A Melman Minute By: Leonard Melman   NOTE: In order to complete Mr. Melman's forthcoming book on the essential fundamentals of the developing international financial crisis and its relationship to gold and silver, new "Melman Minutes" will be posted only three times per week, each Monday, Wednesday and Friday. The working title of the book will be 'Just a Melman Minute!"   November 13, 2009   Perhaps the superstitiously notorious "Friday the Thirteenth" for this month will indeed turn out to be a "red-letter day" - or perhaps the term "red-ink day" might be more appropriate, because two news releases just hit home this morning. In the first case, the United States of America just recorded the greatest October one-month deficit in its history, a whopping $176.36 billion shortfall.  We can remember a time not more than a few years ago when an annual deficit of that magnitude would have sent shivers of fear running up and down the spines of the general populace.  Now, it appears that monthly figures of that magnitude no longer arouse any discernable degree of fear or even mild concern.  The same lack of public interest surrounds the fact that the total U.S. federal governmental debt now stands at almost exactly twelve trillion dollars!  It strikes us as amazing that public ignorance of the potential consequences of such debt is almost universal. In the second case, one of the engines which resulted in massive foreign holdings of U.S. Dollars appears to be revving up once again.  We are referring to the U.S. Balance of Trade Deficit which jumped in September to $36.5 billion, or an annual rate of $438 billion per year.  While this figure is far below the peak numbers attained in early 2008, they represent a strong turnaround from the declining pattern which set in when America's economy began contracting so violently in mid-2008. The figure also illustrates a particularly vexing problem for policy-makers.  If the consumer-driven American economy is to regain its former vigor - which is clearly desirable from a political point of view - then two consequences are likely to ensue, and both of them have negative implications for the Dollar.  We would likely see a huge increase in the figures for imported goods into America and we would also likely see a specific spike upward in importation of petroleum products as economic activity increased. Should both of those trends take place, it is our belief that would put additional upward pressure on the Balance of Trade Deficit figure which, in turn, would downward pressure on the dollar, thereby increasing the dollar cost of all imported items, both commercial goods and petroleum products.  That, in turn, could easily trigger substantial increases in visible price inflation, which could then lead to rising interest rates which is precisely what those policy-makes wish to avoid at all costs, since rising rates could crush economic growth. Perhaps we don't give the American consumer sufficient credit.  Perhaps, in fact, they sense that something is not at all well regardless of the buoyant talk coming out of Washington and various state houses.  Quite surprisingly, the Reuters/University of Michigan Survey of Consumer Sentiment numbers for early November show a decisive decline rather, instead of better news which had been anticipated by most observers.  The data shows an early November Index reading of 63.7 compared to October's 68.6.  Reuters attributed the decline to bleak job statistics and to "grim financial realities faced by consumers..." One item making news this morning is the price of Crude Oil.  As can be observed, the price of Crude Oil has recently declined from just over $81 per barrel to near $76 earlier today.  While this may at first glance appear significant, it is worth noting the similar decline that took place during August and which was ultimately resolved to the upside.  It will be most interesting to see where crude heads after this quiet period. Regrettably, previous work commitments have limited our time this morning, but it is worth noting that gold's performance today has been particularly impressive as some early selling has been followed by strong buying and gold is once again approaching the $1,120 level after falling to just above $1,100.  As of 10:15 AM PST, gold is ahead by $14 and silver is about 25 cents higher.  Base metals are stronger as are mining share indexes while crude has rallied back to the $77 area and the U.S. Dollar has reversed earlier strength with the Dollar Index now down almost one-half point to just above 75.  Financial markets have shown considerable early strength with the Dow Industrial ahead by about 100 points and the TSX about 50 higher. ........... All quotes US$ unless otherwise noted. Next "Melman Minute" scheduled for Monday, November 16, 2009. ◄  Previous Minute                                                                                                        Next Minute  ►
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