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MacroVoices #502 Tian Yang: A Whiff of Reflation?
00:52:52
MacroVoices Erik Townsend & Patrick Ceresna welcome, Tian Yang. They’ll discuss the leading indicators Variant Perception uses to guide their macro strategy, what they say about growth and inflation, and how that translates to trading opportunities. https://bit.ly/3KUt5Np Variant Perception: https://variantperception.com/macro-pack/ 🔻Download Big Picture Trading Chartbook 📈📉: https://bit.ly/478q6Zg ✅Sign up for a FREE 14-day trial at Big Picture Trading: https://bit.ly/4d1fcag 🔴 Subscribe to Patrick’s Youtube Channel: https://www.youtube.com/@Patrick_Ceresna 🔴 Subscribe to Erik's Substack: https://eriktownsend.substack.com/
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- [00:08]
A
This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics, telling it like it is bullish or bearish. No holds barred. Now here are your hosts Eric Townsend and Patrick Ceresn.
- [00:36]
B
Macro voices Episode 502 was produced on October 16, 2025. I'm Eric Townsend. Variant Perception CEO Tian Yang returns as this week's feature interview guest. We'll discuss the leading indicators Variant Perception uses to guide their macro strategy, what they say about growth and inflation and how that translates to trades in today's market, and be sure to stay tuned for our post game segment after the feature interview. Because during that feature interview Tian will explain why he sees a risk for a squeeze higher in the dollar index. Patrick will then translate that to specific actionable trading instructions in our new Trade of the Week segment right after the feature interview with Tian Young and I'm.
- [01:17]
C
Patrick Ceresna with the Macro Scoreboard Week over week as of the close of Wednesday, October 15, 2025, the S&P 500 index down 121 basis points trading at 6671. The trade war driven volatility is back but still has not cracked the market. For a bigger corre. We'll take a closer look at that chart and the key technical levels to watch. In the post game segment, the US Dollar Index down 16 basis points trading to 9,866 consolidating the recent strength the November WTI crude oil contract down 684 basis points trading at 5,827. A decline is underway begging the question if The April lows near 50 are in play for the next support line. The November R Bob gasoline down 681 basis points to 178. The December gold contract up 322 basis points to 4201. Gold is in full parabolic mode right now. The December copper contract down 157 basis points, trading at 501, uranium up 245 basis points trading to 7,955 and the US 10 year treasury yield is down 11 basis points trading at 402 trading near the lows of the year now the key news to watch this week is Friday's monthly OPEX roll off and beyond that we have the ongoing government shutdown and impacts on release of key economic data. This week's feature interview guest is Variant Perception CEO Tian Yang. Eric and Tian discuss Global Economic outlook, inflation pressures, China, semiconductors, and more. Eric's interview with Tian Yang is coming up as Macro Voices continues right here@macrovoices.com.
- [03:16]
A
And now with this week's special guest, here's your host, Eric Townsend.
- [03:22]
D
Joining me now is Variant Perception CEO Tian Yang. As usual, Tian provided not just one, but two slide decks to download in association with this week's podcast. Registered user will find the download links in your Research Roundup email. If you don't have a Research Roundup email, just go to our homepage, macro voices.com click the red button above Tian's picture that says looking for the downloads. Tian, it's great to have you back on. Before we get started, we should say probably that we are recording this on Tuesday morning, a couple of days before it will air. This is a week when quite a lot has happened since Friday. Needless to say, we're back to President Trump. Kind of throw in the market some unexpected tape bombs. What's your take on Friday's action? What could happen between now and when this airs on Thursday? And after that, why don't we dive into your leading Indicator Watch, which is the first of your two slide decks.
- [04:16]
E
Yeah. Thanks, Eric. Great to be back. Obviously, there's a lot of uncertainty, but I think the biggest picture remains that the Chinese and the US Are ultimately talking, Right? So compared to when Trump first returned to office, compared to Liberation Day, I think there's a lot more established channels of communication. I think the Chinese response has actually been a lot more measured that, you know, the market's obviously a bit worried about the risk of escalation. But compared to 100% tariffs like China's responded with very targeted measures, I wouldn't even be surprised if they maybe gave Trump a warning before they announced it. So overall, it kind of feels like there's a bit of posturing, you know, ahead of the meeting. In the past kind of few weeks and months, you can see China kind of getting prepared for that, right? Strategically lowering their imports of American agricultural products so they have something to give Trump for the meeting coming up. So I will say I'm heartened by how measured the Chinese have been in response to this. So that kind of suggests this isn't really the kind of tit for tat extreme escalation we saw back in April. This is ultimately, I think, going to be a bit more contained.
- [05:21]
D
Well, I certainly hope that you are correct about that. Let's move into a Whiff of Reflation, which is the title of your G3 leading indicator watch.
