Daily Agenda: The Harsh Math of Super Tuesday

Barclays slashes dividend; Glencore announces losses; EU unemployment hits multiyear low.


Andrew Harrer

Primaries in 11 states kick off this morning, potentially providing candidates in both major parties with dominating leads. Despite increasingly hostile criticism from fellow GOP candidates, real estate developer Donald Trump remains in the lead for the Republican nomination. Meanwhile, after her victory in South Carolina, former Secretary of State Hillary Clinton is the frontrunner for the Democratic Party. With a race that has thus far left many political analysts scratching their heads as outsider candidates resonated with U.S. voters, investors face uncertainty. None of the major candidates has revealed a comprehensive economic program, and their attitudes towards the financial industry varies wildly.

Beijing seeks to stem tide of capital outflows. The Financial Times reported today that regulators in China have quietly put a program allowing foreign financial firms to sell asset-management products to affluent Chinese nationals on hold. The report, based on unnamed sources, comes as capital outflows continue to undermine confidence in domestic Chinese financial markets. Deutsche Bank recently estimated that more than $300 billion has left China in recent quarters through secret channels on top of official outflows.

Barclays shares drop on earnings concerns. The share price of London–based Barclays declined sharply today on the back of newly released fourth-quarter 2015 results that revealed a 56 percent decline in pretax profits. Bank management announced it will sell a majority stake in its African division and announced a reduction in dividends to 3 pence per share versus 6.5 in the prior year.

Euro zone unemployment declines. Eurostat unemployment data for January registered at a four-year low with the headline rate for the common currency region dropping to 10.3 percent. Despite improvements, the divergence between European Union members remains pronounced with double-digit jobless levels in the southern economies and a headline rate of just 4.3 percent in Germany, the EU’s largest economy.

More bad news from Glencore. Swiss mining giant Glencore reported a full-year loss of $8 billion after writedowns. Excluding marked-down assets, the company lost roughly $5 billion versus a profit of more than $2 billion in the prior year. Critically, the filing revealed progress in the debt-reduction program announced last year with net debt of $26 billion versus more than $30 billion a year earlier.

Portfolio Perspective: More Progress on Three Fronts — Bryan Reynolds, New Albion Partners


We have long noted that we are in a multiyear credit boom, which has been, and will continue to be, interrupted by brief but scary panics as investors flee from whatever the worry du jour is. Our nation’s public pensions keep putting more money into credit, however, and those credit flows produce more buybacks and mergers designed to boost share prices. Therefore, after panics like the one that kicked this year off, we like to run through a checklist of short-term metrics to judge if that panic is winding down. In the last week, there has been significant progress in three of our metrics.

One of those have been buybacks themselves. As credit flows have begun to renew following the worst of the panic, buybacks have continued to grow beyond the levels that we noted earlier this month. CEOs really are determined to get their stock prices up, no matter how much skepticism and pessimism there is in the investment community. Another positive development for stocks has been the lack of volume during the rise in stocks prices from the lows this month. We‘ve wanted to see volume decline because equity investors are normally confidant that these corrections are the start of a bear market, and they freeze in disbelief as stocks move back to the highs.

Classic technical analysis postulates that volume and breadth should grow as stocks advance, but that hasn’t been the case in this financially engineered bull market. That’s partly because buybacks don’t lead to increased volume: companies simply buy their stock back and retire it.

The lack of volume has reached the point where people are noticing it. On Friday afternoon, the top Bloomberg story was titled “Budding Joy over U.S. Stocks Rebound Marred by Drop in Trading.” It is chock-full of quotes from investors who are disappointed over the lack of volume. In this bull market, when the media has uncovered a plethora of investors complaining about the lack of volume or breadth as stocks recover from a panic, that has been a positive for equities as the buybacks assume control and take stocks up the proverbial Wall Of Worry.

And finally, as credit flows have begun to resume, the IG credit derivative index has broken down from its 115–128 trading range. We have wanted to see a move below that 115 area to indicate that the positions that bearish macro investors established earlier this year are being covered as fresh new cash from public pensions gradually gets put to work.

We want to be very clear that it will not be easy for stocks to return to the highs. It will be a battle all the way up because investors are so pessimistic, and there will be some temporary setbacks along the way. The next battle zone will be in the S&P 1990 area, where stocks broke down in January. Our metrics, however, continue to fall into place in a manner consistent with equities being led by buybacks and returning to the highs sometime this spring.

Bryan Reynolds is the chief market strategist for New Albion Partners in New York.