A Melman Minute — February 23, 2009

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NOTE: In order to complete Mr. Melman's forthcoming book on the essential fundamentals of the developing international financial crisis and its relationship to gold and silver, new "Melman Minutes" will be posted only three times per week, each Monday, Wednesday and Friday until about mid-March 2009. The working title of the book will be 'Just a Melman Minute!"

NOTE: Due to travel commitments which will keep us out of computer range for a few days, our revised "Melman Minute" schedule for the next two weeks will be today and Tuesday this week and then Monday, Tuesday, Wednesday and Thursday next week, reporting from the giant PDAC Convention in Toronto.

A truly frightening trend is growing among the nations of the west, a trend toward massive new taxation. As governments stagger under the presumed necessity of raising mammoth funds to finance their stimulative programs and to support the growing numbers on some form of government relief, the need for revenue from every source is becoming apparent. California has just passed a new budget calling for enormous increases in several taxes including sales and auto licenses and now an even more ominous threat is emerging in Europe.

Bloomberg News Service, as quoted by the Daily Bell newsletter, has just reported on the threat to all manner of tax havens in countries of the European economic Union. We are informed that, "...European leaders said they will crack down on tax havens as they seek to boost transparency and apply uniform rules governing financial markets to stem the global crisis. A seven point plan agreed by European heads of state and governments from the "Group of 20" nations in Berlin today called for 'sanctions' against 'uncooperative jurisdictions'. 'We want to put a stop to tax havens,' French President Nicolas Sarcozy told reporters..." (our emphasis)

Not only are future tax shelters to be stopped, but we also wonder what will be the legal status of those already in effect. We at TMR also find the use of the words "sanctions against uncooperative nations" particularly threatening as they imply the use of government coercion on a large scale.

It appears to us that owners/managers of profitable industries, such as producing gold and silver mines, or pharmaceutical companies and many others, should consider the possibility that they might become the targets of government tax gatherers at some future time. In our opinion, the need for revenues to support grandiose government 'recovery' programs is becoming very acute, and, given the environmental opprobrium already attached to mining, industry leaders should be aware that their profits could make particularly inviting targets in terms of politics.

Three articles in particular should disabuse anyone of the notion that this is just another, ordinary recession that can be cured by a little government stimulation. We at TMR now regard this ever-deepening economic contraction as the culmination of seven decades of monetary folly devoted to the notion that non-value can take the place of value.

First, we have written several times about the plight of the aged as their retirement plans have been blasted into 'kingdom come' due to the staggering drops in asset values, the collapse of several mutual funds or pension programs, and the steep decline in yields available on stored funds. Many who anticipated comfortable retirement now find it necessary to return to work, but, according to a WSJ article this morning, for the most part, the only jobs now available for the elderly are minimum wage jobs in categories such as convenience stores or fast food eateries.

Individual stories quoted in the article range from retired persons who simply cannot live on Social Security alone, or others who must work to meet medical costs, but jobs for the elderly are hard to find and the unemployment rate among those 65 and older is already much higher than in past recessions.

Second, and this one invokes memories of scenes from the Great Depression, financial writer Alex Roth reports that, "...Tens of thousands of box-cars are sitting idle all over the country, parked indefinitely by railroads whose freight volumes have plummeted along with the economy." He also notes that idled boxcars are only part of the giant economic picture as, "...Ocean shipping companies have taken scores of ships out of service, anchoring them in or near ports around the world. The parking lots of trucking companies are clogged with trailers that in better times were rolling on highways...Railroads, which have seen their shipping volumes drop by double-digit percentages in recent months have put more than 30% of their boxcars - 206,000 in all - into storage..."

Perhaps the plight of the railroads accounts for the dismal performance of the Dow Jones Transportation Average which has been cut in half, down from near 5,200 in September 2008 to about 2,600 at this time.

Third, and in line with the reference directly above, the focus of securities markets has now passed from primarily financial corporations to the very heartland of the industrial world, namely manufacturers of basic consumer goods are now at the center of the recent severe market declines. Companies that have been solid, secure and prosperous for generations are now in trouble. We recently noted that GE had seen their stock drop by over 80 percent from top to recent lows and now another name, MMM, has fallen on hard times.

Financial markets opened modestly higher this morning in response to yet another bailout of Citigroup announced over the weekend. As of 7:00 AM PST, the Dow Industrials were up by about 10 points and the TSX Index by over 30. Precious metals were all lower with gold off about $7, silver down by 12 cents and platinum off by about $10. However, base metals were all higher with copper up 6 cents per pound, nickel by a nickel (no pun intended!) and both zinc and lead ahead by almost a full cent. Both Crude oil and the U.S. Dollar were close to unchanged. (all quotes US$)

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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