YouSaid · the spoken record

Tian Yang

lines on the record: 99
first: 2023-01-23
most recent: 2023-01-23
sittings or episodes: 1
sources: podcast

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“PE is price to earnings ratio if a company is worth a billion dollars and they make $100 million in profit they have a PE of 10 if analysts think that they're going to make $200 million next year they have a forward PE of $5. So yeah and when you're at a market bottom and things have sold off so much, it makes sense that a lot of stocks are trading at a forward PE of six. So yeah.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“So, this basically shows you the distribution of four APs for single names at different key moments in the market, right? So the black line is basically what they look like at the 2009 bottom, and the gray line is the 2020 bottom. So the point here is I usually at major, major market bottom washout moment, you'll tend to see a huge cluster of stocks trading basically under 10 times PE.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, but broadly speaking, we'll say you want to hide out in more defensive sectors, right? But it might be a little bit more, you need to look a little bit of single names. The interesting phenomenon right now is actually it's more the large caps where things are looking a little bit more vulnerable. If you actually look outside the S&P 500, the biggest US names, and you look at the distribution of forward PEs, it's actually looking a lot closer to what a market bottom would typically look like where there's already a huge cluster of things trading at like 10 times or lower, but it's more like...”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“So, to your point, again, this is why the time horizon matters a little bit. That's why I said earlier, if you're talking about one month outlook, you can see a lot of things lined up for a short squeeze in tech, right? Obviously, we've already seen that in the first two weeks. But, I mean, that could go for another few weeks where the narrative will be inflation's peak, rates has peaked, these high duration things benefit. Obviously, the problem is when you look a year out and the economy is going worse and earnings do matter. And if earnings are going lower, then it's hard to justify kind of where you were trading previously. So I think for us overall, it's a lot more of a defensive, we probably prefer a lot more defensive, you know, some of the more reasonably valued staples. I mean, it's a bit difficult, right? The challenge for equity investors in this environment is that quality names are generally expensive names, right? And that's a problem last year, right? With a lot of these names that got hit.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“So I would say we don't think this is like a 2008 where the bank's going to go bust or anything like that, right? Like the bank balance sheets are clearly a lot better, like structurally. It's kind of a different setup. And obviously, you've ready front run some of the bad news, where's crypto, where's tech, profitless tech, right? You're already seeing a lot of deflating in kind of the higher duration assets. So I think it's more about the fact that earnings might stay down and then the multiple people assign stays down because it's a recession kind of environment. I think that's more rather than thinking this is going to be that the central policymakers aren't going to come in and save the market eventually.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Happen, but the job losses now lead to falling consumer spending. So something corporate earnings are worse. Suddenly now banks demand a have to pay more credit spreads, which then causes further stress. I think those are the feedback loops that cause that initial foil in earnings to turn into something bigger. Whereas normally if you don't have those feedback loops kick in, then obviously the initial fall, it'll just stop. So I think that's why the risk is more tilted towards potentially a lot more of these cascade effects that go on this year. And so if you just say finger in the air, right, typically equity is going to add the market bottom is kind of 15 times normally when you would trade. And you can apply like a 15 times to a forward earnings estimate should be. So right now, say like a 220 S&P, right? So, you know, that gives you like a rough sense, right? If you apply 15 and you say forward any estimates, four to 200, that's like 3,000 on S&P, right?”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“I think 2018. I'll follow with you afterwards. I think there's been quite a few historical ways just about goes negative over the past 50 years, and that's usually the bias sign. But obviously a lot of times earnings collapse as part of an economy-wide recession, right? And as we talked about economy-wide recession, it's really about when there's positive feedback loops that start to kick in, right? Now when all these job losses”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Well, firstly, it's equities relative to bonds. So if you want a really, really simple rule of thumb, if you just look at where yields are, where bond yields are relative to earnings yields, and you look at that over a very long period, that tends to lead relative performance. So obviously when yields back up in equity valuations don't come out as much, that relative value already helps you in terms of which way you tilt. But for equity specifically The work we've done on earnings recession is that historically earnings recessions don't matter unless they're part of a broader general economy-wide recession. So the idea is that if you don't get an economy-wide recession, then when earnings go negative, that's the contrarian sign to buy. The only time you get a cascade fall in earnings or the cascade kind of knock-on effects is when earnings fall and is part of economy-wide recession, because that's what sets off the feedback loop.