Oil Drilling Halt Takes Its First Earnings Victim

I've just returned from a week in Charleston, South Carolina, where the shrimp fisherman are starting to see higher prices for their shrimp due to limitations on fishing in the Gulf.

Shrimp fishing season started last week; I counted nearly a dozen boats just off the shore from Folly Beach; the fishermen I talked to think even higher prices are coming in the next few months. After being battered by astronomical fuel prices two years ago, then a collapse in prices as many supermarkets starting buying vast quantities of frozen shrimp from overseas, there were a few muted smiles on the weatherbeaten faces of the shrimpers I bought from.

I might as well have stayed; my emails and phone calls have been filled with doom and gloom over the weekend.

At the core of the problem is that many hedge funds had a simply disastrous May. Some said it was the worst May they had ever experienced. What was the problem? Firms were not just long the market, they had sold volatility — essentially a bet that the market would see the same low-volume, low-price swings it had seen for the prior 12 months.

That bad bet has put many firms at risk, and they have been involved in a mad dash to take down risk.

A longer-term problem: an inability so see a clear endgame to Europe's problems, or indeed how much it will influence global economic events.

How do you buy stock on a Friday afternoon when you have no idea what will happen over the weekend?

The lack of clarity and uncertainty is creating headline risk. When Hungary says they do not have the problems Greece has does anyone believe them?

Will the Germans be willing to continue to spend to back their freespending cousins? Doubtful. And it's getting tougher — Dutch polls also seem to indicate that the party most committed to spending cuts (the Liberals) will likely win the elections there this week, ousting the Christian Democrats.

Elsewhere:

1) the Euro trades near its 1999 initial trading level of $1.1837.

2) With Friday's hefty declines (second worst drop for the S&P all year), the major indices are once again back in correction territory:

Since April Highs

Dow Industrials down 11.4%

S&P 500 down 12.5%

Nasdaq Composite down 12.3%

Russell 2000 down 14.6%

3) BP is up 3 percent on word that its latest effort to contain the oil leak has been somewhat effective. The progress comes as a cap has been capturing approximately 10,500 barrels of oil a day — a good portion of the 12,000 to 19,000 barrels estimated to be spewing daily from the well.

4) The first evidence of earnings impact from the 6-month oil drilling moratorium is being seen today: Oceaneering International cut its full year guidance due to the government's restrictions on deepwater drilling in the Gulf following the BP oil leak.

The oil services firm, which makes underwater robotics and supports underwater drilling operations, says the moratorium will reduce second half earnings by $0.45. As a result, full-year guidance is now seen between $2.80 and $3.10, down from the prior range of $3.25-$3.55 and below consensus of $3.48.

5) Bristol Myers up 7 percent pre-open, an experimental drug that would enhance survival in people with a deadly form of skin cancer appears to have positive results, adding four months to the lives of patients with melanoma. Goldman Sachs upgraded the company

6) Those annoying airline fees are making some people happy. Shareholders of airline stocks will be smiling after the International Air Transport Association (IATA) surprisingly announced it was now expecting airlines to turn in a $2.5 billion PROFIT in 2010 — reversing its March prediction of a $2.8 billion LOSS for the year.

The Association cites a significant rise in traffic as the economy has improved faster than expected and higher yields on tickets (ahem…greater fees are certainly helping boost revenues).

The NYSE Arca Airline Index (.XAL) has more than doubled in value over the past year and is just 8 percent away from a 2.5-year high.

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