Who Trump May Tap for Veep (and Why a Clinton/Warren Ticket Is Unlikely)


Hedgeye Potomac Chief Political Strategist JT Taylor discusses who Donald Trump may be eyeing for Vice-President and why a Hillary Clinton / Elizabeth Warren ticket is an unlikely proposition. 

JT TAYLOR: Capital Brief

JT TAYLOR:  Capital Brief - JT   Potomac banner 2

“On matters of style, swim with the current, on matters of principle, stand like a rock.”
                                                                               ― Thomas Jefferson


TRUMP’S TRADE TIRADE: Donald Trump’s protectionist and populist trade talk is becoming a big fly in the ointment for Republicans. He pledges to abolish policies that send American jobs overseas, threatens to impose tariffs on Chinese imports, promises to punish companies that move manufacturing to countries with cheaper labor, and bashes the U.S. Chamber of Commerce for their “insider deals” - even though economists of all stripes argue that Trump’s trade stance would be devastating to the economy and global trade. Trump is making a calculated move on two fronts: go after both Clintons and their backing of trade deals over the decades, and woo working class voters and Democrats at the expense of main street Republicans and support from the business community. Someone had better buy up Trump’s foreign made clothing line before he gets elected...


HAMPERING HILLARY: In contrast to Trump, June was a good month for Hillary Clinton – she’s climbed in the polls, garnered important endorsements, and dodged a number of potential setbacks. She even broke ground on confronting the trust and likeability issues that have dogged her for years and then, BAM!, the State Department email issue resurfaces in earnest - courtesy of her top aide’s sit down with the Justice Department and her husband’s indiscreet conversation with U.S. Attorney General Loretta Lynch - who this morning announced she would not overrule the final decision by prosecutors and the FBI in the case. It’s been nearly a year since the inspector general raised concerns over Clinton’s server, and despite comments that they plan to continue the case further, there’s increasing speculation that the Justice Department has set the date of the convention later this month as an unofficial deadline to finish the probe.


TRUMP VEEPSTAKES: While Trump has mostly been moving in the right direction, there’s still an abundance of doubt within his party – he has yet to receive big-name endorsements or even put the convention on solid footing. Trump can quickly allay that doubt once he names his veep. The right veep, that is. Choosing his running mate will anchor support from many in his party as well as provide a foundation for his yet-to-be-unveiled policy agenda. Trump plans for a convention reveal, but we think he’ll do it before – he needs momentum going into the convention. 


CLASH OF THE CLANS: The Senate Appropriations Committee reached a milestone this week, overwhelmingly clearing the 12th and final annual spending bill at the earliest point since 1988. Senate Majority Leader Mitch McConnell is standing by his promise to complete the process of funding the government on time. That is, unless we see a standoff with House counterparts, who have yet to introduce one-fourth of their spending bills well into the annual appropriations season. Speaker Paul Ryan has made it a priority to fund the government judiciously and plans to do so – but this year could end up like last - with another year-end collision.


LABOR GAINS: The AFL-CIO is making its first charge into the 2016 Senate races with big-money digital ad buys in six key races - OH, MO, PA, NV, FL and WI. Messages are centered on issues like trade, Wall Street, paid family leave, and investment in our infrastructure – but the ads are also asking voters to sign a petition challenging the Republican candidate in the race - a tactic used to gather voter data. With an uptick in Republican fundraising and focus on data in recent weeks, Democratic allies are wasting no time to stay ahead of the game.  


BROADCAST INCENTIVE AUCTION WILL TAKE MORE TIME: Our Telecommunications-Media Policy Analyst Paul Glenchur shared his insight on the initial broadcast spectrum reverse auction and why the figure seems too expensive for carriers, forcing more stages. You can read his piece here.


We're back mid-week next week - wishing everyone a safe and happy July 4th weekend.

The Macro Show with Keith McCullough Replay | July 1, 2016

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The Global Economy Gears Down

Takeaway: Even before Brexit, per the IMF and World Bank, global growth has been decelerating--with the biggest slowdown in the EMs.

Here's a preview of the next issue of "About Everything." You're welcome to join a Hedgeye Q and A on this piece that I will do on Wednesday, July 6, at noon.