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Depend on policy follow through. Now, I just think it could happen. It's just more the distribution of outcomes a lot wider, right? Like, I don't think anyone would have thought it would be this disorderly where every signature sheet policy is kind of suddenly gone. So that suddenly opens up the possibility that if they're not hitting real estate so hard, they suddenly want to give tech room, maybe they're open to doing massive stimulus, right? There might be a chance of going something more akin to like a 2016 2009 style big easing of liquidity, in which case then obviously you'll get all the confirmation, right? And you'll be correct. But I would say that that's kind of what we're looking for to kind of sustain the rally.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“So, I think in terms of hard economic data, not yet, because obviously these things take time to feed through, right? It's going to be slightly lagging if it's a purely policy driven thing. But yeah, in terms of market prices, obviously you mentioned the commodity rebound, things like Chinese big bank performance relative to the index, that's typically led out of a lot of the big previous bear markets and that has, so Chinese banks are basically led on the way up. Yeah, there's a few things there. I think the concern I would have is if you look at a lot of the flow proxies we have, this really needs to be a legit policy shift, right? Like it's quite a lot of speculative flows. Like on our flow proxies, the amount of cumulative buying is basically back to where it was in July and August of last year, right? That was like the last time when it was like China's bottom and people got back to that level. So right now we're an interesting tactical point and it's”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and just about China, are you noticing any economic indicators, not an article saying some Chinese official of the Chinese Communist Party whispered this to some journalist? Not that, but actual yield, a price, something like that, that indicates that reflation within China is on the way. One thing I'll say is the price of copper. People have been saying very bearish copper since June, and it was right for a while as the economy was slowing, but the price of copper has exploded higher over the past month or so. Not to the highs of early 2022, but pretty close. And that to me may say, hey, China could, that's a sign of economic strength. So is it, are you noticing any signs of economic strength in your data that you can attribute to the Chinese reopening and the Chinese perhaps restoration of liquidity?”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Much of an inflationary impulse China does create, depending on how aggressive that easing becomes, right? But so that's the one area of path dependence where you kind of have to observe a little bit. Clearly, given how fast and disorderly China's reopening was, the range of potential policy options suddenly seems a lot wider than it did a few months ago. So it's not out of the question they could just really stimulate super aggressively because clearly something's happened that they can't stick to all she signature policies.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so obviously any given month is the number is going to be volatile, but as I said, it's pretty unequivocal. And obviously, this is a report from December, right? So we've had some more updates and all the lines have kept going lower. So I think it's pretty unequivocal inflation has still quite a lot. Like I said, in terms of the month-on-month, it's probably not going to go much more than 0.3 a month, right? So that analyzes 3.6. Obviously, this is going to be somewhat contingent on our recession views, and clearly we think that we're going to recession. And so that's why you see even the slide, right? Where we think ultimately the recession is going to be the demand disruption plus the relief from supply chains. That's kind of the core setup.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Like an overwhelming amount of evidence across most of the pieces of inflation that inflation is going to come off. Obviously, the one area of divergence remains housing. But I think even pound themselves made some references to how it's not being accounted for correctly. I think it was in the Brookings Brookings speeches or something. So whether you're looking at looking at it from a supply chain point of view, look at it from a food price, energy price, right? Because obviously ultimately inflation is on your number. You look at it from a demand point of view. It's all pretty much rolling over. So I think it's more converging with inflation coming down while the Fed slows down its pace of hikes, right? And then it meets.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. Yeah. So the key point right now is on inflation. Again, this is where I think the time horizon matters a lot where I talked about a cyclical six to five month horizon, the structural. So I think on the structural horizon, we still think there'll be a higher equilibrium level of rates and inflation right five years out. But if you're talking next six to 12 months, it's pretty unambiguous that every lead indicator of inflation, both demand and supply side, has rolled over very sharply. So on a cyclical basis, this”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Headline figure is Yeah, so there's two moving parts, right? But I think on current trends, you're going to get there by May, plus or minus a month, by next year. So May 2020.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Fat to be able to pivot. And on most of our models, if we think the recession started, but the fat keeps hiking into the recession, then presumably by kind of May, there'll be a bit more evidence of actual economic stress and there'll actually probably be some room for the Fed to actually ease a little bit, right? I think that's basically the current, I would say the current kind of game plan. We'll see. Obviously, we're having...”