- [05:29]
E
This month in terms of the, the big picture, you know, six month outlook, we essentially think this is a setup for a potentially reflationary environment. Our macro risk indicators have gone from, you know, when we last spoke a bit more neutral towards more kind of risk on territory in the last few months. Essentially what we see right now is a synchronized global easing cycle amongst all the major central banks. Pretty good improving liquidity conditions, credit creation driven by the private sector. And our US growth allies have been pretty resilient all year whilst we're starting to see kind of the first signs of Europe leading indicators recovering and China becoming less bad. So overall that's a pretty decent macro setup. At the same time we think the Fed cut in September potentially is a cut into a non recessionary environment. So historically there's been a couple of these examples in 84, 95 and you can also count the September 2024 cut last year. And the key takeaway is that the Fed ends up being an insurance cut puts a bottom under growth and ultimately growth and inflation hold up. And obviously that broadly leans into the idea that potentially yields and dollar kind of find the bottom and actually squeeze a bit higher. So that's kind of the biggest kind of, you know, three to six months ahead roadmap we have right now. And that's kind of broadly how we're thinking about it. You know, I obviously understand concerns around AI bubbles and those things, but I would almost phrase it like there's a valuation problem in some pockets of the market maybe, but at least on Aldi in the cases we don't think there's necessarily a huge macro problem right now.
- [07:16]
D
Tian, let's dive into your leading indicators starting on page three.
- [07:20]
E
Like I mentioned, our main US growth lei is still pretty stable around 2% annualized growth rate. This is pretty much in the ballpark of where most high frequency coincident measures of US growth is. The Fed weekly as we show here, annualized 2.3, 2.4%. If you strip out the volatile components of GDP now you get at the core underlying private sector part that's now a 2.5% annualized growth and other high frequency data like TSA travel, restaurant booking, so forth, credit card spend, most things are fine right now. So we were characterized as LEIs. Lead indicators are resilient and constant growth is also resilient.
- [08:03]
D
You're describing an analog to 2002 through 2003 on page four. What's the connection there?
- [08:10]
E
Yeah, so I think one of the big outliers or points of concern right now is clearly the US labor market. So there's a lot of concerns on well, is the US labor market weakness a sign of recession? You know, why is it that retail sales have held up and you know the economy's held up, yet the job market is so weak. So we essentially had a look at when was the last time you had this kind of a setup. And so it's very interesting to note the last time we we had hiring be this week, but retail sales hold up and start to even accelerate was actually in the 2002, 2003 period, which was essentially characterized as a jobless economic recovery. And there's a lot of analogues. In addition to the retail sales divergence, you also had a similar kind of bottoming and acceleration in capital goods spending back then against the backdrop of weak hiring. So again you can see the analogies to today with AI capex, but weak jobs and the liquidity context is also very comparable. So again you've got the weak labor market, but back then by 2002 and 3 you have a pretty synchronized global easing cycle amongst the major central banks. You have the surge in global excess liquidity coming out, a period of cheap energy prices as we show here, with the kind of drawdown in crude oil price as well. So all those things actually suggest this is more of a setup you see heading into a recovery rather than on the precipice of a recession. The major structural caveat is obviously to note that back then it was after China joining the WTO in 2001. So that was a pretty structural offshoring of US manufacturing jobs. And obviously that is something that isn't going to be happening today. Right. So ultimately that kind of suggests there's less of a structural reason why the job market is going to remain weak like back then. You know, there's some underlying signs for the US labor market is decent. For example, you know, prime age participation rate is has recovered back to a pretty healthy level. So ultimately we would think this is more likely a setup heading into a recovery. And if there's a recovery, eventually that will result in a turnaround in the labor market again, just like we saw in 0203.
- [10:21]
D
I can't help but react to the headline on page five. Recession is unlikely if everyone just saves and financial conditions are loose. So as long as everybody spends beyond their means into easy money, everything's going to be fine.
- [10:36]
E
Yeah, I mean the way we think about recessions is ultimately these are like phase shifts, right? Where you go from a pretty normal cyclical behavior in the economy towards this sudden shift when the hard economic data and the soft kind of financial market data start deteriorating. At the same time. The real reason to worry about recessions is those times when financial assets start setting off which then leads to kind of precautionary behavior. Households may be saved more, but as a result earnings start falling, companies lay off more workers, and these vicious cycles are formed. And I think that window of vulnerability was actually a bit more elevated. If you think back to May and June, when equity markets had drawn down, there was a bit more signs of financial market stress. And obviously the economic data was kind of stalling. The difference today is that some of the things we measure here, like real M1, the top left chart here, has returned to growth. So US real narrow money growth, real narrow money is growing. We obviously still have a pretty big absolute fiscal deficit. The US household savings rate had been rising, but it has started actually rolling over again. So again, households are continuing to to keep a low savings rate and obviously financial assets are still near all time highs. Right. Like obviously it's been a couple of days since the Trump tweet. So this is not to say that there's no risk per se. Our US recession model risk is around 30%. So low ish, but not zero. The reason it's low is because of US housing and labor. But the key thing that would make it jump higher is that ultimately the time to worry is when say S and p draws down 5 to 10% and then you get a bad job print. Right. That's the time when these feedback loops could potentially start and both deteriorate at the same time. And it gets a lot more concerning about the phase shift to recession. As of right now, that isn't really the case. We can see how this kind of China US trade war escalation plays out. But I think that's the key point I want to make on this.
