What's New in the Financial World (12/6/2011) The Rise of Shale, BP Fights With Halliburton

Eurozone on notice. The situation in Europe, so promising just days ago, took a sharp turn for the worse. S&P put 17 nations in the euro area on credit watch and said it might even downgrade AAA-rated nations, including Germany and France. In theory, this might increase their borrowing costs. In fact, it probably will. Money from international capital markets investors has already begun to shift into safe haven U.S. Treasuries. The S&P action is yet another warning to EU leaders that economists see the sovereign situation deteriorating, as long as the European Central Bank and International Monetary Fund will not provide substantial aid to the weakest nations in the regions, and the eurozone itself will not quickly create a loan facility. News that Angela Merkel and French president Sarkozy want a treaty to force more fiscal discipline within the region hardly provides a road map for a rescue.

Deepwater Horizon fallout. The fighting among the companies involved in the Deepwater Horizon catastrophe has escalated a year-and-a-half after the rig’s explosion. BP (NYSE: BP) has accused oil services company Halliburton (NYSE: HAL) of suppressing data about its role in the incident. The charge is serious and eventually could lead to accusations of fraud. The firms responsible for the well, which also include Transocean (NYSE: RIG), still face tremendous liability. Thousands of individuals and business have staked claims for damages caused by the explosion and leak. The U.S. government and those of several states may bring actions of their own that could seek large penalties.

USPS cuts. The U.S. Postal System’s management continues to advocate greater cuts to save itself from billions of dollars in losses and the weight of its pension plans. Congress may not support these suggestions. There will be political fallout if hundreds of post offices are closed and tens of thousands of postal union members are fired. The most visible of the suggestions made by the Postmaster General is that first-class mail no longer be delivered in one to three business days. The window for delivery would be lengthened to two to five days. But the postmaster is not the captain of his own fate. His suggestions could fall on deaf ears in Congress.

Facebook ad revenue. Facebook sharply increased its market share of online advertising among portals from 2009 to 2010. The trend is more troubling for Facebook competitors, if the 2006 to 2010 period is used as a measurement. Facebook has 0.6% of global internet ad expenditures among portals in 2006. That number was 3.1% last year. The victims of Facebook’s success are primarily Aol (NYSE: AOL), Microsoft (NASDAQ: MSFT) and Yahoo! (NASDAQ: YHOO), each of which has had little if any improvement in ad revenue so far in 2011 compared to last year.

Shale gas growth. The shale gas industry should support more than 850,000 jobs by 2015 and contribute $118 billion to GDP. That is according to a new study from global research firm IHS. The news is unexpected. U.S. energy job growth was not supposed to come from fossil fuel businesses. It has been widely assumed that America had begun to exhaust those assets. Wind, thermal and solar business were anticipated to be the major creators of energy jobs. All three industries have stumbled due to high costs and slow adoption. The success of shale gas shows that new means of exploration and exploitation of fossil deposits still have a promising future.

Douglas A. McIntyre