MacroVoices #471 Tian Yang: Tariffs Will Continue Until Morale Improves

Episode Summary

Executive Summary: Macro Voices episode 471 centered on Variant Perception CEO Tian Yang’s framework for navigating a regime of slower U.S. growth, sticky inflation, and policy uncertainty under Trump. The discussion argued that LEIs remain useful but must be overlaid with political/regime analysis. Asset views were mostly neutral-to-selective: modest equity downside risk, bullish energy and India, cautious China, fair-value bonds near 4.2%, dollar weakness likely temporary, and gold rich but still strategic.

Main Topics: Macro regime shift and LEIs: Tian argued LEIs still anchor the outlook, but Trump's policy shocks, tariffs, and geopolitics require overlays for regime interpretation. The current macro backdrop is trend-to-slightly-below-trend growth with sticky inflation above target. Downside growth risks and recession pathways: Variant Perception laid out four possible channels for a recession: fiscal drag from DOGE/tax policy, tariffs derailing manufacturing recovery, housing weakness from higher rates, and high-for-longer rates stressing private credit and small business. Equity outlook: selective over directional: The stance was neutral overall but with preference for sector and style selection: overweight energy, underweight consumer discretionary, and prefer large caps over small caps due to valuation and rate sensitivity. China, India, and global equity rotation: Tian said China had been a successful trading market but is now being de-risked, while India appears to be forming a more attractive entry point after major underperformance and foreign selling. Rates, dollar, and policy mix: U.S. 10-year yields were viewed as roughly fair around 4.2%, with 4% acting as a key tactical test. The dollar’s recent drop damaged the bullish structure, but the Trump/Reagan-style policy mix may still prove dollar-supportive later. Commodities and real assets: Gold remains structurally supported but looks fully valued and could consolidate; tips and industrial commodities were favored as alternative real-asset exposure. Energy equities were seen as cheaper than the underlying policy narrative suggests. Post-game technicals and option repair strategy: Eric and Patrick focused on the sharp S&P 500 drawdown, oversold conditions, potential relief rally, and Patrick’s webinar on repairing losing stock positions using options rather than averaging down.

Key Arguments: LEIs are still valuable, but in a regime-shift environment they must be interpreted alongside political and policy changes rather than used mechanically. Current U.S. growth looks around trend to slightly below trend, not recessionary, while inflation indicators are more clearly turning sticky/upward. A recession could emerge through four channels: fiscal tightening, tariffs hitting manufacturing, housing weakness from rates, or credit stress from high-for-longer policy. Equities should be approached with selection rather than large beta bets; energy and large caps look better than consumer discretionary and small caps. China is increasingly a trading vehicle rather than a long-term investment, while India looks more attractive after a large de-rating and foreign outflows. The 10-year Treasury around 4.2% is near fair value; a break below 4% would likely be a tactical buy for higher yields unless growth data deteriorates materially. The dollar’s technical breakdown is real, but the broader Trump policy mix may still be dollar bullish once the current correction plays out. Gold’s long-term bull case remains intact, but valuation is rich enough that sideways consolidation is a plausible base case. Tip exposure and industrial commodities may offer better risk-adjusted real-asset alternatives than adding to gold here. Technical damage in the S&P 500 and Mag 7 suggests volatility is likely to remain elevated, with either a reflex rally or a deeper bear-market-style consolidation possible.

Data Points: S&P 500 weekly change: down 416 basis points to 5,599 - Macro scoreboard week over week as of the close of March 12, 2025 S&P 500 drawdown: 10% peak-to-trough in three weeks - Eric described the selloff as a sharp correction after a six-month topping pattern U.S. Dollar Index: 103.358, down 66 basis points - Macro scoreboard; dollar weakened for a second consecutive week April WTI crude: 67.69, up 208 basis points - Oil held above the retest of the September 2024 lows April RBOB gasoline: 215, up 47 basis points - Weekly macro scoreboard April gold: 2,942, up 55 basis points - Macro scoreboard and commodity discussion Copper: 5.484, up 104 basis points - Macro scoreboard noted a breakout with resistance above $5 Uranium: 63.55, down 78 basis points - Macro scoreboard; post-game noted continued technical weakness U.S. 10-year Treasury yield: 4.31%, up 3 basis points - Macro scoreboard and fixed-income outlook U.S. growth outlook: about 2% in the model - Tian said lead indicators suggest trend growth near 2%, possibly slightly below due to tariffs Macro risk indicator: around 50-something out of 100 - Variant Perception’s combined macro risk model remained in a neutral zone Earnings growth lead indicator: about 6% year-on-year - Tian said this is below consensus expectations and implies equity downside risk 10-year fair value: around 4.2% - Variant Perception’s fixed-income view suggested yields are near fair value 5y5y real OIS: up to about 1.9%-2.0% in January - Tian flagged this as an extreme level associated with prior yield peaks Gold valuation reference: back to 2011-2012 levels - Gold was judged rich versus global money supply relative to above-ground gold stock Potential S&P downside target: 5,300 to 5,000 - Eric said this could happen if the move evolves into a deeper bear market Potential S&P relief rally: back to about 5,780 - Eric cited the 200-day moving average as a likely rebound target Natural gas fund move: from about $7 to above $10, more than 30% - Patrick noted strong bullish momentum in natural gas Gold upside target in extended breakout: 3,200 to 3,300 - Patrick said this would be the next major target if gold breaks out sustainably Webinar date: Tuesday, March 18th at 4 p.m. Eastern Time - Patrick announced a free live webinar on option repair strategies

Pivotal Quotes: "Tariffs will continue until morale improves" — Tian Yang: Describing Variant Perception’s view of the Trump trade-policy overlay "This year you do kind of need to have, quote unquote, like a view, especially on kind of the bigger political trends and picture, and then use that to contextualize where leading indicators are." — Tian Yang: Explaining how to use LEIs in a rapidly changing policy regime "it feels like this is a market environment where the hedges that we've talked about many times in the past on this show have worked so well in this environment" — Patrick Ceresna: Post-game discussion of the S&P 500 selloff and volatility spike

Implications: Investors should expect elevated volatility, use macro models with political overlays, and emphasize relative-value tilts over large directional bets. Selective positioning in energy, tips, and certain commodities may outperform while equities remain news-driven and unstable.