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 16, 2009   Few of us who have lived through the past several decades have failed to hear, on numerous occasions, the expression "same-old, same-old" to describe a repetitive situation.  Well, that expression accurately describes markets this morning - a new record high for gold; a new relative low for the U.S. Dollar; a new relative high for the Dow Jones Industrials (and other American market indicators); and a new company bellying-up to the government's stimulative trough. First, gold is now trading in the mid-$1,130 range and appears headed relentlessly higher. Next, the U.S. Dollar Index has fallen below the 75 level.  Then, the Dow Industrials have just cleared the 10,400 barrier and, finally, General Electric's President, Jeffery Immelt, just announced that GE has its focus on profiting from almost $200 billion of government-funded projects. It is our belief that all of these seemingly unrelated actions in fact are related, that they are understandable from the viewpoint of a giant struggle for control of America's political mechanisms.  We believe that financial markets have been rising because of investments made by those who believe that government stimulation works well as a means of resolving lasting economic difficulties and America will soon be prospering mightily because of the titanic amount of money now being disbursed by various government agencies throughout the U.S. economic system. On the other hand, there are those who believe, perhaps with even more conviction, that this tidal wave of new stimulus money combined with the abandonment of free market philosophies will weaken the U.S. Dollar, perhaps fatally, and they are selling Greenbacks, thereby driving the U.S. Dollar Index ever-lower.  As these trends relate to gold, we believe that those who have concluded the U.S. Dollar is headed lower, that it will no longer be a safe storehouse of monetary value over time, are turning in ever-growing numbers to gold, thereby accounting for the $180 surge from near $950 per ounce to over $1,130 which has taken place during the past ten weeks.  (See chart) This debate is nothing new.  In fact, one of the most prescient quotes from America's political history was uttered as far back as 1893 in Grover Cleveland's Second Inaugural Address.  After clearly stating the dangers inherent in a weakened currency (!), he said, "...Another danger confronts us, not less serious.  I refer to the prevalence of a popular disposition to expect from the operation of the government especial and direct individual advantages...The acceptance of this principle leads to a refusal of bounties and subsidies which burden the labor and thrift of a portion of our citizens to aid ill-advised or languishing enterprises." That speech was made 116 years ago and yet it describes almost perfectly the stated goals of General Electric, General Motors, Bank of America, Citigroup, Chrysler and a host of other companies and enterprises too numerous to mention. In our opinion, this debate is of much greater importance than just academic or historic curiosity.  It lies at the heart of America's financial difficulties since the enormously expanded role of government has taken place at tremendous financial cost, and those costs have undermined the previously solid reputation of America's once-mighty Greenback.  All of this is now having its effect on the world scene, as evidenced by the less-than-enthusiastic Chinese reception for President Obama.  Clearly, China no longer stands in awe of the American economic Goliath.  This changing relationship was noted by both the Toronto Globe and Mail and Reuter's in a joint article published overnight which noted, "...China's growing clout as an economic power ...has shifted the dynamic between the two countries toward one of equality.  For instance, Chinese questions about how Washington spending policies will affect the already-soaring U.S. deficit and the safety of Chinese investments must now be answered by Washington." Part of our underlying philosophy is that until America regains a sound historic sense of economic responsibility, this manner of questioning will fester and grow - and, as a result, the U.S. Dollar will remain under pressure and, as its historic opposite, gold will continue to prosper over time. Regarding the question of whether the USA will regain such philosophic footings in the near future, our only reply is that, for the moment at least, it does not appear at all likely. In fact, we cannot help but note new avenues of government expenditures of a questionable philosophic nature.  For instance, it would seem to be a matter of common sense that illegality should not be rewarded, but the State of Massachusetts just announced that illegal aliens ("undocumented immigrants" to use 'Newspeak') will now be entitled to study at in-state universities and pay specially-reduced rates, placing them ahead of fully-legal American citizens. In another story, this time from AP, we note that lawyers continue to write special-interest laws that result in a flood of taxpayer monies into their pockets.  In this specific case, it relates to the ability of an unsuccessful minority candidate to sue for damages if an insufficient number of minority candidates win electoral victories. Therefore, we continue to suggest insurance as well as investment positions in gold as well as the other monetary precious metals, subject to the disclaimers found elsewhere on this site.  In our opinion, the trend toward ever-larger and more expensive government appears to be unstoppable. One other chart caught our eyes this morning, that of Crude Oil.  As can be seen, for over a month there have been a substantial number of two, three and even four-dollar swings, but they have all been contained within a narrow channel.  We believe that the direction of an eventual breakout from this pattern could have substantial impact on the debate regarding future inflation. As of 9:00 this morning, gold continues to rally with the latest quotes coming in just under the daily high, now standing at a record $1,137.60, with silver and platinum also up spectacularly, by 87 cents and $45 respectively.  Base metals are also stronger, up by two to four percent across the board.  Not surprisingly, both most actively traded mining share indexes are gaining as well, with XAU and HUI ahead by an average of three percent and each have now broken through to their highest levels of the year.  To complete the picture, crude oil has gained almost $3.00 per barrel, the US Dollar continues to fall sharply and financial markets in Canada and the USA are much stronger. (All quotes US$ unless otherwise noted.) Next Melman Minute scheduled for Wednesday, November 18, 2009. ◄  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.