A Melman Minute — January 27, 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."

Please accept our apologies for not posting a "Melman Minute" yesterday, January 26. However, we were busy preparing and presenting our workshop entitled "On the Road to Hyperinflation???" at the just-concluded Cambridge House Vancouver Conference. We are pleased to report that the presentation was well-received in front of a "standing-room-only" audience and we plan to post a synopsis of the presentation on this site in the next couple of days.

While the financial markets continue to 'tread water', as it were, the avalanche of negative economic news continues to present an ever-gloomier overall picture. Here are some of the recent categories which have received particular attention over the weekend and yesterday.

* - Job loss announcements have become commonplace and continue to point to worsening unemployment rates down the road. In America, the following roster of companies have all reported recent planned job cuts, in addition to those previously announced:

Pfizer Inc. - 8,000 jobs

Sprint Nextel Corp. - 8,000 jobs

Home Depot - 7,000 jobs

General Motors - 2,000 jobs

Caterpillar - 5,000 jobs

Texas Instruments - 3,400 jobs

Schlumberger - 5,000 jobs

Microsoft - 5,000 jobs

Intel - 6,000 jobs

United Airlines - 1,000 jobs

We highlighted Microsoft in particular, since for many years that ever-expanding company had become the epitome of the American version of 'lifetime job security', but apparently that may no longer be the case.

* - American, Canadian and other international retirees are now faced with a devastating reality in the form of dividend cuts from a multitude of companies, many of whom had paid consistently rising dividend payouts for decade after decade. In a recent study by AP financial writer Rachel Beck, it was reported that, "...Dividends are being cut at the fastest pace in at least 50 years, and many of the reductions are coming from U.S. companies investors have been relying on to provide income..."

In our judgment, no segment is being hit harder that the retirement community, since dividend income is a major component of the financial structure for many of them.

One company illustrates the point. Dow Chemical was forced to acknowledge that they were indeed considering a dividend cut, which would be their first in 97 years. During that lengthy time, including the Great Depression and two World Wars, shareholders had seen their dividends either hold steady or increase. Unfortunately, the price of their shares has been falling steeply of late, making it more difficult to raise equity capital, and corporate management has decided that preserving cash is now a major goal.

* - Consumer Confidence numbers have just smashed to another historic low in the U.S. The monthly reading for the Conference Board Consumer Confidence Index for January fell to 37.7, the lowest ever recorded on this index which dates back to 1967. The ratio of those expecting fewer jobs in the months ahead versus those expecting a greater number is more than four to one. That degree of pessimism has not been seen in many years.

What is somewhat surprising about the Conference Board numbers is that their survey reflects no genuine optimism about the incoming Obama Administration, despite the high early personal approval ratings the new President has been receiving.

* - Home prices in the U.S. continue their relentless decline. The November figures for the Case/Shiller Index of real estate prices in 20 metropolitan areas reflected the largest annual decline in the Index's history, a drop of 18.2% year-over-year. Both the 10 city and 20 city indexes have declined for twenty-three consecutive months and the 20-city index is now down 25.2% since the July, 2006 peak.

It is also worth noting that falling real estate prices are hardly a U.S. phenomenon alone, but rather we are seeing recent declines for residential real estate to one degree or another in Canada, the U.K., Spain, Germany, France and a host of other nations.

Financial markets this morning are relatively quiet as investors try to balance their interpretations of the horrendous current data compared to the potentially positive effect of immense government stimulation, both that which has taken place and the plans for massive additional amounts. As of 9:30 AM, the Dow Industrials were up by about 80 points and the TSX was 70 higher. Precious metals markets were trading quietly for the post part with gold and platinum slightly lower, close to $900 and $950 respectively, and silver was a bit higher, trading slightly above $12.00. However, the base metals are selling off quite strongly, most likely in reaction to the negative data noted above.

Crude oil is down about $2.50 per barrel, selling just above $43.00 while the U.S. dollar is close to unchanged in currency markets. (all quotes U.S. dollars)

We will be back on our recent schedule the remainder of this week.

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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