A Melman Minute By: Leonard Melman   NOTE:  In order to complete Mr. Melman's forthcoming book on the essential fundamentals of gold and silver, new "Melman Minutes" will be posted only three times per week, each Monday, Wednesday and Friday until about mid-January 2009.  The working title of the book will be 'Eight Pillars of Gold." September 05, 2008 One of the most startling features of today's financial world is the amazing swiftness which accompanies changes in public economic sentiment.  Given the deep gloom which now pervades Bay Street and Wall Street - both of which have declined severely during the past few days - it is incredible to recall that only one week ago, you could soar to the skies on the prevailing mood of joyous ebullience. For those who have been on vacation, so far this week Canada's TSX is down by almost one thousand two hundred points while in America, the Dow Industrials are off by 'only' seven hundred!  Yet last week, it seemed that everyone, with the likely exception of junior mining share investors, was optimistic in the extreme. When one looks at the news reports of this morning, it is difficult to envision rapid improvement in either market.  America's job market turned in one of its most horrendous performances of the past few years with the Unemployment Rate for August soaring to a five-year high at 6.1% while Canadian manufacturers cannot help but be fearful as their American export markets appear to be withering on the vine. The numbers 'inside the numbers' of the Labor Department's August report offer limited comfort, if any.  First, they revised the job loss numbers for June and July upward, from 51,000 in June up to 100,000 and in July from 51,000 up to 60,000 and then they reported that last month an additional 84,000 jobs were lost.  A Reuter's summary of the report included this telling item:  "There were steep cuts in hiring in nearly every major category of employment.  Some 61,000 manufacturing jobs were lost in August, the most for any month since mid-2003, and 8,000 more construction jobs were cut.  There were 53,000 jobs eliminated in professional and business services and 4,000 in leisure and hospitality industries." Our own observation is that we see few areas where strong hiring is about to take place to take up the slack.  In fact, given the ever-growing credit tightening worldwide, we see a period ahead where previously announced projects get cut back and some which might have been approved are now being shelved. By the way, the one area where job growth did take place was in government hiring, as government payrolls increased by 17,000.  However, with so many people losing their jobs and so many companies pulling in their expansionist horns, we must increasingly wonder exactly who is going to be able to pay for this ever-increasing staffing of government bureaucracies? When all of the current financial information is put into serious consideration, it is impossible to escape the reality that economic wealth is now entering a period of contraction!  Stock markets are declining sharply, diminishing consumer purchasing power.  Real estate markets in Canada and Europe have now joined the difficulties which their American brothers and sisters have faced for some time.  Banks have been forced to write off enormous losses, thereby diminishing their capital and lending abilities.  Savings rates in several nations are at the lowest levels in decades or have actually turned negative in places like America, meaning consumer purchasing power can only continue to grow if it is built primarily on the consumption of stored wealth, a situation which cannot continue into the indefinite future. A strange headline flashed across the world this morning which pointed out that discussion of asset contraction is no mere economic theorizing.  It turns out that even the ultra-rich are getting poorer due to asset contraction.  A widely-read report issued by the Boston Consulting Group stated that, "...global wealth could slip 10% this year as financial turmoil takes a toll on money stashed by tycoons and other high-net-worth individuals..."  The report also predicts that, "...Larger, more developed markets, such as Canada, the U.S. and Europe will be among the hardest hit." Bill Gross, co-chief investment officer of Pacific Investment Management told the Bloomberg News Service that, "Liquidity is drying up; risk appetites are anorexic; asset prices...are mainly going down; now even oil and commodity prices are drowning." In our opinion, the most devastating problem which might have to be faced if asset values continue to contract would be the growing inability of governments to finance their bloated operations.  And they are bloated indeed.  In Canada, from 1975 until the present years, the federal government has increased spending from C$35 billion to over C$240 billion in the current fiscal year.  In America, the growth has been even more dramatic, rising in the same period from $370 billion in 1975 to over THREE TRILLION DOLLARS in the present fiscal year. The great question is exactly how governments anticipate raising the revenues to pay for these enormous expenditures as well as those planned for the future - and they will be numerous indeed if rhetoric coming from the various election campaign promises is any indication.   We don't see an easy answer and that leads us to the possibility that they will NOT be able to raise the money through normal taxation and will therefore be forced to flood the world with inflationary currency creation in order to continue their mammoth operations. And, therein lies one of the pillars of our expectation for a future powerful and long-lasting bull market in gold and silver as we do not believe that such currency creation can continue indefinitely without leading to a dramatic fall in the value of the U.S. Dollar.. (insert chart:   www.bigcharts.com    DJIA   one year) One look at the Dow Industrials' chart shows how close that index is to breaking into new, low territory.  The coming week should be fascinating to watch. - - - - - This morning's financial markets continue to trend lower with the TSX off by almost 200 points and the Dow Industrials down about 70 as we near 9:00 AM PDT.  Gold is about tthirteen dollars higher, but silver and platinum continue to show weakness.  In currency trading, the Greenback is down moderately while the C$ has risen slightly and crude has fallen to about $105.50, down close to $2 on the session.  Mining share indexes are close to unchanged while base metals are down sharply; possibly reflecting expectations of economic decline.  Copper is being particularly hard hit.     ◄  Previous Minute                                                                                                         Next Minute  ►
		DISCLAIMER The information presented above is based on data which we believe to be from reliable sources, but the accuracy of which cannot be guaranteed.  Any opinions or predictions contained herein are those of the editor and are likewise offered also for information purposes only. Any investment decisions should be made only following consultation with registered investment professionals.