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UKT: BP chief Tony Hayward sold shares weeks before oil spill
The chief executive of BP sold £1.4 million of his shares in the fuel giant weeks before the Gulf of Mexico oil spill caused its value to collapse.
By Jon Swaine and Robert Winnett
Published: 12:10AM BST 05 Jun 2010
Tony Hayward cashed in about a third of his holding in the company one month before a well on the Deepwater Horizon rig burst, causing an environmental disaster.
Mr Hayward, whose pay package is £4?million a year, then paid off the mortgage on his family’s mansion in Kent, which is estimated to be valued at more than £1.2?million.
There is no suggestion that he acted improperly or had prior knowledge that the company was to face the biggest setback in its history.
His decision, however, means he avoided losing more than £423,000 when BP’s share price plunged after the oil spill began six weeks ago.
Since he disposed of 223,288 shares on March 17, the company’s share price has fallen by 30 per cent. About £40 billion has been wiped off its total value. The fall has caused pain not just for BP shareholders, but also for millions of company pension funds and small investors who have money held in tracker funds.
The spill, which has still not been stemmed, has caused a serious environmental crisis and is estimated to cost BP up to £40 billion to clean up.
There was growing confidence yesterday that a new cap placed over the well was stemming the oil flow. An estimated three million litres a day had been pouring into the sea off the coast of Louisiana since the April 20 explosion, damaging marine life.
The crisis has enraged US politicians, with President Obama yesterday forced to cancel a trip to Indonesia amid a row over the White House’s response.
Mr Hayward, whose position is thought to be under threat, risked further fury by continuing plans to pay out a dividend to investors next month.
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7804922/BP-chief-Tony-Hayward-sold-shares-weeks-before-oil-spill.html
UKT: Euro 'will be dead in five years'
The euro will have broken up before the end of this Parliamentary term, according to the bulk of economists taking part in a wide-ranging economic survey for The Sunday Telegraph.
By Edmund Conway
Published: 10:23PM BST 05 Jun 2010
The single currency is in its death throes and may not survive in its current membership for a week, let alone the next five years, according to a selection of responses to the survey – the first major wide-ranging litmus test of economic opinion in the City since the election. The findings underline suspicions that the new Chancellor, George Osborne, will have to firefight a full-blown crisis in Britain's biggest trading partner in his first years in office.
Of the 25 leading City economists who took part in the Telegraph survey, 12 predicted that the euro would not survive in its current form this Parliamentary term, compared with eight who suspected it would. Five declared themselves undecided. The finding is only one of a number of remarkable conclusions, including that:
• The economy will grow by well over a percentage point less next year than the Budget predicted in March.
• The Government will borrow almost £10bn less next year than the Treasury previously forecast, despite this weaker growth.
• Just as many economists think the Bank of England will not raise rates until 2012 or later as think it will lift borrowing costs this year.
But the conclusion on the euro is perhaps the most remarkable finding. A year ago or less, few within the City would have confidently predicted the currency's demise. But the travails of Greece, Spain and Portugal in recent weeks, plus German Chancellor Angela Merkel's acknowledgement that the currency is facing an "existential crisis", have radically shifted opinion.
Two of the eight experts who predicted that the currency would survive said it would do so only at the cost of seeing at least one of its members default on its sovereign debt. Andrew Lilico, chief economist at think tank Policy Exchange, said there was "nearly zero chance" of the euro surviving with its current membership, adding: "Greece will certainly default on its debts, and it is an open question whether Greece will experience some form of revolution or coup – I'd put the likelihood of that over the next five years as around one in four."
Douglas McWilliams of the Centre for Economics and Business Research said the single currency "may not even survive the next week", while David Blanchflower, professor at Dartmouth College and former Bank of England policymaker, added: "The political implications [of euro disintegration] are likely to be far-reaching – Germans are opposed to paying for others and may well quit."
Four of the economists said that despite the wider suspicion that Greece or some of the weaker economies may be forced out of the currency, the most likely country to leave would be Germany.
Peter Warburton of consultancy Economic Perspectives said: "Possibly Germany will leave. Possibly other central and eastern European countries – plus Denmark – will have joined. Possibly, there will be a multi-tier membership of the EU and a mechanism for entering and leaving the single currency. I think the project will survive, but not in its current form."
Tim Congdon of International Monetary Research said: "The eurozone will lose three or four members e_SEnDGreece, Portugal, maybe Ireland e_SEnD and could break up altogether because of the growing friction between France and Germany."
The recent worries about the euro's fate followed the creation last month of a $1 trillion (£691bn) bail-out fund to prevent future collapses. Although the fund boosted confidence initially, investors abandoned the euro after politicians showed reluctance to support it wholeheartedly.
http://www.telegraph.co.uk/finance/financetopics/budget/7806064/Euro-will-be-dead-in-five-years.html
UKT: Obama loses the Left: suddenly, it's cool to bash Barack
Europe still worships him and Washington's Obamatrons remain smitten, but former supporters are turning on the President, writes Toby Harnden.
By Toby Harnden
Published: 3:07PM BST 05 Jun 2010
Well, at least he's still got Sir Paul McCartney. At the White House last week, the 67-year-old crooner was gushing in much the same manner as his own groupies did at Shea Stadium in 1965. "I'm a big fan, he's a great guy," McCartney told American critics of President Barack Obama. "So lay off him, he's doing great."
Later, McCartney serenaded the First Lady with a rendition of Michelle and, receiving a prize from the Library of Congress, took a cheap shot at President George W Bush that was as unfunny as it was unoriginal. “After the last eight years, it’s great to have a president who knows what a library is.” Bush. Doesn’t read books. Stupid. Geddit?
The problem for the President is that even if the former Beatle does speak for billions, the overwhelming majority of those are overseas. Polls show that around 10 per cent of those who voted for Obama in 2008 now disapprove of his performance and the heavy turnout of young people and black voters among the 69 million who back him will not be repeated again.
McCartney's banalities were an example of a transatlantic dissonance that is all too apparent these days. Whereas Europe is stuck in November 2008 and still hopelessly in love with Obama, Americans have got over the historic symbolism of it all and are now moving on as they live with the reality.
That reality has now begun to dawn on some of Obama's natural constituency - Hollywood and the Left. The "no drama Obama" demeanour that served him so well on the campaign trail is now becoming a liability.
Bemoaning Obama's passivity after the Gulf of Mexico oil spill, the director Spike Lee thundered: "He's very calm, cool, collected. But, one time, go off! If there's any one time to go off, this is it, because this is a disaster."
This is the same Spike Lee who once described Obama's election as a "seismic" change that represented "a better day not only for the United States but for the world".
The ladies of The View, the liberal-dominated morning talk show moderated by Whoopi Goldberg, spent a lot of time last week sympathising with Mrs Obama about how difficult it must be to argue with a husband who never shows any fire or emotion.
Even the liberal chattering classes are deserting Obama. Maureen Dowd of the New York Times jeered that his "Yes we can" slogan had been downgraded to "Will we ever?", while fellow colunnist Frank Rich blasted his "recurrent tardiness in defining exactly what he wants done".
Perhaps Obama's toughest critic over the BP oil slick has been James "Rajin' Cajun" Carville, the mastermind of Bill Clinton's 1992 presidential campaign and one of those Democrats who represents the beating heart of the party. He blasted Obama's "political stupidity" and "hands off" attitude, concluding: "It seems the President is madder at his critics than he is at BP."
His point was proved when Robert Gibbs, Obama's hyper-aggressive spokesman, responded: "I don't think James understands all of what we're doing. I don't think James understood the facts." Carville is a Louisiana native who had spent more time viewing the oil-soaked coastal wetlands than anyone in the White House.
It is an irony of Obama's presidency - which came into being because he was the unBush - that it shares some of the worst traits of his predecessor's administration. Among these are insularity and a blinkered arrogance.
The young Texans who seemed genetically incapable of viewing any criticism of George W Bush as less than treason may have gone but a similar cult has replaced them. The Obamatrons who now populate Washington have iPads under their arms and greet each other with fist bumps. Earnest, geeky types, they look upon anyone who does not worship Obama with pity – such a being must be too stupid or bigoted to know better.
Obama has never been wracked by self-doubt and he is unusually self-contained for a politician. He seems not to need people or reassurance. In office, this is dangerous – he sometimes seems to be living in a cocoon.
The White House's attempts to deal criticisms of Obama's detachment have been comical. First there was Obama's own cringeworthy (and doubtless bogus) anecdote about his 11-year-old daughter Malia asking: "Did you plug the hole yet, Daddy?" Then there was Gibbs illustrating Obama's passionate concern for the people of the Gulf by relating that he had said "damn" and exhibited a "clenched jaw".
Perhaps their biggest problem is that it was not just McCartney's dyed hair and 1960s songs that seemed so retro. His adulation of Obama struck the wrong chord because few outside the White House bubble are in that place any more. It is now permissible – even fashionable – to have a go at the man once hailed as the Messiah.
http://www.telegraph.co.uk/news/worldnews/northamerica/usa/barackobama/7805775/Obama-loses-the-Left-suddenly-its-cool-to-bash-Barack.html
BL: Democrats Prepare Bill to Remove $75 Million Damages Limit for Oil Spills
By Lisa Lerer
June 3 (Bloomberg) -- U.S. House Democrats, responding to the Gulf of Mexico oil disaster, are preparing legislation to eliminate the $75 million cap on damages that large companies must pay over oil spills and tighten regulation of the industry, Democratic aides said.
The plan will be introduced after Congress returns next week from its Memorial Day recess, said the aides, who spoke on condition of anonymity because the proposal is still being revised.
The legislation would lengthen the 30-day review process for new drilling permits, require new environmental safeguards and increase congressional authority over the Minerals Management Service, the federal agency that oversees offshore drilling, the aides said. They said Democratic leaders haven’t decided whether the plan will be introduced as one legislative package or several bills.
BP Plc and federal officials have been unable to stop the flow of oil from the leaking well in the Gulf. The spill, which began in late April, has soiled about 140 miles of coastline, shut down a third of fishing areas in the region, halted new deep-water oil exploration in the Gulf and cost BP at least $1 billion.
The legislation would apply to BP and Transocean Ltd., which leased the well to BP.
Economic Losses
Under current law, oil companies must pay up to $75 million for economic losses caused to states, businesses and residents. There is no limit on the amount companies can be required to pay to clean up oil spills.
White House press secretary Robert Gibbs said the administration would ask Congress to eliminate the cap on economic damage payments.
“One of the things that we called for was the lifting of the economic liability cap to an unlimited level,” Gibbs told reporters June 1. “That’s where we feel comfortable, given the enormity of the disaster that we’re looking at.”
House Speaker Nancy Pelosi, a California Democrat, said last week Congress should consider eliminating the cap on economic damages caused by oil spills.
“There is a movement afoot in Congress for that,” Pelosi said in an interview on Bloomberg Television’s “Political Capital with Al Hunt” on May 29. “Why have a cap?”
Republicans have blocked efforts to raise the cap to $10 billion.
‘Cumulative Effect’
“We also must consider the cumulative effect of the different levels of liability, which could be economically devastating,” said Republican Senator Lisa Murkowski of Alaska at a Senate Energy and Natural Resources Committee hearing on oil-spill liability issues last week. “Thousands of jobs, particularly along the Gulf coast, could be lost.”
Senator Mary Landrieu, a Democrat from Louisiana, also has argued that the additional costs could hurt smaller oil refiners operating offshore.
Oil companies oppose raising the liability cap, saying it would discourage domestic exploration and make independent oil and natural gas operations in the Gulf uninsurable.
Raising the cap, American Petroleum Institute President Jack Gerard said on May 13, “would limit Gulf operations to only the largest companies, forcing mid-size and smaller firms who cannot self-insure from the market.”
$150 Million Proposal
Republican Senators David Vitter of Louisiana and Jeff Sessions of Alabama have introduced a bill that would raise the cap to $150 million or an amount equal to the last four quarters of a company’s profits, whichever is greater.
Other proposals would increase the per-barrel tax paid by oil companies into the Oil Spill Liability Trust Fund, a federal fund established to ensure that there is money available to clean up spills. The House passed legislation last week increasing the fee to 34 cents a barrel from 8 cents.
The U.S. asked a federal judge in Houston on June 1 to reject a bid by Transocean to use a 159-year-old law to cap its liability at $27 million for environmental claims tied to the spill.
To contact the reporter on this story: Lisa Lerer in Washington at llerer@bloomberg.net
Last Updated: June 3, 2010 13:03 EDT
http://www.bloomberg.com/apps/news?pid=20601087&sid=a4ym5T29jatE&pos=9
BL: Stocks in U.S. Drop as Concerns Over Europe Overshadow Recovery Optimism
By Rita Nazareth
June 3 (Bloomberg) -- U.S. stocks fell, erasing an early rally, as concern that Europe’s debt crisis will worsen and growth will slow in China overshadowed optimism that the American economy is gaining momentum.
Wells Fargo & Co. and JPMorgan Chase & Co. lost more than 1 percent to lead banks lower as the euro neared a four-year low versus the dollar on speculation the European Central Bank may need to take steps to boost liquidity in the financial system. Freeport-McMoRan Copper & Gold Inc. tumbled 5.5 percent after saying China’s plans to curb growth will hurt demand for copper. BP Plc’s U.S. shares erased gains as House Democrats prepared a bill to eliminate the $75 million cap on damages large companies must pay for oil spills.
The S&P 500 lost 0.4 percent to 1,093.98 as of 12:37 p.m. in New York after its 0.7 percent advance earlier failed to take it above its 200-day average near 1,106. The Dow Jones Industrial Average fell 56.15 points, or 0.6 percent, to 10,193.39. The euro slipped 0.7 percent to $1.2160.
“There has been speculation in the past day or so that the ECB is going to have to roll out some kind of debt guarantee program,” said Greg Woodard, portfolio strategist at Manning & Napier in Fairport, New York, which manages $30 billion. “That signals to the markets that maybe the ECB knows something that the market doesn’t, suggesting that conditions are worse than we know about.”
