A Melman Minute By: Leonard Melman MELMAN MINUTE - September 1, 2010 If the news background surrounding investments in general and mining investments in particular has accomplished anything, it has provided us with a series of dizzying switches in sentiment, from depressing gloom to euphoric optimism.  The latter is in vogue this morning.  Two charts illustrate just how rapidly these changes have come our way. Today's early morning strong rise of about 250 points in the Dow Jones Industrial Average simply fits into the pattern of huge moves, upward and downward, in that market indicator.  In this new case, the market is moving from near the bottom of its range back toward the middle area, centered around 10,000 to 10,500.  Trading in the Canadian Dollar, perhaps more than in any other currency, reflects sentiment regarding the world of natural resources and it is most interesting to note the striking similarities between the chart of the Dow Industrials and the C$.  Please note the almost perfect coordination between rallies and sell-offs in both charts.  In the C$'s case, the chart activity is centered on the broad range between US$ 98 cents and US$93 cents. There are two apparent reasons for this morning's renewed burst of good feelings.  China reported some strong economic data, thereby relieving - at least temporarily - fears of a general world economic slowdown, and President Obama announcing the end of America's combat participation in Iraq. The Chinese economic data in fact does sound quite impressive, at least at first glance.  China reported that her auto sales rose by a startling 55% during August when compared to the previous year and for the year itself to date, auto sales are now ahead by an impressive 32% over the first eight months of 2009.  This makes China the leading car market in the world with an estimated annual sales rate now approaching 15 million vehicles. In addition, China reported that her manufacturing industry data also showed good growth in New Orders and Purchasing Prices during August, prompting a relaxation of fears that China might be descending into an economic downturn.  As Hongbin Qu, chief economist for China at banking giant HSBC told the Associated Press, "This reconfirmed our long-held view that China is moderating rather than melting down." Clearly, eliminating fears of a Chinese economic meltdown is good news for the raw materials commodities and the base metals are much higher this morning, posting gains of 2-4% across the board in early trading while the petroleum complex is also stronger with crude ahead by more than $2.00 per barrel. The other important news providing a feeling of optimism was the address from President Obama last night during which he announced a formal end to combat operations in Iraq, seven years after President Bush began "Operation Iraq Freedom."  The size of America's military contingent in that country has now been reduced to 50,000 troops and America's continuing presence in that nation, now operating under the name "Operation New Dawn", would be to provide military assistance to the government of Iraq. He also noted that with the reduction of military forces in Iraq, he was turning his focus in the direction of restoring America's faltering economy back toward a level of renewed prosperity, although he offered no specific details regarding how this was to be accomplished.  In his address, he simply made the declaration that, "...Today, our most urgent need is to restore our economy, and put millions of Americans who have lost their jobs back to work." Unfortunately, there are still many problems remaining on the list to overcome, plus one new one which threatens to grow in importance during coming months.  We are referring to the vitally important "Municipal Bond" market, or "Munis."  This giant market has provided a safe and secure place for "widows and orphans" type investing and has also provided states, counties, cities and municipalities with an important source to raise funds for infrastructure financing. All was well and defaults on interest or principal were almost unheard of for many decades.  However, with the growing visible strains on state and municipality finances, some have perceived that the risk of future defaults was growing and, sure enough, one such failure was announced this morning.  The City of Harrisburg, PA just declared that it would not be able to pay a $3.29 million municipal-bond interest payment due in two weeks, but it anticipated that the interest payment would be covered by the bond's insuring company. Given the importance of the municipal bond market within America's overall economic structure, the investment community cannot help but feel a sense of unease about this development, most particularly since many other states and municipalities are facing the same kind of strains that have afflicted Harrisburg.  Alan Schankel, managing director at brokerage firm Janney Montgomery Scott, noted this morning, "...A missed payment is a bad signal which raises the concern that some distressed issuers may be more likely to skip payments guaranteed by insurance companies." - leaving unsaid the fear of what might happens if such interest payment omissions overwhelm the insuring companies. The Harrisburg situation is made more ominous by the fact that the City is also contemplating missing a much larger payment, in this case $68 million, due later this year for a failed incinerator project and there is even talk of Harrisburg filing for bankruptcy protection. ............... As the all-important November election approaches, it is clear that one problem being faced by the Obama Administration and the Democratic Party is the articulation of a decisive economic policy.  An example of the lack of communication came during the past two days when two contradictory statements were forthcoming from party leaders.  First, Administration officials announced that part of their program to restore economic growth would be a series of tax cuts, yet at the same time, party bigwig Robert Rubin, Secretary of Labor under Bill Clinton, just told the Wall Street Journal that the government should restore the Estate Tax to bring in more revenues to government. Someone should tell the right arm what the left arm is doing. As noted, financial markets took off with a "whoosh" this morning and, as of 9:45 AM PDT, they have been able to maintain the major portions of their gains with the Dow Industrials up by about 230 and Canada's TSX ahead by about 80.  Gold traded as high as $1,256 overnight before retreating to just under $1,250 while silver is very slightly lower.  Base metals remain sharply higher but mining share indexes, somewhat surprisingly, have turned to the downside.  Crude oil is ahead by about $2.00 per barrel, the US Dollar Index is down by a hefty 70 points and long-term interest rates are moving higher - at least for the short term. - - - - - All quotes US$ unless otherwise noted. Next "Melman Minute" scheduled for Friday, September 3, 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.