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!"   April 13, 2010 It is good to get back home after our appearance at the just-concluded Cambridge House Calgary Conference.  Crowds were better-tan-expected and the level of concern shown by attendees regarding the true status of the world's economic structure appeared to be at a very high level - particularly among those nearing or at retirement age. Our own presentation, entitled "The greatest gamble of all" fit into this level of concern, dealing with what we regard as the greatest problem afflicting nations, namely the tremendous tendency of to borrow relentlessly to solve problems, with that borrowing being financed through the creation of relentlessly growing quantities of artificially-created currencies.  In our opinion, this procedure is precisely the primary condition underlying past hyperinflationary events and the current situation is made more perilous because it is affecting the world's most important currency, the U.S. Dollar, as that government plunges ever-deeper into debt which it is unable to repay. Several ongoing world events play into this theme, most particularly the crisis involving the government of Greece.  While the world rejoiced over the weekend that their current debt problem had been 'resolved' thanks to new loan pledges by the European Community and the International Monetary Fund (IMF), our own belief is that this 'solution' will almost assuredly plunge Greece into a greater crisis shortly down the road as it resolves nothing of consequence. Greece's problem is simple to identify.  It has borrowed excessively to finance past government activities, presumably designed to appease both voters and civil service unions, and now finds it impossible to repay both interest and principal as those amounts come due.  The crisis heightened when worried lenders drove interest rates on Greek debt to ruinous levels.  And so, a patchwork 'solution' was put together where Greece would plunge further into debt by borrowing enough to re-finance portions of its horrendous past borrowings. It is our belief that the only true solution to Greece's problems - and those of many other nations which are also burdened by mountains of debt - is to relentlessly cut back expenditures until the point is finally reached when expenditures can be financed out of current revenues and excess sums can then be applied to reducing these debts.  Unfortunately, such real solutions are also politically suicidal and therefore are being avoided like the plague - other than to pay occasional lip service to concepts of 'stringent tightening' without ever giving concrete examples. The UK Telegraph newspaper hit the nail on the head in a column by Ambrose Evans-Pritchard when he wrote:  "Euphoria over a joint EU-IMF rescue deal to Greece worth 45 billion Euros has given way to caution after angry reaction in Germany and continued concerns among bond investors that any bail-out merely delays the day of reckoning."  (Our emphasis)  Evans-Pritchard quotes David Owen, a fixed-income bond analyst, as noting:  "This is a short-run fix, not a long-run solution.  At the end of the day, Greece has to carry out monumental fiscal tightening even as it slides deeper into recession.  They are chasing their tail."  A German analyst at Wurzburg University added, "...All rational economic rules are being thrown out the window.  This is a bottomless pit." It's nice to know there are still some rational minds left in the economic universe. In another headline-grabbing story of note, pressure continues to mount for the Chinese government to re-value its currency upward, perhaps with the goal of lessening their trading advantage.  The goal of this pressure clearly is to make Chinese goods more expensive in the world's markets, thereby leading to strengthening of several nations' domestic industrial enterprises.  For years China has fought off such demands, but now seems willing to give a little ground. Our concern is simple.  If the cost of Chinese goods rises in terms of Canadian Dollars, Greenbacks, British Pounds and Euros, this will lead to visible price inflation which is something those country's economies can ill afford.  If their domestic manufacturing could pick up the slack if Chinese marketing falters, that would be one thing, but for many consumer goods, there are simply NO manufacturers in Canada, the USA and elsewhere, as many of those companies have long since gone out of business.  Therefore, the only net result would be increasing prices for many items. These demands for currency re-alignment truly represent a true double-edge sword. One last item is worthy of note, particularly as it regards foreign mining operations.  In a lengthy press release this morning, Khan Resources Inc. reported that the Mongolian Nuclear Energy Agency has just invalidated two important mining and exploration licenses in which the company has a significant interest.  Most interestingly, the company notes that the invalidations have been made retroactively effective back to October 8, 2009. Not unexpectedly, the company also announced that, "...Khan and its legal counsel intend to vigorously defend its rights and interests..." Frankly, we have seen this type of action before, where a country suddenly invalidates or suspends a company's legal permits and then opens the doors to renegotiation of the legal basis for continuing operations and it is our observation that such renegotiations usually involve more generous terms for the host governments.  It is also our observation that the companies involved have most often invested significant funds into their operations and are thus placed in a position of disadvantage in order to protect their prior work efforts. This type of action is a danger that anyone investing in foreign nations should make himself aware of, particularly when the contemplated investment(s) involves those countries without long histories of reliable contract law. Markets this morning have been quite active, particularly financial markets in both the USA and Canada.  In America, the Dow Industrials fell sharply early in the morning, but have since rebounded and, as of 10:00 AM PDT, that average was close to unchanged while Canada's TSX was down about 80 points thanks to lower resource prices.  Gold is off by about $4.00 to $1,152 while silver is down by 14 cents and platinum by $14.00.  Base metals are little changed on balance, crude oil is down slightly and long-term interest rates continue their retrenchment of the past few trading days.  Mining share averages are off by about two percent so far this morning.  In currency trading, the Canadian Dollar continues to press against parity with its US counterpart (see chart). - - - - - All quotes US$ unless otherwise noted. Next Melman Minute scheduled for Wednesday, April 14, 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.