- [12:40]
D
Tian, moving on to page six, it looks like you're anticipating the potential for an inventory rebuilding cycle.
- [12:46]
E
Yeah. So again, on that theme of are we more likely heading to a slowdown or recovery, there's some typical signs you actually see going into a recovery right now. So on the consumer side, one of the things we're showing here is that the bank's willingness to make consumer loans has actually been improving. And historically this leads the US Kind of credit delinquency rates for consumers. So again, this will be a sign that delinquency rates have likely peaked in the U.S. equally, if you look at U.S. discretionary retail sales, which we define as kind of those big ticket items, furniture, home furnishing, electronics, clothing and the like. Again, that's had a pretty tolerate couple of years and been forming a base and has actually already returned to growth. So again, something you see more out of a slowdown than heading into one. On the wholesale side, if you look at durable goods wholesale revenues, that's actually started to accelerate even as inventory growth remains kind of tepid. So again, something you see more out of a, out of a slowdown than heading into one. And finally, within the ISM survey there's this very interesting subcomponent called customer inventories. And that's something where you know, you can see the red line, the bottom right chart there. It's actually low and has been falling. So I. E. You know, within ISM survey people reporting that their customers have low inventories and have falling inventories. So again, these are more signs of the potential for recovery than not overall. We get that the labor market looks a bit weak, but you're not getting that much confirmation elsewhere.
- [14:23]
D
Moving on to page seven, let's take a look at inflation pressures.
- [14:27]
E
Yeah, so I think the headline on inflation is that we are going to be above target for a while, but the risk of a second wave remains relatively low for for now. And you know, I think ultimately probably around 3% annualized inflation in terms of key data to keep our eye on. One thing we're tracking very closely is actually PPI and import prices, which is the top right chart here. So you can kind of see PPI for both goods and services are settling at just below 3%. This is obviously a measure of how much pass through pressure that will ultimately need to be on consumer prices. And equally import prices are a reflection of our foreign suppliers ultimately eating the tariffs, which the answer is no right now. So I think we're a little bit at a point where yeah, there'll be some moderate pass through pressure on the inflation front, but PPI is not surging. Factors like cheap energy prices and the like have likely helped there as well. And ultimately what determines the ability to pass through price increases is actually lower income consumers. Right. Which we know have been struggling a lot more. So you know, the rate of pass through will tend to be more moderate in general. You can think about the top 20% of consumers as driving growth and the bottom 20% health as being important for how much inflation pass through. There is. So right now it kind of looks like there's some moderate input cost pressures to pass through in general, but it'll be pass through at A more moderate rate.
- [15:56]
D
Let's move on to China on page eight.
- [15:59]
E
I think what's very interesting in China, the price action has obviously been pretty reflationary so far. We show here that Chinese small caps have been surging relative to large caps. Chinese 10 year yields have finally bottom and started to tick up. And you're actually seeing the very first signs of things going from terrible to slightly less terrible. The bottom right chart there showing essentially employment PMI survey for China private sector one and it has gone from kind of very depression like levels and started to recover. So broadly speaking we would say that China overall doesn't look as bad as it's been. And at the same time lead indicators of both growth and inflation have bottomed and started to recover. So overall we're heading into kind of the, the fourth platinum now. There's a lot more of talk about the Chinese authorities need to do some more for the, for the consumption side. So yeah, I would say macro tailwinds are still there for China and obviously I'm making an assumption that Trump and Xi will ultimately meet and try and announce a win for each other. But within that context the macro setup looks okay. Economy going from bad to slightly less bad, liquidity's tailwinds are good and asset price is broadly on board with the kind of recovery story.
- [17:16]
D
Let's move on to the eurozone on page 10.
- [17:20]
C
Yeah.
- [17:20]
E
On € specifically, what's very interesting is that Europe's structural problems are well known, right from the political dysfunction to elevated energy prices. We show here on page 10. The bottom right, there's a lot of problems but what's very interesting is that we're actually seeing a bit of a recovery. Our lead indicators and some of the underlying data for the first time in a very long time. Essentially over the past three to four years you're really starting to see a more kind of coordinated recovery in the German data. So for example, the German IFO expectations minus current conditions, that differential is actually turning positive now for the first time in a very long time. You know, we see that in the top right chart down on slide 10. The percentage German manufacturing industries where production expectations are improving again, that's, that's kind of recovered to more than half. So we potentially have the potent have a little bit of a cyclical rebound coming in Europe. Again I think the structural problems are real, so the magnitude might not be there, but you're kind of finally seeing this come through, you know, on, on the back of some of the excitement around German fiscal as well.
- [18:28]
D
John, let's touch on slide 11 consensus too optimistic on disinflation.