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so obviously with these things, you need an anchor to start somewhere. For us, the anchor for the analysis has always been the idea that the Fed has never stopped their hiking cycle until the Fed funds rate is above the trailing year-on-year CPI historically. And it seems a pretty intuitive thing to us to at least have that initial anchor. So on current kind of projections for where the month-on-month CPI is going versus what's discounting the Fed funds curve, you're basically going to get to March, April, right? The Fed funds will get to basically five or five point two five somewhere in that range, right? And then the yone-year CPI core and headlines should be below that by kind of April or May. So the idea is that that's at least kind of the initial target point for when the Fed camp, that's kind of the earliest it can go on pause, essentially. And then from then, obviously we'll need to see how quickly inflation can come off for the”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Right, okay. So we've got two parts of your sort of trifecta of bearish indicators, one part liquidity. We talked about that. It's bad and getting worse. One part is recession. You think a recession has already started and if it hasn't, it's going to start momentarily. The third factor, let's talk about the Fed and interest rates and the terminal rates. How does this play into your perspective?”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“So, this is a classic bowl with effect, right? And obviously, you call that because you get that whip action at the end. And it was massively exacerbated by COVID. So COVID is causing the mother of all bullwhip effects in terms of sequencing. Because during COVID, when it's only Chinese patches open whenever it was in 2020 and you're putting your normal order for, I don't know, 100 pairs or whatever yoga pants, right? And they tell you, oh, we can only do 50 pairs for you. So what do you do? You order 200 thinking you'll get 100 and now you've got 200 pairs. You'll get these exaggerated ball whip effects as a result of kind of the overordering that COVID calls. So that's why I think the inventory cycles, quite a big risk this time in terms of sequential step down in growth, that probably isn't going to be anticipated.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Oh, yes. Sorry. So the red line has an inverted y-axis so that when it's down on the screen, that indicates inventories are actually going up. So inventories were increasing by 10%. And that makes sense. Not going to say over 100%, but it was very high percentage relative to 2021 because, oh my God, stuff is flying off the shelves. We don't have enough stuff. Now they have enough stuff. And the amount of stuff that they have has exceeded the amount of actual consumer demand.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, sure. So I think this is a pretty intuitive relationship when you think about the inventory cycle, right? Or sometimes we call it the bulwark effect. So ultimately, if you get a huge buildup in inventories where businesses obviously joined COVID overordered because they wanted to secure their place in the queue of the factory, they overordered, got delivered all the stuff they thought they were going to sell in anticipation of higher demand. But if that demand doesn't materialize, suddenly they sound too much inventory. That's going to be discounting. And obviously we saw a lot of that with US retailers in the second half of last year. So if you aggregate up the measures of inventories, then it's pretty intuitive that it actually leads future manufacturing activity. So the red line there, you can see the right-hand axis is inverted. So the red line going down basically means there was a surging inventories last year. So because there was a surging inventories, typically that would lead with a lag to slower manufacturing.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Right, so that chart that we were showing earlier is the Census Bureau of Survey respondents having difficulty to pay expenses by income paints a very different picture of the strong consumer balance sheet narrative that was supported by the very high amount of deposits in bank accounts, not even necessarily people with $10,000, but people with $100,000 of dollars. Now let's look at the ISM manufacturing, which is a measure of manufacturing activity above 50 indicates growth, a high of 60 means business is booming below 50 indicates contraction, you know, 45 or 40 indicates recession. So that's in the black line. Now manufacturing is at, what, 49? And also since this report from very perception was released, I think we had a services that was just over 49 indicating that services are contracting too.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Household income, you can see this rising kind of difficulty paying bills. So what I would say is actually the behavior of the data is in line with what it should look like on the eve of the beginning of the recession, right? Because we're not talking about the depth of recession here, right? When you're in the depths, that's when the line is obviously very, very low, and that's usually obviously when policy easing is probably already kicked in. And that's kind of the contrarian biasignal, right? Today is more like when you're just crossing below zero that this is kind of where it should look like, where it's pretty much across the board. It's all the leading parts in the leading indicators across most economy have gone to bad territory. The coins and data is still fine, but it's basically been going sideways or started rolling over. And then obviously through Q1, Q2, as data is released because of the lags, presumably by March, you start seeing”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Well, it's already happened, right? Housing and manufacturing are the two. Obviously, manufacturing is still the more leading part of manufacturing. It's the surveys and surveys so forth is declined, right? Like the coincident data is just about peaking. But yeah, housing manufacturing to start with. But even in things like labor markets, the more leading parts of labor markets really are moving. If you look at temporary workers, that's kind of declined back to zero. Job openings rolling over. There's a lot of the leading parts of even labor market data tells you the distress coming. Even on the, for the US consumer, right, the whole narrative, there's a bunch of excess consumer savings so the US consumer is fine. Again, if you look at the more frequency data, the household poll survey from the census bureau, right? Like across income spectrum all the way up to like 100,000.