A Melman Minute
By: Leonard Melman
Frankly, we admit to finding ourselves growing
tired of the “not-as-bad-as-expected- being-interpreted-as-good-news” syndrome.
We have just had yet another example.
Anyone with an ounce of objectivity would
acknowledge that when Retail Sales fall, despite a rising population and rising
levels of price inflation, something is clearly wrong. In line with this
reasoning, we just received word that U.S. Retail sales fell in April by 0.2%.
However, market headlines informed us that this was not as bad as had previously
been feared and, therefore, the market was likely to interpret this as favorable
news.
In the same vein, the U.S. Commerce Department
just announced that the Consumer Price Index for April rose by only 0.2%,
excluding, of course, ‘volatile’ food and fuel prices. Anyone who has the
intelligence of a daisy and who can read knows that fuel and food costs have
been soaring off the charts and to exclude them from price indexes is to reduce
such numbers to the realm of science fiction - but the markets still listen to
them as both the Dow and the TSX are moving ahead at the openings this morning.
We can only wonder how long this
“Alice-in-Wonderland” way of looking at news will continue.
Speaking of inflation, one figure which cannot be
ignored and which will likely have an impact on future overall inflation rates
is the cost of goods imported into America. Since imported fuels and goods
constitute a major portion of the entire realm of goods and services for
America, any serious increases in those numbers is bound to spill over into
general inflation indexes - and those numbers are increasing rapidly. According
to figures just released by the Bloomberg news service, imported goods increased
on average by over four percent in the past two months - or an annualized rate
of over twenty percent!
Bloomberg attributes the increases to rising
costs of goods manufactured in Asia, those prices rising due to growing raw
material price pressures, and to the cost of imported petroleum. They also note
that the cost of imported lumber is likely to rise in the coming year as prices
for that commodity appear to have hit rock bottom with the lumber industry in
Canada facing virtual shutdown conditions.
Speaking of the price of lumber, the chart for
that commodity does indeed appear to be showing some recent strength, having
rallied from about $205 (all prices US$) per contract to over $230 before some
modest selling returned. The chart appears to be trying to form a bottom
formation as momentum begins to stabilize.
As we have noted several times, one of the great
questions facing mining share investors has been the relatively poor performance
of junior mining companies - on average - when compared to the generally strong
performance of the commodities themselves. Part of the answer may have just
come from the annual mining report of accounting firm Pricewaterhouse Coopers
(PwC).
That report shows that while the industry still
turned in a generally positive record during 2007, it was down considerably from
the profit levels attained during the previous year. PwC also noted companies
were still having difficulties with the entire mine permitting process which
stretches across three levels of processing - provincial, federal and
aboriginal. The report noted that of 25 projects involved in the permitting
stage during 2006, only three became operating mines during 2007.
They also reported that other problems faced by
the industry included a shortage of skilled labor and the rising price of
electricity as the move toward ‘green power’ caused those costs to rise
substantially.
In a concurrent report, the Vancouver Board of
Trade heard a presentation from David Parker, Chairman of the Mining Association
of British Columbia. He told his audience that it now takes about seven
years to get a new mine through the permitting process and up and running.
Markets this morning show the financial indexes
moving ahead while the metals and other commodities are slightly weaker, on
balance. Gold is holding steady in the mid-$860s, silver and platinum are down
slightly and the base metals are lower on average. The Dow Industrials are
higher by about 100 points and the TSX, which just set a new record high
yesterday, is ahead again this morning, up by about 50 points after an hour of
trading. Oil is holding near $125 per barrel and the C$ is close to par with
its American counterpart.
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