A Melman Minute — January 21, 2009

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NOTE: In order to complete Mr. Melman's forthcoming book on the essential fundamentals of gold and silver, new "Melman Minutes" will be posted only three times per week, each Monday, Wednesday and Friday until about mid-January 2009. The working title of the book will be 'Eight Pillars of Gold."

NOTE TO READERS: You are invited to attend the Cambridge House gathering at the Vancouver Convention Center where an array of presenters, including your editor, will be offering their comments on the investment world, particularly as it applies to mining and metals. Free Pre-registration is available at www.cambridgehouse.com. Look forward to seeing you there! LMM

Welcome to the Presidency of Barak Hussein Obama, 44th President of the United States, a title he officially adopted as of noon yesterday, EST. His inauguration ceremony was witnessed by tremendous throngs, estimated variously at two to three million people, and emotional support ran at fever pitch.

That was the show but now comes the reality he must face. Obama is challenged to find the means to deal with a world of economic uncertainty, military danger and a roster of monumental expectations from his faithful supporters that is little short of ridiculous. He is being counted upon to stabilize the economy, create huge numbers of jobs, secure worldwide peace and enhance the living standards of tens of millions - all the while saving additional millions from having their mortgages foreclosed.

While his rabid supporters could not even comprehend the possibility that he might actually fail to achieve these objectives, financial markets around the world were somewhat less sanguine, as yesterday the Dow Industrials fell by 332 points, Toronto's TSX fell by 337; and other exchanges from Mexico to Brazil to Europe and Asia all declined on his Inauguration Day. Not only that, but gold soared and long term bonds fell sharply, both of which could be easily interpreted as votes of non-confidence in the outlook for financial and currency stability in the coming weeks, months and perhaps years.

Of course, it will take sufficient time for us to gauge the tenor of Obama's actions and their efficacy before any valid opinion can be offered regarding the correctness of his policies and decisions, but it is interesting indeed that on the day of his election victory, the Dow Industrials stood at 9,700+ while on the day of his inauguration, they closed at 7,900+.

Somehow, while Obama has mentioned a vast number of areas which could see dramatic supportive actions such as banks, auto companies, savings & loan associations, mutual funds, insurance companies and state and municipal governments - just to name a few - one area of business and commerce which he has NEVER publicly discussed is support for the mining industry. If he is going to favor all of those other recipients with his largesse, he should certainly also consider worldwide mining, for it is in dire trouble in many locations.

A study just published by the Associated Press illustrates just how difficult the situation has become in many areas, not excluding the USA. According to AP, "Withering cuts across the mining industry have left tens of thousands of people without jobs from the Arizona desert to the Andes - and there is a litany of evidence that the situation is getting worse." The article informs us further that projects have been postponed or canceled outright, and formerly productive mines have been padlocked and all the workers dismissed.

For example, we learn that many copper mines have swiftly shut down due to declining prices, so rapidly that some have been leaving accumulated copper ore piling up underground. BHP Billiton just shut down its Australian nickel mines. Rio Tinto was reducing production in both its iron ore and aluminum operations. Andrew Martyn, portfolio manager for Toronto-based David-Rea Ltd., was quoted as saying, "...Expect inventories to get bigger and expect this continuing process of cutbacks...It's going to go for quite some time here."

Even coal companies, "...have slowed production from Wyoming to Australia" and job cuts are likely in such areas as Tennessee and Montana, regions where coal demand was thought to be so high that job cuts were certain to be a thing of the past.

One country which is being impacted with particular severity is Bolivia, led by socialist President Evo Morales. Their mining work force near the small cities of Potosi and Oruro peaked recently near 25,000 - but, by various estimates, that work force has now been cut in half, leaving the area in a desperate situation. Apex Silver Mines, owners of Bolivia's largest mine, the San Cristobal, has just filed for bankruptcy protection. Glencore's Bolivian subsidiary just announced it will lay off several hundred workers. Perhaps Morales is getting the message that the mining industry is valuable, and should be supported - rather than milked for every penalty that can be extracted.

Will Obama in the USA or Harper in Canada offer any genuine support in money or easing of regulatory interference and obstruction? We can always hope.

One industry that continues to be slammed is international banking and among those giants, it is difficult to think of a more prestigious company than Lloyd's Bank PLC, which was founded in 1765, two hundred forty-four years ago! One look at their price chart shows the horrendous damage done to shareholders over the past two years as the shared have plunged from near $50 to below THREE! (All quotes US$ unless otherwise noted.) One can only imagine the horror being inflicted as shareholders watch the value of their assets plummet in what once might have been regarded as one of the world's safest investments.

Markets in North America rebounded moderately this morning following yesterday's heavy selling with the Dow opening up about 120 points by 7:00 AM PST while Canada's TSX was held back by lower base metals prices and was ahead by only 20. Precious metals were mixed with gold down about $6 and platinum off by $9, but silver was head by 12 cents to near $11.30. Both major mining share indexes were close to unchanged, crude oil was steady near $41 per barrel and the US$ was slightly lower in currency trading.

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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