- [18:33]
E
Yeah. So on Europe, I think it's worth pointing out that the, the market, the ECB obviously was a bit further ahead of the, of the US into getting their rate cuts in and policy rates being taken down to 2%. I would say the consensus is fairly relaxed on European inflation risks. But it's interesting to note that our estimate of our star in Europe, that is the neutral policy rate, the real neutral policy rate is actually 0.8, which is a bit towards the higher end, I would say, of consensus of where ECB is. So that would actually suggest that, you know, the neutral nominal policy rate right now is more closer to like 3% rather than 2. So we suspect that if anything, ECB policy is actually towards slightly more stimulatory territory. You know, the market is obviously focused on the France risk right now. It's trying to price some cuts in. But if you look at the, the bulk of the arrival curve, right we've got on the bottom right there, you know, ultimately there are, there are now hikes discounted for 2026, 2027 and it's hard to price a lot more in for next year. So given the ECB is ready to put the cuts in, given the very first signs of some of those cyclical lead indicator recoveries, you know, the risk reward probably actually favors, you know, slightly more reflation in Europe and positioning for that.
- [19:48]
D
Tian, I wanted to start there with the leading indicators because that's what variant perception is best known for. You also sent us a second PDF titled Macro Snapshot October 2nd. Tell us what that deck is about and go ahead and dive in.
- [20:01]
E
Yeah, so that's kind of more the investment implications in terms of trade ideas or asset allocation. Obviously, you know, using our lead indicators for kind of the six months for a macro context. So obviously a lot of the, the elements we kind of already touched on. So maybe the key things I want to highlight here is if we go to like slice six and seven, that's probably the most important and then we can talk about commodities as well. So I think right now one of the concerns is that even if there isn't necessarily as obvious signs of macro problems, clearly there's some concerns around the lack of risk premium in asset classes, whether you look at credit spreads or US large cap equities. So it's natural to be a bit concerned about have we fully discounted this relatively benign macro outlook. And the way we think you can deal with it is that we have two very tangible Signposts to watch for a sign that a correction may be playing out. And in fact, obviously we put this on October 2nd. We actually had a, a, a kind of hedging signal October 8th, which was fortuitous timing but, but essentially that there's two things to, to think about. The first is, you know, during periods like this, what we want to be very focused on is how cross asset volatility and just credit and credit linked are trading in general. Normally when a correction potentially starts, what you observe is that all volatility across asset classes start to take up from the lows and all different measures of credit start to deteriorate. The key is the kind of breadth of it and the simultaneous nature of it rather than the magnitude. So if they're all deteriorating at the same time, that tends to be more reflective of the beginning of a broader de risking. And so that's one of the key things to keep an eye on. And we're kind of starting to see kind of inklings of that a little bit. So that's just a very market behavioral stuff. You know, we formalize it into the kind of VP correction signal. We have various versions of kind of tactical hedging signals right now. So it does make sense to keep some tactical hedges for the month of October. You know, this is the bulk of earnings season. We have the Fed at the end of the month and we also obviously have the Trump XI meeting end of the month as well. So there's quite a lot of catalysts that likely means that implied volume will remain bid. So you're a lot less likely to bleed as much as normal. So that's kind of the overall thinking there on the tactical piece of the portfolio in terms of the cyclical roadmap and the signpost to watch for. One of the key worries right now is that the Fed cuts may become interpreted by the market as political, as reflecting Trump's desire for more cuts to lower interest expenses. And that works and works until it doesn't. We just don't know when. But the sign from the market will be that at one of these upcoming Fed cuts it's possible we see the yield curve kind of have a sharp bear steepening in response to one of the cuts. And that would be a market based sign that, okay, we've kind of hit the limit here and then, you know, they probably need to pull back a little bit. So I think that's something I'm watching for very closely. I don't know when, I mean, it could be even the October Fed cut The market has that reaction, but obviously it could be January or whenever it is. And I think that's just something to bear in mind that I think we have this pretty decent macro Goldilocks setup until the Fed overdoes it and cuts too much and then the inflation fears pick up and in turn pre more these things matter again. So those are like the two tangible things right now to watch for.
- [23:39]
D
Let's touch on semiconductors on page seven.
- [23:42]
E
Yeah, so obviously talk of the town AI bubble mental energy is being kind of spent on this already. So again we're not going to pretend to be like the AI experts, but we do have some general frameworks we use to think about this. The key one being our capital cycle framework. And so ultimately on our capital cycle framework what it tries to do is it tries to understand kind of CapEx and R& D spend, what the marginal operational ROIC is for that spend, and ultimately how that translates into profit. But we do it kind of across the entire aggregated profit pool. So what is more interesting to us is that on our capital cycle models it's actually software that has been relatively weak within tech semis have actually seen improving capital cycle while hardware has been kind of deteriorating slowly. But software is kind of the weakest. So you know, despite all the, you know, I think it's understandable a lot of the concerns around, you know, dot Com, Repeat Dog Fiber or the Rail build out, like a lot of those things are valid. But timing wise, typically the sequence would expect to see is that, you know, we need to see the marginal operational RIC start to come off a bit and then the capital cycle score will deteriorate a lot. So far only one of the pieces are in place which is essentially the surge in capex. But for a lot of the AI centric stuff for the profit pool as a whole, the kind of marginal returns are still significantly higher than the weighted average cost of capital. Obviously these things will shift as assumptions around useful life depreciation schedules, vendor financing. All these things will eventually show up in how the weighted average cost of capital is calculated. But it's just worth highlighting a high level that, you know, at least right now, you know, the industry is covering. The cost of capital is actually profitable. And so it may be a little bit early to be worrying about the surge in capex.
