Market Talk

Wow, looks like that spill was a little worse than we thought.

So today, we’re finally getting closer to a final tally of just how much oil gushed out of BP’s Macondo well in the Gulf of Mexico, and what we’re finding out is that it is not only the worst spill in U.S. history, not just the biggest spill in the Gulf, but it’s one of the largest spills anywhere, ever.

But, of course, you already knew that, right? You did if you read this blog.

From the Journal:

Teams of scientists working with the U.S. government estimate that 62,000 barrels of oil a day—or a total of 4.9 million barrels—leaked into the Gulf of Mexico from the shattered well operated by BP PLC government agencies said Monday.

The new estimate exceeds scientists’ previous estimate. That one said the Macondo well was gushing between 35,000 and 60,000 barrels of oil a day after the April 20 blast aboard the Deepwater Horizon rig, which BP had leased to drill the well.

Now, then, let’s do the rough math. If 4.9 million barrels were leaked into the Gulf, at 42 gallons per barrel, then about 206 million gallons escaped into the ocean. These new numbers put the Macondo spill second on the leaderboard of worst spills ever, as the BBC reports. Now, I ask you, who said this spill would be the second-worst ever? I  did. That’s who.

From, well, from me:

Maybe once BP gets an effective cap on the well, they can tell us how much crude’s flowing out of it; I don’t know who’d trust them to be truthful at this point, but they could at least hazard a guess. Personally, I think it’ll turn out to be worse than anybody expected, and it will go down on record as the second-worst spill in industry history, topped only by Saddam Hussein’s deliberate sabotaging of Kuwaiti oil terminals in 1991, which spilled at least 380 million gallons into the Persian Gulf.

But, you know, I’m generally an optimist.

Now, listen, I’m no engineer, no oceanographer, no government scientist, no corporate executive. I’m a reporter in New York City, a thousand miles away from the spill. But it was easy for even me to peg just how bad this spill would be. You know how I did it?

I just didn’t believe anything BP said.

- Gold dropped to a three-month low yesterday. “For gold, the battle now is between short-term traders, who see the metal’s rally as played out for the moment, and the true believers, who see gold as the only refuge from the risk of further government-engineered debasement of paper currencies,” Tom Petruno says.

- Harvard economics professor Martin Feldstein describes how difficult it truly is to forecast economic growth. “While it would be rash to forecast a double dip as the most likely outcome for the economy during the rest of this year, many of us are raising the odds that we attribute to such a downturn.”

- Nonfinancial companies in S&P 500 have a record $837B in cash, according to S&P, which is 26% higher than year-earlier figures. “The odd thing about this gigantic cash pile is that these companies are barely being paid any interest by keeping this money in cash,” Eddy Elfenbein writes at Crossing Wall Street. “It shows you just how scared they are.”

- Princeton economist and NY Times columnist Paul Krugman is baffled at the Obama administration’s waffling on whether to appoint Elizabeth Warren to head the new Consumer Financial Protection Bureau.

- Unemployment remains stubbornly high and GDP growth is slowing, but that doesn’t necessarily mean investors should avoid stocks. Peridot Capital’s Chad Brand compiles S&P 500 returns from 1958 through 2009 and concludes: “Investors choosing to own stocks only in years with negative GDP growth would have earned nearly four times as much than investors choosing to invest only when GDP was growing at 5% or better.”

- “If BP emerges from this debacle fatter and happier than anyone imagined a few months ago, whatever happened to the idea of corporate accountability?” former labor secretary Robert Reich ponders. “Does this mean any giant corporation can wreak havoc and then get back to business as usual?”

- Selling Phibro may be one of Citigroup’s best moves. “It isn’t often these days that Citigroup comes out ahead of the Wall Street pack,” WSJ’s Deal Journal says. “But at least for now, the Phibro deal is proving to be a plum.”

- “The administration would have been in a much better position today had it made a concerted effort months and months ago, even an unsuccessful one, to give the economy the help it clearly needed,” Mark Thoma writes.

- Durable goods orders slid for a second straight month, which comes as no surprise to Michael Shedlock, an investment advisor for Sitka Pacific Capital. “I cannot help but laugh at economists who refuse to see the economy is slowing dramatically, and somehow think manufacturing is going to lead the way to recovery,” he says. “That was an across the board stunningly bad report.”

