Saturday, June 19, 2010

Arch Crawford

6/20/10 Arch Crawford

When I really worry about something, I don't just fool around. I even have to go to the bathroom when I worry about something. Only, I don't go. I'm too worried to go. I don't want to interrupt my worrying to go. ~J.D. Salinger, The Catcher in the Rye, Chapter 6

It's funny. All you have to do is say something nobody understands and they'll do practically anything you want them to.
The Catcher in the Rye
Holden Caulfield in Chapter 21

"This fall I think you're riding for - it's a special kind of fall, a horrible kind. The man falling isn't permitted to feel or hear himself hit bottom. He just keeps falling and falling. The whole arrangement's designed for men who, at some time or other in their lives, were looking for something their own environment couldn't supply them with. Or they thought their own environment couldn't supply them with. So they gave up looking. They gave it up before they ever really even got started." ~J.D. Salinger, The Catcher in the Rye, Chapter 24, spoken by the character Mr. Antolini

Illinois raised its retirement age to 67, the highest of any state, and capped public pensions at $106,800 a year. Arizona, New York, Missouri and Mississippi will make people work more years to earn pensions. Virginia is requiring employees to pay into the state pension fund for the first time. New Jersey will not give anyone pension credit unless they work at least 32 hours a week.

“We can’t afford to deny reality or delay action any longer,” said Gov. Pat Quinn of Illinois, adding that his state’s pension cuts, enacted in March, will save some $300 million in the first year alone.

A full moon lunar eclipse occurs on June 26, 2010, and a new moon solar eclipse occurs on July 11, 2010.

Mike Burk: "In spite of a 6% - 8% rally over the past week and a half new highs have remained dormant at relatively low levels....Although there were not many new highs, they exceeded new lows every day last week on both the NYSE and NASDAQ....New lows diminished last week, but, after rising 6% - 8% in a week and a half the market is overbought.

I expect the major averages to be lower on Friday June 25 than they were on Friday June 18."

This summer the planets form a rare “Cardinal Climax” alignment, which puts financial markets at risk, says Arch Crawford....
What about the October 1987 crash?
On Aug. 24, planets were in the tightest five-body “conjunction,” or same ecliptic longitude, in at least 800 years. “It doesn't get any better than this,” I reasoned. Therefore, “A severe decline will follow,” I told subscribers. Turns out, Aug. 24 was the top. From that alignment high to the Oct. 20 low, the Dow fell 33%. A difficult planetary alignment preceded a difficult stock market....
What about the 2008 Crash?
Our research showed a Mars-Uranus “crash cycle” beginning Aug. 6, 2008 and ending in late-Mar. 2009. So beginning several months before Aug. 6, we repeatedly told subscribers, “Neither Wall Street nor our Government will be able to hold markets up against the 'deluge'!"
Further, on Sept. 2 we told subscribers that the worst part of the crash would occur on Oct. 10, plus or minus three trading days. We repeated this forecast on Oct. 2. Our headline was: “Market Crash – Dead Ahead.” Turns out, Oct. 10 had the largest number of new lows on the NYSE ever, at 1203.
Did the planets or your technical analysis forecast the rebound in stocks which began March 9, 2009?
Our March 2 headline was: "Best Bet - Nearby Low!"
Then on March 12 we told subscribers: "We believe this rally confirms a strong buy.”
What about September 11, 2001? In our letter mailed Sept. 4 we wrote that when Mars hits the solar eclipse point on Sep. 7th or Sep. 8th, then the U.S. will be at war.
On August 1, give or take a week, we’ll have the most five-planet alignments in perhaps thousands of years. Known as the “Cardinal Climax,” this is the meanest, nastiest, most challenging and most transformational of any planetary phenomena in all of written history! We have the most planets in the tightest alignments and at the supposedly 'sensitive' Zero degrees of Cardinal signs. It makes the hair on the back of my neck stand up.
I looked at records going back to the 1800’s, and this is the most difficult alignment I found. When I was at a conference in Boston last month, someone said this was the most difficult alignment they have seen in the last "1,000 years." Another person told me this is the worst alignment in "10,000 years."....Worst cases include a nuclear accident. Nuclear war. Massive societal collapse. Maybe a pole flip, which can wipe out nearly everything. Cardinal Climax is especially intimidating because of the proximity to the widely touted Mayan Calendar End Date. Plus, the Christians are looking for the Return of Jesus and/or the Rapture, the Muslims await the return of the umteenth Imam, the White Buffalo has been born, and Jews are fighting over the right to rebuild Solomon's Temple on the 'temple mount' in Jerusalem. These are all signs of “end times” by many different cultures.
Will Cardinal Climax cause just U.S. stocks to fall? Or is this a global meltdown?
Definitely global....The United States will come apart in this Depression!"

“[The looters] need some sort of sanction from us… I know that if we value our lives, we must not give it to them. If they put you on a torture rack, don’t give it to them. Let them destroy your railroad and my mills, but don’t give it to them. Because I know this much: I know that that’s our only chance.”
(p.378 Atlas Shrugged– Hank Rearden)

“There’s no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren’t enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking the laws. …just pass the kind of laws that can neither be observed nor enforced nor objectively interpreted – and you create a nation of law-breakers – and then you cash in on the guilt.”
(p.436 Atlas Shrugged– Dr. Ferris)


6/19/10 Claims

BP PLC said late Friday that it intends to follow through on its pledge to clean up the oil spill in the Gulf of Mexico, regardless of Anadarko Petroleum Corp.'s stated position that it isn't jointly-accountable for the disaster. Anadarko, which has a roughly 25% stake in the Macondo well in the Gulf, said earlier Friday that it was "shocked" by evidence of BP's reckless behavior leading up to the spill, adding that BP is responsible for related damages. BP said it "strongly disagrees" with Anadarko's allegations. Anadarko owns 25% of the project and Mitsui 10%.

Moody's Investors Service said late Friday it downgraded its ratings of Anadarko Petroleum Corp. to Ba1, or junk status, from Baa3 because of possible liabilities from BP PLC's blown oil well in the Gulf of Mexico. Moody's said it may further downgrade Anadarko's ratings. Anadarko has a 25% stake in the Macondo well. About $12.6 billion in debt is affected. Separately, Anadarko said that BP is contractually responsible for damages arising from the blown well because of evidence showing the oil company acted recklessly while drilling the well.

-- Regulators on Friday shut down a Nevada bank, raising to 83 the number of U.S. bank failures this year.

The Federal Deposit Insurance Corp. took over Nevada Security Bank, based in Reno, with $480.3 million in assets and $479.8 million in deposits. Umpqua Bank, based in Roseburg, Ore., agreed to assume the assets and deposits of the failed bank.

The failure of Nevada Security Bank is expected to cost the deposit insurance fund $80.9 million.

Russia wants the ruble to be one of the world’s reserve currencies as President Dmitry Medvedev renews his push to reduce the dollar’s dominance and make Moscow a global financial hub.

“Only three, five years ago it seemed like a fantasy” to create a new reserve currency, Medvedev said yesterday in a speech in St. Petersburg, Russia. “Now we are seriously discussing it.”

FT: A report from the US Center on Budget and Policy Priorities issued last month estimates that in fiscal 2010 the US states collectively posted a $200bn-odd budget shortfall, equivalent to 30 per cent of all state budgets.

Last year, that pain was partly eased by Barack Obama’s stimulus package(s). But that spending splurge is now fading away. And in fiscal 2011 and 2012, the states are expected to face another combined budget deficit of $260bn, with the 2011 shortfall in places such as New Jersey, Illinois, Nevada and Arizona projected to be more than 35 per cent of last year’s budget.

Bloomberg (Christian Vits, Jana Randow and Richard Tomlinson): “On May 10, just hours after the European Central Bank stepped into government bond markets for the first time, Axel Weber broke ranks with most of his colleagues on the ECB’s Governing Council -- including his boss, President Jean-Claude Trichet. ‘The purchase of government bonds poses significant stability risks, and that’s why I’m critical of this part of the ECB council’s decision,’ said Weber, president of Germany’s Bundesbank.”

