Oct 24, 2026 · 1h 14m
Trend followers find new fuel in fragmented markets
SI423: Why Trend Following Might Outlast the AI Arms Race ft. Mark Rzepczynski
As rates, liquidity, geopolitics, and AI reshape markets, the episode tests whether trend following can retain an edge when quantitative strategies converge.
- 1Higher yields and changing bond-market participants could create opportunities beyond the era of falling rates.
- 2Geopolitical fragmentation and commodity shortages may produce differentiated trends and smaller-scale crisis alpha.
- 3Shared machine-learning methods can crowd trades, shorten alpha half-lives, and make durable strategies harder to find.
Don't miss
Mark Rzepczynski argues that shared machine-learning practices could make hedge-fund strategies increasingly similar, shortening the half-life of alpha.
The brief
Mark Rzepczynski and Niels Kaastrup-Larsen examine whether trend following depends on falling rates, or can adapt as yields, liquidity, and market structure change.
The bond sell-off is framed as a return toward historical norms, with real growth, inflation, term premia, deficits, and debt-service burdens reshaping the opportunity set.
Drawing on Perry Mehrling’s money-view framework, the discussion shows how dealer balance sheets, intermediation capital, and liquidity shortages can turn market plumbing into crisis risk.
Geopolitical fragmentation and commodity stock-outs may create differentiated trends, from cocoa shortages to divergent global markets, offering a smaller-scale form of crisis alpha.
The sharpest tension arrives with AI: common data, techniques, and models may crowd trades and compress alpha half-lives, even as trend following remains structurally diverse.
What was said on this episode
23 statements · 9 positive · 11 negative · 3 neutral
Machine learning can capture market trends.
“Can you use machine learning to capture trends? I think the answer is yes.”
Listen at 0:10
Trend following differs from machine-learning alpha strategies.
“trend following is probably unique and different than the growing focus on machine learning as a way to create alpha.”
Listen at 0:19
Protests or riots in France are materially affecting markets.
“I think that that's really having a big impact on markets.”
Listen at 2:23
When earnings momentum stops, discount rates become more influential on asset prices.
“Once earnings stop to increase. you lose earnings momentum, then what we're going to sort of see that the discount rate will then become more dominant.”
Listen at 7:05
Trend followers can profit by shorting bonds when rates rise.
“you can make money shorting bonds”
Listen at 11:37
Trend followers may perform better in markets with more hedgers than speculators.
“markets that have more hedgers relative to speculators, a trend follower could do better”
Listen at 13:08
Capital-constrained dealers increase the likelihood of disorderly market dislocations.
“If you can't serve your warehouse function, then that means is that you're going to have to move from seller to buyer extremely quickly in a disorderly fashion. And there's more likelihood that there's going to be dislocations in markets.”
Listen at 24:38
Globalization has reduced poverty and expanded middle classes.
“globalization has been a boom to most around the world when you look at the reduction in poverty”
Listen at 29:38
Commodity underinvestment can drive prolonged price increases across markets.
“there are periods where there's underinvestment in commodities markets. So there's less capital expenditures. Then there's going to be a grind of prices moving higher across a number of different markets”
Listen at 36:19
Current elevated interest rates represent a return to normal conditions.
“the current environment is a return to normalcy.”
Listen at 38:53
Public-sector borrowers have not managed their balance sheets well.
“the public has not”
Listen at 43:32
Governments are not returning to primary surpluses after recessions.
“we're not getting that.”
Listen at 44:37
Increasing Treasury supply reduces the convenience yield of safe assets.
“the convenience yield is going to be shrunk.”
Listen at 48:44
Dollar dominance is weakening as reserve holdings become more multipolar.
“the dollar regime is breaking, and there's more of, we'll call it, multipolarity”
Listen at 49:44
Geoeconomic fragmentation increases diversification across markets.
“If we have more fragmentation, then you say you're going to get more diversification across markets.”
Listen at 55:03
Reduced fragmentation increases market correlations.
“If there's less fragmentation, then what we're going to sort of say that, okay, markets become more correlated”
Listen at 55:10
Commodity inventories matter more than production for market risk.
“the real problem in commodities is not what is produced, but it's what the inventories look like at any given time.”
Listen at 58:07
Hoarding during anticipated shortages can cause explosive commodity price increases.
“if everybody starts to hoard you know what happens is this is that then the price is going to get uh is going to have an explosive to the upside”
Listen at 59:26
More than 90% of surveyed hedge-fund managers use machine learning for alpha.
“The number is maybe over 90%. Everybody's using it.”
Listen at 1:02:41
Trend following may not experience the same alpha half-life as machine-learning strategies.
“the nice part about trend following is is that we may not have the same thing as a as an alpha half-life”
Listen at 1:03:20
Shared machine-learning practices have increased strategy crowding.
“The behavior of people looking at machine learning and everyone doing the same thing has led to more crowding from adaptation of models.”
Listen at 1:03:57
Crowding from machine-learning models has shortened alpha half-life.
“they've been actually reducing or the half-life of alpha has shortened.”
Listen at 1:04:55
Major hedge funds increasingly hold similar positions in major stocks.
“there's an increasing similarity in the positions that a lot of major hedge funds take in major stocks.”
Listen at 1:06:01
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
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