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. Since the work has been expanded to include potential solutions to the growing list of seemingly insoluble dilemmas, the working title of the book has been revised to 'REVERSING THE WAY IN!"   January 20, 2010 Well, the #!&% sure hit the economic fan this morning!  After several weeks of relative quiet on the news fronts, we have suddenly been swamped with major news bulletins, and, collectively, most markets are behaving in a manner something rather short of ecstatic in their reaction. In short order, these include: * - A stunning electoral loss for Obama and the Democrats in the Mass. senatorial race * - Major banks reporting larger-than-expected losses * - Housing starts in the USA coming in at their lowest level in history during 2009 * - Greece appearing ready to default on ECU obligations * - China is reported to be considering putting the breaks on internal bank lending, raising serious questions regarding the sustainability of their economic 'miracle' As if that collection wasn't sufficient cause for angst, we have also learned that Taliban activity is on the rise, Al Qaeda is growing strong and new skirmishes have broken out along the Yemeni-Saudi border. Markets have indeed reacted violently in early trading as fears that the economy may not enjoy a robust recovery have become rampant.  As of 8:30 AM, we note the Dow Industrials are off by nearly 200 points and Canada's TSX is down by about 150.  Natural resources prices are taking huge hits with gold down $31, silver off 95 cents, platinum down $43, copper off by 11 cents and Crude down by about $2.00 per barrel.  If an economic slowdown is indeed in the works, that would be reflected by diminishing fears of inflation and that has strengthened the US Dollar Index by more than one percent and has also forced long term interest rates lower, with the TYX off by 59 basis points. While today's large loss in the Dow has not yet reversed the long-term bullish trend which began last March, it is interesting to note that on the short-term, 10-day chart, the Dow has suffered a heavy loss and is now down to support near the 10,500 level.  Should that fail to hold the decline, we could easily see further near-term selling. Of all the stories noted above, the one that strikes us as having the longest-lasting impact may very well be the Massachusetts senatorial election victory by Republican Scott Brown.  This particular seat has been regarded as perhaps the Democratic Party's most secure of all, having been a Liberal stronghold held by the Kennedy clan for one-half century.  To lose a seat of that nature is a blow to Democrats across America.  Next, many observers have indicated that the election result is a public repudiation of President Obama and the direction in which he has been taking America, both in terms of the mammoth increase in government of all stripes and in one other matter as well, perhaps less noted, but in the opinion of this writer, of no small significance. I had the pleasure of living in the USA for 34 years and never stopped noting the immense pride most Americans have in their country.  Song verses such as "My country, 'tis of thee, sweet land of liberty, of thee I sing" are sung from earliest childhood and become part of the national psyche.  Love of country; pride of country; and joy of being an American are truly important considerations for their sense of well-being.  Therefore, I don't think it has sat well with millions that their new President has spent much of his first year in office going around the world and making one "mea culpa for being from America" speech after another. Simple mathematics is also an essential factor in the importance of this election.  As we noted in our MM of January 19, the loss of this important seat means that those senators loyal to the President can no longer prevent his opponents - and they are growing increasingly dedicated in their opposition to many of his programs - from engaging in time-consuming filibusters which potentially could derail Administration legislative efforts put forward in the Senate. Aside from the events noted above, two other situations of a longer term nature have been receiving news of late; the growing trend towards internationalizing financial regulations and the rise of international terrorist strength.  We plan to look at those in Friday's MM. A brace of stories relating to mining have caught our eye of late with one indicating potential new opportunities while the other points to an area which mining management might consider worthy of increasing caution. The interest in one of mining's specialty metals, LITHIUM, is growing steadily, thanks for the most part to the fact that lithium is vital to lithium-ion batteries which are now considered vital for the manufacture of hybrid and electric vehicles.  Since the use of lithium is expected to grow steadily in coming years, auto companies such as Toyota are now scouring the world to find reliable future sources of the metal.  Mining investors would do well to compile a list of companies involved in the search for lithium and then perform their own 'due diligence' to select potential investment candidates.  (As always, we repeat our caution that no investments should be made without prior consultation with registered investment professionals.) The other article involves the difficulties in developing mineral resources in far-flung foreign lands, particularly those without long histories of secure and enforceable contract law.  Fiona Anderson of the Vancouver Sun just published a report on Canadian mining companies which are encountering difficulties with foreign governments.  The most relevant point she made in her article, at least in our opinion, involves a mining company working to develop mineral resources in a Central American nation which shall remain unnamed for the moment.  At issue is the fact that the nation in question issued a report eight years ago, "...introducing new mining laws aimed at encouraging exploration and mining..."  Relying on this assurance, one company spent approximately $100 million developing its projects in that country, only to be lately informed that the new incoming president has just issued a declaration refusing to authorize any future mineral extraction - thereby placing the company's investments in that country at jeopardy, to put things mildly. Our suggestion is that mining executives should always keep in mind that in many countries, the policy of one moment can easily be reversed the next.  They should also keep in mind the fact that while many marginal countries are very happy to encourage the inflow of dollars into their countries for spending relating to exploration and development, they are far less willing to see the results of profitable mining operations result in cash leaving their borders without being heavily taxed or even confiscated. As of 9:30 AM PST, most markets remain close to the levels noted above.  It will be most interesting to follow these markets over the next two days to note if any true reversals of trends established from March, 2009 onward are about to take place.  - - - - - All quotes US$ unless otherwise noted. Next Melman Minute scheduled for Friday, January 22, 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.