A Melman Minute — March 3, 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.

Markets are much quieter this morning following yesterday's dramatic declines, but what is noteworthy is that there has been virtually no bounce at all. Both Canadian and American markets are treading water just below 'unchanged' despite a natural tendency to 'pick up bargains' after sharp declines and also, as relates to Canada, there has been no positive reaction to the Bank of Canada's move to join the parade of nations heading toward "zero" short term interest rates.

We noted a few MM's ago that GE was looking weak and that this spelled trouble for the holders of GE's 10.5 billion shares and for those dependent upon the high dividend income that GE offered. Since that time, their chart shows clearly that further price deterioration is taking place. GE has cut their dividend and now word is surfacing that GE has loan exposure to Eastern Europe's failing economies and the stock continues to plunge. We are giving particular attention to GE because for years, it has represented the epitome of a successful giant American industrial complex. When such a company's shares lose over 80% of their value and when their dividend is sliced dramatically, we read that as additional proof that what we have been witnessing of late is no ordinary recession.

According to the Wall Street Journal, at last count GE had more than $26 billion (all quotes US$ unless otheerwise noted) of its financial assets at risk in Central and Eastern European nations, up from about $15 billion in 2005 and some estimates now place the total near $30 billion. That is an enormous amount of risk, and the stock market appears to be singlularly unimpressed with management decisions of that nature.

Despite this kind of information, many conversations we have had with the mining community during this important convention demonstarte almost blind optimism that the economies will surely snap back in short order, and upon this concept many companies are pledging to continue their present efforts when it might be a better strategy to conserrve capital for the time for a better time when there is actual improvement in economic data.

President Obama has been in office barely six weeks and yet there are already rumblings in important publications that the financial markets are not pleased with his performance to date. The numerical evidence is striking as, on the evening of his election, the Dow Industrials stood at 9,800 and this morning they are now close to 6,700 - a stunning drop of 3,100 points, or over 30% in just five months! In our opinion, that is hardly a vote of confidence.

As a WSJ editorial put it this morning, "...From punishing business to squandering scare national public resources, Team Obama is creating more uncertainty and less confidence- and thus a longer period of recession or subpar growth." Our own observation is that it will be natural for a while for the Obama Team to blame all economic misfortunes on the recently-departed Bush Administration, but after a while, that will begin to play thin. The country has high hopes and, as we have noted, many of his supporters have expected him to perform virtual economic miracles. Therefore, the stage is truly set for massive disillusionment if he fails to perform as expected.

Most importantly, the editorial noted a 'sea change' that has accompanied the Obama 'revolution'. When discussing the recent budget, this was their comment: "...The document was a declaration of hostitlity toward capitalists across the economy. Health-care stocks dived on fears of new government mandates and price controls. Private lenders to students have been told they're no longer wanted. Anyone who uses carbon energy has been warned to expect a huge tax increase from cap and trade..."

There is little question the primary emphasis of government in America is changing. So far, neither the financial markets nor the economy at large seem pleased with this "change".

In the meantime, the mining world continues to function in the best way it knows how; by pushing ahead with projects and by making the kind of deals that investors believe will lead to outsized rewards, particularly when the price of the base metals returns to more profitable levels of the recent past. Aisles are crowded with interested persons seeking information about specific companies and the trade show area bustles with inquiries into the full spectrum of mining services. In addition, the number of countries actively promting mining investment within their borders remains large and growing.

Markets this morning remain basically quiet with the Dow Industrials down about 30 and the TSX off by about 60 as of 10:00 AM PST. Gold has continued its recent decline, now down to about $913 spot while silver is trading at $12.75 and platinum is down to $1,027. Copper and aluminum are stronger so far and both crude and the US Dollar are little changed.

Tomorrow is the wrap-up of this convention and it will be most interesting to report on participants' overall impressions.

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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