The S&P 500 has slumped 10 percent from this year’s high on April 23 as the sovereign-debt crisis in Europe and slowing growth in China threatened to derail the global economic recovery. The index lost 8.2 percent in May, its worst month since February 2009. The Dow’s 7.9 percent drop was the most during May since 1940.
Forint Tumbles
Equities also slumped today as the Hungarian forint tumbled 3 percent against the dollar on concern the nation faces a Greece-like debt crisis.
Early gains in U.S. stocks came after service industries expanded in May for a fifth straight month, showing the U.S. recovery is broadening. The Institute for Supply Management’s index of non-manufacturing businesses, which makes up almost 90 percent of the economy, held at 55.4 for a third month. Readings above 50 signal expansion.
The number of Americans seeking jobless benefits last week fell by 10,000 to 453,000 and an ADP Employer Services report based on private-sector payrolls showed a gain of 55,000 jobs, below the 70,000 economists had expected.
‘Big Number’
The releases come a day before the U.S. Labor Department’s monthly jobs report. Payrolls climbed by 523,000 in May, the fifth straight month of gains and the biggest since 1983, according the median forecast.
Goldman Sachs Group Inc. raised its estimate for how much payrolls increased in the U.S. last month to 600,000 from 500,000, according to a report sent to clients today.
“There’s a big number coming out tomorrow,” said Mark Bronzo, an Irvington, New York-based fund manager at Security Global Investors, which oversees $23 billion. “The stock market is in a holding pattern.”
U.S. stocks began erasing earlier gains after the S&P 500 rose to an intraday high of 1,105.67, above a level seen as a “resistance” by analysts to who study charts to make forecasts. The S&P 500 lost ground at around 1,104 on May 20 and sank to its 2010 intraday low on May 25. The benchmark had since failed to rise above that level.
The market “needs to close above 1,104 to complete a short-term bottom,” said Craig S. Peskin, co-head of technical analysis research at Concept Capital in New York. “This is a level everyone sat around for weeks. We’d like the market to get above it in the next couple of days. The longer you sit around, the market kind of loses its momentum.”
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.
Last Updated: June 3, 2010 12:40 EDT
FCX: Copper Demand May Weaken as China Curbs Its Economy, Freeport, Codelco Say
By Matt Craze and Sara Eisen
_____________________
VIDEO INTERVIEW:
http://www.bloomberg.com/avp/avp.htm?N=video&T=Freeport's%20Adkerson%20Interview%20About%20Copper%20Demand%20&clipSRC=mms://media2.bloomberg.com/cache/vcP5snyeXZr0.asf
Freeport's Adkerson Interview About Copper Demand
June 3 (Bloomberg) -- Richard Adkerson, chief executive officer of Freeport-McMoRan Copper & Gold Inc., talks with Bloomberg's Sara Eisen about the outlook for the copper market. Adkerson says in the short term China's plan to curb its economy is "a risk to the world's market place." Adkerson also discusses the risk Europe's financial crisis poses to commodity markets, the outlook for copper prices and Freeport's business strategy.
___________________________________________
June 3 (Bloomberg) -- Freeport-McMoran Copper & Gold Inc. and Codelco, the world’s two largest copper producers, said China’s plans to curb its economy threaten to reduce demand for the metal after prices slumped 15 percent in two months.
The copper market will be “volatile” for as much as another year after China took measures to cool its property market, Codelco Chief Executive Officer Diego Hernandez said yesterday in an interview at Bloomberg headquarters in New York. The Asian nation is a “risk to the world’s market place in the near term,” Freeport CEO Richard Adkerson said in an interview.
Chinese policy makers are trimming stimulus measures this year after a $1.4 trillion lending binge revived growth in 2009. Officials are targeting a 22 percent reduction in new loans and have sold bills and raised banks’ reserve requirements to suck money out of the financial system. Copper has slumped from a 20- month high in April on concerns about global economic growth.
“In the short term, we are subject to the volatility of the world economy,” said Hernandez, a former head of BHP Billiton Ltd.’s base metals business who became chief executive of state-owned Codelco, based in Santiago, last month. Emerging market demand “could slow down for a while,” he said.
Equity and commodities have slumped on speculation that Europe’s debt crisis will spread, hurting global economic growth. The Reuters/Jefferies CRB Index of 19 raw materials dropped 8.2 percent last month, the most since November 2008.
Copper futures for July delivery dropped 3.6 cents, or 1.2 percent, to $3.0045 a pound on the Comex in New York at 8:59 a.m., down for a fourth straight session.
Manufacturing Slowed
Reports June 1 showed the rate of manufacturing gains slowed in China and the U.S., the world’s biggest copper users. European factory-output growth slowed more than previously estimated last month, figures showed yesterday. Copper prices in New York dropped 7.4 percent in May, the most since January.
“China is cooling from very strong levels, the European recovery threatens to stall, and the U.S. is leveling out,” said David Thurtell, an analyst at Citigroup Inc. in London.
China is seeking to limit inflation to about 3 percent this year and said May 13 it will crack down on price speculation and hoarding in some food commodities to reach the target. Consumer prices jumped 2.8 percent in April from a year earlier, the fastest pace in 18 months.
“It’s positive” that China’s government is working to minimize inflation, Adkerson told Bloomberg Television today in an interview. “It will likely lead to a more sustainable situation going forward.”
Expansion Plans
Still, both companies are investing in expansion plans in expectation of rising future demand in China and other emerging economies. Combined, they account for about a fifth of global output of copper, which is used in plumbing and wiring.
Codelco will invest $15 billion over the next five years to revamp production at its aging mines, Hernandez said. Production will rise to over 2 million tons a year from about 1.7 million tons through the increased spending, he said.
Freeport, based in Phoenix, will spend $100 million this year to explore for copper and gold after cutting back on investments in 2009 amid concern over the world economy, Adkerson said in April.
China, India and other emerging economies need copper “for their growth, urbanization, programs that they have and I don’t see how that could stop,” Hernandez said.
Freeport rose $2.53, or 3.8 percent, to $69.02 as of 9:26 a.m. in New York Stock Exchange composite trading. The stock has dropped about 14 percent this year.
To contact the reporters on this story: Matt Craze in Santiago at mcraze@bloomberg.net or Sara Eisen in New York at
Last Updated: June 3, 2010 09:37 EDT
>>BP’s Ratings Cut by Moody’s, Fitch on Gulf Oil Spill Fallout
By Eduard Gismatullin
June 3 (Bloomberg) -- BP Plc had its credit ratings cut by Moody’s Investors Service and Fitch Ratings on concern that the cost of cleaning up the Gulf of Mexico oil spill will hurt the company’s balance sheet.
Moody’s lowered BP’s senior unsecured ratings by one step to Aa2 from Aa1, according to a statement today. Fitch cut BP’s long-term issuer default rating and senior unsecured rating one notch to AA from AA+. Both ratings services held out the possibility of further downgrades.
The oil spill will “result in significant containment and clean-up costs as well as litigation costs,” Moody’s said.
BP has lost 33 percent of its market value since an April 20 fire in the Gulf of Mexico killed 11 workers, sank a $365 million rig and triggered subsea leaks that have spewed millions of gallons of crude into the Gulf. The U.S. hurricane season, which began June 1 and ends Nov. 30, may be one of the most active on record, potentially hampering BP’s efforts as response cost rose to at least $990 million, or about $24 million a day.
BP pared gains to trade 1.9 percent higher at 437.80 pence as of 2:45 p.m. in London. The stock earlier rose as much as 4.7 percent.
The ratings may be cut again if the oil well flow rate continues to increase and the relief well currently being drilling fails to halt the leak “in a timely fashion,” Fitch said. Clean-up costs exceeding Fitch’s worst-case expectations of about $5 billion in any one year could also put pressure on the rating, it said.
To contact the reporter on this story: Stephen Cunningham at scunningha10@bloomberg.net
Last Updated: June 3, 2010 09:46 EDT
BL: Greek Media, Transport Workers Stage 24-Hour Strike Against Austerity Plan
By Maria Petrakis
June 3 (Bloomberg) -- Greek transportation workers in Athens went on a 24-hour strike today to protest government austerity measures, stranding commuters in the country’s biggest city.
No tram, bus or subway services will run today, the state- run Organization for Athens Public Transport said on its website. Rail lines linking the city to the airport and the port of Piraeus will operate, the organization said.
Media unions opposed to planned changes to collective labor agreements and pension reforms also went on strike. No news bulletins will be broadcast today and newspapers won’t be printed tomorrow.
Greece agreed last month to cut wages and pensions, raise sales, fuel and alcohol taxes and overhaul the state-run pension system in return for 110 billion euros ($136 billion) in emergency loans from the European Union and the International Monetary Fund. Prime Minister George Papandreou said the measures are needed to curtail a budget deficit of almost 14 percent of economic output and prevent the country from defaulting on its debts after borrowing costs soared.
To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net
Last Updated: June 3, 2010 03:02 EDT
BL: Insurers Increase Deep-Water Rig Premiums 50% After BP Spill, Moody's Says
By Kevin Crowley
June 3 (Bloomberg) -- Insurers are charging 50 percent more for policies covering oil rigs in deep waters after an explosion on a BP Plc-leased platform in the Gulf of Mexico triggered the worst spill in U.S. history, Moody’s Investors Service said.
The price to insure rigs in shallow waters has risen as much as 25 percent since the Deepwater Horizon rig in the Gulf of Mexico exploded in April, the ratings company said today. Insurers may pay out as much as $3.5 billion in claims from the U.S. spill, making it the industry’s costliest accident since the Piper Alpha rig fire in the North Sea in 1988, Moody’s said.
“Pricing for offshore energy liability insurance is sure to trend higher as insurers and reinsurers take stock of their losses and reevaluate the complex risks associated with drilling in deep waters,” Moody’s analyst James Eck wrote in a report.
Publicly traded insurers including Swiss Reinsurance Co. and Munich Re have disclosed $611 million of losses to date, Moody’s said. That will probably rise as the extent of environmental damage becomes clear, the ratings firm said.
BP, which had leased the Deepwater Horizon at the time of the explosion, has spent $1 billion trying to stop the spill and is still struggling to contain the leak. Lloyd’s of London, which insured the rig’s owner Transocean Ltd., asked a U.S. judge last month to rule it has no obligation to cover BP’s clean-up costs.
BP, based in London, is self-insured against losses and damage claims resulting from the spill, spokesman Scott Dean said last month.
To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net
Last Updated: June 3, 2010 06:28 EDT
GOLD up: ZH: Morning Gold Fix: June 3, 2010
Submitted by Tyler Durden on 06/03/2010 07:40 -0500
Courtesy of www.fmxconnect.com
Good recovery news in U.S. housing and automobile sales made for strong equities stateside yesterday. Gold didn't like this. But it wasn't a disaster. Usually good economic news triggers the fear that the fed will have room to tighten and squash a devout gold bug's inflation scenario. But not lately. Sure, futures sold off, but not much.
Today's activity will continue to be influenced by the "risk-on" crowd. Sell bonds, buy stocks, buy oil, sell gold, rinse repeat. But we see less and less people selling what they buy in the gold market. Sell side activity is more dominated by hot money liquidation than ever before. PIMCO's El Arian said their fund cut its gold holdings in half, citing the liquidation deflation drivers at play. That will not help today's activity either. We can only hope he is right. Our order underneath remains unfilled.
It seems that as soon as the sovereign default type buyers take a breather, the hyperinflation crowd steps in. Remember the goldilocks economy, where everything was just right? We might be entering the anti-Goldilocks phase of the economy where you just can't win.. Unless you own gold.
Where we once had soft landings, now we have stagflation. Where we used to be in the sweet spot, now we are between a rock and a hard place. The policy choices of our governments are constrained by their previous policy choices.
Asian markets followed through nicely last night reacting to the potential for revitalized US consumer demand. The US consumer as savior of global growth shtick was dusted off again. How hi can a dead cat bounce?
August gold was down 5.6 to $1217 per 100 troy ounces as of 8:00 AM EDT, this morning. The June U.S. dollar index was down .097 to 86.78. July platinum was up 7.2 to $1557.6 per 50 troy ounces. July Silver was down 8 cents to 18.235.
-Elizabeth Thawne
Thanks for AMGN heads up...yeah, posted in Chat the night the bone med was approved
Not sure how many bought calls, but looks like a real solid runner
Hey, sorry to hear that! You're using the kerosene powered laptop now?
>>BP must sell assets: No one will buy them, take on the risk:
Asset sales by BP are more likely than a takeover of the company because it’s too soon to estimate how much the spill and its aftermath will end up costing, said Gianna Bern, founder of Brookshire Advisory & Research Inc. in Flossmoor, Illinois, and a former BP crude trader.
“A potential investor would think twice because this is unprecedented and it would take a decade to sort out liability and any potential litigation,” Bern said.
http://www.financialpost.com/news/sell+assets+cash/3106379/story.html
>>BP (NYSE:BP) Setback, Oil Slick Almost To Florida?
Dripping Oil (blog) - 25 minutes ago
It took BP (NYSE:BP) 12 hours on Wednesday to free the saw that was stuck half way through the pipe they were cutting. Although, they did not give a time when they would resume their oil spill containment attempt, they did say they were preparing.
Meanwhile, the oil slick is within seven miles of Pensacola, Florida, ready to hit the area known as the sugar white beaches. Emergency workers are rushing to get the mile long boom link, designed to collect the oil, in place before the oil slick reaches the shoreline. Forecasters say the estimated arrival time for the slick is Friday.
As we've already seen what devastation the oil slick has caused in Louisiana, the outcome doesn't look any better for Florida. As well as the white sands beaches which inhabit much wildlife, there are also several Islands and bays that will feel the effects of the oil.
John Dosh, emergency director for Escambia County, which Pensacola is included in, said, "we are doing what we can, but we cannot change what has happened."
There has been much extra aid sent to the East Coast including boats, helicopters, and more staff. The helicopters will help spot oil in the water. The boats will help skim oil as well as place extra booms where needed to collect the oil.
http://drippingoil.blogspot.com/2010/06/bp-nysebp-setback-oil-slick-almost-to.html
Rally? Covered Bond Sales Surge; Transocean Tumbles: Credit Markets
June 3 (Bloomberg) -- Sales of covered bonds are accelerating as investors seek debt backed by collateral amid concern about the creditworthiness of governments and banks.