Doug Noland: "Over the past seven quarters (back to Q2 2008), Federal borrowings have increased $3.274 TN, or 49%, to $9.972 TN. Over the same period, GDP increased $104bn, or 0.7%, to $14.601 TN. This massive fiscal expansion was instrumental in stabilizing the economy. It certainly wasn’t the only factor.
In just 21 months, Federal Reserve assets expanded $1.387 TN, or 146%, to $2.339 TN. Of course, the Fed also stoked ultra-loose financial conditions when it dropped short-term interest-rates to near zero. From the high in January 2009, Money Market Fund Assets declined $1.1 TN, an unprecedented outflow of finance upon global risk markets. Renewed Risk Embracement by the global leveraged speculating community played a pivotal role in loosening Financial Conditions, although there is little transparency when it comes to securities leveraging, “carry trades,” sophisticated derivatives and other global sources of finance for speculation.
From crisis lows to this past April’s highs, the S&P500 rallied more than 80%. The broader market was even stronger, with the S&P400 Mid-caps and Russell 2000 small cap indices more than doubling. The Morgan Stanley Retail Index almost tripled from lows, and the S&P Regional bank index surged 250%. Commodities indices rallied almost 50%. Synchronized fiscal and monetary stimulus propelled spectacular equity and debt market reflation across the globe. Confidence, right along with faith in policymakers, skyrocketed.
I have posited that the policy response to the bursting of the Wall Street/mortgage finance Bubble unleashed the Global Government Finance Bubble. It now appears that the Greek debt crisis will mark a key Bubble inflection point.... zero rates may prove an impediment to consumption after this cycle’s atypical (especially in regard to housing and private-sector Credit expansion) reflationary dynamics have run their course.
I’ll be surprised if the wall of liquidity fleeing low returns isn’t in the process of slowing toward a trickle – or perhaps even reversing. Especially with the continued drag from weak housing and jobs markets, the household sector is not favorably positioned to take on additional market risk....While most view Greece and European tumult as of only minor consequence to the U.S., I believe it marks an inflection point for U.S. financial conditions. Risk premiums have risen and non-government debt issuance has slowed. Moreover, the cost of financial insurance has increased markedly. Changes in insurance market dynamics could have the most profound impact on risk-taking – hence financial conditions – in the coming weeks and months....And, again like Greek debt, things deteriorate rather rapidly when the market turns nervous and demands significantly higher yields. Meanwhile, the market’s faith is waning with respect to the ability of recovery to cure structural state and local deficits, as well as in the federal government’s capacity to move forward with numerous additional bailouts."

June 19 (Bloomberg) -- China’s central bank said it will allow a more flexible yuan after the nation cemented its economic recovery, indicating the currency’s 23-month- old peg to the dollar may be scrapped.

The yuan’s 0.5 percent daily trading band will remain unaltered, the central bank said in a statement on its website today.

“The central bank’s statement means China’s exit from the dollar peg,” said Zhao Qingming, an analyst at China Construction Bank in Beijing. “If the euro continues to remain weak, it could also mean that the yuan may depreciate against the dollar.”

Horizon Air, the regional airline run by Alaska Air Group, is laying off 120 employees in Portland and Seattle as it cuts its fleet capacity and shuts down three airport bases.

The trigger for the move was a deal finalized Tuesday to lease four of Horizon's Bombardier CRJ-700 regional jets to Atlanta-based Atlantic Southeast Airlines.

With its fleet shrunk, the carrier will furlough 40 flight attendants and 40 mechanics on Aug. 22 and 40 pilots in early November, all according to seniority.

European Central Bank Executive Board Member Jose Manuel Gonzalez-Paramo said the central bank will ‘absolutely not” provide banks with capital should stress tests show they need it. “That is not part of the ECB’s functions,” Gonzalez- Paramo told reporters in Malaga, Spain, today. “It’s up to the governments and national supervisors.”

Angela Merkel, Germany’s embattled chancellor, looks set to lose her hold on the German parliament’s upper chamber, making legislation even tougher for her fractious coalition of Christian and Free Democrats. noted at little after 3 pm, Eastern that BP is now claiming they can require partners to pitch in to pay claims for damages. That would presumably include RIG, and also Halliburton (HAL), Anadarko Petroleum (APC), and perhaps even Cameron International (CAM), makers of the well’s blowout preventor.

ZeroHedge: "The ECRI weekly leading index is continuing its accelerating dive, and is now well into negative territory, hitting -5.7 for the past week: a 2.2 decline from the prior week. Here is why, as David Rosenberg, this is a critical indicator, and why we may have just 4.3 more points to go before the critical -10 threshold: "It is one thing to slip to or fractionally below the zero line, but a -3.5% reading has only sent off two head-fakes in the past, while accurately foreshadowing seven recessions — with a three month lag. Keep your eye on the -10 threshold, for at that level, the economy has gone into recession … only 100% of the time (42 years of data)." At this rate of decline -10 will be taken out in the first week of July."

Robert Prechter: "The next major bear market bottom is thereby due 7 years 3 months after the March 2009 low, i.e. in June 2016. This is the same month that the 16.6-16.9-year span and the 34-year cycle end for the constant-dollar Dow. We will give this target five months’ leeway because of what happened in 2001/2002. But with one straddled cycle low behind us, the next cycle bottom should provide a singular low. Thus, we have quite a narrow expected time zone for the final bear market bottom, in both nominal and constant-dollar terms. To summarize the outlook, the bear market will continue for another six years. We can be fairly confident about this time target."

NY Times: Consumers rarely emerge from debt settlement programs with their credit card balances eliminated, these critics say, and many wind up worse off, with severely damaged credit, ceaseless threats from collection agents and lawsuits from creditors.

"We believe that a powerful company like BP can easily form the fund and asset sales will be minimal, if any," Rosneft CEO Sergei Bogdanchikov told reporters.

Thursday, June 17, 2010


6/17/10 BP

Bond research firm CreditSights said Thursday that the $20 billion Deepwater Horizon victim spill fund to be set up by BP PLC marks a positive move for the oil giant. "We believe the outcome sends a message to the markets that the government does not intend to force BP into bankruptcy in some form or other, receivership, pre-pack, etc., through some vague legal viewpoint, unprecedented seizure of assets or suffocating set of fines and penalties," CreditSights said in a note to clients.

BP was downgraded to neutral from buy at Bank of America Merrill Lynch and to hold from buy at Seymour Pierce following the firm's agreement to set up a $20 billion escrow fund to handle claims linked to the Gulf of Mexico oil spill. Merrill analysts said they had been hoping the company's meeting with President Barack Obama would bring greater clarity on the ultimate liability for the spill, but that there is little comfort to be taken from the terms agreed. "Whilst we still believe that the asset base is ultimately deep enough to help BP weather the storm, we believe that the measures taken will materially erode BP's competitive advantage," the broker said. Seymour Pierce noted that BP is now talking about a significant shrinking of organic capital expenditure. "Given that the market will have to wait until the first quarter of 2011 for guidance on the dividend, it is difficult to see why the shares will do better than perform in line with the market," it said.

Standard & Poor's Ratings Services on Thursday lowered BP PLC's long-term credit rating to A from AA- and kept it on CreditWatch with negative implications, indicating that it can further downgrade the oil company in the future. "The downgrade reflects our opinion of the challenges and uncertainties that BP continues to face in the aftermath of the explosion on the Deepwater Horizon rig in the Gulf of Mexico on April 20, 2010, and the subsea Macondo well blowout," said Simon Redmond, an S&P credit analyst. "These challenges and uncertainties include the difficulties BP is experiencing in containing the spill as well as the ultimate extent of the pollution, the consequences for BP of ongoing official investigations, and the implications of these investigations for the magnitude and timing of further cash payments by BP," he added. S&P also noted that BP is under intense political pressure in the U.S.

Halting the dividend, reducing investments in drilling and selling oil and gas fields will do enough to ensure the company’s financial stability, Chief Financial Officer Byron Grote said yesterday.

China's currency is probably overvalued, not undervalued as Washington complains, a state-run Chinese newspaper wrote on Thursday.

Bank of America and other banks are preparing new fees on basic banking services as they try to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans.

Warren Buffett and Bill Gates are calling on the nation's wealthiest people to formally pledge at least 50% of their money to philanthropic causes and charity during their lifetimes or at their death.

First-time applications for state unemployment benefits rose by 12,000 last week to a seasonally adjusted 472,000, the Labor Department reported Thursday, providing further evidence that U.S. labor markets remain very weak. Meanwhile, the total number of people collecting unemployment benefits of any kind fell by 350,000 to 9.47 million in the week ending May 29 from 9.82 million. The number of people collecting federal benefits fell by 170,000 to 5.28 million.

U.S. consumer prices decreased in May for the second straight month as gasoline prices fell, the Labor Department reported Thursday. The consumer price index fell a seasonally adjusted 0.2% in May after a 0.1% decline in April, the government said. Energy prices fell 2.9%, food prices were flat and shelter prices rose 0.1%. The core CPI - which excludes volatile food and energy prices in order to get a look at underlying inflation - rose 0.1%, just the second monthly increase this year. The report matched economists' expectations.

Gold for August delivery gained $11.50 to $1,242.00 an ounce on the New York Mercantile Exchange.

Debt-burdened Spain raises $4.3 billion through a bond auction.

The government may start to require mandatory relief wells in the deepwater Gulf of Mexico, as Canada and Norway have done off their coasts.

Reggie Middleton: "The actual flow rate and the capture rate are still uncertain. The average cleaning costs per barrel and the litigation and punitive damages estimates are based on analyst estimates.

The total estimated spill cost is $40.5 billion, $73.9 billion and $107.2 billion under optimistic, base and adverse case, respectively. The amount of losses already discounted in the prices is nearly $67.9 billion (not taking into consideration the very recent pop in the stock price) which is the difference between the current market cap and the market cap based on fair value per share using peer average 2011e P/E multiple.

