Call Today | Don Kohn Previews the FOMC Meeting -- 11:00 a.m. ET

Takeaway: Our colleagues at Potomac Research Group will be hosting a call with former Fed Vice Chairman Don Kohn Today, Thurs Jan 21st, at 11am ET.

Please see below for dial in details for a call that our colleagues at Potomac Research Group are holding with former Fed Vice Chairman Don Kohn on Jan. 21st.


Call Today | Don Kohn Previews the FOMC Meeting -- 11:00 a.m. ET - prg logo


JT Taylor, Managing Director and Senior Analyst


Don Kohn Previews the FOMC Meeting

Thursday, January 21 at 11:00 a.m. ET


Please join us at 11am Today for a call with former Fed Vice Chairman Don Kohn on the January 26-27 FOMC meeting.  Don will offer his outlook on the labor market, manufacturing data, inflation, and other trends that will factor into the Fed's calculus as markets turn bearish.



Click here to add this to your calendar


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About Potomac Research Group

Potomac Research Group is an independent research firm that provides Washington policy analysis to institutional investors and private equity firms. PRG's actionable, predictive and non-consensus analysis of federal legislative activities and regulatory policies helps clients determine Washington's impact on highly-regulated industry sectors, including health care, defense, finance, technology, and telecommunications.


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It’s Getting Uglier (Faster)

Client Talking Points


In prior U.S. economic slow-downs, the Fed would A) devalue the Dollar and B) try to smash equity market volatility. It’s impossible to do that when tightening into a slow-down; this perpetuates the liquidity trap. The VIX risk range is 22-31 and that’s why equity bulls are selling every bounce – they need to take down exposure to being wrong.


The CRB Index (19 commodities) was hammered to fresh 5 year lows yesterday (-2% to 156). This isn’t “transitory” – its pervasive – and an absolute unwind of Bernanke’s 2011 QE policy to inflate asset prices (i.e. the illusion of growth) via USD Devaluation to a 40 year low (we remain bullish on USD).


On the margin we said the U.S. Financials (XLF) were one of the best non-consensus shorts in 2016 as consensus was long them on the “rate hike.” Well, now the UST 10YR is at 1.98% and the XLF led losers again yesterday -2% to -11.9% year-to-date; won’t be long before consensus is begging for no more hikes, and then a rate cut.


*Tune into The Macro Show with Macro and Housing analyst Christian Drake live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We added Utilities (XLU) on the long-side last Friday as the market continued to pummel everything we haven’t liked (high debt, high beta, and small-cap stocks leveraged to inflation expectations) – Utility stocks are low-beta, slow-growth bond proxies which is why they are by far the best relative performer year-to-date.


XLU is outperforming the S&P 500 by +7% and remains flat on the year. Friday’s large swath of data echoed what we have been saying for a while now on the deflationary risk of an industrial recession.


GIS led a $3 million funding round for kale chip maker Rhythm Superfoods. Although this is not a big deal and will most likely never make a strong impact to top or bottom line, it marks a changing in the tide for management thinking. They are making a distinct effort to delve deeper into the natural and organic category which will help them a lot in the long run.


Although the overall market has been atrocious year to date, down roughly -8%, GIS with its low beta, big cap, style factors has held in, down just -5%. We continue to like General Mills as a LONG, especially during the tumultuous times in the market.


With growth continuing to slow and volatility breaking out to the upside across asset classes, we expect the unwinding of a record amount of corporate credit leverage to continue. We’d put that deleveraging in the third or fourth inning currently. Credit spreads will continue to widen. That's why you're long TLT (and short JNK).   

Three for the Road


[REWIND] Early Look: Why Sell? (7/14/15)… via @KeithMcCullough $SPY #marketselloff $IWM



I failed my way to success.

Thomas Edison


Amazon is hiring 1,200 people to staff its new robot-reliant 800,000 square-foot warehouse, these warehouses cost about $100 million each.

CHART OF THE DAY | Don't Make This Big Macro Mistake: 0% Rates = 0% Risk

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.


"... From my perspective, here are the big macro mistakes I am not willing to make:

  1. Believe that 0% rates = 0% risk
  2. Believe that #Deflation Risk is “transitory”
  3. Believe that US #GrowthSlowing isn’t as big a risk as #Deflation

The most basic reason why I don’t believe these things is because neither the economic data nor real-time market prices do."


