Market Talk

Are we really supposed to accept that BP was so completely unprepared for the disaster that befell the Deepwater Horizon that it’s going to take nearly four months to plug the well? The folks down in Lous-e-ana won’t be so accepting. I ghar-uhn-tee. The Gulf disaster has the potential to be for offshore drilling what Three Mile Island was to nuclear power: a doomsday event that set the industry back a generation.

BP is essentially out of options for any quick solution, although they’re making a third attempt to cap the well this week (which you can watch live via video feed.) But most people involved already think the well is going to flow more or less unabated through August. “I Think they’ve pretty much decided it’s about as bad as it can get,” LSU oceanographer Robert Carney told the Times-Picayune. A couple hundred protesters gathered down in the French Quarter in New Orleans on Sunday, and you can bet it won’t be the last outburst from the locals.

Meanwhile, the latest fear is something called gas clouds, giant plumes of petroleum under the surface, a result of the chemical dispersants, which when used on the surface break up the oil, but under the surface somehow actually keep it down there, creating an undersea calamity:

Researchers have said they have found at least two massive underwater plumes of what appears to be oil, each hundreds of feet deep and stretching for miles. Yet the chief executive of BP PLC — which has for weeks downplayed everything from the amount of oil spewing into the Gulf to the environmental impact — said there is “no evidence” that huge amounts of oil are suspended undersea.

BP CEO Tony Hayward said the oil naturally gravitates to the surface — and any oil below was just making its way up. However, researchers say the disaster in waters where light doesn’t shine through could ripple across the food chain.

“Every fish and invertebrate contacting the oil is probably dying. I have no doubt about that,” said Prosanta Chakrabarty, a Louisiana State University fish biologist.

This is going to set back offshore drilling by years, and maybe decades, and the industry has no one to blame for that but themselves. It seems to me that being prepared for something like the pipe on a deepsea well breaking off should be like, I dunno, one of the first things you prepare for. The industry’s defenders will say there hasn’t been an accident like this is 30 years. But how many of these do you need? Continue reading…

Now BP’s going to start feeling some real heat. Its latest effort to cap the gushing well in the Gulf of Mexico, the so-called top-kill method, failed, as the Journal reports. Even BP isn’t very confident that its next fix, another attempt at a cap, will work. People are thinking it may take two months to shut down the gushing well, until a relief well can be drilled. Meanwhile, a region that still hasn’t fully recovered from Katrina has to endure another historic disaster.

Two months. Twelve to 19,000 barrels a day. It’s already a bigger disaster than the Exxon Valdez. Just wait until the videos of an oil-soaked Louisiana coast start to show up on the evening news. We’re not even talking about damage to the east coast yet, either. I didn’t go to an Exxon station for years after the Valdez, and I doubt I’ll be patronizing BP stations any time soon.

We already know BP low-balled estimates of how much crude was leaking and didn’t have proper safeguards in place, or was prepared for the kind of disaster that befell the Deepwater Horizon. Two more months of this well gushing crude into the sea is really going to blast the company in the public consciousness. There’s not a PR man alive could make this one go away. Eventually, it will be forgotten, but it’s going to be decades.

The Republicans are blaming the Democrats. The Democrats are blaming BP. BP is blaming, I dunno, God, I guess. They all bear some of the blame (well, except God.) When I talk about political capture, this BP disaster is exactly what I’m talking about. The oil industry spends hundreds of millions on just campaign contributions, forget lobbying dollars, for what? So they don’t have squeeze margins to comply with the kinds of regulations that may have prevented the disaster that’s happened, from happening.

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Tell me when it's over.

An already bitter month for US stocks ends on a sour note as markets turn sharply lower in the final minutes. The tone was soft all day, but declines picked up in early afternoon after Fitch nicked Spain’s credit rating.

That took the wind out of the euro, which had recently found some footing. All the strongest sectors in yesterday’s rally flip to the worst performers today — financials, energy, materials and industrials. Defensive utilities, consumer staples and health-care fare best. IBM, 3M, Boeing, Exxon and CAT lead the Dow’s dollar decliners. Coke, P&G and Merck the averages only gainers.

DJIA falls 122.36 to 10136.63, and Nasdaq Comp sheds 20.64 to 2257.04. S&P 500 ends 13.65 lower at 1089.41.

Dow Industrials tumble 871.98 points, of 7.9% in May, and break a string of three straight monthly gains. It’s the worst May point drop ever, and worst percentage decline since 1940. For the S&P 500, it’s the worst May point drop ever (97.28) and worst percentage drop (8.3%) since 1962. For both indexes, it was the worst percentage drop since February 2009. For S&P 500, it was the worst monthly point drop since October 2008.

- Several big name hedge-fund managers are placing bullish bets on Citi (C) and Bank of America (BAC). “Paulson, Soros, Falcone, Tepper, Ackman, Ainslie, Loeb — you name it, they own one or the other…or both,” Joshua Brown writes at The Reformed Broker. “And they own them in size.” But why the sudden interest?

- Goldman Sachs (GS) may be on the verge of resolving SEC’s fraud charge by agreeing to a settlement worth hundreds of millions of dollars, according to FT. But FusionIQ CEO Barry Ritholtz is still perplexed why GS chose to fight this charge in the first place. “Even if GS were to prevail in court, they have already lost. The reputational damage is already measured in billions of dollars, and will last years if not decades.”