About $7.7 billion of the securities have been sold or are being marketed this week worldwide, more than double last week’s total, data compiled by Bloomberg show. Bank of Montreal, Canada’s fourth-largest bank, sold $2 billion of the bonds due in 2015.
Demand for securities backed by mortgages and public-sector loans with top ratings is rising as European governments from Greece to Spain struggle to cut record budget deficits, threatening the region’s banks. Covered bonds returned 0.25 percent in May, compared with a 0.4 percent loss on global investment-grade company debt, Bank of America Merrill Lynch index data show.
“In this new world where volatility is high,” it’s “certainly an advantage to be holding bonds that have collateral backing,” said Georg Grodzki, head of credit research at Legal & General Investment Management in London. The company, which oversees almost 300 billion pounds ($440 billion), is a “selective buyer” of covered bonds, favoring notes sold by northern European issuers, he said.
Yields have risen at a slower pace relative to government securities than corporate debt. Spreads on euro-denominated covered bonds have widened 9 basis points to 153 basis points since May 6, compared with an increase of 28 basis points to 196 for company debt, Bank of America Merrill Lynch indexes show.
Company Bond Sales
The increase in covered bond sales contrasts with a decline in corporate debt issuance to $70 billion last month, less than half April’s tally and the least since 2003, according to data compiled by Bloomberg.
Elsewhere in credit markets, Transocean Ltd.’s notes fell the most in 17 months yesterday after BP Plc failed to plug its leaking Gulf of Mexico well and the U.S. investigated if criminal or civil laws were violated.
The drilling contractor’s 5.25 percent securities due in 2013 declined 4.8 cents to 94.4 on the dollar, after trading as low as 92.5, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
London-based BP’s 5.25 percent 2013 notes tumbled 3.4 cents to 98.3 yesterday, while Anadarko Petroleum Corp.’s 6.45 percent bonds due 2036 plunged 4 cents to 81.9, the lowest since May 2009. Energy company bonds have plunged since the worst oil spill in U.S. history began after an April 20 explosion aboard the Deepwater Horizon rig, which BP leased from Transocean.
“There’s more questions than answers so everyone wants to sell,” said Vivek Pal, an analyst at broker-dealer Knight Capital in Greenwich, Connecticut.
Junk Bonds
Moody’s Investors Service said an index measuring the difficulty of borrowing for junk-rated companies failed to show improvement for the first time in 13 months. The Moody’s Liquidity-Stress Index, which falls when more cash is available in the corporate bond market, was 4.8 percent in May, unchanged from April, the rating agency said in a statement. The index peaked at 20.9 percent in March 2009.
“While credit market conditions have allowed issuers to improve near-term liquidity and chip away at forthcoming maturities, a significant amount of corporate debt still matures from 2010-2014,” Moody’s analyst John Puchalla said.
More than $800 billion of junk debt will mature through 2014, causing a wave of distressed exchanges in which companies try to swap out their debt at a discount to face value to avoid bankruptcy, Moody’s said in a report last month.
GE Sees Bargain
General Electric Co.’s investment arm is buying U.S. commercial-mortgage securities and high-yield corporate bonds.
“We’re adding in markets that we feel will recover nicely with a fundamental recovery in the U.S.,” Paul Colonna, who oversees $58 billion as chief investment officer for fixed income at GE Asset Management in Stamford, Connecticut, said yesterday in a telephone interview.
“While we certainly had a volatile time over the last month or so, I don’t think this is the path for the rest of the year,” Colonna said.
Investors lost money on high-yield corporate bonds and commercial mortgage-backed securities last month as bond buyers fled to the “safest assets,” such as U.S. Treasuries and home- loan bonds with government-backed guarantees, Bank of America Corp. said in a June 1 report.
Bond Risk Falls
The cost of insuring against non-payment on European corporate bonds fell the most in a week today, according to traders of credit-default swaps, while indexes in Asia also declined. The rally in credit coincided with gains in stock markets worldwide, with the DJ Stoxx 600 Europe index rising 2.2 percent, the most since May 27.
Default swaps on the Markit iTraxx Crossover Index of 50 mostly high-yield European companies fell 25.5 basis points to a two-week low of 550.5, according to JPMorgan Chase & Co. at 10 a.m. in London. The decline signals an improvement in investor perceptions of credit quality.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan shed 9 basis points to 136 basis points in Singapore, Royal Bank of Scotland Group Plc prices show.
Credit-default swaps on European sovereign notes snapped three days of increases, with contracts tied to Italy dropping 10 basis points to 223, declining from a record, according to CMA DataVision. Default swaps linked to Greece’s government bonds fell 21 basis points to 717, Spain dropped 12 basis points to 238 and Portugal was 15 basis points lower at 330, CMA prices show.
SovX Europe Index
The Markit iTraxx SovX Western Europe Index of credit- default swaps linked to debt of 15 governments fell to 147 basis points, from yesterday’s all-time high closing price of 154.5, according to CMA. Credit-default swaps on BP’s debt were 13 basis points lower at 246.
In emerging markets, spreads narrowed 13 basis points on average to 314, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Argentina’s new 2017 bonds sank in their first day of trading as the government began turning over the securities to investors as part of its restructuring of $18.3 billion of defaulted debt kept out of a 2005 settlement.
The 8.75 percent notes tumbled to 80.85 cents on the dollar from their issue price of 90.11, Stone Harbor Investment Partners said. Argentina began issuing $738 million of the bonds yesterday to institutional investors who participated in an early tender period. The government is distributing the securities as compensation for past due interest.
“Argentina came up with an issuance price which isn’t really in line with reality,” said Jim Craige, who helps manage $12 billion of emerging-market debt, including defaulted Argentine bonds, at Stone Harbor in New York.
Covered Bonds
Bank of Montreal sold U.S. dollar-denominated covered bonds in the first transaction in the currency in more than a month. BNP Paribas Home Loan Covered Bond SA, a unit of France’s largest bank, sold 1.5 billion euros ($1.8 billion) of five-year notes yesterday that yielded 42 basis points more than the swap rate, Bloomberg data show. Dexia SA in Brussels sold 500 million euros of 10-year bonds with a 15 basis-point spread.
Bank of New Zealand, a unit of National Australia Bank Ltd., is meeting with investors this week before a possible sale of covered bonds, according to a person familiar with the plan. The lender has completed the documentation it needs to sell the covered notes, the person said, asking not to be named as the plans are private. A sale would be the first issue of such securities in New Zealand.
‘Flight to Safety’
“Investors are buying covered bonds rather than unsecured notes as a flight to safety,” said Florian Hillenbrand, a Munich-based senior analyst at UniCredit SpA, Italy’s biggest bank. Banks are “tapping the market now because it’s a nice window of opportunity and investors have money to put to work,” said Hillenbrand, who recommends buying German, French and Scandinavian covered bonds.
Jose Sarafana, the Paris-based head of covered bond strategy at Societe Generale SA, said he expects another 60 billion euros of sales this year. “Covered bonds offer safer, more liquid assets than senior unsecured notes and therefore we’re seeing plenty of demand for new issues,” he said.
Issues in the $2.9 trillion covered bond market get higher ratings than regular notes because they are backed by a pool of assets that can be sold in a default. The extra security typically allows lenders to pay less interest.
Covered bonds, which date back to the 18th century, are mostly sold by banks and tend to originate from Europe. Lenders in the region are facing 195 billion euros of bad debts by the end of 2011 as governments cut spending to reduce budget deficits, the European Central Bank estimates.
“Bond issuance was very low in May, so we’re now seeing banks looking to covered bonds to meet their growing refinancing needs,” said SocGen’s Sarafana.
Borrowers are rushing to sell debt before the ECB’s year- long purchase program ends on June 30. The Frankfurt-based ECB said yesterday it has spent 55.1 billion euros of the 60 billion it set aside a year ago to support credit markets by buying covered bonds.
To contact the reporters on this story: Sonja Cheung in London scheung58@bloomberg.net; Caroline Hyde in London chyde3@bloomberg.net
Last Updated: June 3, 2010 05:15 EDT
BL: Jobless Claims in U.S. Fall by 10,000 to 453,000 as Firings Stay Elevated
By Shobhana Chandra
June 3 (Bloomberg) -- The number of Americans seeking jobless benefits last week fell to 453,000, a level that signals firings remain elevated even as the economy expands.
Initial jobless claims dropped by 10,000 in the week ended May 29, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected claims would drop to 455,000, according to the median forecast. The number of people receiving unemployment insurance and those getting extended payments increased.
The jobless rate may hover around 10 percent as companies from Hewlett-Packard Co. to Hershey Co. keep trimming staff to reduce costs. The claims data contrast with other figures that indicate employers are hiring as sales improve, and a report tomorrow may show payrolls climbed in May for the fifth consecutive month.
“We’re seeing a very uneven recovery in the labor market,” Lindsey Piegza, an economist at FTN Financial in New York, said before the report. “Demand is slowly returning but businesses are not sure if it’ll be sustained.”
The median forecast was based on a survey of 42 economists. Estimates ranged from 440,000 to 475,000. The Labor Department revised the prior week’s figure up to 463,000.
States Estimated
Due to the Memorial Day holiday this week, states had one less day to compile data. That prompted three states, Wyoming, Virginia and California, to supply estimates for last week, a Labor Department spokesman said. The government estimated claimed for three other states and territories, including the Virgin Island, Hawaii and Idaho, due to the shortened workweek.
There were no other special factors affecting last week’s data, the spokesman said.
Worker productivity rose at a 2.8 percent annual pace in the first quarter, less than forecast, another report from the Labor Department showed today. Efficiency climbed 6.1 percent over the past four quarters, the biggest 12-month gain in nine years, showing employers squeezed more from remaining staff to control expenses. Labor costs declined at a 1.3 percent pace.
Companies in the U.S. added workers in May, according to data from a private report based on payrolls. The 55,000 increase was the fourth in a row and followed a revised 65,000 rise the prior month that was twice as much as initially estimated, data from ADP Employer Services showed today.
Stock-index futures maintained earlier gains after the reports. The contract on the Standard & Poor’s 500 Index rose 0.5 percent to 1,101.6 at 8:35 a.m. in New York. Treasury securities fell.
Higher Average
The claims figures showed the four-week moving average, a less volatile measure than the weekly figures, climbed to 459,000 last week from 457,250.
The number of people continuing to receive jobless benefits increased by 31,000 in the week ended May 22 to 4.67 million. The figure does not include the number of Americans receiving extended benefits under federal programs.
Those who’ve used up their traditional benefits and are now collecting emergency and extended payments rose by about 57,000 to 5.4 million in the week ended May 15.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.6 percent in the week ended May 22.
Twenty-five states and territories reported a decline in claims, while 28 reported an increase. These data are reported with a one-week lag.
Less Correlation
Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates. That relationship has broken down in recent months as some companies continue to cut staff, while others expand, pointing to an uneven recovery.
The disconnect may have several sources, Richard Berner, co-head of global economics at Morgan Stanley & Co. in New York, wrote in a May 28 note to clients. One reason is the extension of benefits -- up to 99 weeks in some states -- raises the incentive to file, he said. While half the claims are typically rejected, the jump in claims in March and April may reflect more ineligible filers.
An increase in filings by construction workers and by temporary government employees who are helping with the decennial census may also be boosting claims, Berner said.
Payroll Gains
Labor Department figures due tomorrow may show payrolls climbed by 515,000 in May, boosted by hiring for the census, according to the Bloomberg survey median. Private payrolls likely increased by 178,000 following a gain of 231,000 in April.
The unemployment rate probably fell to 9.8 percent in May, from 9.9 percent the prior month, the survey showed.
Other reports also indicate the job market is improving. Planned firings dropped 65 percent in May to 38,810 from 111,182 a year earlier, according to figures released yesterday by Chicago-based Challenger, Gray & Christmas Inc.
The Institute for Supply Management’s gauge of manufacturing employment climbed last month to the highest level since May 2004, as factories added workers to meet the greatest export demand in two decades as well as a revival in domestic orders.
Companies announcing hiring plans this week included Lowe’s Cos., the second-largest U.S. home improvement retailer. The Mooresville, North Carolina-based company said it is adding more than 1,400 positions for employees to visit customers’ homes to sell them windows, doors and other products, and will fill those jobs internally and by taking on new employees. OR
Some businesses announced job cuts this week. Palo Alto, California-based Hewlett-Packard, the world’s largest personal- computer maker, plans to eliminate about 9,000 jobs and retool its computer-services business. Hershey, the 116-year-old chocolate maker based in Hershey, Pennsylvania, may cut 500 to 600 jobs from a historic plant that produces chocolate Kisses.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
Last Updated: June 3, 2010 08:40 EDT
JPM: JPMorgan Fined Record $49 Million for Failing to Isolate U.K. Client Cash
By Caroline Binham
June 3 (Bloomberg) -- JPMorgan Chase & Co.’s London unit was fined a record 33.3 million pounds ($48.9 million) by Britain’s financial regulator for not properly separating client money from the firm’s accounts.
An average of $8.6 billion wasn’t properly segregated by JPMorgan Securities Ltd. in an error that went undetected for seven years, the Financial Services Authority said in a statement today. Client money held by the bank’s futures and options business wasn’t put in a separate overnight customer account, the FSA said.
The bankruptcy of Lehman Brothers Holdings Inc., which roiled financial markets worldwide in 2008, forced the regulator to put financial companies on notice that they must properly separate client funds. New York-based Lehman’s creditors filed more than $830 billion of claims and regulators worldwide are trying to unravel how money moved through its global units.
“The FSA has repeatedly emphasized the importance of ensuring that client money is adequately protected,” said Margaret Cole, the FSA Enforcement Director. “This penalty sends out a strong message to firms of all sizes that they must ensure client money is segregated in accordance with FSA rules. Firms need to sit up and take notice of this action -- we have several more cases in the pipeline.”
Had the company gone bankrupt, clients could have lost all their money, according to the regulator.
