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!"   March 24, 2010 Before discussing a new subject which has suddenly inserted itself into the world's headlines, we have some new information on two ongoing important story-lines. First, the European Community crisis continues to simmer.  As we have noted, while Greece has been the focus of much attention, several other nations are facing similar financial and social difficulties and yet another 'shoe' dropped today with the announcement that Fitch's bond rating service has just downgraded the government debt paper of Portugal.  They also warned that another downgrade was in the offing unless the Portuguese government changed its system of fiscal management. As the chart clearly illustrates, the news sent the Euro, which has been in decline for some months, to new lows for the year.  It is also worth noting that as the Euro declined, the US Dollar advanced and the DX Index, which reflects strength or weakness in the Greenback, surged to its highest levels of the year.  Not surprisingly, gold fell on such Dollar strength and was off by more than $10 per ounce in early trading. The other news story which has been dominant of late has been the entire debate and vote on medical insurance.  While the House has already enacted a major portion of that legislation, the Senate will now take up remaining non-settled issues involving both medical insurance and student loans.  Many observers expect several days of heated, contentious debate. .................... Perhaps the oldest ongoing story of all flared back into the world's attention during the past two weeks.  Ever since a young lad named David plopped a stone into the forehead of the Philistine (Palestinian?) warrior-hero Goliath's forehead, enmity between the Israelites and Palestinian forefathers has been an issue of no small contention - and that has carried over into modern times with the establishment of the State of Israel.  As is well known, various wars have been fought over the past 62 years and, during that time, Israel captured areas of territory previously held by various members of the Arab community.  These captured territories have represented a particularly heated bone of contention between the two sides with Israel treating them as captured territories in which it is proper to build new Israeli communities while the Arab side contends - with some violence - that the territories belong to themselves. The issue came to a boil as a result of a particularly ill-timed press release from the Israeli government that they intended to build 1,600 new homes in an area of East Jerusalem.  The timing of the release coincided with a State visit from America's Vice President Joe Biden who was on a fact-finding mission with the goal of re-starting peace negotiations between Israel and the Palestinian community.  He took immediate umbrage, called off his visit and reported on the "outrage" to his boss, President Obama, who immediately let it be known that he also felt the Israel announcement was inappropriate, to put things mildly.  Secretary of State Hilary Clinton ten also piled on with sharp criticisms of her own. And so, a tempest of some considerable importance has now arisen between Israel and its most important international supporter, the USA.  Israeli Prime Minister Netanyahu has just visited the White House for private talks with President Obama and both Israeli and American government sources have been mute regarding the substance of their conversations. What makes this matter so vitally important is the reality that Iran is moving full-speed ahead with its nuclear programs.  While that nation claims their programs are aimed totally toward the generation of nuclear power for peaceful purposes such as power generation, Israel, in fact, feels that if Iran obtains nuclear-grade fuel, then Israel's very existence could be put at true jeopardy.  Iran's exceedingly hostile statements regarding Israel's right to exist have added fuel to the flames. And so, speculation is now growing that if the USA leaves Israel in the lurch, so to speak, then Israel may feel their military advantage will wane over time and, if they are going to strike out against Iran's nuclear works, they had better do so sooner than later - raising the specter of an uncontrollable series of attacks and counter-attacks in an already-volatile area. Such is the world we live in. ........................ When you think of it, the market's evaluation of the relative strength of currencies could hardly be more amazing.  Here was have the USA running historic deficits on a scale never previously contemplated, continuing to run enormous trade deficits, engaging in "Quantitative Easing" as never before and watching its National Debt soar at a rate of two trillions per year - and its currency is getting stronger!  America has violated virtually every time-tested concept of sound management - and they are being rewarded! The great question is whether they can continue to prosper while engaging in fiscal conduct history has shown to be highly suspect.  For the moment at least, it appears that the American economy is also beginning to improve, along with their currency.  In terms of the general consumer-driven economy, GM has just reported a 13% increase in car and light truck sales in the U.S. and is planning to produce 650,000 vehicles in the First Quarter 2010, up by 75% from the similar period last year.  As a result, their Chairman and CEO Edward E. Whitacre, Jr. has just told the Wall Street Journal that, "...the company would report a profit in 2010..." When it comes to luxury consumer spending, some improvement is also noticeable as Carnival Corp. (Carnival Cruise Lines) reported that revenues per passenger are now on the rise after having fallen dramatically during 2009.  Advance bookings are improving and the company has been able to reduce its dependence on steep price-cutting in order to fill vessels. The great question, of course, is whether the USA and other countries will be able to keep short term rates near zero or long term rates under control in the face of an economy which is beginning to percolate upward.  Today's action in the long-term debt market has hardly offered encouragement for the economic bulls as the TYX Index which measures 30-year bond interest rates soared back to the top of its recent trading range. Financial markets this morning have been reacting to this series of events, first selling off, and then rallying back.  In America, the Dow Industrials were down by about 65 points in earlier trading but by 9:20 AM PDT had recovered to a loss of only 25 points while Canada's TSX has shown a similar pattern, rallying back from an early 80 point loss to being down by only 25 as well.  Precious metals have been hit hard by the stronger U.S. Dollar with gold down about $10 to near $1,092 while silver is off by 30 cents to just under $16.70 per ounce.  Base metals are also lower with lead showing particular weakness this morning.  Mining share indexes are off by 2-3% on average.  In other trading, the U.S. Dollar is sharply higher in currency markets while the price of Crude Oil is holding near the $80 per barrel mark. - - - - - All quotes US$ unless otherwise noted. Next Melman Minute scheduled for Friday, March 26, 2010 when we plan to take a close look at some of the odd trading patterns which have taken place in America's financial markets over the past few month, patterns which could raise the specter of government manipulation of previously private markets.                ◄  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.