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 15, 2010 NOTE:  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. - - - - - It is beginning to appear to us that there is a change developing in the direction of public economic and political opinion.  Throughout the second half of 2008 and into early 2009, gloom and doom were the order of the day.  Then, beginning in early spring 2009, renewed optimism developed rapidly and lasted through the rest of the year.  However, during the present time frame, uncertainty is beginning to build once again and, like many previous such periods, many markets are now making indecisive moves involving quick reversals which ultimately go nowhere.  Examples of such moves abound in recent weeks. Gold ran up to $1,230, then fell, then rose and is falling once again. Crude Oil ran up to the $84 per barrel area, looking like it might break to the upside, then immediately pulled back. The US Dollar Index fell sharply through the fall, then rallied back, then began to fall and is now trading quietly - going nowhere for the time being. Financial markets, as illustrated by the Dow Industrials chart, have been making many sharp moves which have had no follow-through whatsoever and now appear to be going sideways while expending great energy to attain the tiniest of gains. We believe that this uncertainty is well founded as the powerful surge of improved expectations, somewhat based on the arrival of President Obama, has begun to fade.  We note in particular that the new President's influence over Congress is clearly waning, and we now have two new pieces of evidence - along with his steadily declining poll approval numbers - to offer substance to this argument. In the first case, while he has faced virtually total opposition in regard to "Obamacare" legislation from his Republican opponents, he had been able to count on almost unanimous support from his Democratic Party legislators.  However, with the health care bill now back in the House of Representatives, his own party leaders are now indicating the entire package may fail to pass, as recent polls show only 37% of Americans favor the President's handling of the health bill. In the next case, despite the President's making an impassioned plea for public support for his "Consumer Financial Protection Agency", the pending legislation is in such deep trouble that influential Democratic Senator Christopher Dodd is now suggesting that the legislation be scrapped for the time being and less intrusive plans be put forward in order to gain some level of bipartisan support.  Writing in regard to the possible removal of the Consumer Financial Protection Bill from the legislative agenda, Wall Street Journal writer Damian Paletta noted, "...Dropping the bid for a stand-alone consumer-protection agency would strip out a central plank of the White House's proposal and could infuriate liberals and consumer groups who have championed the idea." One year ago, President Obama was swept into office on a tidal wave of support.  That support now appears to be steadily diminishing. Adding to the increasing reduction in optimism have been predictions from highly-respected financial authorities that all is not well with the international financial community.  We note in particular an article in this morning's U.K. Telegraph headlined, "Significant chance of second financial crisis, warns World Economic Forum." The article informs us that there is a twenty percent chance of another asset bubble forming and also a twenty percent chance of a full-scale sovereign financial crisis.  In terms of public opinion, it is vital to note that this warning is coming from a rather conventional body of economists, rather than free-market, hard-money advocates who are regarded as rather "inflexible" by much of the public. The report also warns that the preceding crisis has, "...left leading economies acutely vulnerable to further problems."  In addition, the report raised questions about China's economic future by asking whether that nation's high level of growth was truly sustainable, or whether it might descend into the kind of quagmire which has plagued Japan for more than two decades. J. P. Morgan Chase & Co., one of the world's leading banks, added to the level of uncertainty when they released their Fourth Quarter 2009 earnings report.  While they did manage to show an increased net profit, they also reported, "...deep losses on mortgage and credit card loans in the fourth quarter."  A Reuters article raised the uncomfortable suggestion that, "...The results could indicate more trouble for Citigroup, Inc. and Bank of America which report quarterly results next week." We would also be unkind enough to note that some of the improved earnings could be attributed more to government purchases of questionable Morgan debt than net operating results.  In fact, operating revenues actually fell below analysts' expectations. In yet another area, potential trouble on the variable mortgage front appears likely in the months ahead as the Federal Home Loan Bank of San Francisco reported one of the key factors used in setting adjustable rates, a factor known as "Kofi", increased by .835% and this would result in an almost 9% increase in the monthly payment for variable rate mortgages in the coming year.  In the example they offered, a $250,000 mortgage holder would see his payments increase by about $100 per month.  Chris Freemott, president of All-America Mortgage Corp. told the Wall Street Journal, "...This change is material and impacts already-weakened consumers when they can least afford it." It is our opinion at TMR that there will be a rise in the number of variable-rate mortgages which enter foreclosure in coming months, and this will add a new level of concern to the entire credit mix. As uncertainty begins to rise once again, the old saw that "markets hate uncertainty" appears to be in play this morning.  As of 9:30 AM PST, the Dow Industrials were down over 130 points while Canada's TSX Index was off by about 110.  Precious metals were sharply lower with gold down about $13 to just under $1,130; silver was down by about 25 cents to near $18.40 and platinum was back below the $1,600 level.  Most base metals were lower as well, with particular weakness showing up in zinc and lead quotes.  Crude oil was also lower while the US Dollar was showing some good relative strength.  Not surprisingly, mining share indexes were off sharply on the session. - - - - - All quotes US$ unless otherwise noted. Due to or participation at the Cambridge House Resource Conference in Vancouver this coming Sunday-Monday, our next Melman Minute is scheduled for Tuesday, January 19.             ◄  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.