Reduced Fine
JPMorgan spokesman David Wells declined to comment. The New York-based bank escaped a 47.6 million-pound fine by cooperating with the regulator, according to the FSA’s statement. No clients lost money, and the mistake didn’t affect the bank’s financial reporting, the FSA said.
The fine is nearly twice as much the 17 million-pound fine levied against Royal Dutch Shell Plc in 2004 for market abuse.
The 33.3 million pounds represents 1 percent of the average amount of client money that wasn’t properly separated, according to the regulator’s statement. The agency has said fines will increase as part of its new tougher approach following the financial crisis. In some cases, penalty size will triple.
To contact the reporters on this story: Caroline Binham in London at cbinham@bloomberg.net
Last Updated: June 3, 2010 06:04 EDT
>>Stocks, U.S. Futures Rally on Economic Outlook; Yen Weakens, Bonds Decline
By David Merritt
June 3 (Bloomberg) -- Stocks rallied and U.S. index futures advanced on speculation reports on jobs and factory orders will indicate the world’s biggest economy is gathering strength. The yen weakened and government bonds fell.
The MSCI World Index, a gauge of equities in 24 developed nations, climbed 1.1 percent at 12:16 p.m. in London. Futures on the Standard & Poor’s 500 Index rose 0.3 percent after gaining as much as 0.7 percent. The yen slipped against all 16 of its most-traded counterparts. French 10-year notes led the decline in government bonds while the cost of protecting European corporate bonds from default sank the most in a week, traders of credit-default swaps said.
U.S. service industries probably expanded in May at the fastest pace in four years while factory orders rose, firings eased and private payrolls advanced, according to Bloomberg surveys of economists, a day before the Labor Department’s monthly jobs report which is forecast to show payrolls climbed by the most since 1983. The predictions boosted confidence after the MSCI World fell 12 percent from its April high on concern the European sovereign debt crisis would hold back growth around the world.
“The global economic recovery is continuing and most economic indicators are surprising to the upside,” said Tobias Merath, head of commodity research at Credit Suisse Group AG in Zurich. “The real economy is going rather well.”
BP, Valeo
More than 25 shares gained for each one that fell on the benchmark Stoxx Europe 600 Index, which rallied 1.9 percent, while the MSCI Emerging Markets Index advanced 2 percent. BP Plc, struggling to control its gushing oil well in the Gulf of Mexico, jumped 3.5 percent in London as investors speculated that the stock’s 30 percent plunge since April was overdone. The shares maintained gains even as Fitch Ratings cut its debt rating AA from AA+.
BHP Billiton Ltd., the world’s biggest mining company, increased 1.8 percent. Valeo SA, France’s second-largest auto- parts supplier, rallied 6.7 percent in Paris after giving a sales forecast.
The MSCI Asia Pacific Index jumped 2.6 percent, the biggest gain in six months. Nissan Motor Co. climbed 4.8 percent in Tokyo after its U.S. sales surged 24 percent in May from a year earlier. Canon Inc., which gets 78 percent of its revenue outside Japan, rose 3.4 percent as a weaker yen boosted its earnings outlook.
The gain in U.S. futures indicated the S&P may extend yesterday’s 2.6 percent rally. The Institute for Supply Management’s index of non-manufacturing businesses, which covers almost 90 percent of the economy, rose to 55.6 from 55.4 in April, according to the median forecast of 76 economists surveyed by Bloomberg News. The report is due at 10 a.m. in New York.
Jobless Claims
A report from ADP Employer Services due at 8:15 a.m. is forecast to show businesses added 70,000 jobs in May, the best performance since the recession began in December 2007, according to the survey median. Figures from the Labor Department at 8:30 a.m. may show the number of claims for jobless benefits fell for a second week, to 455,000, while a Commerce Department report at 10 a.m. may show factory orders rose 1.8 percent, according to the surveys.
Tomorrow’s Labor Department jobs report will show the U.S. economy added 515,000 jobs in May, the fifth straight month of gains, according to the median of 81 economists’ forecasts. The jump probably reflected a surge in government hiring of temporary help to conduct the census and a 175,000 increase in private employment.
Commodities Advance
Crude oil for July delivery added 0.6 percent to $73.27 a barrel in New York. Commodities also advanced after General Motors Co. and Ford Motor Co. posted U.S. sales increases in May that topped analysts’ estimates. Copper for delivery in three months rose 0.2 percent to $6,680 a metric ton on the London Metal Exchange, the first gain in four days. Cars use as much as 62 pounds of copper, according to the Copper Development Association. Palladium, used in catalytic converters, rose 0.4 percent to $459.7 an ounce.
The yen depreciated 0.6 percent to a two-week low against the dollar and also lost 0.6 percent against the euro. So-called commodity currencies rose, with the Australian dollar advancing 0.8 percent against the U.S. currency. The euro was little changed against the dollar after strengthening as much as 0.6 percent.
Government bonds slipped, with the yield on German bunds, the benchmark European debt security, rising five basis points to 2.70 percent. The yield on the French 10-year note advanced eight basis points to 3.05 percent. The 10-year U.S. Treasury yield rose three basis points to 3.37 percent.
Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly high-yield European companies fell 21.5 basis points to a two-week low of 554.5, the biggest decline since May 27, according to JPMorgan Chase & Co. The drop signals an improvement in investor perceptions of credit quality.
To contact the reporter on this story: David Merritt in London on dmerritt1@bloomberg.net
Last Updated: June 3, 2010 07:16 EDT
FCX: Copper Demand May Weaken as China Curbs Its Economy, Freeport, Codelco Say
By Matt Craze and Millie Munshi
June 3 (Bloomberg) -- Freeport-McMoran Copper & Gold Inc. and Codelco, the world’s two largest copper producers, said China’s plans to curb its economy threaten to reduce demand for the metal after prices slumped 15 percent in two months.
The copper market will be “volatile” for as much as another year after China took measures to cool its property market, Codelco Chief Executive Officer Diego Hernandez said yesterday in an interview at Bloomberg headquarters in New York. The Asian nation is a “risk to the world’s market place in the near term,” Freeport CEO Richard Adkerson said in an interview.
Chinese policy makers are trimming stimulus measures this year after a $1.4 trillion lending binge revived growth in 2009. Officials are targeting a 22 percent reduction in new loans and have sold bills and raised banks’ reserve requirements to suck money out of the financial system. Copper has slumped from a 20- month high in April on concerns about global economic growth.
“In the short term, we are subject to the volatility of the world economy,” said Hernandez, a former head of BHP Billiton Ltd.’s base metals business who became chief executive of state- owned Codelco, based in Santiago, last month. Emerging market demand “could slow down for a while,” he said.
Equity and commodities have slumped on speculation that Europe’s debt crisis will spread, hurting global economic growth. The Reuters/Jefferies CRB Index of 19 raw materials dropped 8.2 percent last month, the most since November 2008.
Copper futures for July delivery dropped 2.25 cents, or 0.7 percent, to $3.0405 a pound on the Comex in New York yesterday, after touching $2.9705, the lowest level for a most-active contract since May 21.
Manufacturing Slowed
Reports June 1 showed the rate of manufacturing gains slowed in China and the U.S., the world’s biggest copper users. European factory-output growth slowed more than previously estimated last month, figures showed yesterday. Copper prices in New York dropped 7.4 percent in May, the most since January.
“China is cooling from very strong levels, the European recovery threatens to stall, and the U.S. is leveling out,” said David Thurtell, an analyst at Citigroup Inc. in London.
China is seeking to limit inflation to about 3 percent this year and said May 13 it will crack down on price speculation and hoarding in some food commodities to reach the target. Consumer prices jumped 2.8 percent in April from a year earlier, the fastest pace in 18 months.
“It’s positive” that China’s government is working to minimize inflation, Adkerson told Bloomberg Television today in an interview. “It will likely lead to a more sustainable situation going forward.”
Expansion Plans
Still, both companies are investing in expansion plans in expectation of rising future demand in China and other emerging economies. Combined, they account for about a fifth of global output of copper, which is used in plumbing and wiring.
Codelco will invest $15 billion over the next five years to revamp production at its aging mines, Hernandez said. Production will rise to over 2 million tons a year from about 1.7 million tons through the increased spending, he said.
Freeport, based in Phoenix, will spend $100 million this year to explore for copper and gold after cutting back on investments in 2009 amid concern over the world economy, Adkerson said in April.
China, India and other emerging economies need copper “for their growth, urbanization, programs that they have and I don’t see how that could stop,” Hernandez said.
To contact the reporters on this story: Matt Craze in Santiago at mcraze@bloomberg.net
Last Updated: June 3, 2010 05:00 EDT
>>BP's Alaskan Crown Jewel May Be Sold to Finance Cleanup of Gulf Oil Spill
By Joe Carroll
June 3 (Bloomberg) -- BP Plc may have to sell some of its most-valued assets, including a stake in the biggest U.S. oil field, to pay cleanup costs, fines and legal damages from the largest offshore spill in U.S. history.
The 26 percent stake in Prudhoe Bay on Alaska’s North Slope and other BP assets could attract suitors such as China National Petroleum Corp., Occidental Petroleum Corp. and Hess Corp., said Douglas Ober, chief executive officer at Petroleum & Resources Corp. in Baltimore, the oldest U.S. oil fund.
“BP is going to have to look to other assets to pay for this mess they’re creating,” said Ober, who oversees a combined $1.6 billion at the fund and Adams Express Co. “They won’t be able to use any of that cash flow to expand production or add to reserves, and that’s really going to put them in a bind.”
BP lost 31 percent of its market value since an April 20 fire in the Gulf of Mexico killed 11 workers, sank a $365 million rig and triggered subsea leaks that have spewed millions of gallons of crude into the Gulf. The company has spent more than $1 billion trying to stanch the leaks and remove oil from the ocean. Ober sold all of his BP stock after 15 refinery workers perished in a 2005 explosion at the company’s Texas City, Texas, plant.
Asset sales by BP are more likely than a takeover of the company because it’s too soon to estimate how much the spill and its aftermath will end up costing, said Gianna Bern, founder of Brookshire Advisory & Research Inc. in Flossmoor, Illinois, and a former BP crude trader.
‘Think Twice’
“A potential investor would think twice because this is unprecedented and it would take a decade to sort out liability and any potential litigation,” Bern said.
BP, the largest oil and natural-gas producer in the U.S. region of the Gulf of Mexico, is facing criminal and regulatory probes into the causes of the disaster at its deep-sea Macondo well drilled with Transocean Ltd.’s Deepwater Horizon rig.
U.S. senators Ron Wyden of Oregon and Charles Schumer of New York said the company should suspend dividend payments until cleanup and liability costs are determined. A payout would be “unfathomable” until the obligations are tallied, they said. The company paid $10.5 billion in dividends last year, according to its annual report.
BP’s latest attempt to contain the leaks stalled yesterday when a saw blade attached to a subsea robot snagged while cutting the pipe from the well. BP wants to sever the pipe to install a device that will divert the crude to a ship on the surface.
The plunge in BP shares since the disaster wiped out 42.2 billion pounds ($61.8 billion) in market value, or more than the economic output of Nigeria, Vietnam or the Czech Republic. The stock climbed as much as 20.3 pence, or 4.7 percent, to 450.05 pence, and traded at 444.05 pence at 10:34 a.m. in London.
The company’s long-term issuer default rating and senior unsecured rating was cut to AA from AA+ at Fitch Ratings today, with a ratings watch negative. The downgrade reflects “concern that BP is still facing substantial additional risks in relation to the oil spill,” the ratings agency said in a statement.
Biggest Crude Source
Prudhoe Bay and other Alaskan fields were BP’s largest source of crude in the Western Hemisphere in 2009 after the Gulf of Mexico, according to a public filing. Alaskan fields provided one in every 14 barrels of oil BP pumped worldwide last year. BP operates or own stakes in 20 other fields on the North Slope, as well as four pipelines.
In addition to Prudhoe Bay, rival companies may target the company’s holdings in oil-rich nations such as Azerbaijan and Angola, analysts said.
China National’s PetroChina Co. and other Chinese state oil companies, backed by $2.4 trillion of foreign currency reserves, have embarked on a string of overseas purchases to feed oil to the world’s fastest-growing major economy.
State-run Chinese companies spent a record $32 billion last year acquiring energy and resources assets overseas.
China’s appetite for crude this year is expected to grow at 15 times the rate of demand in the U.S., the world’s largest energy market, the International Energy Agency in Paris said in a May 12 report. For the first time, China is expected to burn one in every nine barrels of oil produced in the world this year, IEA figures showed.
China’s Financial Strength
“China is always sniffing around for reserves,” said Ober, whose biggest holdings in the petroleum fund are Chevron Corp., Exxon Mobil Corp. and Occidental. “It wouldn’t necessarily have to be one of the western supermajors because there are other companies who could muster the financial strength to make a deal for these assets.”
Richard Kline, a spokesman for Los Angeles-based Occidental, said neither Chief Executive Officer Ray Irani nor President and Chief Financial Officer Stephen I. Chazen were available to comment. Jon Pepper, a spokesman for New York-based Hess, declined to comment.
BP spokesman Mark Salt said Chief Executive Officer Tony Hayward will hold a call with investors tomorrow to address concerns about the dividend and the plunging share price.
Credit Suisse analysts yesterday said cleanup costs and legal settlements and claims ultimately may reach $37 billion, or almost nine times the costs incurred by Exxon when its Valdez tanker ran aground in Alaska’s Prince William Sound in 1989.
Ober said he has steered clear of BP shares for the last five years because of concern the safety lapses that led to the Texas City refinery disaster remained unresolved.
“That was a pretty nasty thing that happened and it demonstrated that they needed to get their safety record in order,” Ober said. “Clearly, they still have some work to do on that front.”
To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net.
Last Updated: June 3, 2010 06:21 EDT
>>Fitch downgrades BP for ongoing oil spill in the Gulf - Rallies, LOL
CNNMoney - Aaron Smith - 29 minutes ago
NEW YORK (CNNMoney.com) -- BP's debt ratings, a key indication of the corporate world's outlook for the company, was downgraded Thursday by Fitch Ratings for the failure to plug a massive oil leak in the Gulf of Mexico.