We modeled the estimated spill costs in the projected cash flow position of BP over the next four years and it is observed that although the spill costs will result in excessive liquidity pressures in 2010 forcing BP to cut down on dividend and capex and raising fresh debt, the possibility of bankruptcy will arise only if BP is not provided the required funds. It should also be noted that it is our understanding that bankruptcy will probably not expunge BP’s liabilities in regards to cleaning and rehabilitating the environment damaged by the spill. Based on the cash flow projections in which we have assumed cancellation of dividend in 2010 and cut down of capex by 50%, the total free cash flows in 2010 under Base case and Adverse case are -$40.4 billion and -$70.9 billion. Apart from any new debt requirements, BP also will need funds to refinance its maturing debt of nearly $1.3 billion and $6.0 billion in 2010 and 2011, respectively. BP has credit facilities of nearly $5 billion.

Thus, the survival of BP will primarily depend on availability of funds from the market (and barring a significant blowup stemming from the expanding Sovereign Debt Crisis) and the uncertainty around the spill costs will make the funding difficult."

More than 90 U.S. banks and thrifts missed making a May 17 payment to the U.S. government under its main bank bailout program, signaling a rising number of lenders are struggling to meet their obligations.

The Automatic Earth: "State and local borrowing as a percentage of U.S. GDP has risen to an all-time high of 22% in 2010."

The Commerce Department said Thursday that the deficit in the current account increased to $109 billion in the January-March period, compared to a revised $100.9 billion in the fourth quarter of last year.

Roughly 170,000 families spent at least one night in a shelter in 2009, up from 159,000 families in 2008 and 131,000 in 2007, according to the Housing and Urban Development Department's annual report to Congress released Wednesday. That increase, the report said, "is almost certainly related to the recession."

John Stuart Mill: "Panics do not destroy capital, they merely reveal the extent to which it has already been destroyed by betrayal into hopelessly unproductive works."

The Energy Department on Thursday is expected to report an increase of 88 billion to 92 billion cubic feet of natural gas storage inventories for the week ended June 11, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

Eric Fry: “The great enemy of the truth,” John F. Kennedy declared in a 1962 commencement address at Yale University, “is very often not the lie – deliberate, contrived and dishonest – but the myth – persistent, persuasive and unrealistic.”

Gold for August delivery most recently added $16.30, or 1.3%, to $1.246.90 an ounce on the Comex division of the New York Mercantile Exchange. The contract hit an intraday high of $1,250.30 an ounce, according to FactSet.

Natural-gas futures held on to Thursday's hefty gains after a Deparment of Energy's report showed a build of 87 billion cubic feet in natural gas in storages in the week ended June 11. Analysts polled by Platts had expected an increase between 88 and 92 billion cubic feet. Natural gas for July delivery added 18 cents, or 3.6%, to $5.15 per million British thermal units.

The Conference Board said it expects slower growth for the rest of the year, while its index of leading economic indicators rose 0.4% in May. Leading economic indicators rose 0.4% in May, following no growth in April. Economists polled by MarketWatch had expected the index to gain 0.7%. Five of the 10 indicators that make up the index rose in May, with the largest positive contribution from the interest rate spread. The largest negative contribution came from stock prices.

Manufacturing activity increased in the Philadelphia region for the 10th straight month in June, but at a much slower pace than in May, according to a monthly survey of companies released Thursday by the Federal Reserve Bank of Philadelphia. The Philly Fed index fell from 21.4 in May to 8.0 in June. Economists were expecting the index to strengthen to 22. Readings over zero indicate growth, with the smaller number in June indicating fewer firms were growing than in May. The new orders index rose from 6.1 in May to 9.0 in June. The shipments index fell from 15.8 in May to 14.2 in June. The employment index dropped from 3.2 in May to negative 1.5 in June.

The Dow Jones Industrial Average ended up 24.71 points at 10,434.17. The S&P 500 Index finished up 1.43 points at 1,116.04. The Nasdaq Composite (rose 1.23 points to 2,307.16.

June 17 (Bloomberg) -- BP Plc, the target of more than 220 lawsuits over the Gulf of Mexico oil spill, is seeking to borrow at least $5 billion from banks to meet compensation payments, according to two bankers approached by the company.

BP has asked lenders for one-year credit lines, one of the people said. It is arranging the transactions individually with banks, said the people, who declined to be identified because the talks are private. The financing is in addition to BP’s $10.5 billion of undrawn lines, the people said.

Wednesday, June 16, 2010

NOAA Vessel, the Thomas Jefferson

6/16/10 NOAA VESSEL, The Thomas Jefferson

ZeroHedge: "Matt Simmons was on Bloomberg earlier, adding some additional perspective to his original appearance on the station, in which he initially endorsed the nuclear option as the only viable way to resolve the oil spill. Simmons refutes even the latest oil spill estimate of 45,000-60,000 barrels per day, and in quoting research by the Thomas Jefferson research vessel which was compiled late on Sunday, quantifies the leak at 120,000 bpd. What is scarier is that according to the Jefferson the oil lake underneath the surface of the water could be covering up to 40% of the entire Gulf of Mexico. Simmons also says that as the leak has no casing, a relief well will not work, and the only possible resolution is, as he said previously, to use a small nuclear explosion to convert the rock to glass. Simmons concludes that as punishment for BP's arrogance and stupidity the government "will take all their cash."

June 8, 2010 | 10:33 am

"Scientists on a federal research vessel said Tuesday morning that they have confirmed a sub-sea concentration of hydrocarbons near the Deepwater Horizon leak site. The preliminary findings suggest that the undersea oil appears and disappears in a series of cloud-like concentrations -- instead of as a steady stream of oil, or plume, as early reports from university researchers suggested.
The federal researchers aboard the National Oceanic and Atmospheric Administration vessel Thomas Jefferson stressed that they could not conclusively say the oil is linked to the BP leak until water sample tests are completed. The initial findings were based on tests using sophisticated sound-monitoring and fluorescent scanning equipment that detects the presence of crude oil underwater.
NOAA researchers, joined by a University of New Hampshire expert and other outside scientists, detected the "clouds" of oil about 1,100 meters below the surface, 7 1/2 miles west-southwest of the Horizon leak. The clouds were dynamic -- some appeared on sensors at one point and then, later, did not register in the same location."

June 15:

WASHINGTON, D.C. (BNO NEWS) – National Oceanic and Atmospheric Administration (NOAA) vessel, the Thomas Jefferson, departed Texas to continue research on the BP oil spill disaster and its impact on the Gulf of Mexico.

During its three week mission, the research vessel will use sophisticated acoustic and water chemistry monitoring instruments to detect and map submerged oil in coastal areas and in deep waters surrounding the BP well head.

The mission will build on top of the research conducted in the vicinity of the spill by the Thomas Jefferson on June 3 – 11th as well as another NOAA vessel, the Gordon Gunter, on May 27 – June 4th. Aboard each ship, teams from NOAA, universities, marine science institutions, and other federal agencies collected water samples and employed advanced methods for detecting submerged oil while gathering oceanographic data in the area's waters.

NOAA ships the Gordon Gunter and the Pisces, NOAA's newest research vessels, are also under way as part of an ongoing effort to collect data about marine mammals, sea turtles, sea birds, and other marine life in the Gulf.

Meanwhile, specialized NOAA aircraft operating out of Alabama, Florida and Louisiana continue to support the Deepwater Horizon response.

In a sign of improving risk appetite, the S&P 500 index .SPX turned positive for the year and rose above its 200-day moving average for the first time in a month on Tuesday.

Spain raised 5.2 billion euros ($6.42 billion) at an auction on Tuesday and Belgium netted 2.5 billion euros. Ireland also sold 1.5 billion euros of debt, attracting investors seeking value from higher-yielding debt.

The spread on BP swaps widened by 115 basis points, hitting 600 basis points for the first time, according to data provider Markit. That means it would now cost $600,000 a year to insure $10 million of BP debt against default, up from $485,000 on Tuesday.

BP said it would not pay three quarters of dividends, significantly reduce its investment program and sell $10 billion of assets to fund a planned $20 billion fund to pay for its Gulf of Mexico oil spill.

The commitments, outlined in a statement on Wednesday, are harsher penalties than most investors had expected and follow BP chairman Carl-Henric Svanberg's meeting with President Obama on Wednesday.

BP said it would cancel the previously declared first-quarter dividend scheduled for payment on June 21, and said no interim dividends will be declared for the second and third quarters of 2010. The payouts had been expected to be about $2.6 billion per quarter, in line with recent quarters.

Investors had expected the suspension of BP's dividend, or payment in shares for a couple of quarters, and had not expected BP to be forced to sell assets and cut investment by 10 percent in 2010 and 2011 -- moves that will curb BP's growth.

When quizzed by analysts on a conference call about what BP had received in return for such major concessions, Chief Financial Officer Byron Grote said the agreement reflected the rising anger toward BP.

