A Melman Minute — March 4, 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.

As the old saying goes, "tempus fugit", or "time flies" and it certainly has these past few days. The long-awaited PDAC convention, the world's largest annual mining gathering, is over for yet another year. Our general impression is that while many miners were indeed optimistic about the future, there was an undercurrent of concern about the world's general economic situation and that left some level of doubt in participants' general outlook.

However, for at least one day, there has been as respite as two price movements have provided at least some level of hope that things may not be as bad as first appeared. First, the price of copper shot up to over $1.70 per pound, the highest in several months and a clear breakout in the short-term chart. (All prices US$ unless otherwise noted.)

As can be clearly observed, this represents a breakout above the bottoming area from $1.35 - $1.60 over the past few months and our chart analysis leads us to believe a rally to a range of $2.00 - $2.30 per pound could occur in relatively short order. Whether this rally, should it indeed occur, would be sufficient to turn the entire picture bullish for copper is another story, but even a move to $2.00 per pound would be likely to have a positive impact on many of the junior copper mining shares.

The other commodity price which gathered attention was an improvement in the price of crude oil which is trading this morning above $45.00 per barrel. While this will not be welcome news to car owners and industrial operations, this price movement could at least provide some basis for believing that demand for some products is beginning to turn upward.

Based on such optimism, the Dow Industrials and the TSX in Toronto have moved decidedly higher this morning with the TSX up over 200 and the Dow ahead by about 150 as of 9:00 AM PST.

However, we also must point out that there are noted analysts who believe the overall situation could be much worse than the public has been assuming. Harvard Professor Robert J. Barro just noted in an opinion piece that, "...the bottom line is that there is ample reason to worry about slipping into a depression. There is a roughly one-in-five chance that the U.S. GDP and consumption will fall by 10% or more, something not seen since the early 1930s." (our emphasis)

Data from the auto industry would appear to confirm that something has gone dramatically awry with the American economy. February sales were just reported and they plunged an incredible forty-one percent on average. GM and Ford were leaders in the downside parade with declines of 53% and 48% respectively. Thanks to sales incentives, Chrysler was down by 'only' 44%! Efraim Levy of Standard & Poor's Equity Research noted that the auto industry is suffering an 'automotive depression. Consumers are fearful for their jobs, the value of their homes and stock market assets and are wary of buying a new vehicle." (our emphases)

With stocks of unsold vehicles continuing to pile up, major auto manufacturers plan further cutbacks for auto production this month with Ford scheduling for 425,000 vehicles, a drop of 38% from one year ago and GM aiming for 380,000 vehicles, down 57%.

All the while, the Fed and other government agencies continue to announce new stimulative programs and, according to the Wall Street Journal, the latest from the Federal Reserve is a $1 trillion (billions don't seem worthy of note any longer - LMM) program to jump-start the issuance of new credit for consumer purchases. The details are yet to be worked out. As the WSJ pointed out, "...Some worry the Fed is throwing out another short-term solution to a long-term problem."

And, just to complete the cheery picture, President Obama went on the air yesterday to tell people to 'buy stocks', thereby acting against advice against making stock predictions which has been handed to all Presidents in recent decades, since a failure of the markets to rally could seriously undermine his overall credibility. Obama continues to score high in the polls, so, perhaps, his words will spur some investors into positive action.

In any case, whenever markets get drastically over-sold, as they have been, it is perfectly natural to have a recovery rally back toward the point where the charts last broke down, and we believe that area to be in the neighborhood of 7,400 to 7,700 on the Dow.

So far this morning, securities markets are higher, precious metals are close to unchanged and base metals are up with crude oil joining the advancing parade. The US Dollar is showing good relative strength and interest rates are holding steady, as are mining share averages.

NOTE: We plan to prepare a Melman Minute tomorrow morning, but have been having some difficulty with our hotel Internet connection, so we must include an "if everything works well" caution. Otherwise, we will be resuming these reports on our recent regular three-per week basis this coming week with reports planned for Tuesday, Wednesday and Friday.

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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