A Melman Minute By: Leonard Melman MELMAN MINUTE - August 13, 2010 - - - - - A quick check of the calendar notes that, yes, this is indeed Friday the 13th of August, but perhaps even more significantly, America is less than three months away from what promises to be an election of vital importance.  Just as it was forecast that the Presidential election of 2008 could have a major impact on the economic and social philosophies of the American government - which it indeed has - it is also being forecast that a November 2010 election result which would eliminate the Democratic majorities in either the House or Senate, or even both, would help stem that revolution toward what many regard as outright socialism. There is little question in our minds at TMR that under President Obama, the shift toward the political left has been one of the most dramatic on record.  The US government has taken over actual ownership of formerly private corporations; has enacted laws giving government bureaucracies influence over the functioning of manufacturing and commerce that surpass any previous interferences; has enacted socialist medical legislation; has run up deficits at an unprecedented rate while allowing the Federal Reserve Bank to engage in outright monetization at the highest level in that nation's history.  And, not surprisingly, both of President Obama's Supreme Court choices - approved by the Senate with little serious debate - appear to lean directly toward the expansion of government influence. It is quite a record and one which has alarmed many American voters.  Therefore, interest in this off-year election is growing ever-more intense with each passing day. Of course, one primary question remains which is just what should be done to stimulate an economy that is showing every sign of entering a period of renewed contraction.  A recent survey of 53 top economists conducted by the Wall Street Journal provided little comfort in their general outlook as they predicted, on balance, that unemployment would remain at 9% or higher throughout the rest of 2010 and well into 2011.  A majority fell in line with the comment that the biggest risk facing the economy was, "...too few jobs, too little wage income and too little consumer spending." Quite surprisingly, 60% of the respondents declared that they were opposed to government action to stimulate the economy, a stance which flies in the face of the Federal Reserve Board's recent announcement that it would once again engage in Quantitative Easing to support economic activity.  One respondent, Stephen Stanley of Pierpont Securities, reflected our own views by commenting, "The economy needs the government to get out of the way." As if to emphasize the seriousness of the problem, the European Central Bank (ECB) has just scaled back their own forecasts for the European economy at large.  Outside of Germany, which does appear to be strengthening, the ECB predicted, "...The Euro Zone will grow at a very subdued rate for the next two years despite signs of a German-led pickup in activity..."  They were particularly concerned about the PIIGS countries, particularly including Greece, Ireland and Portugal which remain vulnerable to debt service failures. Given the unresolved debate between economic leaders of the Keynesian persuasion who advocate increased measures by government to stimulate economic growth and those of the "Austrian School" who advocate reliance on free markets combined with minimal to nil government action, it is not surprising that many markets seem to have entered a period of indecisive moves.  Crude oil is typical of this manner of chart performance having fallen from its recent peak near $83 per barrel back to about the middle of its latest trading range. The Euro has traced out a similar pattern as what appeared to be a decisive rally has now turned 'south' once again toward the middle of that currency's latest price range. Unfortunately, we are forced to cut short these musings this AM as several important - and immovable - publishing deadlines are staring us in the face.  Let it suffice to state that we expect this period of relative quietude to last only for the next few weeks, to be followed by clearer action brought about by the onrushing American election as well as the tendency of many markets to make important moves in the September-October time frame.  As of 7:30 AM PDT, markets have been relatively quiet so far with precious metals close to unchanged, base metals very slightly higher on balance, mining share indexes also little changed while financial markets in the USA and Canada are making insignificant moves as well.  Currency and energy markets have also joined in the "virtually unchanged" chorus. - - - - - All quotes US$ unless otherwise indicated. Our schedule for next week's Melman Minutes is somewhat uncertain due to participation in a tour of mining equipment manufacturers and mining operations near North Bay and Sudbury which is being sponsored by the Ontario Ministry of Mines.  We have been assured of adequate Internet connections in our hotels in both cities so our tentative plan is to write commentaries on Tuesday, Wednesday and Friday.           ◄  Previous Minute                                                                                                        Next Minute  ►
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