"(It) will certainly allow us to progress our business more effectively than would have otherwise been the case," he said.

The decisions to cut investment and sell assets come despite the fact BP is committed to putting only $5 billion this year into the new fund, which will be administered by a body independent from BP.

The company said it would generate over $30 billion from operations this year, while it also has massive credit lines.

In 2011 and beyond, BP will make payments into the fund of $1.25 billion per quarter, until the fund amounts to $20 billion.

France on Wednesday outlined a plan to hike its retirement age to 62 from 60, media reports said, citing a document from the labor ministry. The tax rate on the highest earning individuals would rise to 41% from 40%.

Russia is considering diversifying its international reserves, following fluctuations in the U.S. dollar and the euro, which represent 47% and 41% respectively of Russia's holdings. Alexei Ulyukayev, first deputy chairman of Russia's central bank, said the addition of the Australian dollar is being discussed, and suggested the Canadian dollar has already been added to the list of approved currencies. Russia has the world's third largest stockpile of international reserves at $458.2B.

Wal-Mart bought a small minority stake in Green Dot, a prepaid debit card seller, giving the retail giant indirect access to the U.S. financial market. Wal-Mart had previously tried to open its own bank but abandoned the attempt in 2007 following intense lobbying pressure from the banking sector.

In a newly released report, S&P expressed growing concern that many U.S. companies may find it difficult to refinance their heavy debt loads in coming years, leading to a possible surge in corporate bankruptcies. Around $300B of debt comes due in 2011, of which 41% is considered speculative; by 2014, the debt will climb to $550B, of which 72% is speculative.

Spanish and Portuguese bonds fell relative to German bunds amid deepening concern the nations’ growth will be curtailed by spending cuts needed to reduce their budget deficits.

Up to 15 people have been killed by flash floods in south-eastern France, officials say.

A number of others were reported missing after torrential rain hit the mountains above the Cote D'Azur region on Tuesday.

A number of towns in the department of Var were affected, with hundreds of homes flooded.

In Draguignan, a local official said 30cm (11.9in) had fallen since late on Tuesday afternoon.

The “bubble” in China’s property market is going to burst very quickly, with prices set to fall as much as 20 percent in the next 12 to 18 months, according to Nomura Holdings Inc. “If you look at housing prices to disposable income in Beijing and Shanghai, they are 13, 14 times,” said Sun, whose team was ranked third in Institutional Investor’s 2010 Asian poll for China research. “There’s no way you can say there’s no bubble.”

U.S. home builders sharply reduced construction as a federal tax break for home buyers expired, according to estimates released Wednesday by the Commerce Department. Housing starts fell 10% to a seasonally adjusted annual rate of 593,000 in May, the lowest level since December. The details were even worse, as starts of single-family homes plunged 17% to a seasonally adjusted rate of 468,000, the lowest in a year. Building permits fell sharply in May for the second straight month, with total authorizations falling 5.9% to a 574,000 annual pace after falling 10% in April. Single-family permits fell 10% for the second month in a row to a 438,000 pace.

U.S. wholesale prices fell a seasonally adjusted 0.3% in May - the largest decline since February -- as prices for energy and food goods fell, the Labor Department reported Wednesday. The core rate in May, which excludes volatile energy and food prices, rose 0.2%, the seventh monthly gain in a row. Economists surveyed by MarketWatch had expected overall producer prices to fall 0.6%, and for the core to gain 0.1%. In May gasoline prices fell 7%, while the index for fresh and dry vegetables fell 18%. Over 12 months, overall producer prices are up 5.3%. The core is up 1.3% over 12 months, the largest gain since September. Core producer prices for intermediate goods, viewed as a leading indicator of inflation, rose 0.3% in May. Over 12 months, core intermediate goods prices are up 6.1%, the largest gain since October 2008. In April, overall PPI fell 0.1%, and the core rose 0.2%.

Economic Disconnect : "Whether it is Hurricane Katrina, the banking crisis, the mortgage crisis, the Gulf Oil Spill, or your local DMV the people in charge really have no clue what to do and even less interest in helping anyone but themselves. I could waste my time and your and ask you to write or call your representatives and make some noise but we know how that works out by now."

4 Large Quakes in Papua, Indonesia.

RASMUSSEN Reports at 9:30AM ET:

Obama Approval Falls to New Low: 42%
Obama Approval Index: -20
Strongly Approve 24%
Strongly Disapprove 44%
Total Approval 42%

BP had nearly $7 billion in cash on hand at the end of March, according to its most recent financial statement. The company generates over $7 billion in cash each quarter, or about $30 billion per year.

Alex Morris, an analyst at Raymond James, said he expects BP to generate $35 billion in cash this year. Even if the company pays its $10.5 billion annual dividend, and goes ahead with plans to spend $19 billion in capital expenditures, it will still have $5 billion left over to pay for the spill, he said.

If the costs exceed $5 billion this year, BP could sell some of its assets to raise more cash. But that isn't likely, according to Morris.

"To be honest, under no circumstances could I see that happening," he said. "Even if the numbers get monstrously huge, the company still has the wherewithal to survive this," he said.

In addition, BP could borrow up to $17 billion and still be within its targeted debt versus capital range of 20% to 30%, according to analysts at GimmeCredit, a research firm focused on corporate bonds.

S. industrial sector accelerated in May, led by strong output of durable-goods manufacturing and utilities, the Federal Reserve reported Wednesday. Output of the nation's factories, mines and utilities rose 1.2% in May after a 0.7% gain in April. It was the largest increase since August. Output in manufacturing increased 0.9% for the second straight month in May. Capacity utilization rates climbed from 73.7% to 74.7% overall, and from 70.8% to 71.5% in manufacturing.

Rob Hanna: "On the NYSE yesterday Up Volume made up nearly 96% of all volume. This was the 2nd 90% up day in the last week (the other being last Thursday). I’ve shown before that this setup, while rare, has led to some extremely bullish returns."

FedEx, the largest air-cargo carrier, tumbled 2.5 percent after forecasting annual profit that may trail the average analyst estimates by as much as 67 cents a share.

There was a earnings and sales warning from telecom giant Nokia.

FMX Connect: "Natural gas prices continued moving higher yesterday, gaining another 18 cents per million Btu. And, for the most recent time in as many sessions, the advance was predicated on hot weather and the fear that this Atlantic hurricane and tropical storm season will be more active than last year.
A third component that has been working to help push quotes higher has been the technical aspect. Prices broke to the upside slightly less than two weeks ago, and traders have been looking to buy ever since. This is also true, it seems, of trading funds. They had been short, but the latest reading suggests they may be getting long, now. They may end up selling into higher prices, but they do not seem especially keen to try to stand in the way of higher prices here or now. For months, they helped to kill every rally and exploited weak points by hitting available bids with alacrity and aggressiveness.
Prices may now be getting slightly overbought, but there is still plenty of upside potential in this market. So far, the hot weather has existed mostly on paper, in the future in this market. At some point, soon, the hotter readings will be upon us, and we will start to see and even feel proof of the impact of these. "

The Energy Information Administration reported an increase of 1.7 million barrels from the week ended June 11. Analysts surveyed by Platts expected a decrease of around 1.75 million barrels. Total motor gasoline inventories decreased by 600,000 barrels, the EIA said. The analysts surveyed had expected an increase of 640,000 barrels. Stocks of distillates, which include heating oil and diesel, increased by 1.8 million barrels, the agency said. Distillates stocks were seen rising 760,000 barrels by Platts.

BewaretheFall: "I found Obama's speech chilling. How can a president claim to respect property rights guaranteed by the constitution when he intends to "inform" a foreign corporation that it will pay $20 billion to an "independent" agency to fund damage claims? Does anyone see an issue with "due process"?

After a big rally on Tuesday, the Dow Jones Industrial Average ended on a gain of 4.69 points, or 0.1%, to 10,409.46, with 14 of its 30 components rising. The S&P 500 index fell 0.62 points, or 0.1%, to 1,114.61, with the consumer staples and discretionary sectors weighing on the broad index. The Nasdaq Composite rose 0.05 points to 2,305.93.

Tuesday, June 15, 2010

The Claims Process

6/15/10 The Claims Process

Conditions for manufacturing in the New York region improved slightly in June, the New York Federal Reserve Bank said Tuesday. The bank's Empire State Manufacturing index edged higher to 19.6 in June from 19.1 in May, remaining solidly in positive growth territory but off the high of 31.9 in April. New orders and shipments moved higher in June. Inventory levels remained near zero. The prices paid index fell sharply. The index for the number of employees also declined but remained in positive territory. The survey found less optimism among manufacturers in the region. The Empire State index is of interest to investors and economists primarily because it's seen as an early indicator of what the Institute for Supply Management's June national factory survey due out in two weeks may show. In May, the ISM manufacturing index eased very slightly to 59.7 from a near six-year high of 60.4 in April.

