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 30, 2010 - - - - - Well, the world leaders have gone home now, as have their armies of cheerleaders and sycophants, and all we are left with is their final statement which promised, among other things, to rein in budgetary deficits and control the growth of government debt.  Sounds great, at least to some of us.  But the big question remains and it takes the form of a phrase used frequently in the classic movie, "The Ten Commandments". Each time the Pharaoh would make an important statement, he or a court official would intone, "So let it be written, so let it be done."  Our question, and it is an important one, asks whether now that the leaders have spoken and issued their communiqué, will the words be followed by actual actions of the proposed nature.  In other words, will we see, "...so let it be done."  The first 'returns' are not too hopeful. For example, almost immediately following President Obama's return to Washington from the G-8 and G-20 conferences (exactly why was it necessary to have two concurrent conferences involving the same leaders?), the Democratic Party has just proposed two pieces of legislation that appear to be at odds with the spirit, if not the letter, of that declaration when they put forward a new law an AP article describes as follows:  "The plan is to create one bill that combines expanded unemployment benefits with an extension of a popular tax credit for people who buy new homes." In our opinion, the suggested bill would not be a move toward the spirit of the G-20 statement.  It would not move toward containment of government deficits nor would it move toward containment of the growth of government bureaucracies and regulations.  In fact, it would serve to increase the cost of government by extending unemployment benefits and would diminish government revenues by extending a tax credit which will allow for $8,000 less taxes to be paid by those who take advantage of the real estate program. Let's see.  It doesn't take a Ph. D in mathematics or economics to tally up the anticipated results.  First, government expenditures will rise.  Second, government revenues will drop.  Anyone who can come to any conclusion other than the fact that budgetary deficits will increase further along with increases in the U.S. national debt should check their basic premises. Speaking of the U.S. National debt, yet another milestone was shattered en route to uncharted regions for that number when the figure was calculated at above $13.1 trillion during the past few days.  Years ago, a popular question regarding the "limbo" dance was "How low can you go?"  With the U.S. debt, the only real question is "How high can it go?"  In our opinion, the answer is that it will rise very, very much higher - all of which will ultimately put upward pressure on the whole financial structure of America and the world, specifically including the marketing of government debt paper, to the eventual further benefit of the monetary precious metals. Unfortunately, another piece of information which we received this morning only serves to exacerbate those fears.  We are referring to the report by Macroeconomic Advisors, based on information gleaned by ADP from private employers.  According to their estimate, the economy in America created only 13,000 net new jobs during June and economists now predict an actual job number decline when the government releases their official figures Friday for the month of June.  It must be noted that one of the reasons for the projected decline is the release of 250,000 temporary workers who had been hired by the government in April and May to work on the 2010 Census. Simple arithmetic illustrates just how severe is the problem related to the lack of jobs growth.  According to that same Census Bureau, the population of the United States is predicted to have grown from 280,000,000 in 2000 to about 310,000,000 today - or about 3,000,000 per year.  Assuming 40% of the population to be either too young or too old or are otherwise ineligible for the job market, that leaves about 1,800,000 new people per year seeking work - or 150,000 per month.  Therefore, we believe it will take a figure of between 150,00 to 200,000 jobs growth each month to just stand still! Since the numbers are well below that threshold - after trillions of dollars of stimulative programs - we cannot imagine a serious reduction in government spending until job growth passes through and above the numbers required to show actual growth. The questionable state of the economy is well illustrated by what we regard as one of the more important charts out there; the one on "Dr. Copper."  Copper dropped sharply from $3.70 to near $2.70 during April-early June as several world-wide markets began to encounter serious slowdowns.  What concerns us most is that the rebound rally from that decline of almost $1.00 per pound has been shallow and unimpressive to date and the metal has now once again headed lower.  If the recovery was going to be all that has been suggested by many robust economic forecasts, this strikes us as unusual behavior indeed. Another chart which suggests the same thing is Bank of America.  Please note that during the long decline of 2007-early 2009, the stock fell from 54 to just $3 before a rebound took place.  While the rally from $3 to just under $20 seems impressive, in fact after 17 months of struggle, less than half of the massive decline has been recovered and the stock is now headed down once again, currently at $14.55. ................. It is always a pleasure to hear about opinions from well-regarded sources which reflect our basic positions and we note two this morning - one not at all unexpected while the other is more than a bit of a surprise. The first comes from Allen H. Meltzer, Professor of economics at Carnegie Mellon University.  In an op-ed piece published in this morning's WSJ, the professor described the fundamental differences between the Reagan and Obama approaches to economic difficulties.  He clearly prefers the Reagan approach. "Reagan reduced marginal and corporate tax rates and slowed the growth of non-defense spending.  Recovery began about a year later.  After 18 months, the economy grew more than 9%..."  As a contrast: "Two overarching reasons explain the failure of Obamanomics.  First, Administration economists and their outside supporters neglected the longer-term consequences of their actions.  Second, the administration and Congress have through their deeds and words heightened uncertainty about the economic future.  High uncertainty is the enemy of investment and growth." The second source is the TV personality, Jim Cramer, host of CNBC's "Mad Money" show.  In a piece entitled "Why Obama is Bad for Stocks", Cramer describes how he is suddenly hearing the word "malaise" with growing frequency in economic circles and he attributes much of the weakness to Obama, stating, "...I say this market is going nowhere, I think it is going nowhere because of Washington and not corporate America..." Financial markets this morning are attempting to stabilize following yesterday's heavy selling.  As of 10:15 AM PDT, Canada's TSX Index is ahead by a strong 125 points - after falling almost 350 yesterday, while the Dow Industrials are up by about 20 after yesterday's 260 point debacle.  Gold is slightly higher near $1,245 and base metals are up slightly as are mining share indexes.  Crude oil continues it recent decline, now trading under $76 per barrel, the US Dollar is slightly weaker in currency trading and interest rates are slightly higher. "Due to the Canadian Dominion Day holidy weekend, our next Melman Minute is scheduled for Monday, July 5.  While American markets will be closed for their July Fourth weekend, there should be ample worldwide and Canadian news to cover." - - - - - All quotes US$ unless otherwise indicated. Next Melman Minute scheduled for Friday, July 2, 2010 and we wish a happy Canada Day weekend for all our Canadian readers on that nation's 143rd birthday.             ◄  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.