Watch live below.

The Global Economy Gears Down



Shortly before the Brexit vote, the International Monetary Fund (IMF) warned that a British exit could cut U.K. GDP growth by 0.8 to 3.0% in 2017. In the following year, 2018, it projected that Brexit would cut rest-of-EU GDP by 0.2 to 0.5% and rest-of-world GDP by 0.0 to 0.2%.


No news there: Few imagined that Brexit would be a stimulant. What’s less widely known is that the global economy was slowing down well before it entered the Brexit sand trap.


According to the IMF, GDP growth shrank from 5.0% in 2010 to 3.1% last year. The World Bank reports that global GDP growth fell from 3.8% in 2010 to 2.4% last year. The brief re-acceleration in 2014 kindled momentary optimism and then disappeared. Emerging markets and developing economies (EMDEs) have fared the worst, with growth sliding almost every year, while advanced economies have been zig-zagging well below 2% growth for years now. (The IMF and World Bank global growth rates don’t match due to the different ways they weight national GDPs.)


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Current-year forecasts are marred by negative surprises. The latest IMF projection pegs global growth in 2016 at 3.2%—down from an earlier 2016 projection of 3.4% in January and 3.8% last year. The World Bank’s 2016 projection of 2.4% has likewise shriveled— from 3.2% in January and 3.5% last year.


If this strikes you like a quarterly earnings forecast (where the quarter gets uglier the closer it gets), you’re on to something.


In fact, over the past decade, these highly compensated, D.C.-based bureaucrats have consistently chosen to revise their predictions downward. Back in 2010, when the IMF took its first stab at growth figures for 2015, the estimate (+4.6 percent) came in at nearly double the final figure.


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This pattern means that, as disappointing as the 2016 projection looks today, the final number will probably come in even lower.


Not surprisingly, the IMF year-ahead odds of recession have been rising since April of 2015 in nearly every region except Emerging Asia (where it remains zero). Since Latin America is already in a recession, that one is an easy call.


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If you don’t trust national accounting and prefer to look at the activity reported by firms, the picture you get is pretty much the same. Take a look at Markit’s Global PMIs: You see a dip in 2012, a peak in 2014, and decline thereafter. Indeed, Global Manufacturing now teeters on the edge of contraction.


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The high-income economies haven’t exactly surged over the past five years—but they haven’t done too badly, either. Back in 2012 and 2013, both the Eurozone and Japan were moving in and out of recession. Today, at least for now, they’re out. According to the World Bank, GDP growth in these regions did pick up in 2014, rising from 1.3% to 1.8% (about where it was last year). Real import growth and real investment growth have been trending up since 2012.


Labor conditions are also improving in most advanced economies—most notably the United States. According to the most recent BLS Employment Situation Summary, the U.S. unemployment rate took its first big step downward in months, hitting 4.7% in May.


Other indicators are less encouraging. The IMF reports that headline inflation in advanced economies averaged just 0.3% in 2015, the lowest level since the recession. Long-term interest rates have been on a downward slide for years. Ten-year bond yields are now well below 2% in the United States and—post-Brexit—heading below zero in Germany and Japan.


Unfavorable demographics has constrained high-income GDP growth in recent years and will constrain it further in the future. According to the U.N. Population Division’s medium growth variant, the working-age populations of Japan and most European nations have already peaked and will decline at gathering speed in the decades to come.



While the developed world is speeding up slightly, the EMDEs as a whole is slowing down sharply. Unlike in advanced economies, rates of real import growth and real investment growth have been falling in EMDEs since 2010 and are now approaching recession levels.


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Yet the bigger story is the wide divergence of growth trends within the EMDEs.


Commodity-exporting EMDEs. Economies that mainly export stuff (oil, gas, minerals, agricultural products) are doing very poorly as a whole. The World Bank projects that commodity-exporting emerging markets will grow by a miniscule 0.4% this year, down from 3.2% in 2013. That’s by far the fastest deceleration of any group.


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Obviously, these economies are getting hammered by falling commodity prices. Energy prices plummeted by more than two-thirds from mid-2014 to early 2016, and raw materials did little better. Sure, they’ve rebounded some this year, but commodities are still trading at bargain-bin prices, much to the dismay of export-dependent emerging markets like Russia, Saudi Arabia, Nigeria, South Africa, Venezuela, Chile, and Brazil.