Best Buy Co.said that its fiscal first-quarter profit rose to $155 million from $153 million a year earlier. Per-share profit was unchanged at 36 cents. Sales in the quarter ended May 29 climbed to $10.8 billion from $10.1 billion. The company kept its full-year profit of $3.45 to $3.60 a share. Analysts, on average, estimated Best Buy to earn 50 cents a share in the first quarter and $3.50 for the year, according to FactSet. "While our financial results in the fiscal first quarter were below expectations, we remain confident that the strategic investments we are making will deliver more robust connected solutions for customers and support increased margin expansion during the fiscal year," said Jim Muehlbauer, Best Buy's chief financial officer. "Best Buy shares fell 6% in pre-market trading.

Fitch Ratings downgraded BP's credit rating to BBB from AA and put BP on negative watch from evolving. In particular, the recent claims by U.S. state and federal authorities that BP escrow significant sums pre-emptively, ahead of any agreed claims process, represent a material change in approach, should it ultimately prove a legally supportable move against the company. It also cited the indication from U.S. government scientists of a significantly higher spill rate than previously announced by all parties.

The German ZEW indicator of economic sentiment fell sharply in June, with the economic expectations index declining to 28.7 vs. 45.8 May. Economists had forecast a reading of 42.5. The current conditions index, however, rose to -7.9 points from -21.6 in May.

WSJ: "Obama's Political Oil Fund. In its Gulf spill panic, the White House runs roughshod over the rule of law. The BP oil spill is already a calamity for the Gulf Coast ecosystem and economy, but now that Washington is looking to deflect all political blame it could also became a disaster for the rule of law. Exhibit C, or perhaps it's now D, is the new White House demand that BP pay into an escrow account controlled by government to pay for the economic costs of the spill. Exhibit A was the public announcement by Attorney General Eric Holder that his Department had opened a criminal probe of the spill, a fact usually kept under wraps to protect the innocent. Then came the President's suggestion that BP suspend its dividend, which is crucial to the retirement of thousands of shareholders. BP may decide it is prudent to suspend its dividend while it gets a better handle on its ultimate liability. But the White House has no legal basis to compel such a decision. Meanwhile, Democrats in Congress are preparing to lift their own $75 million liability cap and apply that retroactively to BP, another move of dubious legality. No wonder Britain's Prime Minister and other officials are alarmed about the fate of one of their country's foremost corporations. This is the kind of treatment that Americans would protest if it were applied to U.S. companies by Venezuela or Russia."

In a survey of markets, the Bank warned that widespread fear over the possible collapse of a sovereign debtor, including Greece and Portugal, had sparked a mass of bets on a 20 per cent fall in the FTSE 100. The warning coincides with calculations from the Bank for International Settlements (BIS) showing that Britain has major exposure to the Irish and Spanish banking systems, which many fear could be at risk in the next round of the financial crisis.

THE powerful Bank for International Settlements has judged that the European sovereign debt crisis is shaping up as a repeat of the US subprime mortgage debt meltdown.

Net foreign purchases of U.S. long-term securities increased in April but at a slower pace than the record set last month, the Treasury Department said Tuesday. Total holdings of equities, notes and bonds increased a net $83.0 billion in April, down from a record $140.5 billion in March but still a strong increase. Foreign investors have sought refuge in safe-haven U.S. Treasury bonds and notes in recent months as the European debt crisis intensified, analysts said. International demand for Treasurys increased $76.4 billion in April, compared with a gain of $108.4 billion in March. Foreign governments bought a net $14.5 billion of Treasurys after purchases of $28.2 billion in March. Private purchases of Treasuries rose by $61.9 billion after purchases of $80.2 billion in the previous month. Purchases of U.S. corporate debt and agency debt also increased for the second straight month. Analysts said this was a sign that investors believed that the U.S. recovery was sustainable. Including short-term securities and bank lending data, foreigners bought a net $15.0 billion compared with purchases of $26.0 billion a month earlier. China was a net buyer of Treasuries for the second straight month, according to the report.

U.S. import prices fell 0.6 % in May after a revised 1.1% gain in April. And, an index of manufacturing in the New York region climbed to 19.6 in June versus 19.1 in May.

The Automatic Earth: "Another such problem area is the consequences of indebtedness. Presently bankruptcy is relatively civilized in comparison with earlier eras, if harder to get than it used to be. Discarded 'remedies' for indebtedness have included debtors' prison, indentured servitude (perhaps inter-generational) and being strong-armed into the military. These are generally no longer in use, although the military option is already regaining a foot-hold. People in the US can often walk away from debt, either through bankruptcy or strategic default on underwater mortgages. As (un-refinanced) mortgages are often non-recourse loans in the US, people can choose to walk away with the only damage being to their credit score. If they buy or rent another property prior to default, the damage can be minimal. However, such a situation is highly unlikely to persist.
Apart from the arguments about trickles and floods, such strategic default is very socially divisive, which means it will be easy to generate a mandate to prevent it in the future, whether or not doing so would violate existing contract terms. Those who expect contract terms to remain inviolate are likely to be very disappointed in many instances. Governments don't 'fight fair'. When push comes to shove, they are perfectly capable of changing the rules abruptly, and retro-actively if they perceive it to be necessary. After all, we are already witnessing the demise of the rule of law in many obvious ways. The rule of law exists only when the centre agrees to be bound by the same rules as others, and that is less and less the case all the time."

Sentiment among U.S. home builders retreated in June after a tax break for home buyers expired, according to a monthly survey released Tuesday by the National Association of Home Builders. The housing market index dived to 17 in June from 22 in May, the NAHB reported. All three components of the index fell in June, and home builders were more discouraged in all four regions of the country. The index was lower than the 21 that was expected by economists surveyed by MarketWatch, and was the lowest since it hit 15 in March.

Rupert Murdoch's News Corp is proposing to pay $12 billion to take control of British satellite broadcaster BSkyB as it seeks to generate steadier earnings and make better use of its cash pile.

But BSkyB, founded more than 20 years ago by Murdoch and still chaired by his son James, demanded a higher offer on Tuesday for the 61 percent of BSkyB that News Corp does not already own.

News Corp proposed to pay 700 pence per share for BSkyB, which dominates Britain's pay-TV market thanks mainly to top sports offerings -- representing a 17 percent premium to Monday's closing price.

But BSkyB's independent directors unanimously rejected the bid as too low. They said they would be prepared to support an offer of above 800 pence per share.

Crude oil futures broke through the $77-a-barrel level.

BP's 1.55% coupon bond maturing in 2011 are trading with yield up to 8.76%. Yields on the most actively trade issue, the 5.25% coupon security of 2013, are up to 7.66%. BP’s liabilities include $37 billion in cleanup and potential litigation expenses, according to a June 2 Credit Suisse report. While a U.S. bankruptcy may halt many claims, it wouldn’t allow BP to avoid paying for most of the cleanup and damages, said New York bankruptcy lawyer Martin Bienenstock of Dewey & LeBoeuf LLP.

“It’s highly unlikely the claims would be so large that BP would pay any valid claims less than in full,” said Bienenstock, who advised General Motors Co. and Chrysler Financial Corp. in their bankruptcies. “The environmental claims and other claims would all ride through bankruptcy and be paid in the normal course.”

BP said it won’t seek court protection. “We categorically deny those rumors,” said David Nicholas, a company spokesman.

Schork Report: : "BP’s culpability aside, the company is also responsible for helping to bring an additional 368 Mbbl/d (+7.4%) of domestic oil to the market last year, i.e., 134 MMbbls — or more than three months’ worth of Venezuelan imports.

That output is now under threat. Thus, there is growing concern that the U.S. offshore oil industry will go the way of the nuclear industry post Three Mile Island. In this vein, we hope cooler heads in Washington will prevail."

The American Petroleum Institute, a Washington-based trade group, on Tuesday reported an increase of 579,000 barrels in the nation's oil inventories in the week ended June 11. Analysts surveyed by Platts expected a decrease of around 1.75 million barrels for crude-oil stocks. Gasoline stocks rose 1.344 million barrels, whereas analysts forecast an increase of 640,000 barrels. Distillates inventories rose 2.14 million barrels; analysts had seen a rise of 760,000 barrels. The API data comes ahead of Tuesday's more closely watched report from the Department of Energy.

The Dow Jones Industrial Average gained 213.88 points, or 2.1%, to 10,404.77. The S&P 500 index rose 25.60 points, or 2.4% to 1,115.23. The Nasdaq Composite gained 61.92 points, or 2.8%, to 2,305.88.

Gold for August delivery, the most active contract, rose $9.90, or 0.8%, to $1,234.40 an ounce. Other metals also closed higher, with palladium leading the pack. Palladium for September delivery added $12.95, or 2.8%, to $475.55 an ounce.

BP Plc and the Obama administration haven’t reached agreement on setting up an escrow fund to pay cleanup costs and claims stemming from the Gulf of Mexico oil spill, people familiar with the negotiations said today.
The two sides continue to negotiate over issues including the size of the fund, who would administer it and whether BP shareholders would have to approve the transfer of money required for the account, according to the people, who asked not to be identified describing the private talks.

