Looking back at the current causes of this financial meltdown (as we need to look back to understand the problems) could our regulatory agencies have acted quicker in ascertaining the problems of the financial system?One criticism of Ben Bernanke and the Federal Reserve is that they reacted too late, however in Bernanke’s defence the problems really were in house and the antiquated systems the Fed and others were using. Example being that most people when paid normally paid their mortgage first and on time, however as the financial sector unravelled mortgage payments were late and in many cases as we now know payments were not made as many of the borrowers could not pay. The Fed however did not have the systems in place to gather this crucial information in a timely manner and as Meredith Whitney analyst, who recently started Meredith Whitney Advisory Group LLC stated “If you’re leading regulatory reform, you have to have the technology as well, and they have not embraced technology,” Whitney said. The U.S. regulatory structure still relies on a “pencil-ledger system.”
You can see Meredith Whitney on “No Visibility Ahead – Predicting what next” on Bloomberg TV
US Dollar under pressure:
Look for more weakness in the US dollar on growing fears America's Triple-A credit status could be threatened if the US fails to address its budget deficit.
The dollar's fall came despite Mr Geithner promising he wants to bring down the US's budget deficit to a "sustainable level over the medium term."
Responding to claims by PIMCO co-chief investment officer Bill Gross that the US would lose its cherished Triple-A credit status over the next 3-4 years, if not sooner, Mr Geithner said the US would not let its debt get out of hand.
Concern over the status of the US's finances also hit government-issued Treasuries, with the 10-year note suffering its biggest weekly loss since January, pushing yields above 3.4pc for the first time since last November.
Equity investors failed to get excited about the prospect of upcoming regulatory reforms for the banking sector, aimed at preventing further financial crises.
Gold should reach £2,000 an ounce -
but not just yet We will not reach $5,000 an ounce without some sort of mania. But in the last decade both dotcom and housing, and, to a lesser extent, base metals, uranium and oil, have all shown how easily manias can happen. Manias need a convincing underlying argument - ‘internet is a new era’, ‘there’s a shortage of housing’, ‘the growth of China’s middle-class’. And gold's status as a store of value, whether we see inflation or continued deflation, make it an extremely likely candidate in this post-credit-bubble environment. What’s more, a great deal of myth and legend follows gold which can only add fuel to the eventual fire. This rally in gold since mid-April has largely been a result of dollar weakness, not increased buying. If you look at the price of gold measured in other currencies - picking the pound and the euro at random, as shown below - you can see it has barely rallied against them at all. If this move were anything more than fluctuating currencies, you would see gold rising against all currencies on higher volume. So don’t get too excited just yet. The dollar meanwhile is at an inflection point, as are stock markets. It’s as though they can’t decide which way to turn. If stock markets turn down, money will move out of equities, back to cash and the dollar could rally. If they turn up, the dollar could plummet. Anyone interested in technical analysis, and in particular Elliot Waves, will note that the dollar has traced a 5-wave up and 3-wave down pattern. We are at an obvious point for it to turn up. If it does, gold will most likely pull back. Gold miners are making more moneyOn the other hand, the action in gold stocks, which often lead the metal, has been very bullish and very exciting. I said back in November that gold shares, as opposed to gold itself, would be the best performing asset class of the next few years. This next chart shows the HUI, the index of US-listed gold stocks, over the last three years. There was a lot of resistance between the 300 and 375 levels and the HUI has broken decisively through. Even without a higher gold price, gold miners are making more money. The cost of labour, energy and equipment are down, which brings their production costs down. If the dollar is strong that further increases their margin. Costs are in local currencies such as the South African rand, the Mexican peso or even the Canadian dollar, while profits are in US dollars. Even explorers will eventually do well as a greater value will be placed on unmined ore bodies. Another 25% and the HUI will be challenging the all-time highs made in March last year around 500. But I would expect some consolidation first, perhaps between 350 and 400. In summary, a likely scenario over the next month or three, is for the dollar to rally. That will mean a mild, but healthy pullback for gold, gold stocks and the general stock indices. We can then look for a seasonal summer low in gold some time in the late-June to August timeframe. Then we can look for if not ‘The Big One’, ‘A Big One’. But, being well positioned on the long side, I’ll be only too delighted to be wrong and to see Gold’s Big Move come sooner.
R.H. Donnelley, Yellow Pages Publisher, Files for Bankruptcy:
By Dawn McCarty
May 29 (Bloomberg) -- R.H. Donnelley Corp., the publisher of more than 600 print directories, sought bankruptcy protection from creditors after missing a $55 million interest payment on its senior unsecured notes due April 15.
The company, based in Cary, North Carolina, had assets of $11.9 billion and debt of $12.4 billion as of Dec. 31, according to Chapter 11 documents filed last night in U.S. Bankruptcy Court in Wilmington, Delaware. Nineteen affiliates also sought court protection.
R.H. Donnelley, whose publications included telephone Yellow Pages, said May 14 that its lenders and bondholders had agreed to forbear until May 28 and wouldn’t take any action on the company’s missed payment. The company had revenue of $602 million in the March quarter, resulting in $164 million operating income and a $401 million net loss.
The company blamed the filing in part on “a significant decline in advertising sales due to the recent economic downturn and increased competition in the local business advertising industry” in 2008, according to court papers.
In March, the publisher hired Lazard Ltd. for advice on restructuring or refinancing debt while the recession cut into its revenue. The company has seen sales fall as small businesses moved their print ads online or cut back on spending amid the economic slowdown.
Moody’s Investors Service downgraded R.H. Donnelley’s probability of default rating on May 18 to Ca/LD from Ca, signaling a limited default after the lapse of the 30-day grace period. The company has a Caa2 corporate family rating, eight steps below investment grade.
‘Best Alternative’
Moody’s also said in February that a “complete debt restructuring represents the best alternative of addressing its currently challenged capital structure.”
Standard & Poor’s said in February that R.H. Donnelley would face “challenges” in refinancing $1.2 billion of debt that matures in 2010.
The company and its units’ 30 largest creditors without collateral backing their claims are owed about $6 billion, according to court documents. The biggest unsecured creditors are The Bank of New York, as agent for holders of certain R.H. Donnelley’s senior notes, with a claim of $3.6 billion; U.S. Bank NA, as agent for holders of certain senior notes, with a claim of $2.4 billion; and Google Inc., with a claim of $2.4 million.
R.H. Donnelley through its units publish more than 600 print directories, with a combined circulation of about 80 million, and provide advertising services to about 600,000 businesses in 28 states and the District of Columbia, according to court papers.
The case is In re. R.H. Donnelley Corp., 09-11833, U.S. Bankruptcy Court, District of Delaware (Wilmington).
To contact the reporter on this story: Dawn McCarty in Wilmington at dmccarty@bloomberg.net.
Last Updated: May 29, 2009 00:02 EDT
