LONG VOL: THE EMPTIEST ROOM AROUND (Guest: Robert Mullin)

Robert Mullin treats long volatility as a separate portfolio function from shorting: a small allocation is meant to deliver strong returns with some uncorrelation or anti-correlation during market disruptions, providing “crisis alpha.” He has generally kept 1.5–2% of his portfolio in long-volatility positions, including VIX calls and call spreads and out-of-the-money options in currencies, commodities, individual ETFs, and high-yield assets. He seeks inexpensive convexity, varying position sizes with volatility and the distance to the strike, and spreads the risk across instruments. Recent hedges included TLT calls and long yen against the euro and dollar; he saw the yen as a crowded funding currency that could strengthen in a risk-off shift, while potential French credit problems informed the euro trade. He credited Vincent Tillard with identifying the yen trade and short French OATs against long German Bunds.

Mullin says shorts can contribute even when they lose money, if the long book performs, and can help control drawdowns when downside volatility rises. Long volatility, by contrast, may let a portfolio play offense while other managers de-gross. Shorting has become harder over the past three to five years, which he partly attributes to passive flows and tax-related long-short strategies and to a scarcity of individual short sellers. He may halve or cut by two-thirds a short that moves 10% against him, then reconsider it later. He looks beyond major index names, sometimes building a 7–10% basket of 10 resource-sector shorts rather than concentrating in three companies. Deere’s rise despite repeated guidance reductions illustrated how multiple expansion and index flows can overwhelm fundamentals, with AI-efficiency explanations potentially arriving after the price move.

His long book pairs resource exposure with high-dividend resource equities that he believes offer asymmetry. He looks for sustainable yields of 7%, 10%, or 12%; when volatility pushes yields to 12%, 15%, or 18%, he says the resulting opportunity can add thousands of basis points to annual performance in a single three-month period. His supply thesis rests on years of underinvestment: resource-sector capital spending has fallen about 50% in nominal terms and 75% after inflation since roughly 2012–2014. Many projects needed for 2025–2035 production would have had to be underway by 2020, and fewer are in progress. He sees today’s resource bull market as supply-driven, unlike the demand-led run from the late 1990s through 2007–2008 and its 2011–2012 echo, leaving prices more responsive if demand returns.

Mullin argues that a portfolio built around long-duration assets, low inflation, and rising liquidity benefited for nearly 25 years, but geopolitical fragmentation, supply-chain resilience, and large government deficits may alter that environment. Bonds, he says, are historically less useful at 3–4% inflation than at 1.5–3%, though he does not equate higher inflation with a return to the 1970s. He favors moving beyond 60/40 toward 60/20/20, including gold and energy, while acknowledging that large legacy portfolios may struggle to reposition. Energy had fallen to about 2.7% of the S&P 500 and was, in his view, egregiously under-owned in the prior Q4, when consensus expected oil near $60 and then $50 or even the $40s. He says disruptions depleted buffers, including US strategic petroleum reserves and Chinese reserves, but also acknowledges underestimating the oil system’s flexibility after a 10–15% loss of global demand.

He sees energy as important to data centers, AI, technology, national security, and political survival, and expects a gradual move toward energy pragmatism. He favors energy in jurisdictions with poor policy, anticipating policy improvement, and cited independent North Sea producers trading at two to three times cash flow and yielding 15%, though few remain. He also favors Canadian energy companies with high dividends, modest growth, and debt reduction. In copper, he is building exposure to large-scale developers in good jurisdictions and adding when their shares are beaten up, while short some large-cap developed copper companies and diversified miners amid economic headwinds and potentially low-conviction holdings among AI investors. He says US tariff threats have caused strategic stockpiling beyond operational needs; data centers may modestly lift demand, but a substantial increase depends more on China’s construction activity, which he described as moribund. He believes the downside in China has been digested and that pro-growth policies, infrastructure, and domestic AI data centers could support resources.

Mullin describes resource producers as counter-cyclical: China may slow when Brent is $105–$110 but rebuild inventories aggressively at $70–$75, which he sees as supportive for energy holdings. Tankers have also hedged his long energy exposure, since more barrels would hurt energy positions but help shipping stocks. He cited Middle East Gulf VLCC spot rates of $800,000–$1.2 million per day, compared with a prior example of $50,000 and operating costs of $25,000; one-year charters were near $125,000 and two-year charters near $100,000, versus historical “good” rates of $60,000 and $50,000. A new tanker costs about $125 million to build, while a 10-year-old vessel can sell for about $160 million. He does not expect current rates to persist, stressed that company exposure varies, and said he has not owned or recommended BWET. He also sees rare-earth processing, not discovery or production, as the bottleneck, but warns that deposit composition determines economic viability and that strategic metals are crowded. After gold’s strong 2025 and early-2026 run, he trimmed as enthusiasm surged, rebuilt some exposure into August, and trimmed again when the move felt too sharp; another leg higher remains possible if conditions prompt central banks, especially the Federal Reserve, to pivot from hikes to cuts.