- [25:37]
D
Let's touch on commodities on page 11.
- [25:40]
E
Yeah, so I think the last thing that I think is very interesting is that we have a pretty unambiguously bullish commodity setup with, with our models as well. The demand Supply and balance models are suggesting quite strongly for commodity recovery. Cyclically and obviously structurally the backdrop should be pretty favorable where we are moving to a more a world of kind of great power competition, right. Supply chains, commodities are being used and weaponized in geopolitics and you have not just cyclical recovery, but also kind of more price insensitive, industrial policy driven or politically driven demand potential as well. So it's a pretty good setup for commodities in general. Now that gold prices in real terms have surged back towards kind of the 19, you know, 70s, 1980s high, it's really about whether the other things can start to catch up as we show on the top right hand chart here. So broadly, I think overall for the complex, we think the upside is still very, very good. The laggard is probably going to be oil this time just because of OPEC and supply and obviously some of the political imperatives around keeping inflation contained. But I think industrial commodities and the like, the catcher potential is very good and ultimately obviously we'll get recovery in oil as well.
- [26:56]
D
John, for the last few minutes, let's zoom out to this big picture that everybody's trying to figure out. Seems like just last Friday China was absolutely evil and you know, was the end of the world. And then all of a sudden they're best friends again. Is this just a part of the Donald Trump approach to diplomacy? And what should we expect next?
- [27:17]
E
Yeah, so I think the biggest picture here is actually something we laid out all the way back in 2022 when we wrote a kind of pretty big thematic report on the coming capex super cycle. The end of the invisible hand, essentially the end of kind of free market driven, let's say, fair globalization. Right. And I think this is kind of the biggest context for that. Basically the US and the Chinese systems are moving from a focus on profit and efficiency towards the need for resilience. But you know, efficiency can, you know, the flip side of resilience, essentially inefficiency. Right. You're going to duplicate supply chains, you're going to stockpile more inventories, you know, you're going to change how resources are allocated. And so I still think that's kind of what is really going on and having to manage that process at the same time. With the great power dynamics kicking in here, there's obviously a lot of lessons from history we can learn. So I think for me a very useful context to think about is actually more the US period would be kind of World War II into the 50s with FDR and essentially the arsenal of democracy kind of analogy. So what that ultimately means is that when you have very important kind of national policy imperatives, you need to start thinking about the government's balance sheet and the private sector balance sheet as just one thing, one national balance sheet. So in FDR example I cited that was like getting the private sector to build your tanks and planes and to fuel the war effort. Right. And then later on, coordinating between private and public sector in the Cold War. And this is essentially the playbook China has taken for quite a while. Right. In terms of how China coordinates that private sector with government policy to drive a lot of industrial policy imperatives, national policy imperatives. So I think that's kind of the biggest picture context, that we are just moving towards a world that both countries want to emphasize resilience, supply chain resilience, and this idea of to compete, you kind of need to start coordinating a lot more in terms of big business, big government working together. And obviously, broadly speaking, most of the marginal news we see leans into that story all year long. So I think that's kind of where ultimately both sides want to end up. And then they just have to manage the transition in the middle. And this is where I think there's a realization that leverage is becoming, in my opinion, at least a bit more balanced. So I think the US probably does not have as strong a leverage as the US saw in terms of tech sanctions on China. Right. The, the rapid pace of Chinese tech development, I think has probably surprised the U.S. side. And equally, I think the U.S. i might have underestimated the kind of short term rare earth choke point. Again, in the long, in the long term, Ralph doesn't matter, right? Like, you know, rafts are not that rare. It's kind of abundant. You just have to be able to refine it. But in the short term, obviously China has the refining capacity and so they need to play that card while they can. So I would say that's kind of where, because the leverage is a bit more balanced heading into kind of the Trump Xi meeting, they can obviously try and position, but ultimately, I think as I mentioned right at the beginning of this meeting, the structural direction is set. Right. Both countries know they need to build up resilience from each other and just to prioritize domestic national needs. But they don't want to have such a dramatic kind of divorce that the short term pains too much. And so that's why all these communication channels have been established since Liberation Day. And they're likely talking. And so I think you'll just keep getting these nominal wins that both sides can announce to that domestic audience, avoid the worst of the disruption. Ultimately, the trend is really towards trying to build up essentially economic nationalism and resilience in terms of supply chains and manufacturing.
- [31:20]
D
Tian, as always, I can't thank you enough for a terrific interview. Before I let you go, tell us a little bit more about the work that you do at Variant Perception, what services are on offer for our institutional investors and where people can follow your work.
- [31:33]
E
Yeah, well thanks for having me on as usual. So you know variantperception.com we can share a link for some of your listeners as well if they're interested in getting some more materials or to have some access to our portal. But essentially we focus on building investment models, right? Modeling the economy, modeling asset classes, modeling market behaviors, and modeling long term structural capital cycles. And then from those models we will find outliers or interesting investment themes, contextualize those in terms of the news and price action and flag ideas.
- [32:07]
D
Patrick Ceresna and I will be back as Macro Voices continues right here@macrovoices.com.