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Right. And so your view of liquidity that it's low and in many areas getting even worse, that informs your asset allocation decision that risk assets will perform poorly. High beta will underperform low beta. Stocks will underperform bonds. We can get back to liquidity, but now let's talk about the business cycle and the recession. Let's stick to the US. We can move on to Europe and China. So I think recession is defined as like a broad-based decline in economic measures of spending investment, production, employment, many of those, if not all of those, are pretty strong in the U.S. now, particularly the labor market. I mean, the unemployment rate is at 3.5%. Which areas of those four, or you can add others, of the economy, do you think will be the first to be very weak, so much so that people who aren't looking at leading indicators but are actually looking at like hard real-time”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Relief for everything, right? So in China, I think it's going to be a lot more important to focus in on segments that still below trend where the marginal savings can be unlocked, right? Durable goods, clothing, and then hotels and accommodations, probably those are going to be more aware that you'll see the ups.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Little bit of the revenge consumption, all those things, but in aggregate, the global kind of stimulus pool, the global liquidity pool based on all the data is still shrinking. So that's why I would frame as China isn't going to help support global inflation in the way it did in 2009-10, when the magnitude of the impulse was just so much bigger back then. And even today, if you think about this reopening and you look at the US experience, obviously what happened was, yes, people spend a lot more money, but there was obviously a lot of inflation as well. So in real terms, not all categories of expenditures managed to get back up and go back above trend, right? A lot of things took a while to come back to trend. It's really only, I think, in things like clothing, in like restaurants, hotels, right? Those are where you get a lot more bang for the buck, where the excess savings come out and get spent. So it's not going to be like across the board.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so what you go up here is the growth country leader. From a liquidity point of view, because money is going to flow across borders, right, there's no, you know, it's very hard to pinpoint exactly where the marginal benefit is going to be. But so I think we try and think about it as more of a global concept, hence the chart you showed before with global excess liquidity. With China specifically, clearly you do see the policy impulses shifted and turned positive and it's been shifting up since kind of what Q3, Q4 is already shifting up. But the key thing to note right now is that the kind of negative drag from US policy impulse is so negative. It's going to overwhelm the Chinese indicator right now. So the net message is, yes, China domestically, that's clearly going to be a rebound, right? Like if you reopen, it's obviously going to get kind of the”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“All right, well, so now let's not bury the lead. Let's look at these variant perceptions countries LEI liquidity indicator or something like that. Euro area in gray, very negative, China negative, US negative, but not as negative. So it doesn't look like there's anywhere that's safe where there is liquidity. Yeah, just break that down. Why is liquidity falling in different regions and how might that differ? And also, do you think that Chinese liquidity will go back, as many, including people who invest in Chinese stocks, because the stock market is surging now, are expecting that China will restore liquidity?”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“I want to react as well, right? So obviously, if you go plot the series, I'm on Oreact. But the one times when there is a divergence, That's when the M1 data is going to be a bit more reliable. I think even the conference board themselves have done studies. So I think like, you know, 30, 40 years ago, when they first started building leading economic indicators, M2 was included as one of the lead indicators. And over time, they've revised it out as well. So now it is only more narrow definitions of money that that included.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“They want. So I think there's a sweet spot where we want to define liquidity as it pertains to kind of forward-looking asset prices and forward-looking activity. And if you just do central and balance sheets, sometimes you'll miss the impact that commercial banks will have on money creation and animal spirits, right? This is why the classic child fair balance against S&P worked up until whenever it was 2016, right? And it just diverges because you're missing some of the other pieces of liquidity really.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“And currency in circulation, right? And that gives you a broader sense of the right kind of definition of money as the effect kind of future activity and future asset price performance. I think it's a very important point here just to know when people talk about how to measure money, I think there's a sweet spot where, for example, people look at M2 to GDP, right? But M2 includes a lot of savings deposits. And so if savings deposits goes up, potentially that drives M2 up. But savings deposits going up is a necessary bullish, right? Because people parking money away and kind of longer term a lot of money. And it's not available to spend. Whereas if you track narrow money, it's basically just demand deposits and cash, right? Like generally that doesn't go up unless there's a lot of activity going on and people want to do something with the money. And then once the activity stops, that demand deposit falls and then they can save it or do whatever else.