A Melman Minute — March 10, 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 this morning have been moving strongly higher, particularly the financial markets where the "gloom and doom" scenario of the past few months has been replaced by at least a glimmer of optimism that we may be approaching a better time. As of 9:00 AM PDT, the Dow Industrials were ahead by more than 300 points while the TSX was up by over 200.

From a technical analysis point of view, what is happening in the Dow Industrials is consistent with a market move described as a "pull-back". Simplified, the term relates to the tendency of markets to return to previous support or resistance areas, as the case might be. In terms of the Dow Industrials, please note how consistent this tendency has been during the long period of declines beginning in summer, 2007.

In late 2007, the Dow finally broke through below support near 13,000 and plunged to about 11,600, before a "pull-back" rally carried the average back to near 13,000. In mid-2008, the Dow broke below support clustered near 12,000 by declining swiftly to the 10,800 zone, before another "pull-back" rally reached almost exactly 12,000. After breaking resistance between 10,200 and 10,500 in October, 2008, the Dow plunged dramatically down to near 8,000, before a "pull-back" rally (with two legs) brought it back to just under 10,000. Most recently, in early February, 2009, the Dow broke below support in the 8,000 region and declined steadily to a low of 6,440 before the onset of today's rally.

Given the pattern the average has consistently demonstrated over the past two years, nothing would be more natural than to have a quick, "pull-back" rally to the resistance area between 7,500 and 8,000.

Also please note the power of this bear market by observing that since mid-2007, the market has traded at consistently lower zones. First it was 12,500 to 14,200; then 11,500 to 13,000; then 10,800 to 12,000, then 7,700 to 9,000 and now, with a bottom close to 6,400, we could easily anticipate a trading zone from that level back up to the resistance area noted above.

However, in our opinion, it would be extremely significant if the Dow was able to reverse the entire pattern by breaking above that resistance and returning to 9,000 or higher.

In the meantime, the flood of negative news continues to accumulate virtually every day. First, we just learned that the job loss figures in the USA reached almost 700,000 for the month of February and the Unemployment Rate soared to 8.1%, the highest in several years. Next, the U.S. National Debt has once again begun to rise spectacularly, having gained an astonishing $107 billion during the past week alone, driving that all-important number up to almost $11 trillion! When compared to last year's figures, the U.S. National Debt has now grown by a stunning $1.564 trillion, a figure greater than the entire accumulated national that existed less than thirty years ago. (All figures US Dollars unless otherwise noted.)

Although the optimists may enjoy these periodic rallies, there is a simple fact that is undeniable. At present there are two overwhelmingly important trends directly affecting the United States and much of the rest of the world.

First, the housing and commercial real estate debacles continue unabated. As a sample of the enormous body of real estate market data available, here are some "highlights", comparing early 2008 to early 2009:

* - Commercial building contracts have plunged from $510 billion $411 billion.

* - New Housing Permits have collapsed from almost 1.06 million to 521 thousand.

* - New Housing Starts have fallen even more dramatically, from 1.08 million to 466 thousand.

* - Residential Spending has plunged from 472.7 billion to just 298.9 billion.

According to the latest available data, all these trends remain in effect.

The second category is the enormous job losses which have been afflicting the American economy and it now appears that the two may combine in the sense that huge losses in employment will likely increase the number of homes where forced sales are involved while simultaneously reducing the pool of potential real estate buyers - which will then further depress the real estate markets. That would likely lead to rising unemployment, continuing in a downward spiral until somehow, the entire picture is reversed.

In addition, economists must also make projections on the likely effect of the historic levels of government stimulation programs which are now progressing around the world.

By 9:45 AM, the Dow was holding on to its 300 point gain while the TSX continued to rally, now up by over 260. Precious metals were off sharply with gold down by over $20, silver off by about 40 cents and platinum also down by more than $20.00, but base metals reacted to growing optimism by posting strong gains, particularly lead and zinc, which, in fact, have been rallying steadily for the past several weeks and are now about 20% above their recent lows. Mining share indexes, which are heavily weighted to the precious metals, are down by an average of 6%, while the U.S. Dollar is off sharply and U.S. long-term interest have moved higher, once again in the 3.7% zone.

Tomorrow we plan to examine several charts relating directly to the mining share world and the prices of the metals themselves.

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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