CHART OF THE DAY | Don't Make This Big Macro Mistake: 0% Rates = 0% Risk - 01.21.15 EL chart

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

The Path Forward

“Does the walker choose the path, or the path the walker?”

-Garth Nix


Not that everyone cares about how personal this journey building Hedgeye has been, but I just wanted to say that it’s been both a pleasure and a privilege to walk down this path of seeking economic and market truths for the last 8 years.


One of the best parts about the trip has been all of the people I’ve met along the way. Before we started the firm, I really didn’t get what other investors did. I didn’t have the time (or get paid) to care. Now I’m overly compensated to learn. That is a blessing.


I couldn’t believe the feedback I had yesterday for simply saying that it was time for me to “take a knee.” So I wanted to thank all of you who reached out to me on that. The path forward will not be easy, but it’ll be less hard knowing that I’m not alone.


The Path Forward - woods


Back to the Global Macro Grind


Understanding where you are on the path matters inasmuch as what it took to get you there does. Did you truly understand the causal factors? Did you overcome the obstacles using the right reasoning? Were you lucky? Or are you still making excuses?


After spending the entire day meeting with Institutional Investors in New York City yesterday (we’ll do Boston today and tomorrow), one obvious observation is that every investor is in a different place on the path.


At the risk of exhausting the metaphor, think of this as a long multi-year race to the top of a performance mountain called Alpha. The path narrows. It steepens. It widens. We’ll all make mistakes traversing it. How long we stay with mistakes keeps us behind.


From my perspective, here are the big macro mistakes I am not willing to make:


  1. Believe that 0% rates = 0% risk
  2. Believe that #Deflation Risk is “transitory”
  3. Believe that US #GrowthSlowing isn’t as big a risk as #Deflation


The most basic reason why I don’t believe these things is because neither the economic data nor real-time market prices do.


Again, think about being on a mountain of colliding non-linear risks (wind, rain, animals, grrrr!). If your belief system (or marketing pitch) assumes perpetual sun and compensation fun, you’re definitely going to get wet – and you might get eaten.


Let’s get back to the path that we are on in Global Equities (as opposed to the one many would like to be on):


  1. JAPAN: Nikkei down another -2.4% overnight, taking its #crash from its July 2015 peak to 23.1%
  2. CHINA: Shanghai Comp Casino ran out of peddled fictions, making lower-lows, -3.2% overnight
  3. SINGAPORE: former “read-through” market, -1.1% overnight taking its crash to -28.4% since April 2015
  4. GERMANY: trying to “bounce” (small), but still in crash mode, -24.1% since peaking in April 2015
  5. RUSSIA: no bounce, down another -2%, crashing within its crash (down -20% in the last month alone)
  6. USA: Russell 2000 and SP500 -22.9% and -12.7% from their all-time #Bubble highs (July of 2015)


For 2016 YTD alone (worst start to a US stock market year ever – and ever remains a long time), the Financials (XLF) are already down -11.9% and that’s primarily because Mr. Macro Market reads crashing long-term interest rate expectations as bearish for growth.


When GDP growth slows from 3% to 2% to less than 1%, #Recession expectations ramp. You’re seeing that now and that’s a big part of climbing the mountain – calibrating and risk managing expectations.


Markets don’t trade on where ideologues or perma bull marketers think they “should be” (from a “multiple” perspective, for example). They rise and fall as the rates of change in future growth and inflation expectations do.


As opposed to thinking about this qualitatively, here are two very basic mathematical considerations:


  1. SPREAD RISK – when it’s widening, that is bad; when it’s compressing, that is good
  2. VOLATILITY – when it’s breaking out, that is bad; when it’s in a bearish TREND, that is good


Bad and good, from the underlying asset price’s perspective, that is.


Forget about those wild #Deflation animals (China and Oil) that have attacked you in your sleeping bags (and eaten some of your friends) for a minute and tell me what the path looks like in the US economy from a Spread Risk and Volatility perspective.


Until either (or neither) of those two things change, I’ll just take a knee and keep watching our macro call that is cascading down the mountain side play out. We’re going to need to be rested for the final ascent.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.95-2.08%



VIX 22.34-29.56
USD 98.35-99.88
Oil (WTI) 27.01-30.80


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Path Forward - 01.21.15 EL chart

The Macro Show Replay | January 21, 2016


Sentiment Update: Three Things I Learned Today (and Three Weeks From Now)

Takeaway: Don't blame China (or energy); the U.S. consumer is slowing markedly; and QE4 likely won't form an investable bottom in equities or credit.

