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31May2016 Market Update: US Averages Slide Into Negative Territory, Crude Tests $50 As The US Dollar Rises And Factory Activity Seriously Slips Along With Consumer Confidence

Written by Gary

Wall Street turned negative shortly after a positive opening this morning partially because the Institute for Supply Management's gauge of factory activity in the Midwest region fell to 49.3 in May from 50.4 the month prior. Also, the gauge of consumer confidence fell more than expected in May to 92.6 from a upwardly revised 94.7 in April.


Here is the current market situation from CNN Money

North and South American markets are lower today with shares in Mexico off the most. The IPC is down 0.63% while U.S.'s S&P 500 is off 0.24% and Brazil's Bovespa is lower by 0.23%.

Traders Corner - Health of the Market

INDEXES

The June S&P 500 was slightly lower due to light profit taking overnight as it consolidates some of the rally off May's low.

Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term.

If June extends this week's rally, April's high crossing at 2105.00 is the next upside target. Closes below the 20-day moving average crossing at 2063.26 would confirm that a short-term top has been posted.

First resistance is the overnight high crossing at 2103.60. Second resistance is April's high crossing at 2105.00. First support is the 20-day moving average crossing at 2063.26. Second support is May's low crossing at 2022.50.

What Is Moving the Markets

Here are the headlines moving the markets.

U.S. consumer spending increase strongest in over six years

WASHINGTON (Reuters) - U.S. consumer spending recorded its biggest increase in more than six years in April as households stepped up purchases of automobiles, suggesting an acceleration in economic growth that could persuade the Federal Reserve to raise interest rates soon.

Dow and S&P edge lower; health stocks prop up Nasdaq

(Reuters) - Wall Street gave up early gains on Tuesday, but all three major index were on track to end higher for the month, as investors mulled over economic data for clues regarding the timing of the next interest rate hike.

Carl Icahn acquires 'large position' in Allergan, backs CEO

(Reuters) - Billionaire investor Carl Icahn said on Tuesday he had acquired a "large position" in Botox-maker Allergan Plc and that he was very supportive of Chief Executive Officer Brent Saunders.

U.S. home prices rise more than expected in March

NEW YORK (Reuters) - Annualized U.S. single-family home prices rose more than expected in March, a survey showed on Tuesday.

Valeant's former CEO to receive $9 million severance payment, other fees

NEW YORK (Reuters) - Michael Pearson, the former chief executive officer of Valeant Pharmaceuticals International , will receive a $9 million severance payment and agreed to a consulting agreement worth hundreds of thousands of dollars, according to a document filed with regulators.

Cost squeeze helps VW brand back to profit after diesel debacle

BERLIN (Reuters) - Volkswagen's mass-market VW brand returned to profit in the first quarter, in a sign deep cost cutting is starting to revive the business at the heart of the German carmaker's emissions test cheating scandal.

Oil up as U.S. summer draws beckon; set for fourth month of gains

NEW YORK (Reuters) - Oil prices rose on Tuesday, heading for the fourth straight monthly gain, with investors betting on higher U.S. fuel demand as peak driving season arrived in the No. 1 oil consumer.

Airbus sales chief not worried by Boeing super-sizing 737

HAMBURG (Reuters) - Airbus sales chief John Leahy said on Tuesday he was not worried about Boeing adopting a larger engine for its 737 MAX 9 jet, dubbing it "Mad MAX" because of the technical challenges it would face.

The Five Stages Of Central Bankers' Failure

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Central bankers must accept the complete and utter failure of their policies if we are to move forward.

Central bankers are now in the denial and anger stages of Kubler-Ross's famed stages of loss: denial, anger, bargaining, depression and acceptance. Central bankers are in denial that all their trillions of dollars, euros, yen and yuan have completely and utterly failed to achieve the desired result: "organic" (i.e. unmanipulated by central states/banks) expansion of productivity, investment and household earnings.

Central bankers not only continue to insist their free money for financiers will eventually "trickle down" to the masses--they're angry that the masses aren't buying it. Central bankers are now blaming the masses for maintaining a perverse psychological state of disbelief in the omnipotence of central banks and their policies.