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Actually, that's not a measure. By the way, I think it's the chart below what you share on the screen. I think when we talk about excess liquidity, it's just things like central banks only go in implicitly. That's the one. So the key point is that we live in a fiat money system, right? Where money creation is not just the role of central banks. Commercial banks have a big part to play in that. And so if you're only watching central banks, you're missing the impact that commercial banks can have on credit creation. Oftentimes when you learn about money in the textbooks originally, it's this idea of fractional banking, like central banks control reserves and that affects credit creation, right? Whereas obviously in practice, it's not a binding constraint and it's a lot more, you know, it just happens a lot of times can be independent of central banks. Central banks are affecting animal spirits. So that's why I think for us we measure it essentially M1 or equivalent level, right? So then you capture both demand deposits.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Okay, right, so we've got. The chart that we're showing right now charts liquidity in red advanced six months relative to real GDP. So when liquidity goes up, GDP goes up generally. Not saying they're necessarily causing each other, but they're very correlated. I'm sorry. So central banks do quantitative easing. They expand their balance sheet, putting cash, bank reserves into the system that moves up liquidity and then liquidity goes down when they do quantitative tightening, as many central banks, including the Fed, are doing now. So what is in your liquidity measure other than QE versus QT?”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“throughout the year. I think equities, you're always going to have to manage the bear market rally risks. And that's going to involve a little bit more trading around, really.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“When you want to position the key is that to bear in mind the six month bearish outlook, but then you probably need to be slightly more tactical in terms of actual positioning around it. So the setup this year is more on a one month basis coming in is more a bear market value makes sense because you had quite strong outflows in December. We had a bunch of buy signals go off on tech basically end of last year and obviously with the inflation peak story the initial focus in the market is probably going to be on peak inflation peak fed policy rates and people trade that narrative to drag the flow up but obviously as the data deteriorates more through q1 into q2 than the kind of kind of growth slowdown story will probably get a bit more prominence and then i think equities that's when you see the real big downside but obviously you know falling inflation falling growth both are kind of going to be good for bonds so i think that's why it's more clean right now to think about expressing the risk of you by more going”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I'll access equity measures is still a very bad level. So these are what we consider cyclical indicators for kind of the next six to 12 months. They're typically looking at global narrow money growth minus inflation minus real economic activity. So essentially it's saying how much money has been created system wide that isn't really being used up for real activity or to support basic inflation and whatever is left over tends to support asset prices. So last year, obviously, equities and bonds were down together that usually makes sense when excess liquidity goes very negative because there's just no money to support any asset prices. As of right now, it's still pretty negative. But actually, I would frame it a little bit differently in that.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, a lot of economic measures are so messed up if you measure them on a year-over-a-year basis because of COVID, like personal income because everyone was getting checks. Non farm payroll, stuff like that. So, okay, so you have a bearish case for 2023 on stocks, on risk assets. One of those cases is because of the recession. What else? I know you do a lot of work on liquidity. Liquidity is very bad in 2022. Is it still bad? And how negative a force is that for the market? And how do you measure liquidity? Important.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Is a slight outlier just because it's got like a big boost from predicted inventories. That's helping to boost the GDP number. So yeah, so I would say that's probably why the divergence looks so egregious right now. But if you strip it out, the underlying slowdown is still kind of in the data. To us, again, as I said, the model only triggered end of last year. So really, that wasn't a recession in 2022. But we think this is basically the beginning now, right? So this is when we've just about a zero, we're going below. That's essentially what we say is about what this month's going to look like.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“And today the number was much lower, right? It's more like below two, and obviously it's still going to be volatile, but the trend is undeniably just going lower. So I think, you know, it's important to bear in mind the specific method. It's not that the Atlanta Fair model isn't wrong per se. It's more the model was designed to predict GDP as printed, right? But GDP as printed has lots of these volatile components that isn't necessarily super helpful in real time to give you a read. Plus, it's obviously GDP is a very heavily revised series anyway. So again, in real time, you can't really use it. And it's not just that our models are somewhat bearish, right? A lot of the other regional Federal Reserve bank models are actually a lot more bearish than the Lanter Fed, right? Like the St. Louis Fed models, I've gone to zero, obviously. The Philly Fed, it's not as frequent, but they do projections, right? And that's pretty bad as well. So it's more, it probably looks more like the Lanter Fed model.