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 25, 2010 - - - - - As we have noted previously, there are basically two types of investment analysis; fundamental and technical.  Fundamental information deals with such items as general economic data, supply and demand information, profit and loss analysis, etc.  Technical or 'chart analysis' deals primarily with the appearance of price charts.  Both serve distinct purposes. Fundamental analysis serves to identify specific items of information which could relate to any investment, perhaps a mining share investment, for example.  One could look at the quality of assays, geologists' reports, plans to move toward production, environmental problems, and so forth, to help determine the future price movement of a particular company's shares.  On the other hand, chart analysis seeks to identify what might happen into the future based on an examination of the visual record of actual trading by buyers and sellers in the shares. Personally, I began to study charts seriously, going back more than 40 years.  The first charting text I read was William Jiler's "How Charts Can Help You in the Stock Market" and I next 'graduated' to what many regard as the charting bible, McGee and Edwards' "Technical Analysis of Stock Trends."  In subsequent years, I studied newer textbooks as they were published.  The study of charts has always been particularly fascinating, and in my own personal and professional investment efforts, I have found it to be an invaluable tool. Through the years as an investor, stock and commodity broker, and financial writer, quite literally thousands of charts have passed, figuratively speaking, through my hands. All of this is prelude to noting the observation that I cannot recall a single chart which has outlined as consistent and dramatic a decline, while holding inside a remarkably narrow trading channel, as the chart on the July Lumber contract.  Please note that following its short-lived peak near $340 in late April, lumber has plunged for two months without a single important interruption to the trend.  The price of the lumber contract has been virtually cut in half, bottoming, for the moment at least, near $175. The performance of the lumber contract has coincided with recent weak fundamentals within the home-building industry itself.  Given their clear nature, it is worth repeating them once again: * - 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. When the chart patterns and fundamental analysis both point in the same general direction, we at TMR believe this strengthens the overall concept.  As if to emphasize the negative outlook for home construction and the lumber trade, just in the past day the U.S. Department of Commerce announced it has reduced its outlook for growth rates in the overall United States economy over the coming months and President Obama has recently emphasized that the upcoming international financial meetings in Toronto are no place to talk about reducing 'stimulus' government programs. In our opinion, all of this enhances the likelihood of future currency devaluations down the road which should benefit the monetary precious metals, particularly gold and its 'junior partner', silver. As is the case with lumber, both the fundamental and chart cases seem to coincide with gold as well.  The fundamental case for gold noted above is joined by what we regard as one of the most reliably bullish chart patterns, one of 'rising bottoms'.  Please note on the accompanying chart that gold has set in the following series: (Prices are estimates taken from chart.) * - 1,050 in early February * - 1,085 in late March * - 1,125 in mid-April and * - 1,165 in late May There have also been recent minor lows such as 1,197 in early June, 1,218 in mid June and 1,225 in recent days - and these only serve to suggest a continuation of this trend. ............... There is probably no effort more fraught with danger for an analyst than to attempt to read the mind of a politician.  However, we must express surprise regarding the actions of President Obama and his cadre of advisors.  As we have noted recently, his poll numbers have been trending downward and a recent Wall Street Journal article was headlined, "Confidence Waning in Obama, U.S. Outlook."  Among the details provided were these comments:  "Americans are more pessimistic about the state of the country and less confident in President Obama's leadership than at any point since Mr. Obama entered the White House...Sixty-two percent of adults in the (WSJ/NBC News) survey feel the country is on the wrong track...Just one-third think the economy will get better over the next year, a 7-point drop from a month ago and the low point of Mr. Obama's tenure."  (Our emphasis.) With evaluations such as those, one would think the White House would plan some sort of modification in its general 'game plan', but this morning we find there is to be more of the same as the White House jubilantly announced the likely passage early next week of yet another monster-length bill, this one involving the most significant increase in the regulation of U.S. banks since the Great Depression and one which includes massive new expenditures for additional bureaucracies, including a new "Consumer Financial Protection Bureau" which will have an initial annual budget of $850 million. So, despite the economy's growing evidence of weakness and despite growing political dissatisfaction, it appears we will continue on the path of monumental growth in complex regulation, more spending for bureaucracies and more stimulus spending - all adding up to much more of the same. Perhaps it is not surprising then, that in early trading today gold is moving sharply higher, trading up more than $10 to just under $1,260 while silver is by 40 cents to near $19.10 and base metals are also moving upward.  Mining share indexes have gained about three percent, crude oil is up over $2.00 per barrel, financial markets are down slightly and both the US Dollar and interest rate futures are also modestly lower. - - - - - Al quotes US$ unless otherwise noted. Next Melman Minute scheduled for Monday, June 28 when we plan to report on news out of the world economic gatherings in Ontario this weekend.                                      ◄  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.