Monday, June 14, 2010

Running on Cash Fumes

6/14/10 News Part 2 Running on Cash Fumes

Questions on BP:
Was and is the well casing breached.
What is the integrity of the well and the well bore walls.
Is there seepage or leakage from the sea floor surrounding the well head.

ZeroHedge: "Last week, we pointed out that the ECRI Leading Index dipped to negative for the first time in over a year, which on a historical basis tends to predict a recession with surprising regularity. Today, David Rosenberg takes this data and expands on his views of the probability of a double dip.An interesting observation: when the ECRI drops to -10 (from the current -3.5, and plunging at the fastest rate in history), the economy has gone into a recession 100% of the time, based on 42 years of data. At the current rate of collapse, this means in two months we should know with certainty if the double dip has now arrived. "

Moody's Investors Service on Monday downgraded Greece's government bond ratings by four notches to junk status of Ba1 from A3, reflecting its view of the country's medium-term credit fundamentals. "The Ba1 rating reflects our analysis of the balance of the strengths and risks associated with the Eurozone/IMF support package. The package effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasible, and incentive-compatible set of structural reforms, which have a high likelihood of stabilizing debt service requirements at manageable levels," said Sarah Carlson, Moody's senior analyst. "Nevertheless, the macroeconomic and implementation risks associated with the program are substantial and more consistent with a Ba1 rating," she added. The outlook on all ratings is stable.

The Dow Jones industrial average slipped 20.18 points, or 0.20 percent, to 10,190.89. The Standard & Poor's 500 Index shed 1.97 points, or 0.18 percent, to 1,089.63. But the Nasdaq Composite Index inched up just 0.36 of a point, or 0.02 percent, to 2,243.96.

Earlier, the S&P 500 was up as much as 1.3 percent, breaking through the psychologically important 1,100 level and brushing up against its 200-day moving average at 1,107.95, a level that the index has struggled to break through for the last month.

During the trading day, the euro came within a breath of $1.23, its highest level since early June, as investors seemed comfortable taking on more risk, but then pared gains following Moody's downgrade. Late Monday in New York, the euro was up almost 1 percent at $1.2226.

Hershey Co. said late Monday it plans to trim 500 to 600 jobs as it modernizes its century-old chocolate factory.

Crude oil for August delivery, the most active contract, gained 94 cents, or 1.3%, to $76.28 a barrel. Natural gas futures rallied 4.7% to settle at $5 per million British thermal units, a four-month high.

BP PLC on Monday released a revised plan to capture oil from the leaking containment cap in the Gulf of Mexico in response to a request from the U.S. Coast Guard over the weekend. The company hopes to capture up to 40,000 barrels per day of oil by the end of June. A second containment system will be in place to capture up to 80,000 barrels of oil a day by the middle of July, according to BP. The oil giant outlined its plan in a June 13 letter to Rear Adm. James Watson released Monday. A June 9 letter from BP put the top end of the containment system at 50,000 barrels a day. Currently, a containment cap is capturing 15,000 barrels of oil a day.

BP’s shares slid a further 9 per cent on Monday as Democratic congressmen called on the multinational oil company immediately to inject $20bn into a ring-fenced fund to clean up the massive spill in the Gulf of Mexico.

US President Barack Obama also added to the intensifying pressure on BP suggesting the environmental disaster would have a profound impact on American thinking.

Houston Chronicle: "Dangerous toxins have not been found by any of the federal agencies taking fish and seafood samples. However, the Gulf of Mexico Fishery Management Council said the agencies are slow to publish their findings — NOAA has yet to publish any — and the lack of information and transparency is raising concern with the wider public. Already, the council said, restaurants are putting up signs informing patrons they are not serving Gulf seafood. The council expressed concern that this leaves the door open for competitors, including international ones, to enter the market."

An article in Gulf News on Friday reported that Qatar will now join Russia in cutting back natgas output this year. The country’s two largest LNG producers, RasGas and QatarGas, are expected to idle two thirds or 41 million tons per year (≈2.0 Tcf) of Qatar’s export capacity of 61.5 million tons per year (≈3.0 Tcf).

ZeroHedge: "The US Treasury is once again running on cash fumes, with total US Treasury cash down to $4.3 billion in the Treasury's Federal Reserve account. The reason: the US Treasury has now rolled $320 billion in total treasuries in the first ten days of the month, or over $11 trillion annualized. All those paying attention to interest paid on US debt are focusing on the wrong thing: the monthly scheduled amortization of principal are now by far a much greater threat to the US Treasury than a couple of percent increase in rates. The short-date sides of the curve is getting progressively larger, contrary to the UST's previously announced plan to extend the average duration of Treasury debt. After all, why issue 10 Year+ debt and take on auction and interest risk, when courtesy of everybody rushing away from the equity market, the interest in zero interest overnight maturities is virtually infinite... Unless, of course, you are Spain, where the interest is the opposite of infinite."


6/14/10 Corrections

Cablevision Systems Corp. said Monday it would buy Bresnan Communications from Providence Equity Partners in a deal valued at nearly $1.4 billion. Bresnan owns cable operating systems in Colorado, Montana, Wyoming currently serving more than 300,000 subscribers.

UBS economists on Monday said they expect the U.S. Federal Reserve and the European Central Bank to keep interest rates on hold longer than previously forecast. The economists now expect the Fed to deliver its first hike in the Fed funds rate in January 2011, rather than September 2010, due to the euro-zone debt crisis. UBS now expects the Fed funds rate to rise from its current level near zero to 1.5% at the end of 2011, half a percentage point below its previous forecast. The ECB's first rate hike is now expected to come in the second quarter of 2011 rather than the first quarter, as previously forecast, UBS economists said, due to expectations looser monetary policy will be needed to offset the effects of fiscal tightening and little prospect of a near-term resolution to the euro-zone debt crisis.

BP said Monday that the cost of its response to the oil spill in the Gulf of Mexico has reached $1.6 billion, including new grants of $25 million each to the states of Florida, Alabama and Mississippi and the first $60 million in funds for the Louisiana barrier islands. The group said that over 51,000 claims have been submitted and more than 26,500 payments have been made. BP executives are slated to meet Wednesday with President Barack Obama, who will reportedly demand that a special reserve account by created to pay for damages caused by the spill.

John Hussman: "Among the fascinating aspects of the recent economic "recovery," probably the greatest is the failure of analysts to understand that this growth is none of the private sector's doing.... the year-over-year growth rate since early 2009 now matches the worst performance of any of the 50 years preceding the recent downturn." In effect, Wall Street's is seeing "legs" where the economy is in fact walking on nothing but crutches....the Economic Cycle Research Institute (ECRI) reported Friday that its Weekly Leading Index has slumped to the lowest level in 44 weeks, and has now gone to a negative reading.... unless the credit spreads, the S&P 500, or the yield curve reverse, a further decline in the Purchasing Managers Index to 54 or below would be sufficient to confirm a "double-dip recession." Note that by itself, such a level might not be particularly troublesome. But in concert with the other evidence we observe, it would be sufficient to complete the syndrome of risk factors....Randall Forsyth offered the following nugget in Barron's last week, with which I can't disagree: According to Bespoke Investment Group, there have been 58 "corrections" of 10% or more in the Standard & Poor's 500 since 1927. In 33 cases, the corrections stopped short of the 20% bear market threshold and the market went on to higher highs, while 25 times they grew into a full-grown grizzly. But in the 32 instances when the market has dropped as much as this one has -- 14.4% from the April 23 peak through Monday -- the outcome has been heavily weighted to the losing side. Only seven times drops of that size stopped short of the 20% bear mark. In the 25 other times the decline extended to 20%, the average bear market decline was 35.5%."

Austerity packages coming into force in Europe will only aggravate the euro zone's problems, Wilbur Ross, Chairman and CEO at WL Ross and Co., told CNBC Monday. "I think the political troubles in Europe are all just about to start because the governments have all pledged about budget deficits," Ross said.

"But now comes the hard part - will there be more strikes, riots, etc. So I'm not sure it will be easy over the next few weeks," he added.

UK's George Osborne will have to frame his Budget next week against the backdrop of significantly weaker economic forecasts, making the process of deficit reduction all the more difficult.

A south Indian media baron is buying out U.S. investor Wilbur Ross' stake in India's SpiceJet Ltd., the company said, sending the stock of the budget carrier up as much as 6.2 percent on Monday.

Kalanithi Maran, the founder of India's Sun TV Network Ltd., has agreed to buy a 37.7 percent stake in SpiceJet for 7.39 billion rupees ($158.9 million), or 47.25 rupees ($1) a share — a 16 percent discount to Friday's closing price.

This will make Maran, a baron of regional-language media in South Asia, the largest single shareholder in SpiceJet, which is India's second-biggest budget carrier.

