A Melman Minute By: Leonard Melman   August 19, 2008 Greetings from north-central Nevada where I will be leaving shortly to tour a mining operation near Battle Mountain... Markets this morning are reacting to a series of negative events with gold opening lower near (all prices US$) $788, silver at $12.80 and platinum off by $70 to $1,307 - the lowest price in almost a year.  However, this time the securities markets are falling in unison with the Dow Industrials off by about 100 points in the first few minutes of trading - added to their 180 point decline of yesterday.  How quickly optimism can turn south. Several stories hit the market hard this AM.  First, the Producer Price Index for July came in at the highest number since 1981 - 27 years ago - with that rate of inflation coming in at 1.2% for the month, or an annualized rate of over 14%.  However, since inflation in other countries is worse, the market is interpreting that number as "less bad" and therefore good, accounting for strength in the US Dollar and weakness in the precious metals. We also are receiving word that the economic problems continue to spread.  Giant building supply company Home Depot just reported second quarter profits fell from 71 cents in the second quarter 2007 to 61 cents this year and they also reported a drop in sales of 5%.  Office supply leader Staples Corporation offered guidance that their sales and profits for the current quarter would decline from last year.  Our interpretation of both stories is that home-owners are having enough trouble paying their mortgages and therefore have less money available for improvements and also there is less money for high-margin items at Staples such as new computer purchases. Two other quick notes...  Housing starts continued on their severe declines while a noted Harvard professor of Economics, former IMF Chief Economist Kenneth Rogoff, told Reuter's News Agency that he believed several mid-sized banks could fail and he also added the possibility that even one of the major investment bank operations could collapse. Off to the desert.  Will have time for a more normal report tomorrow AM. ◄  Previous Minute                                                                                                         Next Minute  ►
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