- A new paper from two economists says without the Wall Street bailout, bank stress tests, emergency lending and asset purchases by the Fed and Obama’s fiscal stimulus program, GDP would be about 6.5% lower this year.

- The Dow has posted four-straight days of gains and sits at a 10-week high, all while Treasurys fall on supply; 2-year auction hits record low yield. “Suddenly, investors live in a perfect world: There’s enough money out there to push the stock market higher and keep bond yields down,” Tom Petruno writes at LA Times’ Money & Co blog. “Enjoy it while it lasts.”

- “I really don’t think people appreciate the huge dangers posed by a weak response to 9.5% unemployment, and the highest rate of long-term unemployment ever recorded,” Paul Krugman says. “The point is that while policy makers may think they’re being prudent and appropriately cautious in their responses to unemployment, there’s a good chance that they’re prudenting and cautiousing us into a long-term jobs catastrophe.”

-After a couple of failed attempts, the S&P 500 has finally broken through its downtrend from the April highs, Bespoke Investment Group points out. “The next level of potential resistance now lies just below the 1130 level, which is where the June rally fizzled as well as the flash crash closing low on May 6.”

- BP’s plans to sell about $30B in assets. “The sales could be the best response possible to the spill’s legacy — as could the company’s debt reduction and increased cashflow,” FT’s Alphaville says. “Well, great — BP is turning into a well-functioning litigation-offset machine. That comes at the expense, though, of knowing how it’s actually going to function in the future as a successful — and safe — oil company.”

- Average age of completed but unsold new homes was 12.4 months at end of June, historically high but well off peak levels hit earlier this year. “Like so much else about this recovery, this is an area where the data says things are improving, but remain at bad levels,” NYT’s Floyd Norris notes.

- The second-half slowdown is here, Calculated Risk writes. “I still think we will avoid a technical double dip recession, but that won’t matter to the people impacted by the slowdown.”

- “Q2 earnings for American companies have been remarkable for how disconnected they seem from from the actual economy,” Joe Weisenthal says at Money Game. “Now it could be that these good earnings will soon translate to hiring, and everything will be great. But watch out if the divergence occurs, because that will mean fresh anger and scorn from politicians, and everyone else.”

- Michael Schuman asks if the euro crisis is really over. “Europe may be able to patch up investor confidence by acting like problems are getting solved without actually solving them,” he says. “But that will only get Europe so far.”

- MarketBeat wonders if gold bugs are in retreat?

- “The Boston Red Sox may have beaten the New York Yankees to the punch to become the first billion-dollar baseball club in history,” Brett Arends writes at MarketWatch.

There’s a theme emerging here: corporate earnings still look good, but the consumer doesn’t look much better. That separation (Josh Brown characterizes it far more forcefully)  is what we’re talking about on the Markets Hub today.

Also, we didn’t get into this on the video (only three minutes, don’tcha know) but it’s interesting to see that both the Dow and S&P 500 over the past week or so ran strongly right up to their 200-day moving averages – and are stuck there today. Given the very light volume that’s attended this rally, it’s a sign that what we’ve got here once again the traders are just having a bit of fun.

- If everyone’s so concerned about federal deficits, why the record low yields on US Treasurys, wonders FusionIQ CEO Barry Ritholtz. “Part of the answer is the lack of alternatives. Where else are you going to park yield-seeking money? Euro denominated issues? UK debt? Japanese bonds, emerging markets?” he ponders. “Amongst the motley crew of sovereign debt issuers, the US Treasury is the least ugly girl at the dance.”

- “I have and continue to believe this is a trader’s market in which valuations matter little,” Pragmatic Capitalism says. Ultimately, the macro trends are so fierce that the tides will sink or lift all boats.”

- Apple (AAPL) may be poised to update its iMac and Mac Pro computers sooner rather than later. The MacRumors blog tracks in-store pre-order availability and has taken note of depleted stock at several retail stores, suggesting updated models could be in the offing. MacRumors also points out the iMac was last updated in October, while the Mac Pro was last refreshed in March 2009.

