Odd Lots — "Citi's Dirk Willer on How You Know When the Bubble Is Over"

Air Date: November 15, 2025
Hosts: Joe Weisenthal (C), Tracy Alloway (D)
Guest: Dirk Willer (E), Head of Global Macro Strategy at Citi

Overview

This episode features Citi’s Dirk Willer, a macro strategist and EM veteran, for an in-depth exploration of bubble dynamics, the state of current markets (particularly AI and US equities), parallels to past bubbles, and actionable signals for investors navigating risky market terrain. Willer brings both a practitioner’s quantitative rigor and memorable storytelling.

Key Themes & Discussion Points

1. Current Market Volatility and Context

• Mixed Signals in Markets (02:00–04:00)
  • S&P 500 experiencing pronounced swings.
  • Gold and Bitcoin dropping along with equities—a sign of risk aversion.
  • Traditional safe havens like bonds also failing to rally, compounding unease.
• Fed Uncertainty (03:45–04:30)
  • Expectations of rate cuts have sharply diminished.
  • Data scarcity and ambiguity make forecasting harder than ever.

2. AI Bubble: Sentiment and Seasonality

• Bearishness Disappearing (05:40)
  • Willer observes "the bears that we found disappeared over the last few weeks. So maybe just at the wrong time, you might argue, but that’s how it goes, right?” — E, [06:14]
• Measuring Sentiment (06:25)
  • Citi uses the "pulse indicator" based on positioning and surveys.
  • “...it’s really very rare to find one [indicator] that tells you, you know what, this is in line with what we’ve seen at other market tops.” — E, [08:16]
  • Institutional investors were never as bullish as price moves suggested.

3. Lessons from Historic Bubbles (Dotcom & Others)

• Analogy to 2000 Dotcom Bubble (11:36–13:52)
  • Nasdaq’s 50% gain in a single quarter cited as a starker excess than today.
  • Willer recounts colorful stories: “...don’t worry that we need more than 100% cell phone penetration in the world because pets will wear cellphones.” — E, [11:53]
  • No single “top” event, excesses can always get “weirder.”
• On Picking the Reference Point (13:32)
  • “What gives me sleepless nights is actually that the 2000 episode is not the right benchmark...not every bubble has to get as crazy as the 2000 one.” — E, [13:32]
  • Other bubbles (1929, market manias in history) offer perspective.

4. Bubble Definition and Signals

• Quantitative Bubble Definition (21:16–23:13)
  • Citi’s rule: If prices move >2 standard deviations above trend in real terms = Bubble.
  • Once a big selloff occurs, clock resets; the bubble must re-form.
• Duration and Dynamics
  • On average: 2 years of above-average returns after entering bubble territory, then below-average returns for years.
• Market Narrowness as Warning (24:22)
  • “The generals framework”: Bubble leadership becomes thinner—monitor the top stocks.
  • “If three of the top seven [leaders] break down, meaning they fall below the 200-day moving average, that’s a really dangerous sign.” — E, [24:50]

5. Role of the Fed & Market Crosswinds

• Fed Policy’s Influence (17:22–18:46)
  • Bullish scenario was predicated on Fed rate cuts into the bubble—a rarity historically.
  • Doubts about cuts now fueling market wobble.
  • Job market data and ambiguous government stats central to rate cut debate.
• Fundamental Weakness Lags Technical Peaks
  • In 2000, fundamentals only rolled over months after the first tech breakdown.

6. Hedging and Safe Havens (or Lack Thereof)

• Gold’s Complex Story (26:43–30:14)
  • First leg up: Central bank buying, driven by Russia, then China.
  • Second leg: “Debasement fears” among retail investors, meme-stock-like behavior.
  • “You saw people lining around the RBA in Australia trying to get physical gold out of the vault. So it became a meme stock almost for a while.” — E, [29:16]
  • No current bubble in gold per Citi’s framework, but risk is elevated.
• Bonds & Credit (30:14–32:20)
  • Traditional hedges (put spreads, bonds) don’t work as well in a bubble blowoff.
  • Credit exposure may offer some protection if the US economy falls through a “trapdoor.”

7. Can the US Become an Emerging Market?

• Safe Haven Status Under Scrutiny (34:11–35:26)
  • Willer: EM status in trading terms: “Do your government bonds rally when the VIX goes up or they don’t?”
  • US authorities have more tools than true EMs, but some discomfort as Treasuries fail to behave like classic safe havens in recent volatility.

8. Positioning, Risk, and Behavioral Lessons

• Crowded Trades (37:10–37:45)
  • Many investors crowded into the EM carry trade and gold, both linked to low volatility.
• Lessons from EMs (39:53)
  • “The main issue is really political risk. And we have a lot of elections coming up...I used to say, much much bigger difference than in the US. Although that is more debatable at this stage.” — E, [40:20]
  • US political risk may be rising to “EM-like” relevance.

Notable Quotes and Moments

• On Peak Mania:
  “There is no point where you can definitively say, oh, this is the peak of a mania. It could always get weirder.” — Joe (C), [13:15]
• On Bubble Tactics:
  “Once you enter bubble territory, you’re supposed to buy it. The only time when that didn’t happen was 1929...” — Dirk Willer (E), [21:53]
• On technical vs. fundamental signals:
  “It will be technical, it will not be, oh, fundamentally this happened and get out.” — E, [25:07]
• On “EM-ification” of US:
  “The strong lesson used to be that don’t assume you get these...well-behaved politics that you get in the US and other countries. But that lesson, of course, is somewhat undermined.” — E, [39:53]
• On the frustration of timing bubbles:
  “The problem with bubbles is you can’t sit them out. If you’re a money manager...your clients are going to be really, really angry if the S&P 500 is going up 20%...everyone wants to get out precisely at the top because we want to maximize our profits.” — Tracy (D), [41:34]
• On lessons from previous market cycles:
  “It’s really quite dangerous to be early in this thing...if you’re late, you can control a little bit more how much money you don’t make.” — E, [23:31]

Major Timestamps

• Market conditions & volatility context: 02:00–04:41
• Is there a bubble & how to measure sentiment?: 05:08–08:56
• Dotcom bubble stories & analogies: 11:36–13:52
• Defining, timing, and spotting bubbles: 21:16–26:06
• Gold, debasement, and safe havens: 26:43–30:14
• Trading in a “bubble world” & EM lessons: 34:11–41:17

Episode Flow & Tone

The conversation is both technical and anecdotal, blending empirical backtesting with colorful market war stories. Dirk Willer maintains a rigorous approach, emphasizing rules and signal-driven frameworks but underscores humility and adaptability in an environment full of crosswinds, behavioral traps, and historical parallels that may mislead. Joe and Tracy both press for applicable definitions and draw out Willer’s EM experiences to illuminate risks unique to the present.

Summary Takeaways

• Bubbles have rules: Citi’s “2 standard deviations” real price move definition is an actionable starting point.
• Sentiment matters but isn’t everything: Institutional positioning was never euphoric in this rally, a divergence from past tops.
• Technical signals > fundamental signals for top-calling: Leadership narrowing (the “Generals Framework”) reveals when it’s time to get defensive.
• Bubbles usually last longer and go further than expected; being early is painful.
• Safe haven status is under review: Recent market moves call into question the classic role of bonds and gold as hedges.
• New EM lessons for developed markets: Political risk and “EM-like” bond behavior are no longer distant threats for US investors.
• You likely can’t time the precise top—set rules, prepare to ride the bubble, and accept some giveback.

For more actionable insights and the mathematical framework for spotting bubbles, listen to the full episode and check Dirk Willer’s forthcoming book on global macro!