MacroVoices #325 Tian Yang: Is it over yet? What do the data say?

Episode Summary

Executive Summary: Macro Voices #325 centered on whether the 2022 equity selloff was a recession signal or a mid-cycle slowdown. Eric and Patrick debated Fed policy, inflation, the dollar, oil, gold, and rates, while Tian Yang argued the data still pointed more to slowdown than recession. The episode emphasized that liquidity is worsening, inflation may be peaking, and markets could be nearing a tradable bottom—but not necessarily a final one.

Main Topics: Equity Market Selloff and Bear-Market Rally Risk (Priority: 5/5): The hosts discussed whether the S&P 500’s rebound above 4,000 marked a durable bottom or just a bear-market rally. Eric and Patrick agreed a bounce was likely after the prior breakdown failed, but remained uncertain about sustainability. Fed, Inflation, and Recession Risk (Priority: 5/5): A major theme was whether the Fed is intentionally engineering a recession to defeat inflation. Tian Yang’s data-driven view was that recession signals had not yet fully triggered, though liquidity conditions were deteriorating sharply. Dollar Index Pullback and Macro Implications (Priority: 4/5): The dollar’s move to a multi-year high near 104 and subsequent pullback was framed as a normal consolidation unless it loses support above 99-101. The dollar remained a key macro signal for risk assets and commodities. Oil and Natural Gas Supply Tightness (Priority: 5/5): Eric argued crude oil was being driven by inventory draws, low spare capacity, and OPEC+ discipline, with potential for new highs if supply constraints worsen. Natural gas was highlighted as a structurally tight market with possible convergence between U.S. and European prices. Gold and Treasury Yields (Priority: 4/5): Gold was seen as having bounced with the weaker dollar but still vulnerable if it falls below key support. The 10-year yield’s retreat below 3% was treated as crucial for signaling whether inflation expectations are easing. Variant Perception’s Cycle Analysis and Global Liquidity (Priority: 5/5): Tian Yang walked through Variant Perception’s framework: global liquidity is bad, hard data is slowing but not recessionary, and the likeliest scenario remains a mid-cycle slowdown rather than a full crash. China and Europe were described as especially weak. Monkeypox Post-Game Analysis (Priority: 2/5): Eric argued monkeypox was being overhyped and was unlikely to become a pandemic absent unusual circumstances. He contrasted it with COVID-era pandemic risk and emphasized that monkeypox is a DNA virus with historically low transmissibility.

Key Arguments: The recent equity bounce likely reflected relief from Fed minutes and hopes that the hiking cycle may end sooner, but the market may be reading too much into those minutes. There is no clear evidence yet that the dollar uptrend has ended; the recent pullback looks like consolidation after a five-year resistance test. Crude oil remains fundamentally bullish because inventories are drawing, U.S. production is flat, Cushing is low, and OPEC+ appears to have little spare capacity. Gold’s rebound is tied to the weaker dollar, but a drop below roughly 1830/1800 would weaken the short-term bullish case. The 10-year Treasury yield below 3% would support the view that inflation is peaking; a break above 3% would likely force more Fed hawkishness. Variant Perception’s models lean toward a mid-cycle slowdown rather than an outright recession because hard data has slowed, but not yet to recessionary levels. China’s zero-COVID policy remains the key constraint on recovery; policy rhetoric is more aggressive than actual improvement in the data. Europe looks particularly vulnerable because of the energy shock and the risk that Russian gas dependence turns into an economic crisis later in the year. Global liquidity is deteriorating, and that is the most important medium-term risk factor for risk assets. A true major equity bottom usually requires worsening hard data and eventual central-bank easing; those conditions were not yet in place. Monkeypox is probably being overhyped and lacks the characteristics of COVID-like spread because it is a DNA virus with historically low R0. If recession becomes imminent later, a final panic leg down could still occur before any durable bottom forms.

Data Points: S&P 500: 4,062 - Approximate level at time of recording; markets had reclaimed 4,000 after a failed breakdown. S&P 500 short-term bounce threshold: 4,200-4,300 - Patrick’s estimated upside range for a bear-market rally. Dollar Index peak: Above 104 - Recent five-year high in the U.S. dollar before the pullback. Dollar Index current level: 101.88 - Level cited at time of recording during the pullback. Dollar support level: 99 - Eric’s key level for preserving the uptrend after consolidation. Crude oil price: 114 - Oil’s breakout level during the discussion; viewed as potentially starting another leg higher. Crude oil all-time high reference: Above 147 - Eric suggested new highs above the prior 2022 peak were possible before summer’s end. U.S. crude inventory draw: 1 million barrels - Headline weekly draw in crude inventories. SPR drawdown: 6 million barrels - Additional draw from the Strategic Petroleum Reserve, making the real crude draw much larger. Total crude draw including SPR: 7 million barrels - Eric’s adjusted view of the weekly crude supply draw. Cushing, Oklahoma draw: 1 million barrels - Inventories at the delivery hub for WTI were described as very low. Gasoline stocks draw: 0.5 million barrels - Weekly gasoline inventory change. Distillates build: 1.7 million barrels - The only inventory build in the report. Net drawdown of crude and products: 5.8 million barrels - Combined draw when finished products are included. U.S. production: 11.9 million barrels/day - Flat weekly U.S. crude production level. OPEC spare capacity: About 2% - Aramco CEO’s statement supporting Eric’s view that spare capacity is extremely limited. Gold price: Around 1,850 - Approximate gold price at the time of recording. Gold downside trigger: 1830 / 1800 - Key support levels that would weaken the bullish case if broken. 10-year Treasury yield: 2.75% - Yield level at the time of recording after a steep spring selloff in bonds. Yield threshold: 3% - Important macro level for signaling inflation/monetary policy direction. Farmland returns vs inflation: More than 2x inflation since before 1992 - Sponsor message promoting farmland as an inflation hedge. Macro Voices audience: 170,000+ listeners - Advertisement section describing the podcast’s audience size. Typical weekly downloads: 60,000-80,000 - Podcast download range cited in the ad read. Accredited investor audience: 20,000+ registered; at least 40,000 estimated - Audience breakdown mentioned in the sponsor/ad segment. Monkeypox R0: Probably less than 1.0 - Eric’s explanation for why monkeypox is unlikely to become a pandemic. Monkeypox event example: 80,000 attendees - Canary Islands Pride Festival cited as a plausible transmission amplifier.

Pivotal Quotes: "I think the Fed is intentionally trying to engineer a recession, and I think they'll be successful at that." — Eric Townsend: Eric explaining his macro thesis before reviewing Tian Yang’s data. "We’re still more leaning towards a mid-cycle slowdown right now, as of what we can see in the data." — Tian Yang: Tian’s core assessment of the business cycle and recession risk. "I think the market gets a little bit harder to predict because what is the level at which we break out to a new high?" — Patrick Serezna: Patrick on crude oil and the uncertainty around contract-chart vs continuous-chart breakouts.

Implications: Listeners should expect more volatility, with a tradable equity bounce possible but not a confirmed bottom. Inflation, liquidity, and energy supply remain the key macro drivers; if recession data worsens, markets could see one final washout before a lasting recovery.