Sun Scientist: "SUNSPOTS come and go, but recently they have mostly gone. For centuries, astronomers have recorded when these dark blemishes on the solar surface emerge, only for them to fade away again after a few days, weeks or months. Thanks to their efforts, we know that sunspot numbers ebb and flow in cycles lasting about 11 years.

But for the past two years, the sunspots have mostly been missing. Their absence, the most prolonged for nearly a hundred years, has taken even seasoned sun watchers by surprise. "This is solar behaviour we haven't seen in living memory," says David Hathaway, a physicist at NASA's Marshall Space Flight Center in Huntsville, Alabama.

The sun is under scrutiny as never before thanks to an armada of space telescopes. The results they beam back are portraying our nearest star, and its influence on Earth, in a new light. Sunspots and other clues indicate that the sun's magnetic activity is diminishing, and that the sun may even be shrinking. Together the results hint that something profound is happening inside the sun. The big question is what?

The stakes have never been higher. Groups of sunspots forewarn of gigantic solar storms that can unleash a billion times more energy than an atomic bomb. Fears that these giant solar eruptions could create havoc on EarthMovie Camera, and disputes over the sun's role in climate change, are adding urgency to these studies. When NASA and the European Space Agency launched the Solar and Heliospheric Observatory almost 15 years ago, "understanding the solar cycle was not one of its scientific objectives", says Bernhard Fleck, the mission's project scientist. "Now it is one of the key questions."

Since at least mid-April, investors have lowered expectations for commodities and stock markets. Prices for non-ferrous metals and other commodities have fallen from highs posted earlier in the year, and the Shanghai A-share market index declined 19.5% between April 15 and June 4.

Government measures in the first quarter pinched some sectors, as regulators sought to prevent overheating, especially in the real-estate industry. Debt controls were ramped up for local government funding platforms, affecting local investment behavior.

Meanwhile, Europe's ongoing sovereign debt crisis and other external factors cast a pall over China's foreign trade.

The changes that Xue sensed in December were generally hidden behind strong first-quarter statistics for China's economy. But by April, the party was obviously over.

"April and May saw important changes for domestic and foreign policy, as well as financial trends," said Ha Jiming, chief economist at China International Capital Corp. (CICC).

And rising concerns that the global economy may be headed toward the second trough of a double dip have further underscored the challenges to China's future growth.

Bloomberg :"Europe's Banks May Face Second Funding Squeeze Amid Sovereign-Debt Crisis."

The NYT reports that "The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials." The article continues, "The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe." Ah yes - "previously unknown." Yet the punchline of the piece : "The vast scale of Afghanistan’s mineral wealth was discovered by a small team of Pentagon officials and American geologists."

In Seoul, Samsung Heavy, the world’s biggest builder of deepwater rigs, used in seas more than 10,000 feet deep, has dropped 11 percent since April 20, compared with a 1.6 percent retreat for the Kospi Index. The company rose 0.4 percent today to 23,500 won, the highest price in a month.

BP has said it does not expect to announce decisions about its dividend until after its chairman and chief executive speak with Mr. Obama at a meeting he has called for midweek.

“We are considering all these issues and look forward to constructive conversations on Wednesday in the White House,” said Andrew Gowers, a senior BP spokesman.

A person with direct knowledge of the board’s discussions said Monday that the board was considering three possible options: suspending payment of the dividend for two quarters, paying the dividend in bonus shares or escrowing the amount of the dividend while paying for the cleanup. Under the last option, BP would use cash generated from revenues to pay for the cleanup and would not tap the fund unless it was needed. This option, the person said, could offer some reassurance to both Washington and to shareholders that BP will pay for the cleanup while also trying to accommodate shareholders.

Spain said on Monday that foreign banks were refusing to lend to some of its banks in the latest twist to the euro zone debt crisis, but denied it was on the brink of seeking a Greek-style European financial rescue.

Treasury Secretary Carlos Ocana acknowledged officially for the first time a liquidity freeze on some Spanish banks in the interbank market and said the government was working to restore confidence through budget cuts and structural economic reforms.

"It's definitely a problem," Ocana told a conference of business leaders in the northern town of Santander when asked about the reported credit squeeze. But he said Madrid was not negotiating any financial aid package.

"Spain does not need additional financing from any international institution. The rumor is false and I deny it," he said.

With the job market in dire straits, household incomes declining and foreclosures dragging down home values, the housing market may take years to recover, according to the annual State of the Nation's Housing report released Monday by Harvard University's Joint Center for Housing Studies.

For Clarion, plant's closing an economic, emotional loss
After 105 years, Owens-Illinois will shut its doors, putting 420 people out of work, devastating a town.

The plant's 420 workers, who like generations before them have made beverage bottles, pickle jars and a variety of glass containers, will lose their jobs by month's end. They and others with ties to the community worry about the emotional and economic toll the closing will impose on the borough, Clarion County and surrounding area.

"There's nothing left here. Nothing at all. That's the last big plant in town," said Sheryh Donaldson, 51, of nearby Callensburg, Clarion County. "This part of town is going to get very depressed unless something moves in here. I love this town, and I don't want to see that happen."

European Union leaders should not rule out changing the EU’s governing treaty as a way of driving forward economic integration and emerging from the present crisis, says Herman Van Rompuy, president of the European Council.

In a Financial Times interview, Mr Van Rompuy said treaty change – backed by Angela Merkel, German chancellor, but by few other leaders – was not a priority in his view, but might be required in future.

Treaty change is a highly charged issue. It took EU governments eight years to agree on the Lisbon treaty, which took effect last December after various political shocks, including failed referendums in France, Ireland and the Netherlands.

“If we agreed on it, that would be the next step, but it will take a long time. There is no taboo on it. But for now we are working within the framework of the existing treaties,” said Mr Van Rompuy.

Political pressure to protect jobs is among the factors that could prompt a lift to the Obama administration's six-month deepwater drilling moratorium in the wake of the Deepwater Horizon disaster, analysts at FBR Capital Markets said in a note to clients Monday. "Behind the scenes the administration insists that it is committed to returning to robust oil production in the Gulf of Mexico as soon as is feasible," analyst Benjamin Salisbury said in a note to clients. In 2009, the government collected $11 billion in royalties from offshore leases, he added.

The worst oil spill in U.S. history has created an unprecedented financial, legal, regulatory and environmental crisis for companies that operate in the Gulf of Mexico, Moody's Investors Service said on Monday.
"The accident could have an international impact as well, as other governments that oversee offshore production adopt these new, stricter U.S. standards," Moody's said in a report.
"We believe it could take up to two years before producers, rig operators, and service firms in the deepwater Gulf can resume activity to pre-spill levels," said Steven Wood, a managing director at Moody's.

Extreme Divergence

6/13/10 Extreme Divergence

Congress allowed emergency health care assistance for unemployed workers to expire May 31, and seems unwilling to renew it despite pleas from President Barack Obama.

Barry Ritholtz; "Contrarians beware: A long article on the rise of Gold as an investment asset class is on the front page of the NYT."

Mike Burk: "By all measures average returns have been negative over the coming week and the 2nd year of the Presidential Cycle has been the worst of all.....Last weeks rally appears to have been little more than relief from an oversold condition.

I expect the major averages to be lower on Friday June 18 than they were on Friday June 11."

Robert McHugh: "There is another indicator we follow every day which has spelled out the precise market condition as a Hindenburg Omen identifies. That is the number of 90 percent up days and 90 percent down days we have seen over the past seven weeks. Are ready for these stats? Amazing. Since April 16th, 2010, there have been eight 90 percent down days and five 90 percent up days. 90 percent days are panic buying or panic selling days. This is highly unusual market action. And it indicates as Peter says about the H.O., "the market is undergoing a period of extreme divergence . . . And such divergence is not usually conducive to future rising prices. A healthy market requires some semblance of internal uniformity, and it doesn't matter what direction that uniformity takes."

Do you see? The high number of 90 percent up days interspersed over the past seven weeks is botching up the uniformity we would see in a normal corrective downtrend -- which would be a good thing for the market because it means a base building bottom is approaching. But there is not any uniformity to the decline from April 16th. Panic selling followed by panic buying followed by panic selling, etc... In other words, we now have the precise condition necessary for a stock market crash to occur over the next few months. This market has flies on it.

The most the Central Planners can hope for is an orderly decline over a period of weeks or months instead of a couple days of flash crashing. But a couple days of flash crashing where prices drop 2000 points over a few days cannot be ruled out. We believe that by the end of 2010, we would have seen stock prices fall at least 20 percent below where they are this weekend. There will be bounces along the way, but we have entered a period of time where lower lows and lower highs will occur, and that period of time could last several more years, into the 2012 to 2014 time period."

Jack Mason: "Over the past week, the Trin has recorded one of the highest Trin readings on record, and one of the lowest Trin readings of the past 70-years....

According to Elliott Wave's June 11 Financial Forecast: "And today's intraday NYSE Tick of +1644 is a 23-year record extreme back to 1987 when our data series begins."

Trading volumes have a decided negative bias. That is, higher volume has been on the sell side for the past few months, with up days having lighter volume. The market trends higher only when the sellers back off."

