January's Jobs Report was issued by the U. S. Department of Labor right on schedule this morning and one can only imagine the pleasure those numbers brought to the Obama Administration as the election of November 2012 draws nearer.  In short, the numbers were truly impressive with a net new jobs gain of 244,000 while the official Unemployment Rate dropped to 8.3%.  The jobs gain figure was the best in nine months while the Unemployment Rate was the lowest in three years.

Not surprisingly, American financial markets surged in the first hour of trading with the Dow posting a gain of over 160 points by 7:30 AM PST before some selling set in.

Despite all the renewed optimism, there are two essential points that should be made which might give some pause to those who believe America is now on the way to robust economic growth.

First, the number is good, but is hardly in line with past periods of sustained, powerful economic expansion which consistently added upwards of 500,000 jobs per month during strong periods.  It is also noteworthy that the number of full-time employed Americans remains far below levels of 2007 so the economy is still playing catch-up.  It must also be pointed out that much of the reduction in the Unemployment Rate can be accounted for by discouragement among idle workers.

America's Unemployment Rate is calculated by dividing the number of job seekers by the number of active workers.  In a simplified version, if there are 10,000,000 active job seekers and 100,000,000 workers, the rate would be 10%.  However, if 2,000,000 former job seekers simply get discouraged to the point where they were no longer actively seeking employment, then even if the number of employed remained static, the Unemployment Rate would decline to 8.0%.

It is our opinion at The Melman Report that much of the improvement in the Unemployment Rate during the past year has been of that variety, not the result of strong and sustained growth in the number of employed.

Second, there is abundant evidence that economies around the world are not advancing strongly and this slow to absent economic growth worldwide may very well put a damper on America's future growth prospects.  A number of recent articles in the financial media would appear to lend substance to this theory.

In Hungary, the state-owned Malev Airlines just announced they were going out of business as the Hungarian government could no longer sustain subsidy payments at their former level.  Malev thus has become the second European airline to fail in recent weeks, following the path of Spain's "Spanair".  Several other nations including Sweden, Portugal, Poland and the Czech Republic are also considering reducing or eliminating airline subsidies, thereby putting the survival of their own domestic airlines in jeopardy.

In Germany, IBM recently announced that they were considering eliminating thousands of jobs in that country in order to curtail excessive costs and increase net earnings.

In America, AMR (American Airlines' parent company) just announced they were planning to cut about 13,000 workers - about 17% of their workforce - in order to become more competitive. 

In Canada, the government reported that Canada's Unemployment Rate has just risen to the highest level in nine months and Canadian Factory Output declined in January.

Worldwide, the Baltic Dry Index, which measures international shipping rates, just fell to its lowest level in twenty-five years due to a combination of increased shipping capacity combined with slowing business development. 

And, as previously reported on these pages, several European economies continue to falter and unemployment is rising rapidly in critical nations such as Greece, Spain and Portugal, thereby raising government expenditures at the very same time government revenues are declining.

So, while the 'jobs' picture in America does look somewhat brighter thanks to this morning's report, many serious economic questions remain in play and we believe a high level of economic stimulation - probably including additional increments of fiat money creation - will continue into the foreseeable future.

Our world of precious and base metals mining was in the news recently and we note two interesting articles of late; one with positive implications for mining and one somewhat negative.

On the positive side, Canada's National Post recently reported that a judge in the Yukon Territory ruled, "...Canada's First Nations cannot impose a modern notion of legal rights onto promises of the distant past to force land claims settlements...declaring a 141-year-old government promise is not legally binding on Ottawa because it was absurd to contemplate at the time that natives could sue the government over such things."

It is important to understand that the legal agreement involves about three-quarters of the entire Canadian land mass.  It dates back to 1870 when the Hudson's Bay Company ceded the entire area known as Rupert's Land to the government of Canada.  At that time, the government, led by Prime Minister John A. MacDonald declared, "...Upon the transference of the properties in question to the Canadian government, the claims of the Indian tribes to compensation for lands required for purposes of settlement will be considered and settled in conformity with the equitable principles which have uniformly governed the British Crown in dealings with the aboriginals."

It is that wording which was under dispute in a battle between the Ross River Dena tribe and Ottawa, with the native tribe claiming it was binding on today's government.  The judge's ruling declared that it was not, particularly when interpreted within the statement's historical context.

The implications for the mining world could be important if lawyers are able to show that it undermines some of the more specious claims put forward by aboriginals through the years.

The judge, however, did acknowledge that his ruling was only "the first phase of the trial in this matter' and was likely to be appealed.

We plan to report as this legal matter works its way through the court systems.

The other article relates to the South American country of Paraguay, a country which officially has been welcoming to the mining industry.  Unfortunately, as reported by the American Press, the government's policies have not altered human behaviour and one mining company, Latin American Minerals Inc., has just announced they were closing their Paraguayan gold mine project because, "...local gold-diggers and thieves invading and damaging the property have made it too dangerous to continue..."

On a personal level, I had the opportunity to visit Paraguay last year and was favourably impressed with the government's efforts to modernize the country and to attract new industrial investments, including mining.  Unfortunately, it appears people in the 'back country' have yet to get the message.

This article underscores the concept that special risks still exist while conducting mining exploration and production work in distant foreign lands.

As of 9:30 AM PST, financial markets are still higher thanks to the jobs report with the Dow Industrials ahead by about 150 points while Canada's TSX Index has gained only 30, perhaps held back by weak performance in the precious metals.  Gold has fallen by about $20 to near $1,740 while silver is off by about 50 cents to just under $33.90.  Base metals are stronger across the board while mining share indexes are slightly lower on balance.

In other markets, long term interest rates are up this morning by a sharp .13%, but, as the above chart clearly shows, they remain inside a very tight trading range of approximately 2.85% to 3.2% which has held for several months.  Crude oil is trading quietly close to $97 per barrel while the US Dollar is moderately stronger in currency markets.

All quotes US$ unless otherwise noted.

Next Melman Minute scheduled for Monday, February 6, 2012