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 23, 2009   Before continuing with our evaluation of the overall economic scenario which we started this past Friday, it is worth pointing out that gold has gone on yet another tear this morning, taking Friday's close in the upper $1,140s and moving on to greater heights.  First, Asia's markets took gold above $1,150, then Europe's markets crossed above $1,160 and this morning, at about 6:30 AM PST, North American trading took gold above $1,170 - up more than $20 per ounce from last week's commodity closes. If there a danger of a correction following this strong advance?  Certainly, and investors should consider such risks at all times.  However, it is our opinion that gold - and silver as well - have embarked on a major bull market which we believe still has a large distance, in terms of both price magnitude and time, before an ultimate peak is reached. ................................ As we noted on Friday, the Obama Administration has been attempting to convince the American (and international) public that their policies have been not only essential, but also beneficial.  However, there are those who vehemently disagree with that assertion and, among those we can include famed Barron's columnist, Alan Abelson. In his weekend column, using data provided by David Rosenberg of Canada's investment advisory firm Gluskin Sheff, Abelson compares America's current economic status to what it was on the day Lehman Brothers failed almost exactly one year ago:  "We have lost 6.2 million jobs since then.  The unemployment rate is 10.2%, versus 6.2% the day before Lehman collapsed.  Even with the nascent midyear recovery, real domestic product is still down 3% since the summer of 2008.  Housing starts are now down 30%.  Auto sales are down 23%.  Bank credit has contracted by $500 billion, or 8%.  Household net worth is down $7 trillion.  There's more.  Home prices are down an average of 10%.  Office vacancy rates are up 3.5% to 17.2%.  Apartment-vacancy rates are up a percentage point to 11.2%.  Consumer Confidence is down 11 points. The budget deficit has tripled." As Rosenberg wryly observed, "...If this is 'vastly better off', I shudder to think what 'worse off' would be like." What we at TMR find particularly troublesome is the fact that the Obama Administration seems to be operating without a financial compass of any sort.  This is evidenced, at least in our opinion, by the tremendous inconsistencies of a President who told the Chinese that he was vitally concerned with a "strong U.S. Dollar" and told the American public that he was aware of the negative impact of future massive deficits.  However, this is the same President who, as noted in a "Times of London" weekend column, "...in recent months has pushed hard to get Congress to pass a $1 trillion healthcare bill and a $250 billion raise for doctors, after approving renewal of the about-to-expire $8,000 credit for new home buyers, and before pressing for passage of a very expensive energy bill.  As for tax increases, he has promised not to raise the taxes of families earning $250,000 per year , and there aren't enough higher earners to tap to cut substantially into the deficit....which means the printing presses will continue to run."  (our emphasis) All of which made the Times author conclude, "The President and Treasury Secretary Timothy Geithner might 'talk the talk' of a strong dollar, but they 'walk the walk' of a declining one. By the way, on the subject of axes, while Obama speaks outagainst higher taxes being a detriment to the consumer driven economy, he strongly supports the new health care bill which includes the following tax increases within its provisions: Tax on high-end health insurance plans Fees for drug makes Fees for medical device makers Fees for health insurance companies Higher floor for deducting medical expenses Higher payroll taxes for high earners Taxes on cosmetic surgery One can only ask how the President can be so inconsistent and yet expect to be both believed and admired. Other problems continue to accelerate and appear to be, in fact, beyond easy resolution and one in particular relates to the immense difficulties facing state governments across America.  The latest body blow came in the form of a news release from State University of New York which details the ongoing staggering decline in state tax revenues. Their survey considered data from 44 states and, on balance, tax revenues declined in virtually every category with sales taxes down an average of 8.2%, personal income taxes down 11.4% and corporate income taxes down by a whopping 19.4%.  Their report also offered the conclusion that, "...with tax receipts heavily dependent on wages and spending, state revenues are expected to continue falling for months or years after the technical end of the recession...State tax revenues will remain fragile and gloomy at least through fiscal years 2010 and 2011." When we analyze such figures, several things become apparent.  First, if state governments are going to rely only on current revenues, and also obey laws which require balanced budgets, expenditures will have to be sliced in a manner which is completely unacceptable on a political basis.  Assuming politicians are not willing to slit their own throats - perhaps in terms of reality as well as metaphorically - then where can additional revenues to support expenditures come from?  Either from the federal government or from private bond buyers, but the cost of such a tidal wave of borrowing would cripple future budgets unless interest rates were kept at low levels - but if interest rates continue to be held at such low levels, inflation and devaluation of the dollar are almost certainties - but of which historically serve to drive interest rates higher. To summarize - and we admit the subject is sufficiently broad to consume many such entries - it is our believe that a "point of no return" has been passed, that any attempt to return to a strong U.S. Dollar, perhaps even backed by gold, would inflict massive trauma on an economy already saturated with the demand for the drug called "easy money."  However, we also believe that the continuation of low interest policies will result in the eventual - and not too far into the future, either - removal of the U.S. Dollar as the central currency of international settlements and it is impossible at the moment to evaluate all the consequences of such a fate. Suffice it to say that the problems appear insoluble, and we believe that conditions could truly approach chaos over the next few years, and, if those circumstances take place, gold and silver will stand out as islands of genuine value inside a sea of monetary uncertainties. In our next MM, scheduled for Wednesday, November 25, 2009, we will take a look at the major metals we follow - including gold, silver, platinum and copper - on a technical basis and also attempt to answer the question of why many individual mining shares have not gained in a proportionate manner to the metals themselves. Markets this morning have made several decisive moves.  As of 9:00 AM PST, gold remains strong, trading near $1,170 and silver and platinum have gained sharply as well, up by 31 cents and $32 respectively.  All base metals are showing strength and copper has just reached a yearly high above $3.17 per pound.  Mining share indexes are ahead by an average of about 3 percent, crude oil is once again nearing $80 per barrel and the U.S. Dollar Index (DX) is down by over 50 basis points to near 75.  Financial markets in both countries are stronger with the Dow Industrials up by about 130 and Canada's TSX more than 90 points higher. (All quotes US$ unless otherwise noted.) Next "Melman Minute" scheduled for Wednesday, November 25, 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.