U.S. President Barack Obama will tell BP executives this week that he wants the oil company to establish an escrow account to pay damage claims by individuals and businesses hurt by the Gulf of Mexico oil spill disaster, the Politico newspaper reported on Sunday.

SALT LAKE CITY — Containment of a crude oil spill estimated at around 20,000 gallons into Red Butte Creek is expected to last well into the night and continue through Sunday as multiple agencies work to mitigate impacts to the stream and wildlife.

The fracture of the Chevron pipeline sent oil gushing into the riparian corridor, leaving the thick, tacky substance clinging to rocks, soil and any fish and birds in its path.

South Korea unveiled Sunday comprehensive measures to ease the adverse impact of rapid capital flows on the local economy, including new rules to limit local and foreign banks' foreign exchange forward positions.

The steps, to be effective from sometime in July, were mostly in line with market expectations following a series of media reports recently, but came when the local financial markets shut during the weekend and only after government officials stayed tight lipped regarding the issue for weeks on fears that the news could lead to turmoil in the local financial markets.

The authorities have "conducted stress tests" to local and foreign banks ahead of the implementation of the measures, thus any shock will be minimized, Vice Minister of Strategy and Finance Yim Jong-yong told reporters.

"We find the fundamental reason for the financial crisis (the local economy had gone through) in the past in excessive volatility in capital inflow and outflow," the finance ministry said in a joint statement with the Bank of Korea, the Financial Services Commission, and the Financial Supervisory Service.

Asia's fourth-largest economy has experienced a vicious circulation of rapid capital flows leading to financial instability and accordingly to a real economic downturn, it said.

Reducing banks' excessive short-term offshore borrowing and unnecessary usage of foreign currency-denominated loans will be key to resolving the long-repeated problem, the authorities said.

The new measures will ease volatility of capital flows "in both directions" and boost the macroeconomic soundness to finally produce better investment environment and contribute to sustainable growth, the statement said.

The new measures mark the latest effort by Seoul to try to reduce won volatility, which can cause headaches for exporters and create instability for the financial sector.

FT : "US must hit reset button with BP

Published: June 11 2010 21:41 | Last updated: June 11 2010 21:41

Tony Hayward has been lambasted for his inept handling of BP’s oil spill in the Gulf of Mexico. But Barack Obama, the US president, and his administration have done no better. Indeed, their crudely populist response to the spill threatens to make what is already a bad situation a great deal worse.

There has been far too much posturing by the US administration. This was bad enough when it was confined to rhetoric – the faintly xenophobic harping on about “British Petroleum” (a name the company hasn’t used since 1998), or the coarse threats to keep the government’s boot on BP’s throat.

But it has now extended to the airing of ideas that are both misguided and dangerous, such as the one thrown out by Ken Salazar, the interior secretary, to make BP liable for the earnings lost by other oil rig workers as a result of the administration’s own deepwater drilling ban.

There is no justification for extending the definition of damage caused by the spill in this way. It politicises further what is already a fraught situation, and will simply encourage interested parties to lobby for further extensions. While Mr Obama has every right to ask BP for a large cheque, he is not entitled to a blank one. Moreover, Mr Salazar’s idea contains more than a whiff of discrimination, especially when combined with the stress that has already been placed on BP’s Britishness. Picking on foreigners is an odd road for the US to travel down. The US is by far the largest holder of foreign corporate assets in the world.

But Mr Salazar is not the only one striking false notes. The whole administration, from Mr Obama down, has played it badly. The president and his ministers have succumbed to a media-led campaign that has urged them to show their anger about the scale of the spill and the stuttering attempts to get it under control. This has led to a series of vituperative statements about BP, such as the president’s recent observation that he wanted someone’s “ass to kick”. The problem is that these sallies, far from appeasing public anger, merely set off a dangerous feedback loop in which anger and frustration is magnified. This then forces the administration into ever more extravagant denunciations.

The consequent ratcheting up of pressure is subjecting BP to financial stress. Its share price – in spite of a bounce in the last few days – is 38 per cent below its level before the Deepwater Horizon well exploded in April. The cost of insuring the company’s debt against default has spiked to junk bond levels. This has threatened not just to hurt British shareholders, but also the Americans who hold 39 per cent of BP’s shares.

What is needed now is for a cooling of the temperature. The British government has sensibly eschewed the chance to add a diplomatic dimension to what is already an environmental crisis. Mr Obama needs to simmer down too.

It is a positive sign that the administration is actually talking to BP directly rather than conducting all of its exchanges via megaphone. Next week’s proposed White House meeting with the company’s hitherto invisible chairman, Carl-Hendric Svanberg, is a chance to reset the relationship.

Mr Svanberg must step out of the shadows and take a higher profile in the management of the crisis. Mr Hayward has, fairly or not, become a hate figure in the US and should be withdrawn from the fray. He should concentrate on making sure that the capping and clean-up operations actually work.

The administration must curb the urge to hammer BP in public. The objective now must be to restore confidence in the clean-up operation. There is plenty of time for blame to be apportioned. What is needed is to get the spill under control and the beaches cleaned.

It is right that BP should be made to pay for the consequences of the spill. But the administration should remember that at no time has the company sought to shirk this responsibility. The public demands for a dividend cut are unnecessary. It is the responsibility of BP’s directors to ensure the company can meet all its obligations, including the spill costs. The White House should trust them to discharge it.

BP has, after all, no incentive whatever to be unco-operative. A third of the company’s operating assets are in the US. Tens of thousands of its employees are based there. Were it to lose its position in the country, its whole future would be cast into doubt.

Mr Obama should stop treating BP as a hostile and alien entity. Much more would be achieved if the administration worked with the company rather than kicked it endlessly in public."

NYTimes: " Editorial: The President’s Moment

President Obama cannot plug the leak or magically clean up the fouled Gulf of Mexico, but he needs to do a lot more to show he is on top of the mess."

ZeroHedge: "Ever wonder who may have been buying up every share of BP stock earlier this week, especially when it plunged to 14 year lows on June 9 amid media frenzy based on a Fortune story in which Simmons & Co.'s CEO Matt Simmons was quoted as saying that BP "has about a month before they declare Chapter 11. " Why, Simmons & Co. itself, of course. In a note released to clients on Friday, Simmons & Co, upgraded BP from Neutral to Overweight, in which Mr. Simmons amusingly notes, "the kitchen sink of headlines have been thrown at BP shares over the past 2 weeks, thereby partially desensitizing the shares to the news." With his dire warnings of an imminent bankruptcy just two days prior to the upgrade, Mr. Simmons surely did his fair share to contribute to kitchen sink. It is only fair that after creating a near-panic in the name, that the firm would now suddenly be stuck in a Schrodinger's Cat world, in which BP is seen as both bankrupt, and having a $52 price target at the same time."

“The BP oil spill threatens a number of power plants.
If the water supply for these facilities becomes contaminated
with oil, cooling water systems could be damaged.”

- U. S. Dept. of Energy May 12, 2010 Situation Report

Tim W. Wood: "This is one large ongoing recession that will become much worse and much more than a simple recession. Since early 2009 we have seen just enough relief for the masses to think that is it over. My read is that we have been in the eye of the storm and that we now have to ride out the rest of the storm. In this case, that storm is K-wave winter and its deflationary forces as well as the Phase II bear market decline for equities."

“China’s State Administration of Foreign Exchange, the regulator which oversees the nation’s nearly $2.5 trillion foreign exchange stockpile, said Thursday that the gold market is too small, illiquid and volatile to be considered suitable for asset allocation, according to a Reuters report…“Safe did not give an update on its gold holdings, which rose to 1,054 tons last year from 600 tons in 2003, as a result of purchases of local production. Safe also said in the annual report that it plans to improve the diversification strategy for the management of China’s reserves, including the range of asset classes it believes are suitable. It did not provide details.”

Iran has finalized a contract to export natural gas to Pakistan, state radio reported on Sunday, as the country home to the world's second largest gas reserves looks to boost its role in the gas market.

(Reuters) - Transocean Ltd has resolved its spat with the Obama administration over the oil drilling company's attempt to limit its liability in the Gulf of Mexico spill, according to court papers filed on Friday.

The company and the Justice Department have been arguing for weeks over Transocean's petition in federal court to limit its liability to just under $27 million over the sinking of its rig that was drilling the oil well for BP Plc.

Transocean seized on a 159-year-old law -- the Limitation of Liability Act of 1851 -- to make its case. After complaints by the Justice Department, the company told the court in Houston it did not mean to restrict claims by the U.S. government under a 1990 law on oil spills.

After haggling over legal language, Transocean filed a letter on Friday and proposed a six-page order that excluded any claims or penalties that may be sought by the Obama administration and states under federal pollution and environmental laws.

"The Department of Justice has indicated to the company that it has no opposition to the proposed order," Transocean said in a statement.

The proposed order must be signed by the judge presiding over the case.

"The order accomplishes what the government sought," a Justice Department official said.