A Melman Minute — January 15, 2008

Greetings from the beautiful town of Hawthorne, Nevada near the Walker Lane mining region of west-central Nevada. This could be one of the up-and-coming gold exploration and development regions in the USA with several juniors active in the area. I always find it a pleasure to meet with miners who use their skills and knowledge to create the mines that serve society so well.

Securities markets this morning once again reversed strong rallies of the previous day. After rising over 170 points yesterday, the Dow Industrials have plunged over 220 points in the first ninety minutes of trading this morning as one major financial house after another reported huge loss set-asides as well as lower earnings. The Dow is now nearing the important support area of 12,000 to 12,400 and if it breaks below those levels, a dramatic sell-off could ensue as some lingering optimists finally throw in the towel.

In the meantime, gold continues its historic run, reaching spot $914 overnight and trading near US$910 at this moment. Currency markets are relatively quiet, oil is about $2.00 lower and the other metals have traded in a fairly narrow range. (all figures US$)

A story in the San Francisco Chronicle highlighted what might be another area with the capacity to make a huge impact on the public psyche. California is facing an immense budgetary crisis, one which they had hoped was resolved about four years ago when then newly-elected Governor Schwartzenegger put together a package to 'solve' the immense problems the Golden State was then facing.

Unfortunately, two factors have combined to create the new shortfall of $14,000,000,000 this year. First, the state legislature has continued to pass vast numbers of spending programs which have created an annual rate of expenditure growth of 7%. Next, the dramatic reduction in both real estate prices and real estate activitiy has sharply diminished state revenues.

The Chronicle story related to the fact that the governor was planning to cut programs by a full 10% across the board and the howls of indignation and anguish immediately began to appear as advocates came out of the woodwork to plead that their favourite programs not be cut. Time is running short, California law requires a settlement and various forces remain at loggerheads with each other.

The reduced government revenue aspect of the real estate crisis could become very important in coming months and years. For example, in my home province of British Columbia, the provincial government smashes home buyers with a "transfer tax" which amounts to an average of C$23,000 per sale. It can easily be seen that, if the B.C. real estate market were to encounter the same kind of difficulties as, say, California, the reduction in provincial revenues could become acute.

And so it goes. We can easily foresee a period of time when the next array of troublesome reports that the public hears will come from governments which are no longer able to afford the complete array of public services now offered.

When that day arrives, the public outcry could become severe indeed - and politicians of every stripe will be crying for the federal government to do even more so resolve the growing crises.

That is very much a part of the overall scenario that we are looking for.

Must rush to attend some meetings, but will be back home with a full MM tomorrow morning.

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.

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