Collapsing Liquidity Has Put The Commodity Supercycle on Hold | Tian Yang

Episode Summary

Executive Summary: Tian Yang argued that commodities remain in a long structural supercycle driven by capital scarcity, but the current business-cycle downturn and tightening liquidity create a near-term “intermission.” He expects risk-off conditions, weaker equities, supportive duration, and continued inflation tail risks, while emphasizing that a true long-term bottom in risk assets likely requires Fed easing, stronger M1, curve steepening, and peaking inflation.

Main Topics: Commodity Supercycle: Structural Bullishness, Tactical Caution (Priority: 5/5): Yang reiterated that commodities still have a multi-year structural tailwind from underinvestment and capital scarcity, especially in energy, copper, fertilizer, and food, but said the current business-cycle deterioration makes the next 3-6 months choppy and risky. Liquidity as the Dominant Driver of Asset Prices (Priority: 5/5): The conversation centered on liquidity as the primary determinant of equities, bonds, and speculative growth stocks. Yang stressed that inflation has absorbed excess liquidity and that without renewed liquidity creation, risk assets remain vulnerable. Bonds, Rates, and the New Macro Regime (Priority: 5/5): Yang sees long-duration bonds as attractive because growth is slowing and the market has largely priced the policy peak. He argued this is a different regime from the past decade, when the Fed quickly rescued risk assets. Inflation Outlook and Tail Risks (Priority: 4/5): He expects inflation to stay elevated even if monthly prints flatten, with headline CPI still well above 2% by year-end. Longer-term, he flagged wage-price spirals, unionization, supply-chain shifts, and energy/food shocks as key risks. Recession Risk Across Regions (Priority: 5/5): Yang said Europe and China are already in recession by his models, and U.S. recession probability has risen sharply. He views the U.S. as nearing the point where hard data confirms the slowdown, making risk assets less attractive. China, Europe, and Global Divergence (Priority: 4/5): China was described as a difficult, headline-driven trading environment with weak liquidity and policy inconsistency, while Europe remains more exposed to energy and food shocks and has weaker structural resilience than the U.S. Volatility, LPPL, and Tactical Trading Signals (Priority: 3/5): Yang highlighted his LPPL (log periodic power law) framework for spotting regime changes and crash dynamics. He sees duration rallies, equity weakness, and possibly a later volatility spike as key tactical signals.

Key Arguments: The commodity supercycle thesis remains structurally intact because many commodity sectors are still capital scarce and underowned, but the current business cycle is too weak for aggressive positioning. Inflation has reduced excess liquidity, which is why equities and speculative growth stocks have underperformed; without liquidity support, valuations remain fragile. Long-duration bonds look favorable because the market has priced much of the Fed tightening peak, growth is slowing, and curve behavior still resembles a recessionary setup. A major durable equity bottom likely requires a clearer macro checklist: Fed easing, stronger M1 growth, curve steepening, and improving consumer expectations. Inflation may remain elevated even if month-over-month prices flatten, because base effects alone can keep headline CPI high. The key risks for sustained inflation are labor-union wage bargaining, inflation expectations becoming unanchored, and supply-side shocks in food and energy. China and Europe remain unattractive from a macro perspective because both are in recessionary conditions, face policy constraints, and are more exposed to energy and trade shocks. The U.S. dollar strength is explained more by risk-off shocks and U.S. relative resilience than by rates alone, though rate differentials matter. LPPL is used as a statistical regime-change tool to identify tremors before major market moves; Yang says it helped flag the tech selloff and the energy top. The biggest mistake investors make is underestimating liquidity; narratives matter less than the liquidity backdrop for most asset classes.

Data Points: Blockworks Digital Assets Summit dates: September 13th-14th - Promotional intro at the start of the episode Blockworks Research discount code: 50% off - Offer mentioned in the sponsor read using code "guidance" Commodity model lookback: 3-year-plus structural horizon - Yang described the structural time frame used for commodity analysis Commodity underownership/capital scarcity coverage: 400 different global region industries - Structural models track capital scarcity across industries Liquidity lead time: 6 to 12 months - Liquidity indicators typically lead business-cycle changes by this amount U.S. recession probability: 50/50 as of this month - Real-time recession model estimate for the U.S. Europe recession timing: Since April-May this year - Model says Europe has already been in recession since spring China recession timing: Since November last year - Model says China has been in recession for roughly 8-9 months Headline CPI by December if indices flatline: 5%+ - Yang said year-over-year CPI would still remain above 5% even with flat second-half monthly prints Core CPI by December if indices flatline: 3%-3.5% - Estimated year-over-year core CPI under a flat second-half scenario Year-end CPI floor estimate in one answer: Around 4% plus or minus - His rough estimate for 2023 headline CPI depending on food and energy China vaccination pace to 80% boosted: Middle of 2023 - Yang said current vaccination pace implies a slow normalization path Japanese/European rate divergence context: Europe likely more hikes next year; U.S. expected peak-cut path - Used to explain FX and money-market divergence Volatility event threshold: Major volatility spike likely needed - Yang suggested a panic spike usually accompanies major market bottoms Historical analogy: 1984 - Used as a roadmap analogy for inflation peaking and policy-driven transition Fertilizer price behavior: Year-on-year slowdown to zero likely - But absolute prices remain very high, supporting food inflation tail risk

Pivotal Quotes: "we've kind of termed it as a commodity supercycle intermission" — Tian Yang: He summarized the current tension between strong structural commodity factors and weak cyclical conditions "most investors get too sucked into the narrative and their own ideas. And most of the time, liquidity is king above all else to an unbelievable extent" — Tian Yang: His core framework for understanding asset performance "I think we're on a new paradigm" — Tian Yang: He described why the past decade's Fed-put playbook no longer works

Implications: Near term, risk assets may stay pressured while bonds and cash look comparatively safer. Longer term, listeners should watch CPI, M1, Fed easing, and curve steepening for signs the macro regime is shifting back toward risk-on.