It has been said that there are "liars, damned liars and then statistics", meaning we should not put our trust in statistics alone, but should view such information with more than a slightly jaundiced eye.  However, in our experience, we occasionally run across statistical data with such stark implications that we do indeed sit up and take notice.

One such group of numbers has been provided to us by the Wall Street Journal this morning when they reviewed the growth of deficit spending and the equally enormous growth in budgetary deficits during the past four years - years which happen to be the time since Barak Obama was elected President. 

The sheer numbers, as provided by the government's own Congressional Budget Office (CBO), are overwhelming.  Citing the CBO's numbers, the WSJ editors wrote, "...annual spending over the Obama era climbed to a projected $3.6 trillion this fiscal year from 2.98 trillion in fiscal 2008, or more than 20%.  The government spending burden has averaged 24% of GDP, up from an average of 20%."  Their editorial then points out that the deficits of the past four years, as a percentage of GDP, have been the highest since 1946 when America was still in the throes of financing WWII and bringing home millions of soldiers following the end of that struggle.

One of the controversial items in the editorial tells us that revenues "have been in the tank for five years."  In our view, Republicans claim this is so because of the failures of the Obama policies.  Democrats claim it is so because of the mess handed over to them at the beginning of 2009, a mess created by the previous Republican George W. Bush Administration.

CBO believes it is possible for the government to begin receiving additional revenues if tax reductions now in effect are eliminated and taxes rise for tens of millions, not just the "millionaires and billionaires", but that concept runs into trouble when applied to the real world as we have seen in both Greece and Spain where austerity measures of any sort are immediately followed by reductions in economic activity which actually reduce government revenues thereby exacerbating the problems associated with balancing national budgets.

At The Melman Report, we believe it is this quandary and the uncertainties involved in the search to find a realistic remedy to four generations of government over-spending that is the central cause of the decade-long bull markets in precious metals.  Until some believable, sustainable and realistic solution is found, it is our opinion that the favourable background for further rallies in gold, silver, platinum and palladium will continue.

Despite other disagreements, most economic observers assert that one real remedy for what is ailing America's - and other national economies - would be a powerful recovery in important real estate markets.  Such recoveries would throw off new increments of individual wealth, would restore borrowing equity and any housing recovery involving accelerating new home construction would provide huge gains in employment for the construction industry and all its associated trades and supplying companies.

Unfortunately, such a robust recovery appears to be unlikely to occur at any time in the near future as illustrated by a headline to a Reuter's news story which read, "Home prices drop more than expected: S&P."  According to the article, "...The S&P Case-Shiller composite index of 20 metropolitan areas for November declined 0.7% on a seasonally adjusted basis, a bigger drop than the 0.5% economists had expected."

David Blitzer, chairman of the index committee at S&P declared, "...The trend is down and there are few, if any, signs in the number that a turning point is close at hand."  In fact, the article pointed out that the rate of decline in year-over-year comparative data is steepening, not abating.

Thanks to continually declining real estate prices, one of the past stimulations to economic activity has been missing.  During the years of bullish real estate action from the late 1980s through 2007, enormous growth in real estate equity provided the basis for many individuals to launch their own businesses with money borrowed against the rising value of their homes, thereby stimulating employment as well as adding directly to total levels of economic activity.

Thanks to the reality that many homeowners have little to no equity in their residences, for many homeowners such borrowing is no longer possible, removing an important engine of new business formation.

Speaking of gold, we are frankly surprised - but pleased - by the yellow metal's performance during the early part of 2012 and gold has just passed a technical milestone, suggesting that the recent fall-early winter correction in the price of gold and silver in particular may be over.

Please note recent important levels in the price of gold over the latter half of 2011 and during the early part of this year.  Gold reached its highest price ever in early September at about $1,930 and then sold off sharply, rallied strongly, but then sold off again to a relative low of about $1,520 near the end of December, giving us a drop of approximately $410 from top to bottom of the movement.

One 'technical' concept suggests that markets can rally by 50% after a selling wave and still retain an overall bearish stance if the selling then resumes.  However, if a recovery rally continues beyond the 50% retracement figure, the suggestion then is made that the markets have moved to a more bullish stance.  With that in mind, please note that a 50% recovery would place gold near $1,725, but, as of this morning, gold's price has just broken above $1,750, suggesting that a trend back to a more bullish configuration may indeed be underway.

Therefore, it is particularly important to watch the precious metals closely over the next several weeks and allow the market itself to provide information regarding the strength - or lack of it - relating to this new and, so far in 2012, powerful move to higher prices.       

(Please note our continuing caution that no investments should be made without prior consultation with a registered investment professional.)

As of 9:30 AM PST, financial markets are rallying once again on 'favourable news' out of Europe with the Dow Industrials ahead by about 140 points while Canada's TSX Index has gained more than 60.  Precious metals are sharply higher with gold just below the $1,750 mark while silver has returned to near $34 per ounce.  Base metals are moderately higher while mining share indexes are slightly disappointing, having barely moved despite relatively good news from the metals themselves.

In other markets, the US Dollar Index has fallen to below 79, long term interest rates are slightly higher and the price of crude is presently close to unchanged, just below $99 per barrel.

All quotes US$ unless otherwise noted.

Next Melman Minute is scheduled for Friday, February 3, 2012 when we will have a fresh, new U.S. Department of Labor 'jobs report' to digest.