- [32:19]
A
Now back to your hosts Eric Townsend and Patrick Ceresna.
- [32:23]
C
Eric, it was great to have Tien back on the show. Well listeners, you're going to find the download link for the post game Trade of the Week in your Research Roundup email. If you don't have a Research Roundup email, that means you have not yet registered@macrovoices.com just go to our homepage macrovoices.com and click on the red button over Tian's pictures saying look for the downloads.
- [32:46]
B
Patrick, we're getting great feedback on our new Trade of the Week segment. What's on deck this week?
- [32:50]
C
Eric, let's go a little deeper into the dollar story because this ties directly into what Tian discussed in the interview. He made a strong case for the US resilience, sticky inflation, strong growth and a Fed that's easing into strength rather than weakness. All of which sets the stage for a potential dollar squeeze higher. Now what makes this setup particularly interesting? Right that the implied volatility on the Euro futures has collapsed to year to date lows. I have a chart on page two showing this. We are currently around 6.6% down from roughly 9% earlier this year. That tells us the markets completely priced for common stability and when volatility is priced this cheap the asymmetry shifts in our favor. Why? Because the carry cost of being long options is lower. The marginal vega risk to the downside is limited. Limited and you retain the potential for a vega tailwind. If a macro event forces risk premia back into the market. In other words, this is a perfect environment to own convexity. So rather than trying to express the dollar strength through a linear short on the euro, USD or an outright futures short, I'd rather do it in a convex way where my downside is fixed but my upside is open if something breaks. Now here's the trade by the March 6, 2026 euro futures put option at the one spot 1750 strike, which is essentially at the money for 198 pips which is essentially at the money for 10098 pips with the March 2026 euro futures trading at one spot 11745 at the time of this quote. In practical terms that's 198 pips or 2475 dollars per contract and it gives you the right to be short the euro at the one spot 1750 over the next five months you'll pay a small defined premium to own pure gamma clean convex exposure in the market that's completely complacent on volatility. Those of you that want to visually see a breakdown of this trade, it is on page three of this week's Trade of the Week download. The beauty of this structure is that you don't need a crystal ball or a specific catalyst. Any macro event, a policy surprise, inflation shock or geopolitical flare up that pushes the dollar higher can create an outsides moved relative to the premium at risk. For perspective, even a 50% retracement of this year's euro advance would take the pair back to around 112 where the option would be sitting on over 500 pips of intrinsic value. On the flip side, if the dollar bear market continues, your risk is clearly defined, you lose the premium and walk away. But the way I see it, you're paying a small insurance premium to own Convexia on a currency market that is priced for perfection. And that's a trade I'll take every single time.
- [36:03]
B
Patrick that explanation worked for the pros. And of course our retail audience can get the full briefing by attending Patrick's Monday webinar, which always dissects the trade of the week in detail. Macro Voice's listeners can get a free tr@bigpicturetrading.com Eric, let's dive into this.
- [36:20]
C
What's your thoughts here on the markets?
- [36:22]
B
Well Patrick, remember what I've said before, which is the Trump tariff turbulence that we went through several weeks ago was not going to be the last round. Needless to say, the next round is already upon us And I don't think this next round will be the last round either. What happens next in the immediate term is going to depend on the headlines. Be ready to be whipsawed in either direction by Trump policy announcements. It's very clear that President Trump is not concerned about the short term impacts on financial markets as a result of his strong policy choices. Moving back or stepping out to the bigger macro picture. I think where we are is in the misleading early phase of a secular inflation. Secular inflation's always start out looking beautiful. It seems like everything's running hot, the economy is strong, everything's growing, it all looks great. It's actually just the beginning of the inflation and the negative feedback loops haven't kicked in yet. So I think that's the big picture of what's happening for the economy as far as what the market does next. It'll be headline driven. Let's see what Trump and Bessant dish out next.
- [37:27]
C
Well Eric, we finally got ourselves a market correction. It was a very fast rapid one day peak to trough 4% market drop that directly tested the 50 day moving average. So how do we size up the conditions of market? Well first of all we have the options expiration this week which if the market stays within these major strikes there's a lot of of dealer pinning that happens just from the natural order flow of all that gamma that they have on the book. So the market consolidating here this week it would is not abnormal. But the big question here is that with this new rise of volatility we're talking about a Vix that is now at 20 plus on the upside. At the same time we have market breath deteriorating which I have on page five you can see that we hit a low of around 36%. On the downside we're bounced back about 40 but we have majority of stocks actually in a downtrend already selling. Now what is a positive for the markets? Well the bank earnings started to roll out and they all had positive reactions on it. I was looking at whether or not the financials would diverge and show that the deterioration but they've at least shown a little bit of strength. Now for me this is a very simple trade right now consider the bulls to be in control this market above that 50 day moving average with 6600 sit it there and the low of the market coming around 6,600 from earlier in the week. This is a logical place to watch for a break. If we break down below there we could see all sorts of systematic selling, weather, volume targeting funds, CTAs and even dealer gamma exposure that could start becoming a feedback mechanism that accelerates the downside air pocket. But right now the market is not in that danger zone. So let's see whether that technical breakdown actually gets underway. So Eric, let's make move on to the dollar. What are your thoughts?
