PodcastThe Monetary Matters NetworkTien Yang

AI Trade "Dead Money" For Now - But Macro Overall Is "Pretty Risk-On" For Stocks | Tian Yang

The discussion frames the next 5–10 years as one where sovereign balance sheets and active government policy will plug private capex gaps, with China prioritizing exports and employment over profit or consumption. Markets are technically in a short‑term risk‑on regime, but the AI trade is expected to be 'dead money' until fresh fundamental breakthroughs or central‑bank easing arrive. Large, capital‑hungry IPOs and geopolitical supply risks create event and structural pressures, which underlie the firm’s barbell positioning—overweight energy and financials while selectively holding beaten‑down tech. Tactical models (LPPL, gradient‑boosted ensembles) guide trades such as buying SONIA and maintaining an energy overweight while monitoring concrete signposts before shifting defensive.

Artificial IntelligenceInvestor SentimentEnergy Markets

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Key Takeaways

The guest argues the next 5–10 years will see sovereign balance sheets and active government intervention (notably China’s export‑and‑industry credit and employment protection) stepping in where private capex falls short, which raises the risk of supply‑side shocks that make traditional defensive assets like nominal bonds and staples less reliable.

Given China’s tactical SPR and refined‑product releases that must be replenished, the firm favors Latin America over Europe, China, and India for equity allocation while running a structural energy overweight—expecting China to re‑buy oil and support bullish oil dynamics over the next two years unless WTI sustains near ~$120/bbl.

Gold is viewed as a preferred hedge versus nominal and supply risks: the team sees a likely price floor and expects sideways trade until central banks cut rates, making gold more attractive than nominal bonds in a stackflation‑like environment.

The guest outlines a three‑tier AI market—low‑cost mass models, mid‑tier business offerings, and a top tier serving governments/large enterprises where most profits accrue—and warns that China’s sovereign‑driven low‑pricing for cloud AI (e.g., Alibaba’s rapid but low‑margin growth) will compress vendor pricing power and accelerate commoditization at the consumer level.

GEO-POLITICS

Sovereign Balance Sheets — The guest says the next 5–10 years will see sovereign balance sheets and government intervention plug gaps when private capex falls short. In China this will mean export‑ and industry‑focused credit allocation, protecting employment (avoiding firm shrinkage), and policy choices that prioritize jobs over restoring corporate profits or boosting household consumption.

“You can view as a national balance sheet and they use it well in the same way the US needs to do the same the max 7 and the US…”—

US–Iran Pattern — The guest expects the US–Iran relationship to settle into a recurring unstable equilibrium like the US–China 'phase one' pattern—periodic posturing and leverage overplaying rather than a durable political settlement, implying ongoing episodic escalation without a clean diplomatic resolution.

“I think the China US trade war is a very good template for kind of how the politics of it goes, right?”—

China SPR Moves — China intentionally managed refined‑product exports and materially drew down petroleum reserves to temporarily increase available supply. The speakers view those releases as tactical and temporary, requiring later replenishment and leaving structural supply risks intact.

“You can see China's like was managing their refined runs, right? They stopped exports refined products and now they're just managing that.”—

TECHNOLOGY

AI Price Mania — Semiconductor and AI fundamentals remain intact, but current price action shows speculative, meme‑like excess—particularly in Korea. The speakers warn tradable short squeezes are possible, but sustained returns to prior highs need a fresh 'wow' fundamental narrative.

“Now clearly with the kind of hype around AI, the kind of, you know, mania in Korea, there's there's obviously signs of excess linked specific specifically to AI.”—

Agentic Fatigue — The 'agentic AI' story is now widely known and markets have stopped reacting to incremental developments, so the guest expects a period of underperformance or 'dead money' rather than a crash. Real technological progress is still required to restart meaningful rerating.

“By the time everybody's aware of it and understands the ceases, usually the it's pretty late in the game…”—

IPO Event Risk — Large upcoming AI IPOs (e.g., Anthropic, potentially OpenAI) are flagged as major event risks that could coincide with macro signposts and mark market turning points. If these capital‑hungry IPOs arrive during fragile conditions they could amplify selling pressure elsewhere.

