MacroVoices #376 Tian Yang: When the Recession Becomes Obvious
Tian Yang from Variant Perception discusses the long-awaited U.S. recession that may finally be arriving, predicting a final flush in equity markets when the Fed cuts rates. He also presents a contrarian view on gold, identifying it as being in a bubble that may be ending, despite strong fundamentals.
Summary
In this interview, Tian Yang, CEO of Variant Perception, analyzes the current economic landscape and argues that the U.S. recession many have been anticipating is finally approaching. Yang emphasizes the importance of focusing on leading rather than coincident indicators, noting that classic lead indicators like building permits and ISM manufacturing have been signaling stress, with the missing piece being initial claims data. He argues that the final leg of the equity sell-off will occur when unemployment and employment data deteriorate, making the recession unequivocal.
Yang draws parallels to the 1969-70 inflationary recession, suggesting the Fed will cut rates later rather than earlier due to inflation concerns. He warns that when the Fed does cut, it may actually be bearish for equities because it will be reactive rather than preemptive, indicating that recessionary feedback loops are already underway. For fixed income, Yang expects limited protection from bonds due to structurally higher inflation and yields over the next 2-3 years.
Regarding China, Yang notes that their recession model only switched off in April, suggesting the reopening trade was premature but may now be setting up favorably. He sees selective opportunities in emerging markets, particularly Brazilian debt due to collapsing inflation indicators. On the U.S. dollar, Yang identifies conflicting forces and prefers to wait for clearer recession signals before taking a strong position.
Yang describes commodities as being in a 'super cycle intermission' where structural bullishness remains valid but cyclical headwinds persist. Most notably, he presents a contrarian view on gold, identifying it as being in an LPPL (log periodic power law) bubble that predicted an end date of last Friday, suggesting a significant tactical flush may be coming despite excellent fundamentals.
Key Insights
- Yang argues that classic leading indicators like building permits and ISM manufacturing have been signaling recession stress, with initial claims data being the final missing piece that has now aligned
- He predicts the final equity market flush will occur when the Fed cuts rates, because cuts will be reactive to bad data rather than preemptive, indicating recessionary feedback loops are already underway
- Yang draws parallels to the 1969-70 inflationary recession, arguing the Fed will cut later rather than earlier due to inflation concerns, making any cuts bearish rather than bullish for markets
- He warns that bonds may provide limited portfolio protection this time due to structurally higher inflation and yields over a 2-3 year horizon, unlike typical recessions
- Yang's China recession model only switched off in April, suggesting the reopening trade was premature at the beginning of the year but may now be setting up as an attractive contrarian opportunity
- He identifies Brazilian debt as particularly attractive due to Brazil inflation lead indicators collapsing to historical lows, favoring a strong easing cycle
- Yang describes commodities as being in a 'super cycle intermission' where structural bullishness remains intact but cyclical headwinds need to clear before resuming the uptrend
- He uses LPPL (log periodic power law) analysis to identify gold as being in a bubble with a predicted end date of last Friday, suggesting a significant tactical flush despite strong fundamentals
- Yang argues that gold's recent price action represents classic bubble behavior with increasingly disorderly buying and desperate speculative participation
- He predicts the banking crisis was fundamentally inevitable due to capital cycle models showing banks have been capital abundant since Q4 2022, leading them to take excessive risks
- Yang notes that underneath market indices, there's significant damage in small caps, international markets, and individual stocks, with headline indices hiding the underlying weakness
- He emphasizes that his firm has developed a new investment portal allowing institutional clients direct access to their leading indicators and models rather than just research interpretations
Topics
Full transcript available for MurmurCast members
Sign Up to Access