A Melman Minute
By: Leonard Melman
We have written several times about a unique
feature of the news background in recent months, referring to the technique of
releasing somewhat negative news, but preceding the actual release with
forecasts of even worse tidings. In this manner, negative news can be made to
appear positive and this type of ‘spin’ has frequently resulted in positive
market action, rather than the negative which might be considered normal.
We have had yet another example over the past
weekend. For several months, Fed Chief Ben Bernanke and other financial ‘gurus’
have suddenly admitted that the U.S. economy appeared to be headed toward
recession. And so, when the news of the Leading Economic Indicators was
released Monday morning and it showed that those indicators were slightly ahead
for the second consecutive month, a headline accompanying the Conference Board
news of the data was able to declare that, “Data shows economy is weak, but is
not in a recession.”
And so, on that news of a ‘weak’ economy, which
one might have anticipated would result in some serious selling, the Dow roared
ahead yesterday, reaching an intraday gain of over 130 points before late
selling trimmed that gain back to a close of plus 41.
News has been coming out of Iraq which, if
true and usable, could have an important impact on the world petroleum complex.
“The Australian” News Service carried a story this morning carrying the
headline, “Iraq oil may exceed Saudi reserves to be world’s biggest, “ and the
Bloomberg news network in the USA also picked it up for comment. In “The
Australian” version, we are told that the Iraqi Deputy Prime Minister said new
exploration showed that his country has the
world’s largest proven oil reserves, with as much as 350 billion barrels.
He went on to note that the statement was based on
“recent geological surveys and seismic data compiled by reputable, international
oil companies.”
Unfortunately for any plans for development of
these reserves, he also went on to say that Iraq, at present, had no national
oil law which would allow for foreign interests to develop those reserves.
Given that news of this massive increase in
calculated reserves has now been received around the financial world, it is
somewhat surprising that there has been no response by the investment
community. In early overnight trading, oil has remained close to its historic
high above $127.00 (all prices US$) per barrel and there is no apparent sign of
early weakness. In other overnight trading, the US Dollar has fallen sharply,
with the DX Index down to the 72.6 zone; and the precious metals are relatively
strong with gold near $907, silver close to $17.05 and platinum holding well
above $2,100 per ounce. Base metals, perhaps realistically reflecting news of a
weakening US economy, are sharply lower on balance with nickel, zinc and lead
being particularly hard hit.
One positive note which we have observed is the
relatively strong performance of the two major mining share indexes, XAU and HUI.
As can be seen from their six-month charts, both
indexes have rebounded considerably from their recent lows.
Both charts are approaching the relative highs of
mid-April and if those levels can be exceeded, that would be a technical plus
for the mining shares. We will watch these numbers closely.
Due to travel requirements we will be unable to
report on the financial market openings which occur at 6:30 AM PDT. However,
indications point to lower openings, based on negative overnight performance in
Asian and European exchanges.
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