Part of the problem is China’s “rebalancing” policy—moving the economy away from massive capital outlays and toward consumer spending. This may be good news for China’s emerging middle class, but it’s bad news for the export-dependent and often low-income countries that used to furnish the raw materials for all of China’s buildings, trains, harbors, and dams.


China. The largest of the non-export dependent EMDEs, China is still growing rapidly—just less rapidly than before. The World Bank predicts that the country’s GDP growth rate will shrink from 7.7% in 2013 to 6.3% in 2018.


On top of China’s marked shift in trade philosophy, it’s also facing a “currency crisis” that has many savers looking for an exit ramp. China’s efforts to downsize its industrial capacity, plus efforts to defend its currency, have had a tidal impact on the direction of global capital flows. Emerging market capital inflows have recently turned negative for the first time since 2008.


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Other non-export dependent EMDEs. Most other non-exporters, however, are doing better than they were a few years ago. According to the World Bank, the GDP for this group (excluding China) has grown by nearly a full percentage point since 2013.


India’s economy is expanding well over 7% annually, where it’s expected to remain in the near future. Southeast Asia’s largest economies, the ASEAN-5 (Malaysia, Philippines, Indonesia, Thailand, and Vietnam), together are growing more than 4% per year.


Typically, these economies benefit from lower raw material and energy prices. And few of them are hurt by China’s declining import demand: ASEAN, for example, has turned into a net importer of Chinese goods.




  • Even before Brexit, global growth was gearing down. Each year since 2010—aside from a blip in 2014—the world economy’s growth rate has slowed. The IMF and the World Bank, if the past is any guide, will continue to lower their estimates for the coming years as time passes.
  • The global slowdown varies widely by region. China and the export-dependent EMDEs are falling fastest. Advanced economies are stable, even rising slightly, while non-export EMDEs (minus China) are speeding up significantly. 



In what has been a challenging market environment YTD we want to sincerely thank you for continuing to trust us to provide you with actionable macro research. As we head into 3Q16 we wanted to provide you with some of our top events from 2Q16 as well as a look into 3Q16.


Conference Calls:



Best of The Macro Show:



Select Popular Research Notes:



Upcoming Events:


  • 3Q16 Macro Investment Themes Call (7/7/16):
    • #ProfitCycle: Embedded in the SPY’s lofty multiple are consensus estimates that forecast a return to positive earnings growth in Q2 and Q3, as well as a material ramp to near double-digit growth in Q4 – effectively implying Q1 was the end of the domestic corporate profit recession. Conversely, the confluence of our top-down and bottom-up analysis suggests earnings growth is likely to reach new lows in the Q2/Q3 timeframe. Moreover, earnings in over-owned sectors like Consumer Discretionary, Financials and Health Care are at risk of meaningful surprises to the downside due to the ongoing #LateCycle slowdown in consumption and employment growth.
    • #ConsumerCredit: At the end of every economic expansion, the preponderance of investors have seemingly forgotten that #TheCycle actually does cycle. But as recent commentary from Synchrony Financial (SYF) and CarMax (KMX) has alluded to, the domestic consumer credit cycle has inflected to the downside and our work suggests said deterioration is likely to remain ongoing for at least the next few quarters. Moreover, this deterioration has wide-ranging implications for investors.
    • #EuropeImploding: Brexit happened, but which other countries may leave the EU?  We’ll outline the countries that we believe have the largest political risk and quantify Europe’s cyclical and structural growth and inflation headwinds within our ongoing theme of #EuropeSlowing.  We’ll present why we believe fundamentals can fall further and why the Euro may hit new lows.
  • Call RE: Global Secular Stagnation (August – TBD)
  • Call RE: Election Scenario Analysis (September – TBD)


Stay tuned!


Please call or e-mail with any questions.


Happy Fourth,


-The Hedgeye Macro Team

Cartoon of the Day: Running Of The Bears

Cartoon of the Day: Running Of The Bears - Spain cartoon 06.30.2016


Spain's IBEX is down 32% from its 2015 peak.

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