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!"   January 14, 2010   Mr. Melman will be appearing at a panel presentation Sunday and conducting a workshop Monday entitled "A message from the Queen" at the upcoming Cambridge House "World Resource Conference" in Vancouver, BC January 17-18. The conference will feature many leading speakers as well as mining company exhibitors from around the world. Due to the impending Olympic Games, the gathering has been split between two venues; the Hotel Vancouver and the Hyatt Regency.  Mr. Melman will be working at the Hyatt. - - - - - We appear to have entered a period where there is a distinct lack of potent short term news, which gives us the opportunity to look at some longer-term factors which might affect the prices for both precious and base metals.  While Lord Keynes is reported to have written "in the long run we are all dead", our view at TMR is we plan to live for some time yet, so taking a look at trends which might have a growing impact in future months and years is hardly wasted effort. Perhaps the most important single trend which threatens to throw the national budgets of many countries into chaos in coming years is the gradual aging of populations, particularly in presently-industrialized nations.  Several important studies have been published regarding the fact that "Baby Boomers" in America will be exiting the labor force and entering the retirement rolls in ever-increasing numbers and similar work has determined that the situation is even more threatening in Japan which has proportionately the most rapidly aging work force in the world. Canada may now be added to that list.  A report just issued by parliamentary budget officer Kevin Page described the future impact of such aging.  While Canada has been one of the few countries which has been able to run regular budget surpluses, according to Page's report, that is about to change.  Disregarding this year's deficit which can be attributed to the world-wide economic slowdown, Page has taken a longer look and predicted Canada will face an C$18.9 billion structural deficit by 2013-14." In a review of the Page report, Canada's Canwest News Service observed, "...Canada's labor force is expected to shrink as baby boomers (those born between 1945 and the mid-1950s) retire.  With a smaller proportion of the country's population working, Canada's economic potential will fall to its lowest level in forty years."  (Our emphasis) Canwest also noted, "...according to Page's analysis, federal finances actually slipped into structural deficit even before the recession began.  A "structural deficit" means that government revenues persistently fall short of expenditures, even when the economy is firing on all cylinders."  Prime Minister Harper offered the reassuring comment that, "If we do what we've said we'll do, which is end stimulus spending when the recession ends...and if we discipline spending growth into the future, I don't think that should be a serious problem."  Unfortunately, he didn't describe just how spending was to be reduced, or which programs were to be cut.  Without that type of specific information, we regard the ultimate impact of aging populations to be an important problem which must be faced in years to come. (Note:  The problem of meeting societal expectations for government services - expectations which are growing relentlessly - while trying to manage the vagaries of the present economic structure is precisely the problem we will address at the forthcoming Vancouver Cambridge House gathering this coming Sunday-Monday.) Another problem which must be faced is over-capacity in many areas of the manufacturing establishment.  As readers may recall, we noted in 2008 that this was plaguing the auto industry in particular where manufacturers found it necessary to offer huge price discounts in order to move cars during a period of declining consumer demand.  While that problem has not received much discussion in recent months, it has not gone away - and that is having an impact on the strength of the 'recovery'. During the recent auto show in Detroit, several manufacturers offered comments on this subject, and one in particular, Ford Motor Co. CEO Alan Mulally told the exhibitors that, "...even though auto makers have closed dozens of assembly plants in North America in the wake of plunging auto sales, officials say vehicle supply continues to outweigh demand, leaving pressure on pricing and profit." Over-capacity can have a major influence on the strength of any economic recovery because, as noted in the aftermath of previous recessions, industry begins to build new plants, order new equipment and hire workers to implement such expansions - all of which tend to strengthen any nascent recovery.  However, if the economy is plagued by current over-capacity, those forces of new construction and equipment expansion would be missing from the current recovery, making it weaker than what might normally be expected. As if to emphasize the current dilemma, we note the most recent reading of Capacity Utilization in America was a paltry 71% for November, meaning considerably more than one-quarter of America's manufacturing capacity remained idle.  It is difficult to imagine any future robust plant expansion with such data staring us in the face. If we regard Canada's economy as resource-dependent and America's as more manufacturing dependent, it is most interesting to observe that the Canadian Dollar has been advancing against the Greenback for some time and is now approaching parity, with no immediate downturn in site.  We would regard this situation as further evidence that the American economy could be facing a period of serious difficulties, which would put additional pressure on their government to get the economy moving at any cost. - - - - - Most markets are trading quietly as of 8:20 AM PST with metals turning slightly lower, financial markets close to unchanged, crude Oil down slightly, interest rates down a bit and mining share indexes trading to the downside.  One of the few decisive moves we have found is in the lumber market where prices are sharply higher. - - - - - All quotes US$ unless otherwise noted. Next Melman Minute scheduled for tomorrow, January 15, 2010. ◄  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.