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!"   MELMAN MINUTE - May 10, 2010 - - - - - Markets soared overnight in Asia and Europe and then opened significantly higher in North America on word that a major "rescue plan" had been put together to finally solve the Eurocurrency crisis.  Early word stated that a one trillion dollar fund was being assembled to pay off the looming debt of several Eurocurrency member nations and thus avoid any default.  As the Associated Press put things in an early morning article, "The European Union put up a staggering $1 trillion Monday to contain its spreading government debt crisis and keep it from tearing the euro currency apart and derailing economic recovery." We are astonished!  It turned out to be so simple!  All the member nations and other nations of the world had to do to solve the debt crisis was to create more debt and all will be well!  Our only question would appear to be "why did it take them so long if all that was required was increasing debt?" But we have some other questions.  For instance, we cannot help but wonder exactly how nation after nation, already massively in debt and presently burdened with monumental operating deficits, are going to come up with such largesse.  We also wonder exactly how going ever-more deeply into debt is going to resolve a debt crisis? One key to the entire rescue program is something we noted several weeks ago, namely that the resolution to such problems must come from the printing of fiat currencies from nations equipped for such exercises and chief among those, of course, is the Federal Reserve Board of the United States.  And, sure enough, it is the Federal Reserve which will be providing part of the money which will be distributed by that most regal of international financial agencies, the International Monetary Fund (IMF). As the AP article noted, "...the U.S. Federal Reserve joined with other central banks in the effort, reactivating a currency swap program ...to ship dollars overseas to be pumped into banking systems as short-term credit."  And so, the crisis apparently has passed, at least for the micro-moment.  The Greek civil servants will not be required to riot in order to protect their privileges, now to be financed by American taxpayers and American currency holders; international banks will not be required to face monumental losses which would have occurred had Greece and other nations defaulted on their debt, most of it owned by those banks; and the fear of an economic contraction brought about by a collapse in the value of the Euro has been averted, at least for the time being. All of that sounds wonderful - but no one is publicly asking what we at TMR regard as by far the most important question:  "Just who is going to bail out the currency of the United States of America as it over-creates itself until its value begins to rapidly diminish?" While financial markets are indeed enjoying stunning rallies this morning, we would offer the suggestion that those rallies may not be long-lived and as (in our opinion) rational analysts begin to pick apart the individual portions of the plan long-term fears will begin to rise, and, as a result, the monetary precious metals will ultimately benefit from this further debasement of fiat currencies. As an aside, long-term readers will be aware that one of my favorite sayings when it comes to the media circus of international financial affairs is "Nothing is confirmed until officially denied."  The following quote from a MarketWatch article this morning says it all: "There's more: the European Central Bank will go into the secondary market to buy euro-zone national bonds -- a step last week that its president, Jean-Claude Trichet, said the central bank didn't even contemplate..."  (Our emphasis) .................. While the morning rallies in financial and Eurocurrency markets have been quite impressive, in and of themselves, the most important question is whether they have truly reversed the panic selling of the past few sessions.  Two charts will help us to answer that question. In their famous technical analysis textbook, "Technical Analysis of Stock Trends", authors McGee and Edwards spend a substantial amount of time discussing the technical phenomenon known as "pull-backs".  In fact, they provide no less than forty charts which illustrate this occurrence.  In our opinion, the concept of "pull-backs" is appropriate for the present action in the Dow Industrial Average.  After violating clear support between 10,900 and 11,000 in late April, the Dow Industrials plunged by over 1,000 points to near 9,800 and have now recovered back to just below the original breakdown.  In our opinion, it would take a move up through the intermediate top at 11,200 to truly reverse these recent declines. The situation is similar in Eurocurrency trading.  After plunging below support near 131.5, the Euro fell dramatically to just above 125 before rallying back to near 131 early this morning.  In fact, the Euro has now fallen back to barely 129.2, already returning most of this morning's early gains. The situation remains in flux, and we believe trading over the next few days could be critical. One last thought regarding the Euro crisis and it relates to politics in general and, indirectly at least, to our thoughts regarding the future of the precious metals.  One of the most important features of life in general is the concepts of learning from the negative and undesirable consequences of errors.  A child burns its hand on a hotplate and remembered pain teaches him/her to avoid that danger.  A young driver speeding along is stopped by police and remembrances of monetary pain and insurance difficulties should make him more cautious in the future.  However, when it comes to economic pain, it seems our political leadership is unwilling to learn such simple lessons and the latest "rescue" of Greece is similar in nature to creating bad banks, bailing out insolvent financial institutions and carrying on an astonishing array of social welfare programs regardless of cost - all features of modern-day economic theory as practiced by the political left.  As  consequence, since there is no apparent and visible 'punishments', negative economic behavior is repeated, over and over again. It is our opinion that such behavior will eventually become a threat to the world's economic stability and, therefore, could provide the basis for additional bull markets in the monetary precious metals. As of 10:00 AM PDT, financial markets remain sharply higher with the Dow Industrials ahead by about 400 points and Canada's TSX by about 200.  Gold fell sharply in overnight trading, reaching a low of $1,183 before recovering to about $1,202 while silver is ahead on the day by about 15 cents to just above $18.50.  Mining share indexes are about two percent higher, base metals have shown strong gains based on improved economic expectations, cruse oil is once again above $76.00 per barrel and the U.S. Dollar is somewhat weaker as money related to 'flow of funds' is once again returning toward Euro holdings. - - - - - All quotes US $ unless otherwise noted. Next "Melman Minute" scheduled for Wednesday, May 12 when we plan to catch up on other news events. ◄  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.