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!"   December 14, 2009   For once, we are able to report positive news when it comes to the political makeup of South America.  After watching nations such as Venezuela, Bolivia, Ecuador and even Colombia fall deeper into the socialist-leftist camp, we are delighted to report that a staunch conservative, Sebastian Pinera, appears headed for victory in the Presidential elections for the mineral-rich nation of Chile.  He has established a strong lead in the initial vote and is a solid favorite to win the second and final round set for January 17, Chile has been governed by a Center-Left coalition since the early 1990's, but their electorate now appears to be disenchanted and is swinging to the right, a most welcome change from other recent results.  Clearly, this can be regarded as a positive indication for companies either active in Chile or contemplating entry into development of that nation's enormous mineral resources. Long term readers should be clearly aware that we regard long term interest rate movements as a key component of our overall economic evaluations.  Interest rates are a key component of many corporate expense models; they are an important ingredient in the setting of real estate mortgage rates; and, in many ways represent a true reflection of the effectiveness of government economic policies and actions. It is this latter role that we find most intriguing and our belief is that in the long term, such rates do indeed reflect a true level of confidence in the efficacy of such policies.  When the public believes they will bring long-term economic stability for years to come, rates tend to stay low.  However, when fears rise that such policies will lead to inflation combined with instability, then rates should normally rise, such as they did during the chaotic times of 1979 through 1982. As can be seen, after holding in a general range of 4.25 to 5.4 percent for several years, the TYX Index plunged to 2.5% in late 2009, but since that time, a new base was formed and rates have returned back into the range that previously prevailed for so long. The great question then becomes "where to from here?" We believe they will ultimately break to the upside, perhaps with a vengeance, just as they did in the 1979-82 period and for much the same reason, namely that government finances appeared to be warping out of control. In the present era, the great fear is that the enormous spending programs of the American Congress, combined with monumental deficits, will lead to another round of severe inflation down the road.  However, according to people such as Bernanke, Geithner and the President, the economic crisis will soon be resolved and then an controlled unwinding of deficit spending can be accomplished. We have disciplined ourselves to watch what men do much more closely than what they say - and we now have yet another example of the unwillingness of American politicians to speak honestly regarding their real intentions, for buried within the bowels of the new Medical Insurance proposals is yet another deficit-building bomb, one which is clearly evident under proper analysis and therefore must already be within the knowledge of America's economic leadership.  This example, by the way, illustrates that it is frequently government and not private industry that acts in an irresponsible manner. The issue at hand is Long Term Care entitlements being written into "ObamaCare" now working its way through Congress. Simply put, when an insurance company offers a policy against anything, their actuarial staff calculates potential claim demand and expenses, compares that to investment returns over time and then sets premiums high enough to cover all contingencies and still accomplish the desired insurance goals, plus create reasonable profit expectations.  As these premiums are collected, they accumulate along with anticipated investment returns plus initial capital funding in order to meet unexpected early contingencies and future anticipated claims.  That is sound insurance corporate planning. However, what the U.S. government is now proposing is the opposite.  They are planning for an influx of premium receipts and are bragging that those receipts, far above expenditures during early years of the program, will help reduce the overall budget deficits.  But the essential point is that these receipts will NOT be held in abeyance and accumulated to cover future expenditures, but will become part of the government's income.  Later, as policy-holders age and begin to demand greater benefits, funds will NOT be available from premiums collected, but will become part of ever-growing deficits into the future. This is upside-down and irresponsible insurance planning and only a government could ever get away with it.  Insurance commissioners would prosecute any insurance executives who ever enacted such a plan - but governments appear to be immune from all prosecution, no matter how foolish and irresponsible their proposals. In our opinion, plans such as the Long Term Care entitlement proposal demonstrate clearly that while the words of politicians may sound appealing and responsible, their deeds are frequently often of an entirely differing description. That is why we continue to suggest private holdings of gold and silver in all their forms, both physical metals and share investments (see disclosures on this site) for both potential profit as well as monetary insurance protection. Lest anyone think that Long Term Care is an isolated proposal, during the past ten days we have noticed articles on all of the following subjects on which legislation enlarging government intervention has been proposed or already enacted: Job stimulation and creation Creating a new Consumer Financial Protection Agency Regulations on salaries for private industry Laws paying consumer mortgages Extension of TARP program for another year New bodies of banking regulations Entire new bodies of "Cap and Trade" carbon policies Thousands of pages of new environmental regulations Thousands of pages of new health care legislation Passage of a new and massive spending agenda An array of new fuel and energy taxation proposals - and there are undoubtedly many, many others. The trend appears both powerful and unending - and, in our opinion, continues to put the entire international economic systems at risk. ....................... Markets this morning have been relatively quiet up until 9:30 AM PDT.  Precious metals are slightly higher with gold at $1,123 and silver near $17.30; base metals are close to unchanged on balance; mining share indexes are ahead by about one percent; and both Crude Oil and the U.S. Dollar Index are trading down moderately.  Financial markets are positive with the Dow Industrials up by about 32 points and Canada's TSX has moved sharply higher, up by over 100 points. - - - - - All quotes US$ unless otherwise noted. Next Melman Minute scheduled for December 16, 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.