- [39:27]
B
Well, we tested the high end of the consolidation range. Haven't seen the breakout yet that Tian seems to be anticipating and it's very much consistent with the tariff tantrum. We've seen this bouncing up and down. Needless to say, what Trump just said was $bullish. That means we're going to test the high end of the consolidation range. We haven't broken out of it yet. I also want to comment that the strong rally in gold reminds us what's going on here with this US Dollar strength is relative to other currencies only. The big picture is fiat currency overall is debasing badly against hard assets. That's what's being reflected by the fact that gold is strong here even in the face of short term dollar strength. The next few policy headlines are going to determine what the Dixie does next as a relative strength indicator relative to other curr. But again, dollar up, gold up at the same time is a very important reminder that the Dixie is a relative not absolute measure. And the big trade here, the big picture trade is dollar down or all fiat currencies down and hard assets including gold up.
- [40:39]
C
Well for me the dollar is showing relative strength in the last few weeks and this is an important thing to watch whether it is bought on dip and whether we can stay above the 50 day moving average here. The entire US dollar bear market that happened this year here has pretty much sustained below the 50 day moving average for pretty much almost nine months. And so now with us pivoting here, will this be showing the price action that in fact the dollar has room to actually counter trend like we were talking about even through the interview. Now for me it's a lot about the different pairings. The Euro broke down below the 50 day moving average, the pound sterling has been weak, that US dollar yen ripped to the upside after the elections. US dollar CAD has broken out and remains at multi month highs. So there's a backdrop that you can really see where US dollar strength can come from. So will we see some sort of a breakout here that really gets this underway where we could see a dollar move up to 101 to even 103 on the upside? Certainly a really interesting moment in the dollar here. So let's Move on to crude oil here. What do you make of this deterioration?
- [41:52]
B
Well, we're just barely holding on to a 58 handle at recording time just before the markets open on Thursday morning. Whether or not that holds, I'm not sure. I think midterm to short term Trump is going to win on his desire for lower oil prices. So I think we see lower before we see higher. But boy, higher is coming. Just give him time to start the next war or the next escalation in one of the several wars that we have in different theaters. I'm sure high oil prices are coming back, but not quite yet. I think we've got a little bit of lower before we move higher. Needless to say, timing markets in the short term is dangerous work. So don't blame me if I got that one wrong.
- [42:30]
C
Well, I want to refer back to Anas's interview when we had him on, in which he has a medium term or interim outlook that is bullish on oil. But there's a lot of stress points on the short term. Clearly they have emerged. And now with this technical breakdown of crude oil, I mean, we certainly can't even rule out a retest of those April and May lows that sit down in the low 50s. Now, Ken, crude oil go down there, of course it can. But the question is, is that, is it gonna be a major buying opportunity down there? And that's where I actually think we may wanna visit that. On the short term, the risks are definitely a downside. But I think by November, if we're trading down there, there might be some asymmetric setups for trading oil to the upside. All right, Eric, what are your thoughts on this parabolic move on gold?
- [43:19]
B
Well, this seemingly unstoppable rally even in the face of a modest counter trend rally in the D. Nothing to celebrate. As I've said before, yeah, it's good for gold investors in the short term, but really gold is not a get rich asset, it's a stay rich asset. All it's doing is holding its purchasing power as fiat currency generally is collapsing in value. And that's the big picture of what's happening. I do think that this dollar rally can continue a whole lot higher. But wow, we're overdue for a meaningful correction. And to make no mistake, where this is headed is ultimate toward a blow off top and a sharp, really heavy, painful reversal to the downside. Question is, does that happen out of 4,250 or 48.50 or 5,750 or 12,863, I don't know. We're gonna go higher, higher, higher in this crazy euphoric stage of this bull market before it blows off. From what level it blows off, I have no idea. But I'm confident that's what's coming, coming.
- [44:29]
C
Well, the interesting thing about gold here, Eric, is that we are in the parabolic phase. When we blew through 4,000 like a hot knife through butter, that was a technical, measured move. So whenever you see an acceleration beyond a measured move, I call those like the parabolic rises. And so when something goes parabolic, it is actually hard to call where the top will come in because it's just sure buying momentum. Arguably we could see 4, 500, even 4, 700 with this kind of acceleration. But the thing that is almost for sure is, is that when it runs out of steam, the correction will actually have the type of volatility it's having to the upside the other way on the downside. And so there's going to be a period where wherever we hit a short term high there the pullback and is now going to probably be bigger than 300 plus points that we were talking about in the weeks to come. But right now you can't stand in this thing's way. This is pure momentum. We're going to find out where the short term blow off top will, but it certainly can still be at much higher prices. All right, Eric, let's talk uranium.
