MacroVoices #415 Tian Yang: Fiscal, Sisyphus or Hercules

Episode Summary

Executive Summary: Macro Voices episode 415 featured Tian Yang of Variant Perception discussing LPPL turn signals and a broad macro framework: U.S. fiscal support remains crucial but may be less reliable, labor and earnings data look weaker underneath the headlines, inflation-leading indicators are bottoming, liquidity is a moderate headwind, and volatility is unusually cheap. He favored selective longs in palladium, China-linked equities with hedges, gold miners, oil and gas, EM/LATAM, TIPS, and agency MBS while warning that the Fed’s reaction to re-accelerating inflation and the election cycle could drive major cross-asset shifts.

Main Topics: LPPL trend exhaustion signals and tactical trades (Priority: 5/5): Tian explained Variant Perception’s Log Periodic Power Law model as a better way to detect trend endings than RSI or moving averages, citing fresh crash-climax signals in palladium and multiple China-linked equities. U.S. fiscal impulse and weakening tax receipts (Priority: 5/5): The conversation framed current growth as heavily dependent on large fiscal deficits, while tax receipt divergences suggest the government may be losing fiscal support or underestimating the deficit. Labor market and earnings estimate fragility (Priority: 5/5): Headline labor data remain strong, but micro-business distortions and labor hoarding obscure deterioration in larger firms; earnings forecasts also appear too optimistic relative to weakening job openings. Inflation may be bottoming, not ending (Priority: 5/5): Leading inflation indicators are starting to turn up, suggesting markets may be too complacent on disinflation and Fed cuts, especially if consumer demand stays resilient. Liquidity, volatility, and fixed-income relative value (Priority: 4/5): Liquidity is still supportive but less so than last year; implied correlations are unusually low, making volatility cheap, while TIPS and agency MBS look more attractive than nominals or IG credit. China FX and equity dislocation (Priority: 4/5): Variant Perception remains bullish on USD/CNH and sees potentially attractive capped-upside structures in beaten-down Chinese equities despite structural economic risks and intervention. Macro and political regime risks into the election (Priority: 4/5): The hosts discussed how Fed policy, inflation, and the 2024 election could reshape market leadership, with the key question being whether the Fed prioritizes politics or its inflation mandate.

Key Arguments: LPPL is more useful than traditional momentum tools because it captures disorderly trend exhaustion, not just parabolic price action; Tian said it has generated live tactical bounce signals in palladium and China-linked stocks. U.S. fiscal stimulus has been unusually powerful, but tax receipt divergences versus nominal GDP imply the deficit may be more fragile than it looks and may not be repeatable at the same rate. Headline labor metrics are distorted by micro-businesses and labor hoarding; larger businesses show clearer rollovers in openings and hiring, implying margin pressure is building. Earnings forecasts remain elevated even as job openings weaken, so equity optimism depends more on re-rating and Fed cuts than on sustainable earnings growth. Inflation-leading indicators and global breadth charts are starting to bottom, implying the market may be underpricing upside inflation risk in the second half of 2024. Liquidity is still present but asset prices are rich relative to money created, so the margin of safety is thinner than in 2023. Implied correlations are extremely low, so dispersion and vol-selling may be masking fragility; long-vol expressions look attractive if the unwind begins. In fixed income, TIPS and agency MBS offer better relative value than nominals or IG credit, while rate markets may offer two-way trading opportunities as cut expectations swing. The strongest macro FX view remains USD/CNH upside, but a capped-downside/capped-upside structure in China equities could be compelling if policy easing or short-covering sparks a squeeze. Breadth divergence alone does not define a bubble top; history suggests major tops usually require narrowing breadth plus monetary tightening, which is absent if central banks ease. The 2024 election framework suggests a change election is currently more likely, which could alter market leadership if policy direction changes after the vote.

Data Points: Macro Voices episode: 415 - Episode number for this installment of Macro Voices Production date: February 15, 2024 - When the episode was produced S&P 500 March futures: 5018 - Week-over-week close on Feb. 14, 2024, up 6 bps U.S. dollar index (DXY): 104.71 - Up 60 bps on the week WTI crude oil: $76.64 - Up 376 bps, trading in a three-month range RBOB gasoline: 232 - Up 265 bps on the week Gold: 2004 - Down 229 bps, below January lows Copper: 370 - Down 80 bps on the week Uranium: 102.25 - Down 63 bps on the week U.S. 10-year Treasury yield: 4.26% - Up 14 bps and breaking out after bottoming Crude oil inventory build: 12 million barrels - EIA weekly crude build cited in post-game Cushing crude build: 710,000 barrels - Part of the EIA crude inventory report Gasoline inventory draw: 3.7 million barrels - Offsetting crude build in the EIA report Distillate inventory draw: 1.9 million barrels - Offsetting crude build in the EIA report Net petroleum build: 6.4 million barrels - Combined petroleum stock change in EIA report U.S. oil production: 13.3 million barrels/day - Held steady in the EIA inventory update SPX spot level: ~5,000 - Nick Galarnick’s key index level for option positioning SPX call wall: 5,100 - Upper option wall near March OPEX SPX put wall: 4,800 - Lower option wall near prior highs SPX implied move for Mar. 15 OPEX: ±130 points - Expected range discussed in the post-game QQQ spot level: ~434 - Key level for Nasdaq discussion QQQ call wall: 440 - Upper resistance near all-time highs QQQ put wall: 410 - Lower support near previous highs QQQ implied move for Mar. 15 OPEX: ±16 points - Expected range discussed in the post-game VIX intraday spike: 18 handle - Touched on CPI day before falling back VIX current level: ~14 - Used to estimate daily SPX movement Estimated SPX daily move at 14 VIX: ~0.8% - Rule-of-thumb volatility estimate shared in post-game DXY threshold: 104.5 - Eric and Patrick identified this as breakout confirmation DXY breakout level: 105 - Eric said a Friday close above this would confirm a new higher move US 10-year yield support range: 4.25% to 3.80% - Earlier consolidation range mentioned in post-game Potential higher yield target: 4.40%-4.50% - Patrick’s view of upside pressure without expecting a return to 5% USD/JPY level: above 150 - Referenced as a sign of dollar strength Timeframe for SPX rally: ~110 days - Nick noted the index rose almost 1,000 points in this span SPX rally magnitude: almost 1,000 points - Used to characterize the market as overbought Fed cuts implied by markets: 6-7 cuts initially priced - Eric noted markets had overextended beyond the Fed dot plot Fed dot plot: 3 cuts - Referenced as the Fed’s own projected pace Crude oil retracement zone: ~$75 - Patrick’s preferred support area for a bullish setup Potential oil upside range: mid-$80s to mid-$90s - Patrick’s view of possible range highs Gold downside scenario: ~$100 lower - Eric said this could happen if the Fed abandons cuts and inflation re-accelerates

Pivotal Quotes: "I think it’s finally time." — Tian Yang: On LPPL crash-climax signals appearing in palladium after a prolonged downtrend "Fiscal Sisyphus or Hercules?" — Tian Yang / slide title: Framing the U.S. fiscal impulse and whether it is sustainable "The cleaner, dirty shirt in this scenario" — Patrick Serezna: Describing the U.S. as stronger than other major developed economies, supporting dollar strength

Implications: Listeners should watch for a regime shift in inflation, Fed policy, and the dollar; those shifts could reshape leadership across equities, gold, rates, and FX. Tactical long opportunities appear in select oversold assets, but volatility risk is rising.