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 27, 2009   "Dubai, Dubai, Dubai" seems to be the only important international financial topic during the past 36 to 48 hours and rumors of deep debt difficulties have caused enormous disruption in markets around the world over the past two days.  Metals, currencies, petroleum and bond markets have moved through wide trading swings, and, as of this moment, uncertainty abounds regarding the ultimate resolution of Dubai's debt difficulties. Dubai is a tiny Middle East financial center located just inside the entrance to the Persian Gulf, directly opposite the Iranian side of the Straits of Hormuz and adjacent to the fabulously wealthy nation of United Arab Emirates (UAE).  It has become the center of frenzied development over the past few years, including an array of immensely tall office structures as well as monumental commercial and housing complexes.  Much of this activity has been financed by debt issued, among others, from several large European banking establishments. What caused the recent uproar was the announcement Wednesday evening that Dubai would not be able to service, that is pay the interest, on tens of billions of debt coming due in the near future.  The specific wording coming from Dubai's monetary authorities was that they were asking creditors to agree to a "standstill" while Dubai attempted to renegotiate their debt.  It also was learned that the extent of Dubai's debt was far larger than had been previously thought, reaching near $80 to $90 billion, and perhaps much higher. Many analysts immediately interpreted this announcement as a threat to European banking interests and, accordingly, European markets fell sharply on Thursday when American markets were all closed.  Asian markets fell by three, four, and even five percent, and these huge declines were expected to spill over into New York this morning, but apparently the shock value of this news began to diminish, because shortly after opening, the Dow Industrials were down by 'only' 130 points, or about 1.25%. However, many other markets changed dramatically within just a few hours as a result of a compression of orders inside markets trading with unusually low volume, thanks to the American holiday, and gold was certainly no exception. After closing in commodity markets on Wednesday near $1,187, gold suddenly plunged to barely $1,130 - a stunning drop of about $57 per ounce - at today's openings, but just as rapidly began to rally back and by 9:15 AM PST, gold had recaptured four-fifths of its earlier losses and stood near $1,177, down barely $10 on the session. Currency markets also gyrated wildly and the Canadian Dollar is an excellent example.  After re-opening almost 240 basis points lower this morning, the C$ rebounded sharply, recovering about 125 basis points and now stands with only a moderate loss on the day.  Gyrations in the Crude Oil market have been perhaps even more spectacular, with Crude falling at the opening, compared to Wednesday's close, by a full $5.00 per barrel, from about $77.50 to a low at $72.50, before recovering to above $75.00. At least for the moment, trading has followed a more orderly pattern and we will watch the remainder of the trading week quite closely. We do, however, interpret these exaggerated market actions as evidence of a high degree of nervousness on the part of participants and a growing awareness that the much talked about worldwide economic recovery may, in fact, be neither robust nor long-lasting.  Also, the re-stabilization of the world's banking system may not be proceeding as vigorously as had been previously suggested. As Barron's columnist Randall W. Forsyth pointed out this morning, "If the debt standstill by the emirate were the only sign of rising risk in global markets, it could be overlooked.  But it is no aberration."  He then goes on to point out that the Chinese government has instructed banks to rein in their lending in order to recapitalize their operations; there is growing concern that Japanese debt levels "...had become unsupportable"; Greek government bonds have plunged amid growing turmoil in that historic nation; and, the U.S. just revised Third Quarter GDP growth downward from 3.5% to 2.8%. It will be interesting to watch markets over the coming weekend. Two stories appeared relating to gold and mining, one positive and the other not at all welcome for the Canadian metals mining industry. The positive news was that the small nation of Sri Lanka (formerly Ceylon) had joined neighbors India and Mauritius by purchasing gold from the International Monetary Fund.  While their $375 million purchase was much smaller than India's $6.7 billion, we still find it very significant that yet another economically advancing Asian nation has decided to sell Greenbacks and buy gold. From the negative point of view, yet another potential attack on mining has been raised by a Canadian Member of Parliament (MP).  An article in this morning's Financial Post details the initiative by MP John McKay of Ontario who has filed a "private member's bill", BILL C-300, which calls for the investigation by Canada's federal government of complaints against Canadian mining companies operating in foreign nations. As we have pointed out recently, Canadian juniors are already burdened by an ever-growing load of bureaucratic requirements which has seen a rising proportion of raised capital being devoted to paperwork instead of in-the-ground resource development.  This bill would make matters even worse, since the cost of investigations, both potentially serious as well as blatantly frivolous, would fall squarely on the shoulders of the mining company under investigation. The bill also has the provision that if a mining company were found guilty of such charges, then the Canadian government could cut off any financing by "Export Development Canada", which has at times been an invaluable source of capital for mining enterprises. Private member's bills do not usually become laws, but we are deeply concerned that a Member of Parliament obviously felt that he was courting public approval by suggesting such a law. Markets this morning have indeed settled down somewhat and by 9:45 AM PST, precious metals remained down somewhat on the session, but were far above earlier lows with gold trading near $1,177 and silver at about $18.30.  Base metals were slightly lower on balance and mining share indexes were off by about 4%.  The U.S. Dollar Index has returned to a small gain, trading at 74.98, while Crude Oil remained lower on the session at just below $75.00 per barrel. Financial markets were mixed, with the Dow Industrials down by about 150 points while Canada's TSX, having been down by over 200 yesterday, was now up about 50 this morning. - - - - - All quotes US$ unless otherwise noted. Next "Melman Minute" scheduled for Monday, November 30, 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.