This whole incident is starting to sound like the "weather balloon" explanation. The military is playing stupid and the media appears to be reporting nonsense even though the video pretty much shows a rocket or some other kind of propulsion.
What I find curious and interesting is that this part of the coast off Catalina island has been a UFO hot-spot for a long time. Yep you got it, theres a UFO/USO base out there.
http://www.mysteryportals.com/Underwater_UFO_Base_in_S__California.html