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 - June 23, 2010 - - - - - Many observers, if asked for the immediate, proximate cause of the worldwide economic contraction of 2007-09 would point first and foremost to the collapse in commercial and residential real estate values.  Those sharp declines subsequently led to a virtual shutting down of real estate construction, reductions in consumer purchasing power, rising unemployment, rising loan defaults leading to massive and insoluble problems for a multitude of financial institutions.  All of those factors combined to virtually decimate the massive world of fiscal derivatives, adding to the trauma. Therefore, it would appear that real estate must put on a strong recovery in order for any sustained, true-value, economic growth to take place.  However, the information now at hands suggests that whatever real estate recovery which has taken place so far was sub-standard at best and may now actually be in the process of rolling over into renewed declines.  That data also suggests that much of that recovery occurred, not as a result of fundamental strength and growing public confidence, but rather as a result of governmental manipulations of tax laws.  To be specific, we are referring to the special $8,000 tax credit buyers received beginning early 2009 and which expired April 30, 2010.  It has been suggested that due to the scheduled end of that program, there was some concentrated buying in March and April. What has occurred since must give even the most rabid optimist pause.  The figures for May - reflecting the housing market's status without the special government stimulation - have been truly negative.  In short order we have learned that: * - U.S. Single-Family Housing starts fell 10% in May to an annualized rate of 468,000, the lowest rate in one year. * - Single-Family Building Permits also fell sharply in May, declining to an annual rate of just 434,000. * - Resales of homes and condos fell 2.,2% in May. * - Sales of New Homes in May fell 33% from April's figures, dropping to the lowest level ever recorded during the 47 year history of that data series. * - Fannie Mae economists predict combined new and existing home sales will drop by a further 12% during July, August and September. If all of that was not sufficiently unsettling, a new survey by the economic firm of MacroMarkets LLC shows that the number of economists expecting declining real estate prices this year is rising.  During their May survey, the percent of economists anticipating declining prices was 40% but in their just-released June survey, that number had risen to 56%.  An example of the commentary contained in the MacroMarkets report was this from Scott Anderson of Wells Fargo:  "We're seeing a loss of momentum in housing demand since the expiration of the tax credit and that lull could last until spring.  The job market remains weak and foreclosed homes continue to weigh on the housing markets." As if to confirm the overall negative trend, the "Architectural Billing Index" also went into decline during May, dropping from 48.4 to 45.8.  An American Institute of Architects economist noted another area of difficulty by stating, "...the industry is affected mainly by unusual caution on the part of lending institution to provide credit for construction projects." Our own opinion at TMR is that the world's economies are at genuine risk of falling into a "double-dip" recession and one that, for the following reasons, could easily grow into an economic contraction of some real severity, to put things mildly.  Our chief concern is that the Fed and other international central banks might well be at a loss regarding exactly how to use typical remedies to counter-act an economic contraction should that indeed occur.  In our opinion, they have already 'shot their wad' in fighting the present mess.  Interest rates are already at zero, and cannot likely be forced lower.  Second, they have already driven nation after nation into horrendous levels of debt due to already-existing 'stimulus' measures and the likelihood of being able to maintain any currency stability should they enact new massive stimulus measures is minimal. At the same time, if they choose to enact austerity measures, such as are being widely suggested, they run the genuine risk of removing purchasing power from economies just at a time when it is most needed.  In our view, this is a situation of truly being caught "between a rock and a hard place" and there is simply no apparently reasonable, workable solution.  That is what, in our view, makes the present position appear particularly perilous and why we suggest that maintaining both insurance and investment positions in gold and silver would appear to be correct.  (Please see cautions appearing elsewhere on this site.) Politically, the Obama Administration keeps taking significant hits.  Not only are their poll numbers continuing to decline, from over 70% approval shortly after he took office to less than 50% today, but other stories of note also appear to be undercutting his authority.  First, only 40% of Americans approve of his handling of the Gulf Oil disaster, a number similar to George Bush's ratings immediately following Hurricane Katrina.  Next, a Judge just reversed the Obama decision to stop all off-shore oil exploration, noting, "...Even Presidents aren't allowed to impose an 'edict' that isn't justified by science or safety."  And, just last night, a widely-respected business leader, Verizon Communication's CEO Ivan Seidenberg, who also heads the prestigious Business Roundtable, generated headlines by making a speech at Washington's "Economic Club" during which he sharply criticized what he regarded as the Obama Team's decisions which, "...create an increasingly hostile environment for investment and job creation." Seidenberg suggested that the President and his Administration "...stop trying to micromanage industries" and also stated that the proposed financial regulations, "...go a step too far, imposing one-size-fits-all solutions on highly dynamic and diverse businesses."  He also stated that business leaders have prepared a report detailing, "...hundreds of separate actions and decisions that stifle manufacturing, innovation and job growth." So, it appears we have a world of growing uncertainty, both economically and politically - just as the leaders of the world prepare to gather in Toronto at the upcoming G-20 Economic Summit.  We can only wait and wonder about what specific remedies they might propose. Financial markets this morning are showing a high degree of indecisiveness with the Dow Industrials and the TSX Index barely changed as of 10:15 AM PDT.  Precious metals are lower with gold off about $5.00 to near $1,235 and silver down about 30 cents to $18.50.  Industrial and base metals are down on balance but mining share indexes are slightly higher so far, recovering somewhat from yesterday's selling.  Crude oil is back under $76.00 per barrel, interest rate future are pointing to lower long-term rates and the US Dollar is moderately stronger in currency trading. - - - - - All quotes US$ unless otherwise noted. Next Melman Minute scheduled for Friday, June 25, 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.