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 16, 2010 It never ceases to amaze us how many times politicians will use one particular tragedy as a justification for putting forward proposals that really reflect deep-seated political convictions.  We are now witnessing just one such occasion, and this one could have profound impact on mining, not only in the USA, but also in many other countries of the world since the USA is usually the trend-setter in terms of regulatory initiatives.  The incident we are referring to is the recent tragic death of 29 coal miners in West Virginia. We cannot help but observe that the U.S. President is choosing to react not just to the accident itself, but in a manner which, in our opinion, we believe is consistent with a distrust of the entire realm of capitalism and free enterprise.  What he has done, according to a Wall Street Journal article of this morning, is, "...accusing mine owners of putting profits ahead of safety..." and further stated that he intended to, "...push for tougher policing of mine safety and the closure of regulatory loopholes that permit companies to shirk their responsibilities." The article later tells us that the President met with his Secretary of Labor and instructed his Assistant Secretary who oversees the "U.S. Mine Safety and Health Administration" to work with Congress to strengthen enforcement of existing laws, and, not unexpectedly, to heighten penalties whenever transgressions could be proved.  He also called for new procedures to make it easier for mining employees to report safety violations. We find several things unsettling about this 'rush to judgment'.  In the first case, mining executives in America and elsewhere are being put on notice that the Obama Administration intends to give the mining world the same kind of treatment as the financial world, namely massive bureaucracies on the one hand enforcing every existing regulation and on the other hand creating an entire and much more complex body of new laws. In the next case, we feel that the President's reaction also supports our deep-seated suspicion that he is profoundly anti-capitalist, anti-free market and he also shows a tendency to blame all societal mischief on business owners and management (Karl Marx's Bourgeoisie?) while casting unions and workers (Marx's Proletariat?) essentially in the role of actual or potential victims of capitalist greed. (As an aside, we are thankful that the volcanic eruptions in Iceland which have played havoc with international air travel cannot be blamed on greedy business.  Although we might wonder if, by some twisted logic, that might not actually take place.) For mining executives, we would offer this bit of advice.  Look out for rising costs down the road for legal services, hiring more workers to enforce bureaucratic legislation, and the possibility of lengthy exploration or production delays as safety enforcement complaints are investigated and adjudicated. ............... Securities markets have had to digest the contents of three negative news bombshells which have hit during the past 48 hours and it is no exaggeration to state that all of this negative news is providing the basis for a giant case of indigestion.  In fact, some pundits are beginning to wonder if the trend of financial information is now beginning to call into question the entire thesis of a strong and vibrant recovery from what has been labeled by some as the "Great Recession." First, employment figures suddenly turned sharply negative in America as their weekly jobless claims numbers unexpectedly rose by a huge 24,000 to 484,000 this past week and the moving average of such claims also turned down.  In addition, the number of continuing claims rose to 4.64 million, an increase of 73,000 in just one week. Second, and this one has hit the markets with a particularly hard blow this morning, the University of Michigan Consumer Survey showed a swift decline in their Consumer Sentiment Index from early March's 73.6 down to 69.5 in early April. What was even more negative was the readings of consumers' outlook for the future plunged an even greater percentage, from 67.9 to 62.3.  Interestingly enough, many of the participants said that while they might believe government reports that the economy was going to improve, they viewed their own personal outlook as being 'persistently grim' as regards income and jobs. Third, markets now have to contend with a securities fraud lawsuit filed against investment banking giant Goldman Sachs & Co. (GS&Co) by the Securities and Exchange Commission (SEC).  According to papers filed at United States District Court, Southern District of New York, the SEC claims, in part, that GS&Co made, "...materially misleading statements and omissions in connection with a synthetic collateralized debt obligation fund GS&Co structured and marketed to investors.  The suit specifies that GS&Co marketed the fund, called "Abacus 2007-AC1", as a positive investment to potential investors while at the same time allowing a large hedge fund, "Paulson & Co.", which had interests directly opposite those of potential investors, to participate in the portfolio selection process.  The charges go on to say, in quite plain English, "...Paulson had an economic interest to choose residential mortgage-backed securities that it expected to experience credit events in the near future. (The papers involved in the suit were just filed and we have not had a full opportunity to review them.  We plan to do so over the weekend and report further in Monday's Melman Minute.) So, not only is there adverse economic news which is beginning to cast doubt on further economic growth, but one of Wall Street's giant pillars of strength is coming under close scrutiny accompanied by deep suspicion. It appears to us that this kind of uncertainty and potential panic will ultimately play into the hands of the precious metals - but that is surely NOT the case so far this morning as markets are selling off strongly in many directions simultaneously and the growing potential for an economic contraction is causing resource markets to be hit especially hard. As of 10:20 AM PDT, both the Dow Industrials and Canada's TSX Index were each off by about 150 points and raw materials prices are taking a particularly strong hit.  Gold is down by about $25 to $1,134 while silver is off about 75 cents, platinum $29 and palladium $14.  Base metals are lower across the board with losses of 2-4% while major mining share indexes are down by about three percent.  Crude oil is lower by more than $2.00 and the resource-based Canadian Dollar is down in excess of a full cent versus the Greenback. One exception to the general raw materials selling has been the May 2010 contract on lumber which just hit a new recovery high this morning and the chart has a very bullish appearance - so far.  This action in lumber would appear to support the thesis that the housing and real estate construction markets were going to improve. - - - - - All quotes US$ unless otherwise noted. Next Melman Minute scheduled for Monday, April 19, 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.