Fitch downgraded two key BP debt ratings to "AA" from "AA-plus" and placed the company on watch for further lowering.
Fitch, a rating agency headquartered in New York and London, said the economic and environmental damage from the sunken Deepwater Horizon rig is expected to continue, and the leak is unlikely to be plugged any time soon.
The agency estimated that BP's cleanup costs could total $2 billion to $3 billion in 2010 "depending on how much oil reaches the U.S. shoreline."
"The company has so far repeatedly failed to stop the resultant oil leak and has instead reverted to containment methods that are yet to be fully implemented and are subject to potential weather-related disruption," said Fitch, in a written statement.
Fitch said "the drilling of relief wells also poses risks and additional time may be required for them to be fully effective." A criminal and civil investigation announced Tuesday by Attorney General Eric Holder puts further pressure on BP, the rating agency said.
As a result, said Fitch, "risks to both BP's business and financial profile continue to increase."
The Deepwater Horizon rig that exploded and sank off the Louisiana coast in April, killing 11 workers, is 65% owned by BP. Originating from the ocean floor nearly a mile below the surface, the leak is spilling up to 19,000 barrels per day into the Gulf.
Since the April 20 accident, BP (BP) shares have plummeted more than 40%.
BP, CBS, Joy Global, SonicWall, Transocean: U.S. Equity Preview
Thursday, June 3, 2010
June 3 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses, and prices are as of 7:50 a.m. in New York.
Blue Coat Systems Inc. (BCSI US) climbed 5 percent to $23.50. The provider of Internet security for corporations was raised to "outperform" from "market perform" at FBR Capital Markets Corp.
BP Plc (BP US) rose 3.7 percent to $39.05. The company may be forced to sell some of its most valuable assets to help pay for the worst oil spill in U.S. history, said Douglas Ober, chief executive officer at Petroleum & Resources Corp.
Transocean Ltd. (RIG US), owner of the rig used at BP's Gulf of Mexico well that's leaking oil, gained 2.9 percent to $49.75.
CBS Corp. (CBS US): The most-watched U.S. broadcast network's Chief Executive Officer Leslie Moonves said at a conference in New York that the marketplace for television ads is "very strong" and "a lot of deals" will be completed this week for commercials next season on the CBS network.
Cephalon Inc. (CEPH US): The biopharmaceutical company said it is halting research into Nuvigil as a supplemental treatment for schizophrenia after the drug failed to show any benefit over a placebo in a study.
Dynamex Inc. (DDMX US) fell 4.7 percent to $15.30. The provider of same-day delivery services in the U.S. and Canada lowered its earnings forecast for the current fiscal year to as low as $1.05 per share. The average analyst estimate is $1.21 according to Bloomberg data.
Hovnanian Enterprises Inc. (HOV US): The largest homebuilder in New Jersey reported its net loss narrowed to $28.6 million, or 36 cents a share, for the second fiscal quarter, from a loss of $118.6 million, or $1.50, a year earlier. The average estimate of six analysts in a Bloomberg survey was for a loss of 63 cents a share.
Joy Global Inc. (JOYG US) gained 12 percent to $58.50. The maker of mining equipment raised its sales forecast for this year to as much as $3.4 billion, up from the prior maximum of $3 billion.
Medtronic Inc. (MDT US): The biggest maker of heart-rhythm devices said data show Medtronic deep brain stimulation provides sustained motor function improvement in Parkinson's disease patients.
SonicWall Inc. (SNWL US) jumped 25 percent to $11.21. Cisco Systems Inc.'s (CSCO US) competitor in Internet security equipment agreed to be taken over for $717 million, or $11.50 a share, by an investor group led by Thoma Bravo LLC
Good morning everyone!
>>UK Pension funds sunk by BP oil spill chaos
By Dan Hyde
1 June 2010
Pension funds are counting the cost of the BP oil spill as its share price has tumbled and fears are raised over dividend payments.
There was fresh bad news for BP today after shares in the company tanked 15% in morning trading. Its share price is now down 27% over the past month.
BP is a key stock for pension funds, and it is suggested that it accounts for one in every six pension pounds invested.
Funds have traditionally chosen BP because its shares were seen as a relatively 'safe' bet in the long-run, gaining solidly each year and most importantly providing a regular and robust dividend.
But the crisis in the Gulf of Mexico has dramatically changed that outlook.
With oil spill problems set to rumble on, many expect BP shares to tumble further, wiping huge chunks from retirement savers' pots. And the big fear for pension funds ongoing performance is that BP may not be able to sustain its high dividend payments, with the shares currently yielding more than 7.5%.
Pension funds typically target stable dividend paying stocks such as BP, but their choice is limited. Capita Registrars dividend monitor report showed the top five best payers in 2009 accounted for 47% of all dividends paid that year. BP is a major player in that top five, along with Shell, HSBC Vodafone and GlaxoSmithKline.
The news is particularly bad for savers nearing retirement, but who have opted to remain invested in the stock market, rather than moving into low risk assets, such as cash or gilts, to secure their pots. BP's position as a sizeable chunk of pension scheme holdings will have dragged their investment down with little time left to recoup losses.
BP' stock had fallen 73.95p to 420.85p by 12.45pm today after its latest attempt to stem the major oil spill in the Gulf of Mexico failed. The blue-chip heavyweight had opened 15% down - wiping £14bn from its market value - as investors worried that it may take until August to resolve the crisis.
The financial cost of tackling the spill, the worst in US history, now stands at $990m, as BP prepares for a new attempt to control the flow of oil this week.
The latest news will intensify doubts about BP's ability to pay a dividend this year - of vital importance because pension funds bank on this income.
Read more: http://www.thisismoney.co.uk/pensions/article.html?in_article_id=505516&in_page_id=6&position=moretopstories#ixzz0pbYaW3dO
>> BP key stock for many UK pension fund schemes:
BP Share Price Dives Over Oil Spill Fears
Share
11:03am UK, Tuesday June 01, 2010
Hazel Tyldesley, Sky News Online
BP's share price has plunged by almost 14% in early deals as the oil giant scrambles to control the Gulf of Mexico oil spill.
Investors are taking into account the rising cost of the disaster, which the US government has warned may not be resolved until August.
Since the Deepwater Horizon drilling rig exploded on April 20, the British firm has lost over £40bn of its value.
The losses are bad news for many British pension holders, as BP is a key stock for many UK pension fund schemes.
Over the weekend, the oil giant's so-called "top kill" attempt to block the leak in the Gulf of Mexico failed.
As the company faces the challenge of finding a new way to stem the follow of oil, another threat looms on the horizon - the impending hurricane season.
America's National Oceanic and Atmospheric Agency has predicted it will be a highly active season, with three to seven "major" hurricanes.
As well as wreaking havoc upon local communities, there are fears that a hurricane will push oil from the spill up the Mississippi delta.
The Deepwater Horizon response team, which consists of companies and government agencies, said: "The high winds and seas will mix and 'weather' the oil which can help accelerate the biodegradation process."
However, it acknowledged that high winds "may distribute oil over a wider area".
"It is difficult to model exactly where the oil may be transported," they said, adding that movement of oil would depend greatly on the track of the hurricane.
Contracted workers on patrol to clean the beach in Grand Isle, Louisiana
With the prospect of further difficulties ahead, BP's bill for containing, cleaning up and compensating for the spill is likely to soar above the £682m it currently stands at.
Officials fear the oil could continue to pour out of the undersea well until August, by which time two relief wells will have been drilled.
Meanwhile the still-growing slick is threatening the fragile wetlands of the US state of Louisiana, as well as the Gulf region's fishing and tourism industries.
Speaking about latest preparations to cap the leak, BP chief executive Tony Hayward said: "BP's priority is to keep as much oil as we can from causing additional harm to the Gulf, the shoreline and the people of the region.
"This planned multi-step containment strategy is our best option for achieving this as we work hard towards completing the relief wells that will kill this well completely.
"I hope we will see progress with these containment procedures in the coming days."
Around 20,000 people have already been deployed to contain and clean up the spill.
http://news.sky.com/skynews/Home/Business/BP-Shares-Take-Sharp-Price-Dive-Oil-Giant-Sees-Shares-Fall-By-14/Article/201005115641402?lpos=Business_Top_Stories_Header_2&lid=ARTICLE_15641402_BP_Shares_Take_Sharp_Price_Dive:_Oil_Giant_Sees_Shares_Fall_By_14%25
>>Federal prosecutors weigh a criminal probe of BP
The focus is on whether the oil company skirted safety regulations and misled the U.S. government about its ability to respond to a blowout.
May 28, 2010|By Richard A. Serrano, Tribune Washington Bureau
Carolyn Cole / Los Angeles Times
Reporting from Washington — — A team of top federal prosecutors and investigators has taken the first steps toward a formal criminal investigation into oil giant BP's actions before and after the drilling rig disaster off Louisiana.
The investigators, who have been quietly gathering evidence in Louisiana over the last three weeks, are focusing on whether BP skirted federal safety regulations and misled the U.S. government by saying it could quickly clean up an environmental accident.
The team has met with U.S. attorneys and state officials in the Gulf Coast region and has sent letters to executives of BP and Transocean Ltd., the drilling rig owner, warning them against destroying documents or other internal records.
Underscoring the gravity of the inquiry, the team is headed by Assistant Atty. Gen. Ignacia Moreno of the environment and natural resources division and Assistant Atty. Gen. Tony West, who heads the Justice Department's civil division.
The move by federal prosecutors represents an escalation in the government's involvement in the oil spill — from coordinating the environmental cleanup to searching for possible criminal violations.
The Justice Department's inquiry is a standard preliminary step taken to determine whether a formal investigation is warranted. But even in this early stage, it has the earmarks of one of the largest investigative undertakings of the Obama administration.
In one sign of its potential scope, the Obama administration has asked for $10 million to be set aside to pay for the investigation. President Obama, in a letter May 12 to House Speaker Nancy Pelosi (D- San Francisco), said the funding was needed "to hold BP, and other responsible parties in this spill, accountable for the crisis."
Oil company officials said they were conducting an internal review and had been sharing information with the government. The companies also have pledged to help clean up the oil spreading along the gulf and pay for damages.
"I understand people want a simple answer about why this happened and who is to blame," said BP Chief Executive Tony Hayward.
Assistant Atty. Gen. Ronald Welch said federal investigators were pushing ahead with their inquiries.
http://articles.latimes.com/2010/may/28/nation/la-na-oil-spill-investigation-20100529
>>Legal analysts say criminal charges likely In BP oil spill
WWL - Paul Murphy - 3 days ago
wwltv.com
Posted on May 28, 2010 at 5:45 PM
Updated Friday, May 28 at 9:55 PM
NEW ORLEANS - As civil lawsuits mount, U.S. Attorney General Eric Holder has assigned a group of federal prosecutors to monitor the Deepwater Horizon oil spill disaster and determine if any laws were broken before or after the rig explosion.
The prosecutors are assessing environmental damage and other factors.
Legal analysts say that could lead to a full blown criminal investigation into the BP spill.
"I can almost guarantee you that a grand jury will be convened to take testimony, receive documents, hear evidence about exactly what happened," said former federal prosecutor Chic Foret.
"I think the question really is not whether criminal charges are going to be brought, but when and what type of charges," said Loyola Law Professor Dane Ciolino.
Ciolino also says strict liability crimes clearly apply in this case.
"Because of the fact that some migratory birds have been harmed and that oil has been released into a navigable waterway, that alone, irrespective of fault can lead to a misdemeanor criminal prosecution," said Ciolino.
Foret says the feds will also be looking at possible crimes after the fact.
"Has there been an obstruction of justice? Has anybody tampered with the evidence? Has anybody in testifying before Congress and Coast Guard hearings committed perjury," he said.
Tulane Maritime Law Professor Bob Force says the Department of Justice is under a lot of pressure to do something.
"You got a lot of people down here and in other places that are calling for blood," said Force. "You never know how the government is going to react to that kind of public indignation."
BP has been convicted of three environmental crimes in the last 10-years.
The company paid $50 million in criminal fines after a 2005 refinery explosion in Texas.
In 2007, BP paid $20 million for ignoring leaks in the Alaska pipeline.
In 2000, the company paid a $500,000 fine for failing to report dumping in the north slope of Alaska.
Legal analysts says BP's past record could be a factor in future criminal charges in the Deepwater Horizon case.
"There may be a culture in this company that has to change," said Force. "A significant criminal prosecution might help effectuate that change."
"Also keep in mind that 11 people died as a result of this accident," said Ciolino. "So, you can't rule out some homicide type charges being brought against some culpable individuals for either negligent homicide or worse if the facts show that someone was reckless in causing these deaths."
The Justice Department's Environment and Natural Resources division is heading up the inquiry into the BP rig explosion.
http://www.wwltv.com/news/gulf-oil-spill/Legal-Analysts-Say-Criminal-Charges-Likely-In-BP-Oil-Spill-95148979.html
BP Spill Threatens Alabama, Mississippi Coasts as Hurricane Season Begins
By John Duce and Eduard Gismatullin
June 1 (Bloomberg) -- Oil from the biggest spill in U.S. history could spread this week to threaten the coasts of Mississippi and Alabama, according a weather forecast that comes as the Atlantic hurricane season officially starts.
Winds from the southwest are predicted this week, pushing the oil from BP Plc’s broken well in the Gulf of Mexico to a wider area of the U.S. coast, the National Oceanic and Atmospheric Administration said in a statement on its Web site.
“Results indicate that oil may move north to threaten the barrier islands off Mississippi and Alabama later in the forecast period,” the agency known as NOAA said.
BP abandoned an attempt to plug the well spewing millions of gallons of oil and said it will now try to contain the spill by fitting a pipe over the leak later this week to bring the oil to a drillship on the surface. Ships seeking to funnel oil from the leak a mile under the sea may need to seek shelter in a port if a hurricane enters the Gulf of Mexico.
The U.S. hurricane season, which begins June 1 and ends Nov. 30, may be one of the most active on record, potentially hampering BP’s efforts as response cost rose to $990 million, or about $24 million a day, after an attempt to plug the gushing well failed.
