A Melman Minute By: Leonard Melman MELMAN MINUTE - August 6, 2010 - - - - - When we look at the recent stream of economic data, it is beginning to appear that we are returning to a place we have seen before.  That place is a trend toward worsening news, not improving.  Some of the latest examples are quite striking. It is also worth reviewing the performance of financial markets relative to the financial news background.  During 2007 and well into 2008, the tenor of financial news began to deteriorate, but many observers remained optimistic and, as can be seen from the Dow chart, that index held firm throughout 2007 - even reaching its historic high of 14,200 that year - and well into 2008.  However, in that latter half of 2008 and into 2009, the news was so profoundly downbeat that it eventually drove the markets downward in the most virulent decline since the Great Depression. Since early 2009 we have seen a revival in the Dow from a low of near 6,400 to a relative peak this past April near 11,200.  This rally was accompanied by generally improving news which appeared to give the "new bull market" thesis some believability.  However, the news background has been worsening of late, raising fears of a "double-dip" recession - or perhaps even worse. Despite this new flow of negative news, financial markets have been able to hold relatively steady and have now created a trading range on the Dow of between 11,200 and about 9,700.  The great question then, is this:  "If news continues to worsen, how long can the financial markets hold firm or even rally in the face of such developments?" Just how bad has the news become?  The following stories during the past two days can give us a hint that there may indeed be a "Gathering Storm" developing. * - The U.S. Department of Labor just announced a decline of 131,000 in non-farm payrolls for the month of July.  This figure is the net result of a growth of 71,000 jobs in the private sector versus a loss of 202,000 jobs in the government sector due to the termination of temporary census workers.  What is most striking is the truly pathetic rate of growth in private sector jobs, particularly after almost 30 months of the greatest stimulation by government ever recorded.  During the last three months, private job growth has averaged about 51,000 per month, down sharply from the preceding three months which averaged 154,000. Even worse, when the people who have given up looking for work or those restricted to part time are included, the Unemployment Rate soars to a Depression-like 16.5% * - Another employment number of great concern is an increase in the number "initial jobless claims" filed to gain unemployment insurance benefits.  Not only is the past week's figure higher, but the four-week moving average has also turned higher.  This is, quite literally, astonishingly poor performance for a supposed economic recovery. * - America is not alone regarding dismal employment data.  According to an article this morning in the U.K. "Telegraph" newspaper, "Unemployment in Britain rose by a record in the last quarter to 2.8 million, underlining that a recovery from the worst recession in decades will be long and hard...The number of Britons out of work increased by 281,000 in the three months to the end of May, the most for a quarter since records began in 1971."  (our emphases) The article reported that there was some degree of comfort in the fact that June jobless numbers had increased by somewhat less than expected.  Somehow that kind of comments harkens back to the dreadful economic news of 2007-09 when the best that could frequently be said was that the news was "less bad" than had been expected. * - The situation in American states has worsened to the point where the U.S. Congress, despite their own financial woes, felt compelled to relieve the states' agonies and passed emergency assistance legislation to the tune of $26 billion dollars, a move which followed closely on the heels another act of "emergency legislation" to provide a similar amount for extended unemployment benefits.  A Wall Street Journal reporter commented that the Democratic leadership in Congress acted, "...to demonstrate they're taking action on an economy showing signs of weakness." It is also worth noting the economic outlook has become so negative that Congress is considering other emergency legislation to promote small businesses to the tune of $43 billion; spend additional sums to 'save teachers' jobs' and find additional funding for children's after-school care plus ever-more money for Medicare.  Apparently, the legislative stimulation pipeline can be designated as "wide open." * - Despite all the supposedly positive news of the past 18 months, quite surprisingly the rate of personal bankruptcies shot up in July, showing a 9% increase over the number of filings in June.  The National Bankruptcy Research Center indicated the reason for this increased could be traced to debt overload and the unavailability of new credit for re-financing which, "...tend to fuel bankruptcies as individuals who encounter trouble paying debts fail to find new sources of credit."  During my credit management years, we referred to such as situation as a borrower's inability to "find a new Peter to pay Paul." Added to the above list, we could easily include a flat to declining retail sales picture; a series of profoundly negative residential home numbers; and some of the lowest Consumer Confidence readings in many months. In terms of gold, we suggest that the floodgates of government stimulation will open ever-wider as economic pain rises and that might be part of the reason for gold's improving performance as the yellow metals has risen by yet another $10 this morning to about $1,210 - barely $50 away from its historic peak.  When strong seasonal performance from Asian buyers in China and India is added to the mix, the outlook for the monetary precious metals appears to be improving steadily. Financial markets are in retreat so far this morning and as of 10:00 AM PDT, the Dow Industrials are down by about 135 while Canada's TSX is slightly lower by about 25 points.  Gold has traded as high as $1,212 this morning and silver is holding on to a modest gain at $18.44 per ounce.  Base metals are slightly higher on balance and two in particular, nickel and zinc, are both trading at their highest levels since early May.  Mining share indexes are close to one percent higher; crude oil is about $1.00 per barrel lower; and the US Dollar is slightly weaker in currency markets.  The Canadian Dollar is down more than one full cent versus the Greenback in response to Canada's weak employment number for July. - - - - - All quotes US$ unless otherwise noted. Next Melman Minute scheduled for Monday, August 9, 2010.  We plan to look at precious metals fundamental supply and demand information coming out of Asia.     ◄  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.