- General tone from European analysts digesting the stress tests is “remarkably sanguine,” NYT’s DealBook says. The tests represent “a substantial step forward,” Goldman Sachs says, although notes if Tier 1 capital ratio was lifted to 7% from 6%, it would’ve tripled the number of failed banks from seven to 24.

- Oracle (ORCL) last week vehemently denied it has a five-year, $70B acquisition budget, which President Charles Phillips originally claimed in a Fortune Magazine article. But, as Digital Daily blogger John Paczkowski points out, it’s obvious Oracle doesn’t want competitors to know its strategic plans. “Hard to believe that a company as aggressively acquisitive as Oracle doesn’t have an M&A budget,” Paczkowski says. “But evidently that’s the party line here and by the sound of things Phillips clearly overstepped it.”

- Google (GOOG) introduces Google Apps for Government, a new edition of its package of Internet-based applications specifically designed to meet the policy and security needs of the public sector.

- When digesting the new home sales report, keep in mind the data point is notoriously noisy, Ritholtz says. June’s 24% monthly increase comes on the heels of May’s 33% drop. “Ignore the swings, look at the moving average to smooth out the volatility.”

- June new home sales surged 24% from a month earlier to 330,000. But don’t get too giddy, especially since the sales level represents the second lowest on record since 1963. “Bottom line, while the figure was better than expected, new home sales make up less than 10% of the overall industry with existing homes making up the balance,” Miller Tabak’s Peter Boockvar says. “It’s good to see a pick up in new home sales but an overall market that still has way to much inventory does not need too many new homes built.”

- IAC/InterActiveCorp (IACI) chief Barry Diller tells CNNMoney that his firm has jumped on the Facebook advertising bandwagon, another indication the social network is gaining traction on Madison Avenue. “My company, which spends a huge amount on advertising, we spend every nickel we can on Facebook,” Diller says. “They’re effective. The targeting of the audience is precise enough. The message and the audience are quite aligned.”

- Robert Dudley has quite the to-do list facing him at BP.

It looks like Tony Hayward could get his life back – ahead of schedule.

So reports are buzzing about the prospects that BP may put a cap on the gushing Macondo well in the Gulf of Mexico “ahead of schedule.” Pardon me if I supress a cheer. I hope BP doesn’t go around looking for any handshakes. The busted well on the floor of the Gulf has been spewing crude into the ocean for more than two months. The damage is so great, there’s no guarantee that $20 billion relief fund they set up will cover it all (I’ll say here it won’t.)

But right now there’s only one question I wanted answered: how much oil?

Look, of course I hope they get the thing capped and contained. But that shouldn’t cloud the fact that we still don’t know exactly how much crude has gushed up into the ocean, and how bad this spill really is. I have yet to see one comprehensive estimate of the size of the spill (it is of course possible I’ve just missed it; if you’ve seen one, please pass along the information.) I’ve no doubt that somewhere BP has one; I’ve also no doubt they have no plans to disclose it.

The press reports still generally center on an estimate of 35,000-60,000 or so barrels a day. I’ve noted a few times that BP’s own worst-case estimate was about 100,000 barrels a day, and at least one scientist said there wasn’t any reason to think it wasn’t flowing at that rate. Now, all of that hasn’t escaped; BP has been capturing a fairly large percentage of it, so how much oil escaped into the Gulf is a separate question. Either way, there’s no doubt this will go down as the worst oil spill in American history. But it may have a more ignominious epithet than that before this is all done.

Maybe once BP gets an effective cap on the well, they can tell us how much crude’s flowing out of it; I don’t know who’d trust them to be truthful at this point, but they could at least hazard a guess. Personally, I think it’ll turn out to be worse than anybody expected, and it will go down on record as the second-worst spill in industry history, topped only by Saddam Hussein’s deliberate sabotaging of Kuwaiti oil terminals in 1991, which spilled at least 380 million gallons into the Persian Gulf.

But, you know, I’m generally an optimist.

Leaders from the Group of 20 are gathering in Toronto to discuss the state of the global economy as markets have begun reassessing the growth outlook. Markets are also focusing again on BP, whose shares are getting another hammering as the costs of the spill continue to increase. Newswires editors Madeleine Lim and Mike Reid discuss on the Markets Hub.