- [45:39]
B
Well, the action is still in the miners, not so much on the spot price of uranium. And that makes sense. What we're seeing here is the speculators who know what's coming are looking for the leveraged trades. That's why they're buying the miners first. But we need to see that spot price of uranium move for the sake of confirmation. If we don't, it's going to lead to some people saying, oh, wait a minute, didn't happen like they expected. And that's gonna be your trigger as soon as there's another catalyst in the market for a deep and painful correction. Frankly, I wouldn't mind that deep and painful correction. It's still a buying opportunity. I don't think that this uranium bull market is anywhere close to over. But boy, on a short term basis, we're really overbought here. There's lots of room to see a correction before we move higher.
- [46:24]
C
Well, Eric, there's some extraordinary momentum on those uranium stocks as we now see them finish all sorts of measured moves on the upside. To me, the asymmetry lies in trading uranium U308 to the upside. Now I have that futures chart. You can see how it's gone through that 15 month bear market and has now merged the other side with old dips being bought. I love this setup on the chart. The way I look at it is I'd much rather be long now uranium, the, the yellow cake itself and, and expecting some of these miners to have a breather here at some point after such an extraordinary bull run. Yeah, Eric, let's touch on copper.
- [47:03]
B
I think we started from a place of having a really terrific bullish setup for copper from a macro standpoint that has been interrupted once again by Trump tariff. Anything is possible in the short run. Who knows what headline is going to shock copper in one direction or the other next. If it's a shock lower, I say that's a buying opportunity because eventually this Trump tariff policy stuff will blow over and we're still going to have a strong bull fundamental argument for copper. But that fundamental bull argument won't become domina until the policy stuff that Trump and Besant are engaged in right now blows over. Let's see how long it takes for that to happen.
- [47:43]
C
Well, Eric, copper continues to demonstrate accumulation. Higher highs, higher lows. Even the dips we saw here this week quickly shooting right back up to the highs overall. Copper has an upward trajectory, but we are reaching overhead resistance. Almost all the highs outside of the tariff pop all came in in this kind of 510 to 550 now. Doesn't mean we can't have another 25 cent surge higher. But we're going to start seeing copper here, testing some key overhead resistance levels, see if it puts a short term lid on the upside of copper for the remainder of this year.
- [48:22]
B
Patrick, before we wrap up this week's episode, let's hit that 10 year treasury note chart.
- [48:26]
C
Yeah, Eric, the 10 year treasury yield continues to be one of the most interesting charts to me. If you observe here, we're trading at the year lows and it looks like on the verge of a breakdown. And this, this is the bigger question, are we seeing a risk off moment in the markets where the bonds are clearly advertising that, you know, a potential $rip and risk assets being sold? Is this the play one way or another? This 4% level was the low back in March, April and it's also again the low of August. So the fact that we're testing it, it makes it the thing to watch here, folks.
- [49:05]
B
If you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of big Picture Trading. The details are on the last pages of the slide deck or just go to bigpicture trading.com Patrick tell them what they can expect to find in this week's Research Roundup.
- [49:19]
C
Well, in this week's Research Roundup, you're going to find the transcript for today's interview. You'll also find the Trade of the Week chart book that we just discussed here in the Post game, including a number of links to articles that we found interesting. You're going to find this link and so much more in this week's Research Roundup. That does it for this week's episode. We appreciate all the feedback and support we get from our listeners and we're always looking for suggestions on how we can make the program even better. Now, for those of our listeners that write or blog about the markets and would like to share that content with our listeners, send us an email@researchroundupoices.com and we'll consider it for our weekly distributions. If you have not already, follow our main account on X at Macro Voices for all the most recent updates and releases. You can also follow Eric on X at ericsstown Townsend. That's Eric spelled with a K. You can also follow me at Patrick Ceresna on behalf of Eric Townsend and myself, thank you for listening and we'll see you all next week.
- [50:28]
A
That concludes this edition of Macro Voices. Be sure to tune in each week to hear feature and interviews with the brightest minds in finance and macroeconomics. Macro Voices is made possible by sponsorship from BigPicture Trading.com the Internet's premier source of online education for traders. Please visit bigpicturetrading.com for more information. Please register your free account@macrovoices.com Once registered, you'll receive our free weekly Research Roundup email containing links to supporting documents from our featured guests and the very best free financial content our volunteer research team could find on the Internet each week. You'll also gain access to our free listener discussion forums and research library. And the more registered users we have, the more we'll be able to recruit high profile feature interview guests for future programs. So please register your free account today@macrovoices.com if you haven't already. You can subscribe to Macro Voices on itunes to have Macro Voices automatically delivered to your mobile device each week free of charge. You can email questions for the program to mailbagrovoices.com and we'll answer your questions on the air from time to time. In our Mailbag segment, Macro Voices is presented for informational and entertainment purposes only. The information presented on Macro Voices should not be construed as investment advice. Always consult a licensed investment professional before making investment decisions. The views and opinions expressed on Macro Voices are those of the participants and do not necessarily reflect those of the show's hosts or sponsors. Macro Voices, its producers, sponsors, and hosts, Eric Townsend and Patrick Ceresna, shall not be liable for losses resulting from investment decisions based on information or viewpoints presented on Macro Voices. Macro Voices is made possible by sponsorship from BigPicture Trading.com and by funding from Fourth Turning Capital Management, LLC. For more information, visit macrovoices.com.
- [52:42]
C
SAM.