Today, Keith and I dove head first into the usual gauntlet of marketing that follows our Quarterly Macro Themes presentation. Having started with a full slate of meetings NYC, he and I will then be visiting clients and prospective clients in Boston, San Francisco, LA, Chicago, Dallas, Austin, Houston and ultimately back in NYC and southern Connecticut over the next ~3 weeks.


Besides the opportunity to build lasting relationships, my favorite part about meeting face-to-face with clients is learning where our economic and market views are generally most differentiated from buyside sentiment. This is where Keith and I learn what calls to press, what themes to do more work on and what topics we need to start doing work on if we are to stay 1-2 steps ahead of macro consensus. To everyone we have met or will soon meet with, we are truly grateful to have such open and honest dialogues. We are hopeful that each of you finds value in this reflexive feedback loop.


Aggregating buyside consensus is a far more difficult task. It’s nearly impossible to disassociate the macro views we hear from how a particular investor(s) might be positioned – either out of desire or mandate. Moreover, since not every buyside shop has a institutionalized process to contextualize meaningful trends and inflections across the macroeconomic and policy landscape, we’ve been known to spend a decent amount of time just agreeing on a platform upon which to have such debates.


That is most certainly not to say we are smarter; we have and continue to learn a great deal from the collective knowledge and experience of our client base. We thank each of you for that as well. It’s humbling to consistently learn what you didn’t know you did not know.


Having said all that, when we hear the same premises or similar lines of questioning meeting-after-meeting, it is easy to interpolate that sentiment upon a much larger collection of investors.


In meetings today, I consistently heard three conclusions that we [very respectfully] disagree with:


  1. The narrative fallacy that China and/or energy deflation is the root cause of the economic and financial market malaise we are experiencing domestically.
  2. The narrative fallacy that the U.S. consumption economy is good.
  3. The narrative fallacy the U.S. equity market will form an investable (read: not short-lived) bottom if/when the Fed announces QE4.


Regarding #1: We put out a research note back in mid-November titled, “Can Beijing Maintain Exchange Rate Stability Or Is the Chinese Yuan the Next Thai Baht?” in which we detailed why a rising U.S. dollar is the root cause of the aforementioned problems. China’s economic downturn and subsequent currency debasement are merely symptoms of a broader disease. To the extent you disagree with our view, we encourage you to review the second half of that note starting with the following passage:


“All told, while we are comfortable reiterating our explicitly dour outlook for Chinese economic growth, it bears repeating that we continue to view the Chanos “economic collapse” view as misguided given that the “Beijing Put” continues to largely offset that outcome. China’s trending GDP growth deceleration just feels like a collapse to the rest of world given China’s outsized contribution to global growth.”


Regarding #2: We put out an extensive chart book on the state of the U.S. consumer last night [appropriately] titled, “U.S. #ConsumerSlowing”. It’s worth reviewing if you, like many investors, hold a sanguine outlook for domestic consumption growth and consumption-oriented assets.


Regarding #3: While ZIRP and LSAP have proven to be powerful tools in perpetuating income-inequality generating asset price inflation throughout this economic and corporate profit expansion, the Federal Reserve has yet to demonstrate the effectiveness of monetary easing during concomittant recessions in economic activity and corporate profit growth. If our bearish call on the domestic business cycle continues to resonate with the data, investors will have to adjust their expectations for a pending market bailout accordingly. Assuming QE4 is, in fact, introduced (the presidential election cycle is big risk in terms of popping the bubble in U.S. monetary policy), we think it will only work to produce a lasting bull market to the extent it is introduced at/near the depths of what we view as a likely #USRecession and bearish #CreditCycle.


Sentiment Update: Three Things I Learned Today (and Three Weeks From Now) - SPX Early 90s Recession

Source: Bloomberg; Hedgeye Risk Management


Sentiment Update: Three Things I Learned Today (and Three Weeks From Now) - SPX Early 2000s Recession

Source: Bloomberg; Hedgeye Risk Management


Sentiment Update: Three Things I Learned Today (and Three Weeks From Now) - SPX The Great Recession

Source: Bloomberg; Hedgeye Risk Management


Sentiment Update: Three Things I Learned Today (and Three Weeks From Now) - U.S. Household Net Worth as a   of DPI


***To the extent either of the hyperlinks above do not work, please email and they’ll get the referenced materials over to you.***


Enjoy the rest of your respective evenings and best of luck out there tomorrow.




Darius Dale