BP is modifying its system to collect crude to a ship on the surface to achieve “greatest flexibility for operations during a hurricane,” according to a statement posted on its Web site yesterday.
Hurricane Forecast
As of yesterday, the Unified Area Command in Robert, Louisiana, reported oil along 100 miles of Louisiana coastline. Nearly 100 birds and five sea turtles have been found dead or visibly oiled, according to the Command’s latest report. Hundreds more birds and turtles may have been affected, the report says.
Fifteen to 20 named storms may develop in the season threatening both the Gulf of Mexico and the U.S. East Coast, according to Greg Holland, director of the Mesoscale and Microscale Meteorology Division of the National Center for Atmospheric Research.
The 2010 hurricane season in the Atlantic has an 85 percent chance of being above normal, with a 70 percent probability of 14 to 23 named storms with 8 expected to become hurricanes, NOAA said on May 27. “The conditions expected this year have historically produced some very active Atlantic hurricane seasons,” the agency said.
Katrina Damage
In 2005, Hurricane Katrina caused the levees protecting New Orleans to fail, flooding the city and killing more than 1,800 people. That hurricane, as well as Rita in September the same year, tore through the Gulf of Mexico with winds of 170 miles per hour (274 kilometers per hour), toppling production platforms, setting rigs adrift and rupturing pipelines.
In 2006, BP was still repairing oil installations such as the leaking well discovered in Grand Isle that were damaged during the 2005 hurricane season. In 2008, BP reported an oil discharge from a platform, one of 15 BP-operated rigs in the Grand Isle off the Louisiana Coast, which were being decommissioned after damaged from Katrina and Rita. BP couldn’t explain the origin of the leak that time.
-- With assistance from Jim Polson in New York. Editors: Will Kennedy, Jonas Bergman.
To contact the reporter on this story: John Duce in Hong Kong at Jduce1@bloomberg.netEduard Gismatullin in London at egismatullin@bloomberg.net
Last Updated: June 1, 2010 06:16 EDT
BL: Hedge Funds Post Biggest Monthly Losses Since Lehman Aftershock
By Katherine Burton and Saijel Kishan
June 1 (Bloomberg) -- John Paulson, Louis Bacon and Andreas Halvorsen navigated the global market turmoil of 2008 with little or no damage. They weren’t as successful last month as the Dow Jones Industrial average had its worst May since 1940.
Hedge funds lost an average of 2.7 percent through May 27, according to the HFRX Global Hedge Fund Index, as the sovereign debt crisis in Europe triggered declines in stocks, the euro and commodities, and the gap in yields between U.S. short-term and long-term debt narrowed. It was the biggest decline since November 2008, when hedge funds lost 3 percent in the wake of Lehman Brothers Holdings Inc.’s bankruptcy two months earlier.
Almost every strategy lost money in May, according to Hedge Fund Research Inc. in Chicago, as the Dow index of 30 big stocks sank 7.6 percent including dividends amid speculation that Greece’s debt problems would spread to nations such as Spain and Portugal. Some of the best-known funds saw their gains for this year erased.
“Attempting to manage risk in an environment where everything that could go wrong does go wrong seems like a fruitless endeavor,” said Brad Balter, who runs Balter Capital Management LLC, a Boston firm that invests in hedge funds for clients. “The only defense that seems to work in months like these is being in cash.”
Paulson’s Advantage fund dropped 6.9 percent through May 21, dragging it to a year-to-date loss of 3.3 percent, according to investors with knowledge of the results, who asked not to be named because the information is private. Halvorsen’s Viking Global fund fell 3.4 percent in the same span and 2.9 percent for the year. Bacon’s Moore Global declined 7.7 percent as of May 20 and 4.8 percent in 2010, investors said.
2008 Performance
Representatives of Paulson & Co., Viking Global Investors LP and Moore Capital Management LLC, the New York-based firms that oversee the funds, declined to comment. Paulson, Halvorsen and Bacon have among the best long-term returns in the industry, each with average gains of 20 percent or more since they started.
Paulson Advantage fund climbed 25 percent in 2008 while the S&P 500 slumped 37 percent including dividends, its largest setback since the Great Depression. Viking rose 0.1 percent that year and Moore Global slid 4.6 percent, offering investors the type of bear-market shelter they look for in hedge funds.
Many of the wagers that hedge funds put on to protect against falling markets didn’t work, Balter said.
Their bets on falling stocks didn’t make enough money to counter losses in shares the managers expected to climb. Commodities retreated 8.2 percent in May, as measured by the UBS Bloomberg CMCI Index. Traders who positioned themselves for the U.S. yield curve to steepen, a sign of expected economic growth, suffered losses when the difference between payouts on two-year and 10-year Treasury notes narrowed instead.
The spread shrank from 269 basis points at the end of April to 252 on May 28. A basis point is one-hundredth of a percent.
SAC, Citadel
SAC Capital Advisors LLC, the hedge-fund firm run by Steven Cohen in Stamford, Connecticut, with about $12 billion under management, lost 2.9 percent last month through May 21 with its SAC Capital International fund, trimming this year’s gain to about 4 percent, according to people familiar with the firm.
Citadel Investment Group LLC, the $12 billion hedge-fund firm run by Ken Griffin, lost about 2 percent with its biggest funds last month through May 21, said people familiar with the Chicago firm. The funds soared as much as 62 percent last year as markets rebounded after losing as much as 55 percent in 2008.
Brevan Howard Asset Management LLP in London, Europe’s largest hedge-fund firm, lost 0.1 percent for the month through May 21 with its Brevan Howard Fund Ltd., leaving it with a decline of 0.3 percent this year, according to an investor.
Caxton Gains
Some funds made money last month.
Caxton Associates LLC, the New York-based firm founded by Bruce Kovner, rose 1 percent through May 21 with its largest fund as currency trades paid off, an investor said. The fund is up 4.5 percent for the year.
Autonomy Capital Research LLP, based in London, climbed 0.7 percent through May 21 and about 12.5 percent for the year, according to people with knowledge of the fund.
Robert Gibbins, manager for the $1.5 billion firm, said his trades were based on the forecast that global economies won’t improve until currencies are better aligned, and in particular Chinese officials agree to let the yuan strengthen, he said.
“That people were looking for new highs on equities didn’t make sense to us,” Gibbins said in a telephone interview. Before last month, the S&P 500 had soared 80 percent from its 12-year low in March 2009, including dividends.
Volatility Surge
Gibbins said his profitable trades included wagers that the S&P 500 would fall and that interest rates in a number of countries would slide.
BAM Capital LLC, a $300 million hedge-fund firm in New York that bets on price volatility, returned 7.7 percent last month through May 21 with its main BAM Opportunity Fund LP, bringing its gain for the year to 8.2 percent, according to an investor.
The VIX, an index measuring volatility, jumped about 45 percent last month.
Spokesmen for SAC, Citadel, Brevan Howard, Caxton and BAM Capital declined to comment.
The price swings in May haven’t changed managers’ views on whether global economies are rebounding or shrinking.
“Managers who are positive are still positive, and negative managers are still negative,” said Charles Krusen, head of Krusen Capital Management LLC, a New York-based firm that invests in hedge funds for clients.
To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net; Saijel Kishan in New York at skishan@bloomberg.net.
Last Updated: May 31, 2010 19:00 EDT
ty, but its a sad way to make money. I wanted BP to succeed. I didn't think they would, because I have little confidence in their efforts, but I hoped against hope I would be wrong
BL: Commodities' Biggest Collapse Since Lehman Fell Signals Bear Market Ahead
By Millie Munshi and Elizabeth Campbell
June 1 (Bloomberg) -- The biggest slump in commodities since Lehman Brothers Holdings Inc. collapsed is undermining Wall Street forecasts for accelerating economic growth and higher prices for everything from copper to crude oil.
The Journal of Commerce commodity index that includes steel, cattle hides, tallow and burlap plunged 57 percent in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth.
Commodities extended their decline today, led by a 2.9 percent slump in crude oil and 3.8 percent drop in copper, as the rate of manufacturing expansion in China and Europe slowed. The pace of growth in a U.S. factory index is also expected to weaken, according to economists’ forecasts before a report scheduled for later today.
“As risk-taking falls, expected growth is reduced,” said Colin P. Fenton, the chief executive officer of Curium Capital Advisors LLC in Boston, who was a commodity analyst at Goldman Sachs Group Inc. and at Stanley Druckenmiller’s Duquesne Capital Management LLC hedge fund. “Demand for commodities is going to be softer than it might otherwise have been.”
While the Organization for Economic Cooperation and Development raised its growth forecasts for this year and next on May 26, investors are dumping holdings at the fastest pace since February.
Supply and Demand
The Journal of Commerce Industrial Price Commodity Smoothed Price Index reflects clearer signs of supply and demand than futures markets because half the items it tracks don’t trade on exchanges used by speculators, said Lakshman Achuthan, the managing director at the New York-based Economic Cycle Research Institute. The gauge dropped to 25.97 on May 28 from 60.56 on April 30.
In June 2008, a month after the index reached its peak, the Paris-based OECD said the U.S. would grow at a 1.1 percent rate the following year. Commodities continued to drop, and in October 2008, the index fell at a 56 percent annual rate, which was then the lowest level since 1949.
Almost two months later, the National Bureau of Economic Research, the panel that dates American business cycles, said the U.S. was in a recession. The world’s largest economy shrank 2.4 percent, the worst contraction since 1946.
Now, “the collapse in the commodity index is telling us that the peak in global industrial growth is imminent, it’s here right now,” said Achuthan. “Markets are going to have to deal with the reality of a slowdown.”
Manufacturing Indexes Slide
China’s Purchasing Managers’ Index slid to 53.9 from 55.7 in April, the Federation of Logistics and Purchasing said today. That was less than the median 54.5 estimate in a Bloomberg survey of 18 economists. A gauge of manufacturing in the euro region fell to 55.8 in May from 57.6 the previous month, Markit Economics said. The Institute for Supply Management’s factory index in the U.S. dropped to 59 last month from 60.4 in April, according to the median estimate in a Bloomberg survey of 62 economists. The report is due at 10 a.m. New York time.
Europe’s debt crisis is only starting to weigh on global growth, said Michael Aronstein, a strategist at Oscar Gruss & Son Inc. who predicted the 2008 commodity plunge and is betting against a rally this year.
The European Union announced an almost $1 trillion loan package last month to halt a slide in the euro and local bonds that threatened to shatter the currency union. Budget cuts across the region may curb demand for Chinese imports as well as commodities including gasoline, aluminum and steel.
Sagging Demand
Raw materials may drop another 10 percent because the economy is on the “cusp” of deflation, said Philip Gotthelf, the president of Equidex Brokerage Group Inc. in Closter, New Jersey. That would drive the Reuters/Jefferies CRB Index of 19 commodity futures down 22 percent from a Jan. 6 peak and into what investors consider a bear market. The gauge plunged 8.2 percent in May, the most in 18 months.
Gotthelf correctly predicted in October 2008 that oil would fall below $40 a barrel and said he is now shorting most commodities and buying gold.
The S&P GSCI Total Return Index of 24 commodities declined 2.1 percent as of 10:17 a.m. in London, the most compared with closing prices since May 17.
Economic forecasts have been rising. As a group, the OECD’s 30 member nations will grow 2.7 percent this year, the organization said. The expansion will reach 3.2 percent in the U.S. and 10.1 percent in China, according to separate surveys of economists by Bloomberg last month.
Fundamental Strength
“The market is underestimating the strength of the fundamentals and overestimating the impact that the European sovereign-funding issues will have on growth,” Jeffrey Currie, a Goldman Sachs analyst, said in an interview from London. He says the decline is a “buying opportunity.”
Freeport-McMoRan Copper & Gold Inc. Chief Executive Officer Richard C. Adkerson told analysts on a conference call May 11 that while “there is still a lot of uncertainty” about the world economy and its reliance on demand from China, the Phoenix-based mining company sees “some pockets of demand improvement” and is taking steps to ramp up copper production.
“There are headwinds, concerns both in Europe and in Asia that are making investors rethink their decisions and maybe take some profits, but I believe that the longer-term growth story remains intact,” said Michael Cuggino, who manages about $6 billion at Permanent Portfolio Funds in San Francisco. “I don’t think it’s a broader slowdown. I think it’s a correction.”
Lower Prices
Inflation is almost non-existent. In April, U.S. consumer prices unexpectedly dropped 0.1 percent, the first decrease since March 2009, government data show. In the 12 months ended in April, the cost of living rose 2.2 percent, following a 2.3 percent year-over-year gain in March.
Bank of America Merrill Lynch says prices will continue to deteriorate. On May 25, the Charlotte, North Carolina-based bank cut its oil forecast for the second half of the year to $78 a barrel from $92. Doane Agricultural Services Co. in St. Louis said May 18 that corn will drop 14 percent by October to $3.25 a bushel. Corn for December was at $3.7625 today.
Copper, a commodity former Federal Reserve Chairman Alan Greenspan saw as an economic indicator, declined 7.4 percent in May, the biggest monthly slide since January, and traded at $3.0295 a pound at 10:12 a.m. London time today. Burlap, used for industrial packaging, is down 9.7 percent this year, almost matching its 9.9 percent drop in 2008.
Manufacturing Risk
“If commodity prices are coming down, there is some downside risk to the manufacturing sector,” said Chris Rupkey, the chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “It’s too early to see it in people’s numbers yet, but if I had to guess, people will shave their estimates” for growth this year, he said.
Commodities last fell into a bear market in 2008, when the CRB plunged 56 percent in five months as the U.S. suffered the worst financial crisis since the Great Depression, growth contracted on a global basis for the first time since 1981, and the Journal of Commerce index was below zero.
Now, a slowdown in Europe, the biggest destination for Chinese exports, will “badly hurt” the Asian country, said Lewis Wan, the chief investment officer for Pride Investments Group, which oversees $150 million in Hong Kong. The Shanghai Stock Exchange Composite Index tumbled 21 percent this year as the government enacted measures to cool its property market.
