A Melman Minute
| By | Leonard Melman |
|---|
NOTE: It has been a distinct honour to have received an invitation to address the Financial Conference at the giant PDAC convention, the world's largest annual mining gathering, scheduled for March 2-5 in Toronto. My time slot is set for 9:30 AM, Sunday, March 2. We certainly invite all convention attendees or other readers residing in the Greater Toronto Area (GTA) to attend.
One look at two immediate market reactions to the President's State of the Union (SOTU) address of last night should tell us that, based on their initial reactions, there are some rather unhappy people out there. First, the Dow Industrials futures plunged steeply right at the opening, dropping by about 160 points in just a few minutes.
Second, gold turned sharply higher early in today's trading, gaining almost twenty dollars to just under $1,270.
Obviously, these trends could change dramatically throughout the trading day, but they do give us some basis to form an initial conclusion regarding the financial markets' evaluation of his speech.
For myself, it reminded me most of Yogi Berra's famous quote to the effect that, "Here we go, it's déjà vu all over again." It struck me that way because many of the major points Obama made had been addressed several times previously in his earlier SOTU speeches and his two Inaugural Addresses.
STATE OF THE UNION ADDRESS
One personal impression of the President's speech was that it reminded me of a scene from the movie, "Schindler's List." Oscar Schindler is sitting in the driver's seat of his car and two wealthy ghetto Jews are in the back seat. Schindler is asking them for money so he can buy an enamelware factory. They ask him, "If we put up all the money, what do you contribute?" His answer was that he would provide the sales presentation, the 'panache', the 'pizzazz'.
In a similar vein, I believe last night's speech was high on style, but low on substance.
Andra Rush, auto parts entrepreneur
Misty DeMars, mother, losing unemployment benefits
Estiven Rodriguez, immigrant who benefitted from school system
John Serrano, "Punch Pizza" owner in Minneapolis
Nick Chute, his employee - both celebrating John's increasing employees' wages.
Amanda Shelley, benefitting from ObamaCare
Kentucky Governor Steve Beshear, supporter of government medical insurance
And, most emotionally (and successfully),
Cory Remsburg, an Army Ranger recovering from terrifying injuries suffered in combat.
The "déjà vu" comment referred to earlier relates to the fact that we have heard many of the President's most important themes before. These include simplification of the tax code; streamlining of bureaucracy; helping business avoid costly and time-consuming litigation; offsetting the implications of "climate change"; reforming America's job-training programs to make them more effective; adding to unemployment benefits; guaranteeing women 'equal pay for equal work' and also guaranteeing "every child access to a world-class education."
In addition, we also heard more statements to the effect that it is government that should be the primary force in improving American life - which to me implies a continuation of present government programs plus the addition of new ones and he called several times for initiatives which implied new laws and regulations plus new spending.
One widely advance-publicized theme was that the President was going to throw down the gauntlet to Congress and if they didn't act in the manner he believed correct, he would become his own man and enact laws by Presidential fiat. However, the only example of a specific recommendation was an increase in government contractors' minimum wages to $10.10 per hour.
I'll close with three additional observations. First, he spoke an apparent contradiction when he initially said "...we've put Al Qaeda's core leadership on a path to defeat..", but then immediately followed that statement with this one: "...the threat has evolved as Al Qaeda affiliates and other extremists take root in different parts of the world...in Yemen, Somalia, Iraq, Mali..."
Second, he made the following statement that should put mining and other resource development executives on edge, "...I'll use my authority to protect more of our pristine federal lands for future generations."
All in all, it was difficult for me to find any indications that while he remains President, there will be any dramatic shifts away from appeals to the core Democratic voting constituencies such as women, minorities, civil service unions and recipients of government benefits. Therefore, it would appear that America will remain on a business-as-usual basis for the next three years - with the caveat that this supposition could be altered if the November elections result in a dramatic shift in the balance of US political power.
TWO NEGATIVE ECONOMIC REPORTS
One of the most important questions in our evaluations is the state of the world's economy, particularly prospects for both America and China. These notes deal with America.
Our general thought is that gold, silver and the base metals should benefit if the American economy expands with sufficient strength to drive inflation higher. However, should that economy begin to contract, while base metals might suffer somewhat, the monetary stimulation necessary to 'correct' that decline could be a potent factor in sending investors toward the monetary metals.
(More on that topic in our discussion of Dr. Pick's notes, originally scheduled for today, but re-scheduled for Friday.)
With that in mind, we note three negative economic reports released so far during January. First came the dismal December job creation figures which we have previously reviewed. Now, during the past two days, we have also learned that US Home Sales dropped sharply - and unexpectedly - during December, falling by 7.0% to a seasonally adjusted rate of 414,000 sales, down from November's 445,000. Next, U.S. Durable Goods Orders for December dropped by a sharp 4.1%, a far worse performance than the general economists' forecast that the figure would GAIN 1.5%.
Taken together, all three seem to suggest that reasonable questions are being raised about the strength and durability of any American economic expansion. The situation bears close watching.
As of 8:40 AM PST, financial markets in Canada and the USA remain lower, but early losses have moderated with the Dow Industrials now down by about 80 points while the TSX Index is off by about 55. Precious metals remain higher with gold now up $13 to about $1,265 while silver has gained 17 cents to $19.68 per ounce. Base metals are slightly lower on balance while mining share indexes have advanced by about 1.5%.
In other markets, the US$ Index remains close to unchanged at 80.65; Crude Oil is down by 33 cents to $97.08 per barrel and the TYX Index of rates on US Treasury 30-year bonds is down by 13 basis points to 3.659%.
All quotes US$ unless otherwise indicated.
Next "Melman Minute" scheduled for Friday, January 31 when we will take on the topic of Dr. Franz Pick's notes regarding the IMF auctions of the late 1970s and their possible relevance to present-day Fed actions.