MacroVoices #376 Tian Yang: When the Recession Becomes Obvious

Episode Summary

Executive Summary: Macro Voices 376 features Tian Yang arguing the U.S. is now close to a confirmed recession, but the equity market’s final flush likely comes only after hard labor data deteriorates and the Fed cuts late. He sees bonds offering less protection than expected, remains tactically cautious on gold after an LPPL bubble signal, prefers selective EM like Brazil, and views the banking stress as part of a broader credit-cycle downturn.

Main Topics: U.S. recession timing and confirmation (Priority: 5/5): Tian argues leading indicators already point to recession, with labor-market stress in initial and continuing claims as the final confirming piece. He emphasizes that coincident data lag and that the recession is now becoming more evident in leading data. Equity market final flush and bear-market setup (Priority: 5/5): He expects U.S. equities to remain resilient until unemployment and employment data deteriorate further, likely after the Fed cuts. The final leg down would coincide with recession confirmation and earnings deterioration. Fed cuts, inflation, and the 1969-70 analogy (Priority: 5/5): Tian compares the current setup to the inflationary 1969-70 recession: the Fed may cut too late because inflation remains elevated, and if it then has to reverse course, markets could sell off harder. Rates and bonds (Priority: 4/5): He says bonds may help cyclically in a recession, but structurally higher inflation and yields limit upside. The market may already be pricing in curve steepening, reducing the protective value of fixed income. China, EM, and Brazil (Priority: 4/5): China is viewed as having bottomed only recently rather than in a January-style reopening boom, creating a more attractive contrarian setup. He is constructive on select EM, especially Brazilian bonds, where inflation-leading indicators imply easing. Gold bubble behavior and tactical caution (Priority: 5/5): Tian says gold’s rally showed classic crowding/herding consistent with an LPPL bubble and may be due for a significant tactical flush before resuming its longer-term bullish trend. Banking/credit stress and relative-value opportunities (Priority: 4/5): He frames bank stress as a credit-cycle issue linked to inverted yield curves and tighter lending standards, and points to dislocations in bank options and leverage loans as potential trades.

Key Arguments: Leading recession indicators have already weakened; the remaining confirmation is labor-market deterioration via initial and continuing claims. The market often stays resilient until the recession is undeniable; the final equity flush typically comes when unemployment worsens and the Fed cuts late. A Fed cut may be bearish this cycle because it is likely reactionary, not preemptive, and may arrive after cyclical feedback loops in credit, jobs, and revenues are already underway. The current setup resembles the 1969-70 inflationary recession: high inflation, tightening, inverted curves, and delayed cuts that can force the Fed back to hiking. Bonds are less attractive as portfolio insurance than many expect because the market already anticipates a steepener and structural inflation remains elevated. China reopening was priced too early; the data only recently began to show a bottom, making China assets and some relative-value trades more interesting now. Selective EM exposure is preferred, especially Brazil bonds, where inflation-leading indicators support easing and carry. Gold remains structurally supported but tactically overbought/crowded, with an LPPL-based warning of a near-term shakeout. Bank stress is viewed as part of an underlying credit-cycle deterioration rather than a one-off event, with leveraged loans especially vulnerable. Commodity supercycle thesis remains intact structurally, but the cycle is in an intermission until recessionary headwinds clear.

Data Points: Macro Voices episode: 376 - Episode identifier for the May 18, 2023 broadcast. Publication date: May 18, 2023 - Episode production date. S&P 500: 4171 - Patrick reported the index up 50 bps week over week. S&P 500 weekly change: +0.50% - Week-over-week move into the close of May 17, 2023. U.S. Dollar Index: 102.90 - Dollar index closed up 140 bps week over week. U.S. Dollar Index weekly change: +1.40% - Strengthening off recent lows. WTI crude (July contract): 72.83 - Reported weekly close, up 40 bps. WTI crude weekly change: +0.40% - Settling after prior volatility. Gold: 1985 - Reported weekly close, down 260 bps. Gold weekly change: -2.60% - Pullback after testing all-time highs. Copper: 375 - Down 230 bps week over week. Copper weekly change: -2.30% - Short-term weakness in industrial metals. Uranium: 5375 - Up 80 bps week over week. Uranium weekly change: +0.80% - Continued breakout to year highs. U.S. 10-year Treasury yield: 3.57% - Reported up 13 bps week over week. Crude oil EIA commercial inventories: +5.0 million barrels - Headline build in the weekly inventory report. Strategic Petroleum Reserve draw: -2.4 million barrels - Offsetting part of the commercial build. Total SPR draw over seven weeks: -12 million barrels - Used to explain the net inventory change. Cushing inventory build: +1.5 million barrels - Large weekly accumulation in Cushing, Oklahoma. U.S. crude production: 12.2 million barrels/day - Down 100,000 barrels/day on the week. SPX call wall: 4200 - Options positioning level discussed by Nick Galarnick. SPX put wall: 4000 - Options positioning level discussed by Nick Galarnick. SPX June 16 OPEX implied move: ±140 points - Expected move around the June 16 expiration. SPX upper expected move: 4300 - Derived from implied move. SPX lower expected move: 4020 - Derived from implied move. QQQ spot: 332 - Current level discussed in the post-game. QQQ call wall: 335 - Options resistance level. QQQ put wall: 310 - Options support level. VIX: 16.76 - Near the 17 handle during the post-game discussion. Daily expected move from VIX: ~1% - Approximate move in broad indexes implied by VIX. DXY key breakout level: 105 - Daily close above this would confirm a new uptrend, per post-game discussion. Gold downside tactical target: 1931 - Approximate 100-day moving average / channel support discussed as an initial downside objective. Potential gold deeper drawdown: 5%+ - Tian suggested a larger tactical flush is plausible. Potential GDX downside: ~10% - Post-game view on mining stocks' vulnerability. Brazil inflation leading indicators: Historical lows - Used to support easing-cycle expectations in Brazil. Long Brazil bond trade: Working over the past month - Tian said the trade had started to perform. Chinese currency level: Above 7 - Dollar/CNH trade noted as breaking above this threshold.

Pivotal Quotes: "It does, from the data kind of modeling side, it does look a lot more recessory now." — Tian Yang: On whether U.S. recession is finally arriving, after reviewing leading indicators and labor data revisions. "The real risk is that the Fed doesn't act preemptively and waits and only cuts after the hard data is very bad." — Tian Yang: Explaining why the next Fed cut could coincide with the final leg down in equities and earnings. "Gold from a structural and cyclical point of view has made sense ... but from the price action point of view, it's felt like sucking in the very last kind of speculative buyers." — Tian Yang: Justifying the LPPL bubble warning and a likely tactical flush in gold.

Implications: Listeners should expect more recession confirmation before a durable equity bottom, less reliance on bonds for protection than usual, and tactical opportunities in select dislocations (Brazil, China, leveraged loans). Gold and commodities remain structurally bullish, but near-term pullbacks may offer better entry points.