energy and select commodities (aluminum, copper) are now “one of the few places you can hide in because no one owns it.”
  • “If we do get a rotation… you would find oil stocks actually outperform. And I know that seems ridiculous… but… nobody owns them.” (B, 38:44)
• Late-Cycle Rally Potential: Historically, energy rallies can continue even into economic contractions—sometimes “the last sector that sends the economy over the cliff.” (B, 40:13)

7. The Macro Tourist’s Tactical Approach

[40:33 – 45:16]

• Beyond Equities: Sometimes the best risk/reward is in overlooked corners—such as energy bonds trading at distressed levels rather than equity.
• Macro Tourism Defined: Leaving the bank to explore markets broadly, not confined to a single “sandbox.”
  • “When I named myself the Macro Tourist, people used to say…it’s like a derogatory term, right?...But I love finding different niches, love finding different opportunities.” (B, 42:51)

8. FX Markets: Volatility and Structural Dollar Weakness

[45:28 – 54:33]

• Dollar Overvalued: The strong dollar makes US assets and US vacations expensive for the world.
• Needed Rebalance: The dollar “needs to be fixed” (i.e., lower) to address deep imbalances in trade and capital accounts.
  • “On the other side of a lower US dollar is less money going into the US to fund these deficits and also to go invest in their financial assets and it means a lower stock market.” (B, 49:25)
• Tariffs & Trade Deficit Insight: Trade restrictions may briefly reduce deficits but at the cost of market performance—Trump’s policies highlighted this tradeoff.

9. Global Fiscal Policy: The World Turns Keynesian

[54:33 – 62:38]

• Rest of World is Spending Again: After years of global “austerity,” Trump’s shifts forced other countries (Canada, Europe, Japan) to ramp up fiscal stimulus—ending the US’s role as sole global demand engine.
  • “We had this situation where the rest of the world wasn’t spending enough, okay. And then Trump comes along and all of a sudden… even the Germans are talking about spending.” (B, 60:25)
• Repatriation: Major funds (e.g., Japan’s GPIF) may bring money home, emphasizing deglobalization and new capital return priorities.

10. The New Fed Chair: Trader vs. Central Banker?

[62:41 – 68:27]

• More Volatile Fed: New Chair Kevin Warsh is “more a trader than a central banker”—his instincts are to react, not wait for the data, likely leading to a more volatile policy stance.
  • “If it was just Kevin Warsh setting policy, I can assure you it would be way more volatile than it’s ever been.” (B, 66:06)
• Communication Style Change: Expect less telegraphing and more uncertainty in Fed moves (“I also think you should introduce some uncertainty into the decision…” (B, 67:10))
• Historical Anecdote: Warsh has a track record of “cheerleading” both for hikes and cuts, pivoting rapidly as markets move—a “cheerleader for traders in charge of the Fed.”

11. MMT – The Outlier’s Framework

[68:30 – 70:53]

• Kevin’s Contrarian View: MMT (Modern Monetary Theory) is extremely useful for understanding how the economy operates—even if one disagrees with the policies it inspires.
  • “In terms of understanding the economy, [MMT is] one of the absolute best tools out there.” (B, 69:17)
• Advice: Separate the operational logic from the political overlays—study Warren Mosler’s foundational work.

Notable Quotes and Memorable Moments

• “If you look at things like their cash level in terms of institutional investors… it's the lowest level ever.” (Kevin, 00:22)
• “What I'm really looking for is a consensus that is not being confirmed by the market.” — Bruce Kovner, quoted by Kevin (07:25)
• “If you hear yourself saying ‘it’s gone too far too fast’… put that pink ticket away and wait another couple weeks. Because it can always go farther than you can imagine.” (B, 18:32)
• “For the first time in decades, we saw a situation where the US Dollar, the US Bond market, and the US Stock market all went down together. And… that’s underappreciated…” (B, 22:41)
• “The MSCI World ex-US Index… had three times the sharp as the S&P 500 in 2025.” (B, 29:42)
• “I just love markets. I love finding different niches, love finding different opportunities.” (B, 42:51)
• “On the other side of a lower US dollar is less money going into the US to fund these deficits … and it means a lower stock market.” (B, 49:25)
• “If it was just Kevin Warsh setting policy, I can assure you it would be way more volatile than it’s ever been.” (B, 66:06)
• “In terms of understanding the economy, [MMT is] one of the absolute best tools out there.” (B, 69:17)

Timestamps for Key Segments

| Segment | Description | Timestamp | |---------------------------|---------------------------------------------|-----------| | Sentiment extremes | Market sentiment, surveys | 00:22–08:27 | | Market rotation | Small caps, equal weight, quant damage | 09:28–16:17 | | Rolling bubbles | Gold, violent commodity moves | 16:20–20:19 | | Risk-parity breakdown | All assets down, new hedges | 19:45–26:03 | | Global flows & FX | Asian flows, US vs. world returns | 26:03–31:30 | | Commodities case study | Energy, aluminum, underinvestment | 31:08–40:33 | | Macro tourism | Trading bonds, niche opportunities | 40:33–45:16 | | FX regime shift | Dollar overvaluation, capital flows | 45:28–54:33 | | Global fiscal turns | Foreign spending, deglobalization | 54:33–62:38 | | Fed chair transition | Warsh’s volatility, trader vs. banker | 62:41–68:27 | | MMT & frameworks | Economic plumbing, misunderstood MMT | 68:30–70:53 |

Conclusion

Kevin Muir delivers a cautionary, sharply analytical take on crowded sentiment, the risks of market consensus, rapid rotations, and the global macro cross-currents roiling both commodities and currencies. His advice is to stay hedged, stay curious, and don’t underestimate how far extremes can run—especially in a market where traditional hedges are failing and macro drivers are shifting. For investors seeking true “excess returns,” the message is to watch for signs beneath the surface and never be afraid to think contrarian—especially when the crowd is convinced.

Follow Kevin Muir:

• The Macro Tourist
• Email: kevin@themacrotourist.com