A Melman Minute
| By | Leonard Melman |
|---|
After facing some of the most adverse travel conditions I have ever encountered, it is a distinct pleasure to have returned to the welcoming confines of my writing studio on beautiful Vancouver Island. While presenting at this year's giant PDAC conventions and meeting with many attendees to discuss the state of our world is always a pleasure, I cannot offer the same sentiments regarding avalanches, mudslides, incompetent railroad personnel and horrifyingly uncaring border agents.
By the way, I must apologize for not preparing a "Melman Minute" as promised for this past Friday. I was simply trapped on an Amtrak train - operating many hours behind schedule - in a remote area without any WiFi connection. I have always enjoyed train travel, but service has become so unreliable in both Canada and the USA that I fear I have no choice but to return to the cold and uncaring arms of government-regulation-infested air travel, which is at least somewhat reliable.
What a choice!
OUR GENERAL OPERATING PHILOSOPHY AND THE PRESENT OUTLOOK
In simple terms, I believe that the generally optimistic outlook propounded and publicized by governments with enormous self-interest in presenting this concept is flawed. At The Melman Report, we believe that the situation is nowhere near as rosy as has been argued and that serious problems will soon become apparent - and when these problems become so evident that they cannot be ignored, governments will respond to difficulties in the same manner which earned past Fed Chairman Bernanke his nickname of "Helicopter Ben", namely by printing money in any quantity required and distributing that money quickly to the general public, even dropping bountiful amounts of printed paper from airplanes - or helicopters - as necessary to scrape by from minute to minute.
One advantage of train travel is that there is abundant time to meet with people in lounge or dining cars and to engage in conversations. From this point of view, during my eight days of train travel across America, I found few evidences of contentment with the direction of American society - and a multitude of complaints. People are still having difficulties finding quality jobs; reasonable cost quality housing and it even seemed that satisfaction with life in general has become rather elusive.
After reviewing many of our charts and sources of fundamental data, it is also apparent that some potentially unsettling action is taking place in important markets.
Perhaps the most obvious example is the chart of copper, or "Dr. Copper" as it is widely known due to its almost universal usage in a multitude of industrial categories. Please note that after months of holding above chart support in the $3.15 to $3.20 zone, copper suddenly plunged to below the $3.00 level before recovering slightly this morning to near $3.05.
This is strange action indeed if we are truly on the verge of sustained worldwide economic growth - which is the preferred 'story' now being trumpeted by many governments.
By the way, it is not just copper which is declining, but quotes on aluminum, zinc and other industrial commodities which are also sharply lower during the past 12 months.
Another of our closely-watched indicators is the Shanghai Composite Stock Index. If the continuing stories regarding China's relentless - if somewhat unsteady - march toward high rates of economic growth are true, then it becomes difficult indeed to explain away the lagging performance of the Shanghai Composite which is now once again under the 2,000 level following sharp overnight selling.
This poor chart performance is apparently justified, considering the news release that China's exports had unexpectedly declined by 18% year-over-year in February. Since exports have been a major component of Chinese growth during the past couple of decades, this could be troubling news indeed, possibly suggesting weakening worldwide economic activity, leading to further significant drop in demand for China's merchandise.
However, to be fair, we must also point out that the Standard & Poor's widely-followed "S&P 500 Index" continues to advance and has just recently set new all-time highs.
There are other indicators that future growth could be suspect. America's jobs report for February showed a growth of 175,000 for the month, an improvement over the past few months, but still tepid indeed for the fifth year of an economic recovery. Canada's job performance is relatively worse while other factors such as air travel bookings are showing weakness.
All in all, from our point of view the recovery - such as it is - is at risk once again and it will be most interesting to watch government comments and actual reactions should a truly worrisome situation develop - particularly in an important election year.
UKRAINE, CRIMEA AND RUSSIA
Clearly, the most important international concern of the past two weeks has been the developing crisis over the Ukraine including Russia's military occupation of parts of the Crimean Peninsula located on the Black Sea coast.
While Russia's Putin has explained away his country's actions by claiming they were designed only to protect Russia's interests and citizens, the rest of the world has been demanding the return of all Russian military forces back to within their own borders.
However, the fact of the matter is that these demands appear to be 'toothless' in nature and the spotlight is clearly focused on America's President Obama and Secretary of State Kerry to see whether there is any reason to believe that their 'sort of' strong words of 'sort of' condemnation are to be backed up by real force - or whether their words are simply empty bluster.
From an international mining point of view, there are several major Canadian mining companies currently involved in exploratory and development operations in various parts of the former Soviet Union and if the West does indeed retaliate against Russia for this incursion, questions can be raised regarding the legal rights of the companies to continue their work.
From the point of view of the precious metals, it seems clear that if open military hostilities do take place, there would likely be at least a short-term a surge in precious metals prices.
The situation bears watching.
As of 8:30 AM PDT, financial markets in Canada and the USA have improved somewhat from lower early-morning levels with the TSX Index now off by about 15 points while the Dow Industrials are off by more than 60. Precious metals are slightly higher with gold ahead by $4 to $1,343 while silver is ahead by a few pennies to near $20.90 per ounce. Base metals are slightly lower on balance and mining share indexes are generally little changed.
In other markets, the US Dollar Index is up by 8 basis points to 79.81; Crude Oil is down by $1.36 to $101.23 per barrel and the TYX Index of rates on US Treasury 30-year bonds is continuing its recent rally by gaining 4 basis points to 3.726%.
All quotes US$ unless otherwise indicated.
Next Melman Minute scheduled for Wednesday, March 12, 2014