- Furious decline in newspaper ad sales eased in 1Q, but struggling industry still isn’t showing signs of rebounding. “The less-awful sales in the first months of this year gave publishers the gift of a bit more time to fundamentally reposition their businesses,” Newsosaur blogger Alan Mutter says. “But there is nothing in the first-quarter numbers to suggest that the storm for newspapers has blown over.”

- S&P 500 has averaged a 0.12% gain on the Friday before Memorial Day since 1971, with positive returns coming 59% of the time, Bespoke Investment Group reports. But the performance hasn’t been so hot recently, with the index averaging a 0.28% decline throughout the last 10 years, firm notes. And the measure has dropped more than 1% on three instances in last decade.

- Warren Buffett’s testimony next week before FCIC is subpoena-driven, writes Fortune senior editor-at-large Carol Loomis, a pal of the Berkshire Hathaway (BRKA BRKB) chairman.

- FASB publishes proposal that would overhaul how companies value many assets and liabilities they hold. “Tremble US financial institutions, for FASB is about to fair value your assets,” FT’s Alphaville says.

- There are still calls for more (yes, more) government spending. “The long-term deficit needs attention, but right now it’s critical for government to spend,” says former labor secretary Robert Reich. “Otherwise we have no hope of getting free of the gravitational pull of this recession.”

- If enough tech giants go after a market, will it eventually catch on? Just a week after Google unveiled details of Google TV, Engadget reports Apple (AAPL) will take another crack at its three-year-old Apple TV product. But as MarketWatch’s John Dvorak pointed out in a column last week, it may be a hard slog, even for the biggest of behemoths.

- “The Great Recession is over, and the Great Transition is here,” James Picerno writes. In theory, distinguishing between the two is a piece of cake. In practice, reading the tea leaves is going to get complicated at times.”

- The Apple faithful struggle figuring out the best way to carry around the iPad. Aw, poor fanboys, such a conundrum – what are they gonna do??

Investors and financial advisors always need to watch out for companies engaging in fraud and deceit. Howard Schilit, founder and CEO at Financial Shenanigans Detection Group, describes some of the early warnings signs of accounting tricks and gimmicks companies use to manipulate their financial statements.

Check my recent Skype interview with Schilit, who was speaking from the CFA Institute conference in Boston.

Wait a minute. I thought stocks were only supposed to go up...

From the “flash crash” to deepening worries over Europe’s debt crisis, May was one nasty month for investors.

With the stock market closed Monday in observance of Memorial Day, today is the month’s final trading session. And investors can’t flip the calendar quick enough. The Dow was off 6.8% heading into today’s trading and on pace to finish May with its biggest monthly point and percentage drop since February 2009.

It’s also poised to register its biggest May point drop ever and largest May percentage decline since 1962, when it fell 7.8%. The slide snaps a string of three straight monthly gains.

The broader S&P 500 and Nasdaq Composite have actually fared worse. S&P 500 was off 7.1% heading into Friday and Nasdaq was down 7.5%.

A Fitch downgrade of Spain’s debt flames some worries about Europe after yesterday’s respite, putting a final negative coda on May. DJIA earlier off as much as 163, but has bounced off the lows and recently down moderately on light volume ahead of the holiday weekend.

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More economic data out this morning, and more information to challenge notions that the recovery is still gaining strength.

As notedyesterday, the downward revision in 1Q GDP, and noteworthy slowdown in measures of manufacturing from the Kanas City Fed suggest, at best, the recovery remains on shaky ground, and at worst may already be starting to come apart.

GDP was revised lower in part because consumer spending was less robust than originally reported. That appears to have carried over at least into April as data today show personal incomes gained (good) but spending flattened (not good), increasing the savings rate (good long term, but not right now). For a recovery that’s depending on the consumer to pick up the spending baton from Uncle Sam, that’s not an encouraging sign. The savings rate in April — 3.6% vs 3.1% in March — reached its highest level since January.

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No matter what happens today, May was a bad month for stocks (it was a bad month for everything, really, unless maybe for New York Knicks fans, and even that’s a pretty big maybe.) But despite yesterday’s big rally, the underlying themes and issues haven’t changed, which means it may not exactly be a summer of love we’re in store for.) Mike Reid and I discuss in today’s Markets Hub.

Calmer tone pervades on this last trading session of the month, with US stock futures hinting at a flat open.

Even with yesterday’s burly rally, major equity indexes are on track for an awful May. Dow Industrials on the verge of their biggest monthly point and percent drop since February 2009, and worst May performance, percentage-wise, since 1962. S&P 500 staring at its worst May point drop in history, and worst May percentage drop since ’62 as well.

April personal income and spending, ISM-NY May business conditions survey both due at 8:30am; ISM-Chicago May gauge at 9:45am ET; Reuters/Univ of Michigan final May consumer sentiment due at 9:55am. Bond market closes early.

S&P futures 3.90, DJ futures up 31. Ten-year shaded higher, yield at 3.34%.

(Note the bull on the stabilizer -- nice touch.)

Bulls lit the burners and never looked back, as US stocks steam higher in a powerful wire-to-wire rally.

No late-session fumbles this day; in fact the major averages close on session highs, and go a long way in remedying an oversold condition. Hard to make any fundamental case behind today’s move, as little has changed with issues ruffling investors lately.

Regardless, US markets follow Europe’s earlier lead and tack on gains of roughly 3% or better. Financials, energy, materials and tech lead the advance.

Couple things to note — volume wasn’t especially impressive with NYSE listed at roughly 5.6 billion, and safe-haven gold held up a lot better than one would expect during such strong equity rally. Just saying.

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