MacroVoices #415 Tian Yang: Fiscal, Sisyphus or Hercules
Feb 15, 2024
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Tian Yang, CEO of Variant Perception, discusses trading opportunities in various asset classes. They analyze the US economy, fiscal deficits, and government support. They also discuss the recent EIA inventory data for crude oil and the impact of the Fed's intentions on the US dollar and gold. They believe gold is still a strong buy. The chapter concludes with information about the weekly research roundup and sponsors.
The log periodic power law (LPPL) indicator helps identify market trends and potential trend reversals, as seen in recent LPPL crash climaxes on Palladium and China-linked equities.
Fiscal deficits in the US economy, depicted through the analogy of Sisyphus rolling a boulder, may have risks due to unusual patterns in government tax receipts and nominal GDP. Monitoring data is crucial to assess the sustainability of fiscal stimulus.
Leading indicators suggest potential upside risks for inflation and higher volatility, with relationships between savings deposits and median CPI indicating increased inflation potential, as well as the VIX spike following the CPI print signaling a possible shift in volatility levels.
Deep dives
Tian Yang explains the LPPL indicator and its signals
Tian Yang, CEO and Head of Research for Variant Perception, discusses the log periodic power law (LPPL) indicator. LPPL is a model that captures the underlying wave of the market and helps identify the end of a trend. It detects patterns where prices speed up as they exhaust, signaling the potential for a trend reversal. Tian mentions specific examples, such as a recent LPPL crash climax on Palladium and multiple LPPL crash climaxes on China-linked equities. He also highlights trade structures, such as one-by-two call spreads, which can be used to cap downside risk and potentially profit from a squeeze.
Tian Yang's slide deck analyzes fiscal deficits and their implications
Tian Yang presents a slide deck titled 'Fiscal Sisyphus or Hercules' that explores the extreme fiscal deficit and its impact on the US economy. The analogy of Sisyphus rolling a boulder up the hill is used to depict the dependence on large fiscal deficits and the potential risks. Tian highlights divergences between US government tax receipts and nominal GDP, indicating unusual patterns that may result from factors like COVID-related tax avoidance. He suggests that there is a risk of not being able to maintain the same rate of fiscal stimulus and it is important to monitor the data.
Leading indicators suggest upside risks for inflation and higher volatility
The podcast discusses leading indicators pointing towards potential upside risks for inflation and higher volatility. The presentation highlights relationships between savings deposits and median CPI, suggesting a potential for increased inflation. It also mentions the impact of short-term interest rates and volatility markets. The VIX spike following the CPI print is noted, indicating a potential shift in volatility levels. The discussion includes analysis of global equity markets, key levels to watch in the S&P 500 and NASDAQ, as well as factors influencing the US Dollar Index. It emphasizes the importance of understanding the Fed's true intentions and their reaction to inflation data.
Crowding and Equity Allocations
The podcast episode discusses the importance of managing risk and quantifying crowding in equity allocations. The speaker highlights the attractiveness of capital scarce areas of the market with high future profit potential and low crowding, such as gold miners, oil and gas, pockets of the YAM, and Latin. China is also considered as an attractive area, but the decision to invest there depends on the individual's assessment of political risk.
Sector Allocation and Interest Rate Exposure
The podcast episode delves into sector allocation and interest rate exposure in the market. The speaker emphasizes the significance of analyzing capital cycle, crowding, and equity duration for different sectors and stocks. In the current environment, sectors with high future profit potential, low crowding, and high duration are favored, such as energy staples and materials. The comparative analysis of sector high-yield spreads and earnings yield also provides insights into the attractiveness of different sectors.
MacroVoices Erik Townsend & Patrick Ceresna welcome back Variant Perception CEO, Tian Yang. Erik & Tian will discuss most assets classes and the trading opportunities Tian sees in them. https://bit.ly/3SHP9ej
