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 19, 2010 - - - - - As noted in our "Melman Minute" of this past Monday, we planned to take a good look at what is happening to several important commodities.  If the situation was important then, it is becoming even more critical now.  While reviewing the various important commodity trading charts, we assemble the following list of those which have fallen into serious short term declines. Gold Silver Copper and other base metals Crude Oil Gasoline Various grains Stock market Indexes Lumber Most remarkably, all of them are of them are turning down at one and the same time which leads us to ask a very simple question:  "If all of the talk about wonderful economic times lying directly ahead is true, how can markets for important commodities be drying up at one and the same time?"  Obviously, something is out of whack and it is our interpretation that the concept is growing 'out there' that a new spate of economic troubles may be brewing in the time period directly ahead. Three of the above charts show particularly strong recent declines and the poor recent performance of each one seems to carry special implications for the economy at large.  After finding strong overhead resistance near $1,750 per ounce, the platinum chart has suddenly turned to the downside, dropping by more than $160 in just a few days, including a sharp drop of just over $100 this morning.  Since platinum is one of the key materials in most automobile catalytic converter systems for smog control, this would appear to bring into question some of the rosier predictions for worldwide auto production growth, a concept supported by the fact that palladium, the other prominent metal associated with auto converter production, has fared even worse today on a percentage basis. The drop in gasoline futures has been even more dramatic, plunging from almost $2.45 per gallon down to barely $2.00 in just three weeks.  It is interesting to note the relatively slow speed of the gains from near $2.00 to $2.45 compared to the swiftness of the decline.  If the forecasts of economic growth and renewed prosperity were widely believed, it would appear that anticipated future demand for gasoline would be rising, not dropping.  In fact, while the current (June) contract is still barely above the $2.00 level, forward months have already fallen below that number, suggesting future price weaknesses as well. If the declines in platinum and crude oil have been eye-catching, one can only wonder at what adjective to apply to the lumber market which has been smashed of late with a sudden drop from near $340 per contract down to just above $230.  As was the case with gasoline, the contrast between the somewhat labored upward advance with the swiftness and magnitude of the subsequent decline is quite dramatic, to say the least.  Our concern is that lumber, of course, is an integral item in home-building and the 'waterfall' appearance of lumber's price chart suggests to us that home-builders are not projecting strong sales advances into the future, they are not building up their lumber inventories but reducing them, and, by implication, they are growing somewhat wary of optimistic economic forecasts. Several recent articles would appear to support the thesis that growth in economic activity, particularly in the realm of home construction, may not live up to rosy expectations.  One in particular sounds rather ominous.  According to figures just published by the Mortgage Bankers' Association (MBA), the number of mortgage purchase applications has now fallen to the lowest level in over thirteen years.  To us, this decline in mortgage purchase financing activity goes a long way toward explaining the decline in lumber prices. We also note an AP story which tells us that during the First Quarter 2010, "...The number of homeowners who missed at least one payment on their mortgage surged to a record in the first quarter of the year, a sign that the foreclosure crisis is far from over...More than 10 percent of homeowners had missed at least one mortgage payment in the January-March period...More than 4.6% of homeowners were in foreclosure, also a record." We would offer the opinion that people who are faced with possibly losing their homes are not likely to be in the market for a new one, thereby diminishing the market for the sales of new properties.  We also believe that people who are desperate to hold on to their residences and save them from foreclosure are also not likely to engage in any aggressive consumer purchasing, thereby depressing the overall consumer-driven economy. All of this suggests that the massive onslaught of governmental stimulative activities which were initiated in a multitude of nations from 2007 through the present are not having the desired effect.  They do not appear to have restored sound prosperity and they do not appear to have restored confidence in the future. ........... All of these concepts may have played into the results of elections which took place in America last night as, in general, those politicians most closely associated with enhanced central government activities got trounced.  In Pennsylvania, one of Washington's ultimate insiders, Sen. Arlen Specter, who enjoyed the well-publicized backing of President Obama, was humiliated in that state's Democratic primary by a relatively unknown Representative, Joe Sestak.  In Kentucky's Republican primary, libertarian/Republican Rand Paul, son of well-known Representative Ron Paul, soundly defeated Kentucky's Secretary of State, Trey Grayson, who had been the favored choice of the Republican Party power-brokers of that state. ................ This morning's commodity sell-offs have continued and, as of 10:00 AM PDT, precious metals continue to decline with gold off by about $25, silver by nearly 80 cents and platinum and palladium were down to about $90 and $50 respectively.  Base metals were also down with copper off by about 8 cents per pound, nickel by 23 cents and both zinc and lead continued along their particularly sharp recent declines.  Not surprisingly, mining share indexes were trading lower as well, with both the XAU and HUI falling by a huge five percent.  Crude Oil was priced near $68.50 and the U.S. Dollar was somewhat lower as well in currency markets. - - - - - - All quotes US$ unless otherwise indicated. Next "Melman Minute" scheduled for Friday, May 21, 2010, when we hope markets have settled down somewhat.  We plan to re-visit our MM of May 6, 2009 (see MM Archives) which discussed the question of whether the rally following the debacles of 2008-9 was simply a rally inside an ongoing bear market.   ◄  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.