As of last month, the European Union’s economy was expected to grow 1.1 percent this year after contracting 4.1 percent in 2009, the biggest drop since 1992, according to 19 economists surveyed by Bloomberg.
Euro Outlook
A “wave of fiscal austerity” in Europe will depress the expansion in the region, in the U.S. and in China, according to Arnab Das, the head of global market research at Roubini Global Economics in London. The euro on May 19 dropped to $1.2144, its lowest level against the dollar since April 2006, as Spain was forced to rescue banks and policy makers including Italian Prime Minister Silvio Berlusconi said they would cut spending to combat a financial “tsunami” in the region.
Investors are getting less bullish, according to the U.S. Commodity Futures Trading Commission. Speculative net-long positions, or bets on rising prices, for 16 commodity futures have dropped 33 percent in the past three weeks, CFTC data show. That’s the lowest level since Feb. 9, after the net-longs plunged 58 percent from a 20-month high on Jan. 12.
“It’s the uncertainty that’s the biggest problem,” said John Kinsey, who helps manage C$1 billion ($995 million) at Caldwell Investment Management Ltd. in Toronto. “Commodities are being attacked with these concerns about the debt situation in Europe and the steps that China has taken to tighten. People are afraid this is going to slow the economy. It’s hard to see a way out of it.”
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net; Elizabeth Campbell in New York at ecampbell14@bloomberg.net.
Last Updated: June 1, 2010 06:04 EDT
BL: BP Needs Equivalent of Lottery Win in August to Seal Leak at First Attempt
By James Paton
June 1 (Bloomberg) -- BP Plc would need the equivalent of a lottery win to succeed with its first attempt to end the Gulf of Mexico oil spill in August using a so-called relief well, the president-elect of the American Association of Petroleum Geologists said.
A relief well intercepts the damaged hole at an angle thousands of feet below the seabed and permanently closes it with heavy mud and cement. The method is the surest way for BP to end the largest oil spill in U.S. history, yet initial failure is “almost a certainty,” the association’s David Rensink said by telephone from Houston. “It would be like winning the lottery to get it on the first shot.”
BP faces some of the same challenges PTT Exploration & Production Pcl encountered last year in trying to stop a leak 2,600 meters (8,500 feet) below the seabed off northwest Australia.
The Thai oil and gas explorer finally plugged the Montara well in the Timor Sea after 10 weeks when a relief well enabled the company to pump 3,400 barrels of heavy mud to stanch the flow of oil. During one of the failed attempts to halt the leak on Nov. 1, a fire erupted while the Bangkok-based company was injecting the mud, engulfing and destroying the West Atlas drilling rig.
BP forecasts it will finish the first of two relief wells it has started drilling in early August, according to Doug Suttles, the executive in charge of the spill response. The first well has reached a depth of 12,090 feet, London-based BP said today in a statement, two-thirds of the way to completion. A second has reached 8,576 feet.
‘Hit-or-Miss’
The challenge is intersecting the damaged well, not the actual drilling, said Rensink, who becomes president of the association in July.
“What you’re doing is trying to intersect a well bore that is probably roughly a foot across with another well that is about a foot across,” he said. “It’s a hit-or-miss sort of thing. Ultimately the relief well will work. It’s just a matter of time, of continuing to poke at it until you intersect it.”
BP is drilling two wells because there is a risk it may not reach the target with just one, said Edson Nakagawa, head of the petroleum and geothermal division of Australia’s Commonwealth Scientific and Industrial Research Organization.
“Drilling in this kind of environment is challenging with the deep water, deep wells, high pressure and high temperature,” Nakagawa said from Perth today.
Timor Sea
The cost of responding to the leak has risen to $990 million, BP said today. The well has spewed 12,000 to 19,000 barrels of oil a day, a U.S. government panel estimated May 27. The spill began after the Deepwater Horizon rig hired by BP exploded April 20, killing 11 crew members.
PTTEP estimated as much as 400 barrels of oil a day may have leaked into the Timor Sea between Aug. 21 and Nov. 3. That would make it the third-biggest spill in Australian history, based on figures from the Maritime Safety Authority.
“There are similarities between Montara and the Gulf” spills, said Brian Evans, head of Petroleum Engineering at Curtin University of Technology in Perth. “What really separates them is the deep water in Gulf of Mexico,” he said by telephone today. “They are dealing with much higher pressures than the Apollo missions had in space.”
A commission set up to investigate what happened at the Montara field, about 250 kilometers (155 miles) northwest of Australia’s Kimberley coast, is expected to issue a report and make safety recommendations in mid-June, Australia’s Resources and Energy Minister Martin Ferguson said last month.
To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net.
Last Updated: June 1, 2010 05:56 EDT
BL: China Denying New Euro Policy Prompts Nomura to Detect Changes in Trading
By Ben Levisohn and Oliver Biggadike
June 1 (Bloomberg) -- Wall Street’s foreign-exchange strategists say central bankers are showing growing reluctance toward holding euros as Europe’s debt crisis undermines confidence in the region’s single currency.
The euro weakened 2.4 percent against the dollar last week even after China’s State Administration of Foreign Exchange, which manages the country’s $2.4 trillion of reserves, denied speculation that it was diversifying away from European bonds. The 20 percent depreciation from last year’s peak in November has demonstrated the limits of the euro as a reserve currency to rival the dollar as well as the European Central Bank’s ability to defend its legal tender.
A net 105 billion euros ($129 billion) flowed out of the region’s fixed-income markets on an annualized basis in the first three months of the year, signaling a “broad shift” in appetite for euro-denominated assets, according to Nomura Holdings Inc. The region attracted a net 225 billion euros from foreign debt investors in 2009.
“It’s clearly the case that there’s been an element of foreign central banks slowing down their euro purchases,” said Jens Nordvig, a managing director for foreign-exchange research at Nomura in New York. “The institutional framework is being questioned, the credibility of the ECB is being questioned, and all that uncertainty is really fueling an asset allocation shift away from the euro zone.”
Switch in Strategy
Institutional investors, including some central banks, have become net buyers of U.S. bonds since Europe’s debt crisis began, based on Bank of New York Mellon Corp. iFlow data, which monitors total assets of about $30 trillion. As of May 20, when the euro traded $1.2487, cumulative flows into Treasuries totaled four times the average amount over the previous year. The last time the euro traded below $1.25 in March 2009, investors were sellers of U.S. bonds at 10 times the previous year’s average, and put money into euro-denominated assets and other currencies.
“There’s a growing realization that the outlook for the currency is bleak,” said Samarjit Shankar, a managing director for the foreign exchange group in Boston at BNY Mellon. “There is evidence that central bankers and reserve managers are trying to diversify away from euro.”
Relative Growth Outlook
European Union leaders unveiled an almost $1 trillion loan package last month to halt the slide in the euro and local bonds that threatened to shatter the currency union after Greece’s budget deficit expanded to almost 14 percent of gross domestic product, exceeding the EU’s 3 percent limit without penalty. Last week, Spain lost its AAA credit grade at Fitch Ratings as the nation struggles to cut the euro region’s third-largest budget deficit as percentage of GDP.
The euro-zone economy may expand 1.1 percent this year, compared with 3.2 percent for the U.S., according to the median estimate of analysts in Bloomberg News surveys.
The euro fell as much as 1.6 percent against the dollar to $1.2111 today in London, the lowest since April 14, 2006. It depreciated as much as 2.3 percent to 109.77 yen. The Financial Times reported last week without saying where it got the information that Chinese officials have been meeting with foreign bankers to review holdings of euro-zone debt.
The euro is dropping the fastest since the bankruptcy of Lehman Brothers Holdings Inc. in September 2008 triggered a funding shortage that pushed it and 14 other major currencies down against the dollar. Back then, it fell 21 percent by Dec. 1, 2008, the biggest slump in the euro’s 11-year history.
‘Structural Debt Problems’
That decline set the stage for a rally as the euro recovered amid concern that the U.S. would struggle with a growing budget deficit.
“Both the dollar and the euro have structural debt problems but at least Europe is doing something about it,” said David Bloom, global head of currency strategy at HSBC Holdings Plc in London. “The pendulum will swing against the dollar later this year as people realize that the U.S. has even bigger problems than the E.U.”
HSBC predicts the euro will end the year at $1.35 as the U.S. mid-term elections in November shift attention to the nation’s inability to reduce a deficit projected to reach $1.5 trillion this year.
The latest data from the International Monetary Fund shows that the euro made up 27.4 percent of global currency reserves at the end of 2009. While that was down from 27.8 percent in September, it was up from 26.4 percent a year earlier.
Volcker’s Prediction
“Central banks will watch the situation in the euro zone closely, but they know that if they were to sell a large amount of euros now, the market will move sharply,” said Mansoor Mohi- uddin, the global head of foreign-exchange strategy at UBS AG in Singapore. “What will happen instead is that they slow down their purchases of the euro, and that’s enough to weaken the currency.”
While the euro became a rival to the dollar after its inception in 1999, the debt contagion that began in Greece is driving investors away. Former Federal Reserve Chairman Paul Volcker said May 13 in London that he’s concerned the euro area may break up after the rescue package failed to stem the currency’s decline.
“You have the great problem of a potential disintegration of the euro,” Volcker, 82, said in a speech. “The essential element of discipline in economic policy and in fiscal policy that was hoped for” with the creation of the euro has “so far not been rewarded in some countries,” he said.
Cutting Estimates
China’s State Administration of Foreign Exchange, which manages $2.4 trillion of reserves, holds about $630 billion of euro-area bonds and has expressed concern about its exposure to Greece, Ireland, Italy, Portugal and Spain, the Financial Times said. The agency said later in a statement that “the media report that SAFE is reviewing its euro holdings was groundless,” without specifying the media to which it was referring.
Strategists aren’t keeping up with the declines. The median of 48 forecasts is for it to end the year at $1.22. In February they predicted $1.43.
The number of wagers by hedge funds and other large speculators on a decline in the euro stood at 106,736 contracts more than those anticipating a gain on May 25, near the record 113,890 on May 11, according to data from the Washington-based Commodity Futures Trading Commission. As recently as December, bullish contracts exceed bearish ones by 22,151.
While a weaker euro makes European exports more competitive, it may damp the appeal of financial assets. A foreign investor in German bunds would have lost 8.7 percent this year after exchanging euros for dollars, Bank of America Merrill Lynch indexes show.
Kokusai’s Choice
Kokusai Global Sovereign Open Fund, Asia’s biggest bond fund, cut its euro-denominated holdings to 30 percent of assets, the least since 1998, from 42 percent at the beginning of the year, Masataka Horii, one of four investors for the funds, said in a May 10 interview in Tokyo. Kokusai Global boosted dollar bonds to 22.1 percent from 18.6 percent.
Demand for dollars was evident in a monthly report by the Treasury Department released May 17 that showed net purchases of U.S. financial assets soared to a record in March as investors from China to the U.K. purchased the most Treasuries since November. Net buying of equities, bonds and other assets totaled $140.5 billion, up from $47.1 billion in February.
Options giving investors the right to sell the euro are holding at about the most since before 2003 relative to those that allow for purchases. The currency’s one-month options risk- reversal rate fell to minus 3.0875 percent on May 26, from minus 1.25 percent in December, signaling a relative increase in demand for puts, which grant traders the right to sell the euro versus the dollar.
“The move lower in the euro is not just speculation,” said Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ Ltd. in London. “There has been an asset allocation away from euro. The problem is deeply rooted and fundamental in terms of unsustainable fiscal deficits.”
To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net
Last Updated: June 1, 2010 06:04 EDT
BL: BP Declines Most in 18 Years After Abandoning Attempt to Plug Leaking Well
By Brian Swint and John Glover
June 1 (Bloomberg) -- BP Plc fell the most in 18 years in London trading after abandoning an attempt to plug a leaking oil well in the Gulf of Mexico, the worst spill in U.S. history.
BP plunged as much as 17 percent to 411.5 pence, the steepest one-day drop since June 1992, and its bonds traded in line with companies rated as much as levels lower. BP said on May 29 the attempt to plug the leak using heavy fluids and debris had failed. That rules out stopping the flow of oil from the well until relief drilling is completed in August.
“Until the flow of oil from this well can be halted, there will remain considerable uncertainty over the potential damages,” said Peter Hitchens, an analyst at Panmure Gordon & Co. in London. “Although we believe that the market has overreacted to the bad news, we feel that there will be little stimulus to the shares whilst this leak continues to pump oil into the sea.”
The company will now try to contain the spill by fitting a pipe over the leak later this week to bring the oil to a drillship on the surface, it said in a statement in London today. The operation may temporarily increase the flow of oil into the Gulf before a cap can seal the pipe. The cost of responding to the spill has risen close to $1 billion, BP said.
Investors demand a yield premium of 148 basis points on average to buy BP’s bonds rather than government debt, Bank of America Merrill Lynch’s energy industry index shows. That’s almost double the 77-basis point spread on notes sold by industrial companies with similar credit ratings. The shares traded at 419 pence at 12:04 p.m. London time.
Chief Executive Officer Tony Hayward’s effort to stop the leak and clean up the spill is becoming more urgent as hurricane season starts. Winds from the southwest could spread the spill this week to threaten the coasts of Mississippi and Alabama, the National Oceanic and Atmospheric Administration said.
BP said today it has so far spent $990 million responding to the explosion on the Deepwater Horizon rig on April 20 that killed 11 workers, as well as the cleanup from the oil spill.
Survival at Stake
The company’s survival is at stake, London-based investment bank Arbuthnot Securities Ltd. said today. The cost of the disaster and the share-price drop may make BP a takeover target or force the company to split up, analyst Dougie Youngson said in a note.
Credit-default swap contracts on BP rose to a record 136 basis points from 100.6 basis points on May 28, according to CMA DataVision prices in London. A basis point on a contract protecting 10 million euros ($12.2 million) of debt from default for five years is equivalent to 1,000 euros a year.
Using robots at the mile-deep well, BP plans to shear away most of the damaged pipe that once rose from the well to the Deepwater Horizon.
It will then make a more precise cut with a diamond-toothed band saw to make a clean junction for a gasket-lined cap, which is intended to catch most of the oil and route it to the surface through a pipe, BP Managing Director Robert Dudley said in television interviews last weekend.