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, sure. So I think the key thing to think about is what are the very volatile components of GDP versus trying to extract the underlying trend? So I think when we're talking about recessions and the things you want to worry about is when private consumption investment ultimately trend lower, right? And that's going to affect profits. That's going to affect asset prices. The problem is the data is obviously had quite noisy swings with inventories, with trade. And I think so from quarter to quarter, that hence the mess of the data quite a bit. So for example, on something like the Atlanta Fed GDP now, if you go in and strip out things like inventories and net trade, which by the way, over the long run tends to just swing around zero. But if you look at things like private consumption investment, they swing around 2.5%, which is obviously generally accepted trend rate of growth. If you strip that out, then the first half of last year, even on the GDP now, wasn't a recession.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“At all in 2022, and then also now the Atlanta Fed's GDP now estimate is at 4.1% quarter over quarter from, I think, Q3 to Q4, and 4% annualized GDP, real GDP growth, that doesn't sound so recessionary to me. So what's the difference between your models and the Fed's models?”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“So we're headed into a recession very quickly if we aren't in one already. And you have a short-term bearish outlook, but you have a plan for going long as the recession develops. I just want to ask you a question about a recession because people started talking about a recession. I mean, some people always talk about a recession, right? But, you know, about maybe nine months ago, people started talking about a recession. And then you had two consecutive quarters of negative real GDP prints, which on Wikipedia and other places is kind of the technical definition of recession. So leading many to declare a recession. And I was convinced that we were in one. However, then the economy in the third and fourth quarter rebounded with extreme alacrity, you can say. And also a lot of that is just because inflation went down. And nominal GDP was always positive, but inflation was so high during that, you know, Q1 and Q2. So yeah, so now, for example, so one, do you think we were in a...”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Eventually, liquidity growth lead indicators bottom out and start to turn up. Market bottom checklist models will start seeing more items checked off and the recession model recedes. And that'll be kind of the final or clear to kind of then go max long. So I think right now it's very risk-off for the year and the plan to get back in is basically contingent on one policymaker panic and then true selling exhaustion signals. And then finally the kind of cyclical lead indicators turning up.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“That's kind of the main base case going into the year. And in terms of the plan for how to buy back into risk assets, we've essentially set out a three-step process where usually the sequencing goes, you know, step one is policymakers panic. Things go bad. There's stress, obvious stress somewhere that forces a policymaker to panic. That's usually the first sign. And then that tends to around that policy panic is when you also get a lot of just reliable technical bios going off. So it's more about the breath. So we're tracking signals across single name sectors globally. So what you'll tend to see is a massive breadth of buy signals going off, you know, in line with kind of the stress in the market or the economy. So that would tend to be 0.2. And then the third and final piece will usually be after you get the buy signals, after you get the initial policymaker.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“So I think the interesting thing is our recession models for the US economy actually triggered at the end of 2022. So the way we define the recessions is we essentially built these to predict in real time the probability that any given month will be dated and official recession by the MDER. So obviously we know in practice the MBER tends to date recessions with like a quite long lag well after the fact. So we've essentially trained our models on the historical NBR dates using a combination of hard and soft data inputs to try and pin point the start recessions in real time. So as of now the US recession model is triggered which joins basically Europe and China in recession territory as well. So obviously that sets us up for a pretty risk-off environment. So obviously inflation going lower, growth going lower, good for bonds.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Help a bit with timing kind of position entry to express themes. Yeah, so hopefully that gives you a rough sense of how we think.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, sure. So, you know, our research philosophy is this idea of man plus machine, be it man or machine alone. So we spend a lot of our time trying to build models that work over different time horizons from tactical trading models to try and time the market over the next one to two months through to cyclical models of the business cycle. So leave the indicators of growth, of inflation, real-time recession models. They typically work over kind of six to 12 month period. And longer-term structural models that tend to look at the capital cycle, capital flows from industries to industries, demographics, damn currency cycles. So those are more kind of three to five year views. And then the ultimately our job is to synthesize the output from these models so you can marry up the cyclical with the structural and then use the tactical.”
2023-01-23 · Forward Guidance · Dusting Off The Recession Playbook | Tian Yang · IDENTIFIED FROM THE TRANSCRIPT