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!"   February 15, 2010 With major markets in both Canada and the USA closed for various holidays, it gives us an opportunity to concentrate on news which is less dependent on short term market moves and more reliant on long term considerations.  Two come to mind. First, the Greece-Germany-Euro fiasco continues to grow in importance with each passing day and the past weekend certainly added to the growing level of concern among the general public.  However, it is most interesting to note that the public reaction is diametrically different in Germany than it is in Greece. Few nations have been scarred as deeply by their monetary history as has been the case with Germany.  Following their defeat in World War I and the subsequent enactment of the Treaty of Versailles, the German economy ran into serious trouble.  Rather than hold to historic principles and sound currency, the leaders of that time, namely 1920-3, resorted to the printing press in order to 'create' sufficient currency to maintain at least the aura of prosperity.  It didn't work and the value of the German Mark began to plunge, eventually bringing about the hyperinflationary catastrophe of 1923, a catastrophe which destroyed monetary values, ruined the middle class and spread despair and panic throughout the country. This, of course, provided a fertile ground for revolution and it was the Nazi Party under Adolph Hitler which emerged triumphant and this eventually led to racial persecution, World War II and indelible damage to the German reputation once the horrors of that struggle became known.  And so, to this day, any hint that German leadership was taking action which could lead to a new episode of hyperinflation is met with stony resistance by the German public - and that is now the case. As word of a potential German-backed 'rescue' plan for Greece emerged late last week, the German public became aroused against any such measures and a new poll taken by the newspaper "Bild am Sonntag" just published this morning shows that fully two-thirds of the German public did not want Germany or any other EU country to provide Greece with credits.  It is also noteworthy that more than half of those responding demanded that Greece be expelled from the European Union unless they could resolve their debt problems on their own. In the other direction, the Times of London reported this morning that the Greek government was rejecting demands from the EU that it take further austerity measures than those already recommended.  Instead, Greek Finance Minister George Papconstantinou called on the EU to enlarge their support for his troubled nation. Part of the problem for the government in Athens is that the measures already announced, such as freezes on government wages and reduction in some government programs has already encountered vigorous resistance from the public service unions who are calling for a 24-hour strike to express their unhappiness. From our point of view, the most important single feature of the entire Eurocurrency crisis lies at the heart of the entire monetary debate.  On one hand are those, such as the German public, who instinctively want limited government expenditures combined with productivity increases to resolve the situation.  On the other hand, there is the army of Keynesian economists who favor added stimulation and currency creation as the means to protect and inspire the public. In fact, the lead editorial in today's Times of London pointed the finger of blame at Germany, rather than Greece, as the source of the problem.  According to their reasoning, the Greek economy is dependent upon German tourism and German purchases of Greek products.  Therefore they concluded, "...if Germany was to stimulate domestic demand, then that would help Europe's economy to recover."  And so, as of this moment, the situation is unresolved and investors are awaiting the reopening of full currency trading tomorrow morning when American and Canadian exchanges swing back into action. On a different note, one of the warnings we have been issuing regarding resource development companies trusting foreign governments is back in the forefront once again.  In this particular case, it is the oil industry that is facing punitive action from the government of Kazakhstan in the form of broken contracts plus increasing taxation and royalty payments.  It has long been our position that many countries actively welcome foreign capital coming into their nation to develop their resources, but turn unfriendly when the time comes for those companies to begin profitable production. In the present case, the Kazakh President, Nursultan Nazarbayev, voided long-standing production sharing agreements (PSA) with oil companies, agreements which had called for taxation immunity and which had been inserted in order to encourage expenditures by foreigners to develop Kazakhstan's petroleum industry.  Quite suddenly, they have declared that such agreements are flawed and the companies involved are subject to the increased taxation measures enacted in January, 2009. We continue to suggest that there is an inherent risk for any company which contemplates large developmental expenditures within countries which do not have a strong history of independent courts which objectively enforce the sanctity of contract law. One last piece of "old business" is worth discussing.  Not unexpectedly, President Obama signed the February 12 bill from Congress which authorized a legal increase in the National Debt Limit of the USA from $12.4 trillion to an astonishing $14.3 trillion.  At the anticipated rate of budgetary deficits during the coming year, this increase is projected to last barely one full year before another Limit increase is called for.  Such is the status of what passes for financial stability in the United States.  It appears to us that all of these stories would appear to add to the growing level of financial risk and, therefore, should ultimately accrue to the benefit of the monetary precious metals and, in limited electronic trading, gold is rallying strongly this morning, having just passed above the $1,100.00 mark.  In other markets, silver and platinum are close to unchanged while the base metals are sharply higher.  Crude oil and the currency markets are trading quietly.  Many commentators have looked at the recent gold decline which saw prices fall by almost $200 per ounce as the onset of a new golden Bear market.  However, we ask readers to note that on the multi-year chart, the recent decline have so far failed to dent the long-term bullish appearance of this chart. - - - - - All quotes US$ unless otherwise noted. Next "Melman Minute" scheduled for Wednesday, February 17, 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.