Somebody’s not telling the truth.

BP said it captured about 21,000 barrels of crude on Saturday from the gushing Macondo well in the Gulf of Mexico. The company is drilling a relief well elsewhere on the sea floor that will, when complete, apparently draw all the pressure off the busted well that’s causing the catastrophe; but right now, it’s furiously boosting its capturing efforts. It expects to be able to suck up about 50,000 barrels by the end of June, and as much as 80,000 barrels by July.

Ah, then why is the press still reporting that the well is spewing 35,000-60,000 barrels a day?

It’s a very simple matter of math and logic. Notice BP didn’t say, 80,000 barrels and then we’ll have this thing under control. BP didn’t say, listen, we bring in this extra equipment, we can capture all of it. No. BP expects as much as 80,000 barrels a day. Which means that, unless they plan on pumping crude back into the well, they know, now, there’s more than that 35,00 barrels a day coming out of that well, or even 60,000.

I’ve linked a few times to this McClatchy story that cites Ira Leifer, a member of the government’s Flow Rate Technical Team, who said there’s no reason not to think that the well is gushing at a rate that was BP’s “worst-case scenario” — 100,000 barrels a day. More and more, it looks like Leifer is right.

Continue reading…

- Gold hit a fresh record high yesterday just as the euro and stocks also gained, while the VIX fell to a six-week low. “Maybe the strange cross-currents were a sign that some market players were wrapping up their week a day early and heading for the beach,” Tom Petruno says. “In fact, Friday might be a good day to take off.” Spot on – Dow finishes up 16 in a sleepy session.

- Not much action out of Palm since word of acquisition by H-P (HPQ), but expect that to change in the near future, Digital Daily blogger John Paczkowski says. At a developer event yesterday, PALM developer liaison Josh Marinacci offered some of the company’s upcoming plans. “We are working on future devices. And a new version of the OS. So I think you’re going to find the next year very exciting.”

- It appears the White House may be changing its mind on reining in CEO pay, according to The Huffington Post. But the change doesn’t seem to be garnering the attention it deserves. “Well, the BP disaster, in particular the intense press coverage of this week, appears to have provided the Administration with some very useful air cover, by diverting public attention from the final rounds in the battle to reform Wall Street,” Yves Smith says.

- Investor sentiment readings this week were mixed. “Although far from extreme bearishness, this level of optimism is consistent with an oversold market, but does not necessarily signify that all is clear,” Pragmatic Capitalism notes. “The majority of the reliable short-term buy signals have coincided with lower levels of bullishness.”

- Ratings agencies played a prominent role in the financial crisis, but the big three agencies have “escaped much blame, liability and scrutiny for most of the post-crisis period,” FusionIQ CEO Barry Ritholtz writes. But that may be coming to an end.

- Enthusiasm for Apple’s (AAPL) iPad has been obscured by excitement over its new iPhone 4, but DigiTimes says the tablet computer is moving quickly. The Taiwanese technology publication says iPad monthly shipments reached a whopping 1.2M units and could balloon to 2.5M by year’s end.

- Nevada registers the highest monthly state unemployment rate in May, coming in at a staggering 14%, marking the first time in four years Michigan wasn’t awarded the dubious distinction, according to a new Labor Department report (via NYT’s Economix blog). By contrast Michigan’s rate was 13.6%.

- Twitter’s strong growth continues. ComScore reports the microblogging service registered 90.2M unique visitors last month, a 7.6% increase from 83.8M uniques in April. “After a lull in the winter, it’s clear that Twitter is back on track,” TechCrunch says.

- “No one will pay any heed to the now discredited Greenspan who ironically was worshiped for all the things he got wrong and ignored the few times he ever said anything that made any sense,” Mish opines.

- WSJ’s Jim Chairusm writes about why the lost US goal in the Slovenia game today shouldn’t matter.

On this morning’s Markets Hub, we’re looking at how the oil spill is becoming a growing problem for the energy sector, the growing doubts about the recovery and what it may mean for stocks, and the future of BP. Myself, Madeleine Lim and Steve Wisnefski break it down.