Engineers expect the method to work better than a smaller pipe used to capture 22,000 barrels of oil, he said.
The well has spewed from 12,000 barrels to 19,000 barrels of oil a day, a government panel estimated May 27. Government experts estimate the spill will increase over the four to seven days BP needs to fix the cap, White House Energy Adviser Carol Browner said on May 30.
Winning the Lottery
BP reiterated that the first relief well, which it began drilling May 2, is now at 12,090 feet, two-thirds of the way to completion. The drilling effort is “on track, even slightly ahead,” said BP’s Pack.
The chances of intercepting the damaged well with a relief well on the first try are equivalent to winning the lottery, according to David Rensink, the president-elect of the American Association of Petroleum Geologists. Initial failure is “almost a certainty,” he said.
President Barack Obama ordered BP’s cleanup efforts tripled in oiled areas that encompass 107 miles (172 kilometers) of shoreline and 30 acres of tidal marsh.
“Every day that this leak continues is an assault on the people of the Gulf Coast region, their livelihoods, and the natural bounty that belongs to all of us,” Obama said in a statement May 29. “It is as enraging as it is heartbreaking.”
To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net; John Glover in London at johnglover@bloomberg.net.
Last Updated: June 1, 2010 07:10 EDT
BL: Stocks, U.S. Futures Tumble on China Growth Concern, BP Spill; Oil Plunges
By Justin Carrigan
June 1 (Bloomberg) -- Stocks tumbled, extending the biggest monthly decline in the MSCI World Index since February 2009, commodities dropped and bonds rallied on a slowdown in Chinese manufacturing. BP Plc shares fell the most since 1992 after it abandoned efforts to stop the biggest oil spill in U.S. history.
Futures on the Standard & Poor’s 500 Index slid 1.3 percent at 7:02 a.m. in New York, while the MSCI World retreated 0.8 percent. Crude oil and copper slipped for a second day, while gold traded within about 2 percent of a record high. BP Plc sank 15 percent, its biggest drop since 1992, while its bonds traded in line with debt of companies rated as many as five levels lower, according to Bank of America Merrill Lynch index data.
China’s Federation of Logistics and Purchasing said today its Purchasing Managers’ Index fell to 53.9 in April, lower than the median 54.5 estimate in a Bloomberg News survey of 18 economists, raising concern that the nation’s economy, the engine of global growth, is slowing. BP said a “top kill” attempt to plug the leak in the Gulf of Mexico using heavy fluids and debris had failed, ruling out stopping the flow of oil from the well until relief drilling is completed in August.
There are “emerging signs that the global recovery is already beginning to lose momentum especially in the two major economies of the U.S. and China,” Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ Ltd. in London, wrote in a report today. “This was evident again today by the Chinese manufacturing PMI which dropped more sharply than expected.”
Santander, Prudential
More than three shares fell for every one that gained on the MSCI World, which extended its drop of 9.9 percent in May, the biggest monthly decline since February 2009. The Stoxx Europe 600 Index slumped 1.7 percent as all 19 industry groups weakened. Banco Santander SA, Spain’s biggest bank, slipped 3.5 percent in Madrid, while BNP Paribas SA, France’s largest, fell 3.3 percent in Paris. Losses were limited as Prudential Plc rose 4.5 percent in London on speculation its takeover of American International Group Inc.’s main Asian unit won’t proceed.
The yield investors demand to hold BP’s bonds rather than government debt widened to 1.48 percentage points, or 148 basis points. That’s almost double the 77 basis-point average for similarly rated industrial companies and higher than the 124 premium on notes graded five levels lower. BP is rated Aa1 by Moody’s Investors Service. The cost of protecting against a default on BP’s bonds rose to a record, with credit-default swaps tied to the company climbing 77 basis points to 177.
S&P Futures
The decline in U.S. futures indicated the S&P 500 may extend the 1.2 percent drop made on May 28. U.S. equity markets were closed yesterday for the Memorial Day holiday. Manufacturing in the U.S. probably expanded in May for a 10th month, economists said before a report from the Institute for Supply Management at 10 a.m. New York time today. The ISM’s factory index fell to 59 from an almost six-year high of 60.4 in April, according to the median estimate in a Bloomberg News survey of 62 economists. Readings greater than 50 signal growth.
The MSCI Asia Pacific Index sank 1.2 percent. Sony Corp., which gets 69 percent of its sales outside Japan, fell 1 percent in Tokyo as a stronger yen threatened to hurt the value of overseas revenue. Hitachi Ltd., Japan’s No. 3 company by revenue, slumped 3.5 percent after the Financial Times cited the company’s president as saying it’s affected by Europe’s debt crisis.
Emerging Markets
The MSCI Emerging Markets Index declined for the first time in five days, falling 2.1 percent. The MSCI China Index of Hong Kong-traded shares retreated 2.2 percent, while Zijin Mining Group Co. lost 2.8 percent on speculation demand from the world’s largest metals consumer will decline. The Micex Index in Russia, the biggest energy exporter, sank 2.4 percent and the ruble weakened 1.4 percent against the dollar.
Crude oil for July delivery retreated 2.2 percent to $72.34 a barrel. Copper for delivery in three months dropped 3.1 percent to $6,725 a metric ton on the London Metal Exchange. Aluminum, nickel and zinc also fell. Gold for immediate delivery rose 0.4 percent to $1,220.65 an ounce, 2.4 percent from the record $1,249.40 reached May 14. The 24-commodity S&P GSCI Total Return Index declined 1.8 percent, the most compared with closing prices since May 17.
The euro fell 1.2 percent against the dollar, extending its longest run of monthly declines in a decade to trade at its weakest since April 2006. The yen advanced versus all 16 of its most-actively traded peers and the Dollar Index rose for a third day. Government bonds gained, with the 10-year German bund yield dropping six basis points to 2.59 percent. The yield on the benchmark 10-year Treasury note declined five basis points to 3.25 percent.
To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net
Last Updated: June 1, 2010 07:16 EDT
Good Morning...yes! BP PLUNGES..was down 17%, yikes. Sad for all of us.
I feel awkward saying Gratz to chatters who bought BP puts on Friday, but we didn't create the mess....
Honestly, I would have been THRILLED for BP to have been successful, even though I lost money. This situation has me more depressed than any I can think of lately
>> BP could owe more than $6.2 trillion in EPA fines
Government Could Reportedly Fine BP $4,300 Per Oil Barrel Spilled Into Gulf
Published May 26, 2010
| FOXNews.com
The U.S. government could fine BP up to $4,300 for every barrel of oil gushing into the Gulf of Mexico -- a provision in federal law that some lawmakers are citing in their efforts to keep precise record of the spill's magnitude.
Reuters reported Wednesday that a clause within the U.S. Clean Water Act may expose BP and others to civil fines that are not limited to any finite cap.
The Act permits the government to seek civil penalties in court for every barrel of oil that spills into U.S. waters, according to Reuters.
Sen. Bill Nelson, D-Fla., and other lawmakers are highlighting the clause in their push to quantify the barrels of crude oil leaking into the ocean.
An aide to Nelson told FoxNews.com Wednesday that the senator is pressing for BP to release more video footage showing the oil leaking from the well.
The environmental group Sierra Club estimates that the April 20 explosion at Deepwater Horizon has released more than 1,444,952 barrels into the Gulf as of midday Wednesday. By that estimate, BP would owe more than $6.2 trillion in fines so far if the federal government imposes a $4,300 penalty per barrel.
Fox News' Trish Turner contributed to this report
http://www.foxnews.com/politics/2010/05/26/government-reportedly-fine-bp-oil-barrel-spilled-gulf/
Quiet, thank you! I'm working on my hand :(
BL: Japanese, Australia Stock Futures Decline on Spain's Downgrade; BHP Falls
By Akiko Ikeda and Satoshi Kawano - May 30, 2010
Japanese and Australian stock futures fell after Spain had its credit rating reduced and a U.S. business barometer declined.
American depositary receipts of Mizuho Financial Group Inc., Japan’s third-biggest lender by market value, tumbled 2.2 percent from the closing share price in Tokyo. Those of Sharp Corp., Japan’s biggest maker of liquid-crystal displays that gets almost half of its revenue outside Japan, plunged 2.2 percent. Those of BHP Billiton Ltd., the world’s largest mining company, sank 1.4 percent after metals and oil prices fell.
Futures on Japan’s Nikkei 225 Stock Average expiring in June closed at 9,645 in Chicago on May 28, compared with 9,775 in Singapore. They were bid in the pre-market at 9,650 in Osaka, Japan, at 8:05 a.m. local time. Futures on Australia’s S&P/ASX 200 Index sank 0.9 percent today. New Zealand’s NZX 50 Index gained 0.1 percent in Wellington.
“A sense of caution is increasing because financial issues in Europe are spreading and lower-than-expected business sentiment in the U.S. weakened hopes for economic recovery,” said Norikazu Kitta, a strategist at Nikko Cordial Securities Inc. “If government data shows industrial production in Japan is heading for recovery, that should support stocks.”
Japan’s Ministry of Economy, Trade and Industry is scheduled to report industrial production in April at 8:50 a.m. in Tokyo. The output grew 27.4 percent from a year earlier compared with 31.8 percent in March, according to a Bloomberg News survey of economists.
Downgrade on Spain
In New York, the Standard & Poor’s 500 Index tumbled 1.2 percent to 1,089.41 as Fitch Ratings stripped Spain of its AAA credit rating. Energy shares sank on President Barack Obama’s moratorium on new deepwater drilling permits.
Fitch Ratings downgraded Spain’s credit rating one step to AA+ from AAA as the country struggles to cut debt amid a fiscal crisis that prompted the European Union to forge an almost $1 trillion loan package for its weakest economies. Spain’s debt burden is likely to weigh on growth, Fitch said.
The Institute for Supply Management-Chicago Inc. said its business barometer fell to 59.7 this month from 63.8 in April, missing the estimate of 61 by 57 economists in a Bloomberg News survey. Figures greater than 50 signal expansion.
The MSCI Asia Pacific Index has lost 5.8 percent in 2010, compared with drops of 2.3 percent by the S&P 500 and 3.9 percent by the Stoxx Europe 600 Index. Stocks in the benchmark are valued at 14.4 times estimated earnings, compared with 13.4 times for the S&P and 11.4 times for the Stoxx.
The London Metals Index, a measure of six metals including copper and zinc, declined 0.8 percent on May 28. Crude oil for July delivery dropped 0.8 percent to settle at $73.97 a barrel in New York.
To contact the reporters for this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Satoshi Kawano in Tokyo at skawano1@bloomberg.net.
National Post: Oil spill puts future of BP in doubt
Janet Whitman, Financial Post
Published: Sunday, May 30, 2010
A sign by the side of the road near Grand Isle, Louisiana. The BP brand has suffered damage due to the company's failure to contain oil leaking from a well into the Gulf of Mexico.
NEW YORK – After BP PLC failed once again to plug the worst oil spill in U.S. history, the British corporate giant faces what could be an even bigger challenge: justifying its continued existence.
BP's brand is by no means damaged beyond repair at this stage, but as things worsen at the disaster in the Gulf of Mexico some observers are saying the company would be better off selling itself or many of its prized assets to its rivals.
"A crisis like this can break a company," said Ronn Torossian, chief executive of New York-based P.R. firm 5WPR. "BP is clearly in a lot of trouble. It's too soon to know whether the company can recover, but the P.R. problem keeps growing. The "golden rule" for P.R. is clarity and I don't think there's anything here from BP's executives that gives people confidence."
Putting a spotlight on the uncertainty surrounding BP's future and the aftermath of the oil spill, the company's shares have been pounded. Since the April 20 explosion at BP's deep-water rig in the Gulf of Mexico started gushing oil BP's stock has lost as much as 30% of its value. Things could get even worse tomorrow as the shares resume trading in London after the company's latest attempt to choke the spill, dubbed "Top kill," unexpectedly failed over the weekend.
Despite that dramatic US$55-billion drop in its market value, with so much uncertainty, BP's rivals aren't likely to be circling with a takeover in mind at this juncture, analysts said.
"We have no idea what the size of the liability is," said Phil Weiss, senior energy analyst with Argus Research. "I've heard estimates go as high as $20-billion and some think it will be even more. We also don't know what the full actions and sanctions from the U.S. government are going to be. There's so much uncertainty, I can't imagine anyone would want to take on that headache."
Another likely hurdle would be concerns of antitrust both here and in Europe, given the huge size of BP and its rivals.
If its competitors acquired some of BP's assets, rather than the whole company, the liability probably wouldn't follow. But analysts doubt BP is ready to go that route, noting that Exxon's brand was able to recover after the disaster that spilled 250,000 barrels of crude in Prince William Sound, Alaska, in 1989 and BP might do the same.
"Exxon has used that accident to find religion so to speak in terms of really cleaning up its act and running thins well," said Mr. Weiss. "That's really what BP needs to do here."
BP has been beset by fresh headlines each day that have revealed shoddy management practices that perhaps led to the explosion of the oil rig – a stark contrast to the image BP sought to paint of itself as one of the most socially and environmentally responsible large oil companies on the planet.
It hasn't helped that the Gulf of Mexico spill is the third major environmental and safety disaster the company has had over the last six years. In 2005, its refinery in Texas City exploded, killing 15 people and injuring dozens more. In 2006, a corroded BP pipeline in Alaska led to the worst oil spill in the history of that state's oil rich North Slope.
BP has being very aggressive about addressing the latest catastrophe, spending as much as US$930-billion, including claims and federal costs, on the spill, according to an estimate from the company in Friday.
"The company has certainly spared no expense," said Pavel Molchanov, an energy analyst with Raymond James. "They've waived their right to a liability cap and said they would cover all private sector claims."
Nonetheless, BP has a tough road ahead, he added.
"It took BP years to repair its image after the [2005] Texas City explosion ... Clearly what's happened here is much more severe."
jwhitman@nationalpost.com
Read more: http://www.nationalpost.com/news/world/story.html?id=3089909#ixzz0pSYIjDlp