Central bankers are raging at the psychology of hesitant households, which they finger as the cause of global weakness: if only people believed everything was great, they'd borrow and blow tons of money, and the ship would leave port with a full head of steam.

The central bankers have spent seven years constructing "signals" that are supposed to create a psychological state of euphoria that leads to more borrowing and spending. The stock market is at all-time highs--don't those stupid masses get it? That's the "signal" that all's well and they should get out there and borrow more money to enrich the banks!

Central bankers' anger is not directed at the source of the policy failures--t ...

The "Crazy Growth In Corporate Debt" Is Finally Noticed: Bloomberg Issues Stark Warning

By now it is a well-known fact that corporations have no real way of generating organic profit growth in this economy (the recent plunge in Q1 EPS was a stark reminder of just that), so they are relying on two things to boost share prices: multiple expansion (courtesy of central banks) and debt-funded buybacks (also courtesy of central banks who keep the cost of debt record low), the latter of which requires the firm to generate excess incremental cash. Incidentally, as SocGen showed last year, all the newly created debt in the 21th century has gone for just one thing: to fund stock buybacks.

One doesn't have to be a financial guru to grasp that the problem with this "strategy" is that if a firm is going to continue to add debt to its balance sheet in order to fund buybacks (and dividends), then it needs to be able to generate enough operational cash flow in order to service the debt. Even if one makes the argument that debt is cheap right now, which may be true, or that central banks are backstopping it, which is certainly true in Europe as of the ECB's shocking March announcement in which the CSPP was revealed, the fact remains that principal balances come due eventually, and while debt can be rolled over, at some point the inability to generate cash from the operations catches up; furthermore even a small increase in rates means the rolling debt strategy is dies a painful death, as early 2016 showed.

Then, as we showed to months ago using another stun ...

$50 Oil Doesn't Work

Submitted by Gail Tverberg via Our Finite World blog,

$50 per barrel oil is clearly less impossible to live with than $30 per barrel oil, because most businesses cannot make a profit with $30 per barrel oil. But is $50 per barrel oil helpful?

I would argue that it really is not.

When oil was over $100 per barrel, human beings in many countries were getting the benefit of most of that high oil price:


Some of the $100 per barrel goes as wages to the employees of the oil company who extracted the oil.

Often, the oil company contracts with another company to do part of the oil extraction. Part of the $100 per barrel is paid as wages to employees of the subcontracting companies.

An oil company buys many goods, such as steel pipe, which are made by others. Part of the $100 per barrel goes to employees of the companies making the goods that the oil company buys.

An oil company pays taxes. These taxes are used to fund many programs, including new roads, schools, and transfer payments to the elderly and unemployed. Again, these funds go to actual people, as wages, or as transfer payments to people who cannot work.

An oil company pays dividends to stockholders. Some of the stockholders are individuals; others are pension funds, insurance companies, and other companies. Pension funds use the dividends to make pension payments to individuals. Insurance companies use the dividends to make insurance premiums affordable. One way or another, these dividends act to create benefits for individuals.

Interest payments on debt go to bondholders or to the bank making the loan. Pension plans and insurance companies often own the bonds. These interest payments go to pay pension payments of individuals or to help make insurance premiums more affordable.

A company may have ...

Volkswagen: Don't Forget the Other Brands

It is too easy for investors to forget that Volkswagen Group is a conglomerate that consists of more than one particularly thorny restructuring story.

U.S. Car-Buying Boom: Time to Downshift?

Better-than-expected sales might not give auto stocks any juice.

Europe Still Has Work to Do on Jobs

Eurozone unemployment is down from its peak, but the good news is far from spreading everywhere in the bloc.

May 2016 Conference Board Consumer Confidence Declines

Written by Doug Short and Steven Hansen

The Conference Board Consumer Confidence Index declined to 92.6 in May from the April final reading of 94.7. The market expected (from Bloomberg) this index to come in between 95.0 to 99.3 (consensus 97.0).

Capitol Report: Trump defends donations to veterans and shooting of gorilla

Donald Trump defended his donations to veterans' groups during a lengthy news conference on Tuesday " and also responded to a question about the shooting of a gorilla at an Ohio zoo over the weekend.

Earnings Summary for Today

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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