A Melman Minute — March 2, 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.

Despite their best effort, observers here at the world's largest annual mining convention, PDAC 2009, simply cannot ignore the growing turmoil in the world's financial communities. Stock markets are falling, government bailouts are coming fast and furious, industrial production is declining and, to use Jimmy Carter's overworked phrase, a "sense of malaise' seems to be spreading far and wide.

As of 8:15 AM PST, North American markets were following after their Asian and European brothers which fell sharply overnight, as the Tokyo exchange was down by 288 points (almost four percent) and most European exchanges were also off by similar percentage amounts. The Dow is now down about 200 points and the debacle is even worse in Canada, with the TSX off by about 420 points. Precious metals are somewhat lower and the mining share indexes are being hit particularly hard, down by 6 to 7 percent.

The figures for the Dow Industrials are now the lowest in 12 years.

One area of America's economic society which appears to be particularly hard hit is the world of transportation. As export/import trade with China, Japan and South Korea has contracted, so has the world of rail transportation. In an example of one picture being worth 1,000 words, one of our readers in California e-mailed us a photo of a section of track east of Los Angeles where a line of idled locomotives are now being stored. The line runs an incredible 1.7 miles. This coincides well with a figure recentlypublished in the Wall Street Journal that noted more than 200,000 boxcars now sit idled and abandoned along the nation's railroad tracks.

All of this is reflected in the Dow Jones Transportation Average which has been plunging relentlessly for some months. This has ominous connotations for those who believe in one of the stock market's oldest strategy indicators, the "Dow Theory". According to that theory, the Dow Industrials should move in tandem with the Transports in order for one index to confirm the primary direction of the other, which makes some logical sense. If the nation's corporations are prospering, it also seems logical that the transportation of goods and people would also be at a high level. When the Dow Industrials are declining, then it also makes sense that there would be less income and profitability for the railroads, airlines and trucking companies. Well, we are now getting confirmation in spades as both averages head downward in unison.

It seems the world is being hit with an unending parade of negative news and this morning is no exception as the insurance giant, AIG, just reported the largest quarterly loss in world history, amounting to over $61 billion dollars. (all figures US$ unless otherwise noted.) The government immediately stepped in and said they were going to support AIG to the tune of $30, since an AIG bankruptcy would be too terrible to contemplate.

Another blow to hit the market was a report by Hong Kong based HSBC bank, whose shares were off by 20% this morning as they reported a deep loss as well as the fact that they were sharply reducing their consumer lending operations via layoffs at their subsidiaries, Household Finance (now Houshold International) and Beneficial Loan, and they also reported that 6,200 people will lose their jobs. Selling in HSBC shares also spread to other major banks, including B of A, Citigroup and Wells Fargo.

There are simply fewr and fewer places left to hide.

And what of the great hope for economi9c salvation, China? Unfortunately, the situation in China is declining with stunning rapidity and the government there appears to be rushing headlong into massive stimulation programs of their own. Calls are being heard to 'invest' more in their own population and a Wall Street Journal article this AM suggested that, "...economists say Beijing needs to invest more in health care, education and social welfare so people have the confidence to spend, instead of adding to savings.

Speaking of health care, despite literally horrendous deficits already 'baked into the system' for the American government, it appears President Obama will be moving aggressively ahead with his program to dramatically increase the American government's inclusion of multitudes into some form of a nationalized health system.

No one wseems to even care to ask where the financing to fund such a dramatic increase will come from, given that America is already looiking at a $2 trillion dollar deficit for the present fiscal year and the U.S. national debt is now near $11 trillion and headed relentlessly higher.

There are few places to hide. Perhaps we will find some in time for tomorrow's Melman Minute.

As this is written, gold is trading near $932 spot, silver is at $12.84 and platinum is a bit lower at $1,067. Both widely-followed mining share indexes are sharply lower, down by about 7 percent each while the C$ is falling sharply, now under 78 cents U.S.

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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