“Anthropic will try to IPO in October, but maybe OpenAI is going to be like the single most important company in the world right now.”—

ECONOMY

Risk‑On Signal — Their forward‑looking macro risk indicators (3–6 month horizon) currently signal a risk‑on regime, and they use an LPPL pattern‑matching model as a tactical bubble/crash detector to spot accelerating exponential moves over the coming months. The LPPL complements medium‑term views and helps time thematic exposures.

“So on our macro risk indicators that generally looking forward more 3 to six months, we're still in a risk on macro regime where it sees the mix of growth…”—

SONIA Trade — Their macro ensemble (a gradient‑boosted decision‑tree model) signals growth is 'fine' and inflation is elevated—affected by factors like Iran—but not high enough to demand aggressive tightening. Tactically, they favor buying SONIA futures to express a view that the Bank of England may be less hawkish amid UK downside risks.

“So the way our macro risk models work is that it's basically a bunch of decision trees right that tries to understand macrocausality.”—

Market Signposts — Historically, major market peaks coincide with six to nine months of monetary tightening plus a marked narrowing in equity breadth (median stocks stop making higher highs). Those are the concrete signposts the firm monitors before shifting to a defensive posture.

“One is that monetary policy has generally been tightening for 6 to9 months right so we don't quite have that obviously if if the W Fed does stop hiking then…”—

MARKETS

Risk‑On Indicator — Their forward‑looking macro risk indicators (3–6 month horizon) currently signal a risk‑on regime, and they use an LPPL pattern‑matching model as a tactical bubble/crash detector to spot accelerating exponential moves over the coming months. The LPPL is used to help time thematic exposures alongside medium‑term views.

“So on our macro risk indicators that generally looking forward more 3 to six months, we're still in a risk on macro regime where it sees the mix of growth…”—

Barbell Positioning — The firm runs a barbell equity posture—overweight energy and financials for value exposure while selectively buying beaten‑down tech and semiconductor names after drawdowns to retain secular growth exposure. Energy and financials have offset recent tech weakness and improved the portfolio’s risk‑return profile.

“in terms of how we're positioned if you look at our VPX ETF we're basically running a barbell of long energy long financials and we're actually starting to buy back…”—

Credit & Savings — Credit spreads adjusted for sovereign risk are in a normal range while household savings rates remain very low, implying consumption is being sustained by low savings rather than credit stress. Combined with a global flood of insider buying, these indicators look inconsistent with typical pre‑top behavior.

“If you look at credit spreads, especially adjusted for sovereign risk premiums, credit spreads in like a normal range. It's not super low, super high. savings rates remain very low.”—

AI Trade "Dead Money" For Now?

Guest explains the AI trade is likely 'dead money' short-term as narratives and hype exhaust until a fundamental breakthrough or policy easing renews momentum.

Macro is "Pretty Risk On" For Stocks

Their macro models show a medium-term risk‑on regime driven by decent growth, manageable inflation, and liquidity, supporting broader equity participation.

Why Did Economy Hold Up?

They argue the economy held up because corporate capex, fiscal frontloading, and low household savings kept income circulating despite higher oil prices.

Oil & Iran

Energy positioning is attractive: refiners and integrators have wide cracks and profit potential, while geopolitical tensions (Iran) increase supply‑shock risk.

China Economy

China will prioritize exports, employment, and sovereign industrial policy over household consumption, keeping domestic demand weak and credit resources directed to strategic sectors.

China AI

Chinese AI advances will compress pricing and profit pools; China’s industrial policy and commercialization ability make its models impactful but not necessarily a western investor’s easy play.

How Is It Possible That AI Will Be A Bubble (Whether it Has Started or not)?

AI could form a bubble if treated as a commodity, but higher‑IQ enterprise and government applications may retain pricing power and prolong investment into hardware and data.

Latin America Equities

They remain constructive on Latin American equities as a beneficiary of geopolitical carrots and commodity demand, while expressing skepticism on China‑dependent Europe.

India

India’s growth is strong but geopolitically constrained between US and China, creating headwinds despite solid corporate profitability and high nominal growth.

Metals

Metals and miners are attractive as geopolitical supply shocks rise; gold needs central‑bank easing to rally meaningfully but plays a portfolio inflation/storeshock hedge role.

VPX

VPX ETF is a systematic US large‑cap alternative that blends macro, capital cycle, quality, crowding and LPPL overlays to rotate between energy, financials and selective tech.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

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