A Melman Minute — March 13, 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.

Here we are 'enjoying' yet another "Friday the thirteenth" and the economic news background would appear to fit the presumed mood of the day. However, we must also note that the securities markets opened slightly higher, adding to recent rallies, and the base metals continue to show good relative strength this morning.

Perhaps one of the most stunning pieces of news hitting the wires today is a poll by Rasmussen Reports, confirmed by Gallup Poll figures, that President Obama is already seeing serious slippage in his favorable ratings. According to the Rasmussen organization, "...Polling data show that Mr. Obama's approval rating is dropping and is below where George W. Bush was in an analogous period in 2001." (our emphasis) The report calculates that when the number of those who 'strongly disapprove' of the new President is subtracted from the number who 'strongly approve', the net result is +6, "...his lowest reading to date."

Recent Gallup Poll figures would appear to confirm the Rasmussen indications. According to their figures, "...83% say they are worried that the steps Mr. Obama is taking to fix the economy may not work and the economy will get worse. Eighty-two percent say they are worried about the amount of money being added to the deficit, 78% are worried about inflation growing and 69% are worried about the increasing role of the government in the U.S. economy."

That last item leads to yet another growing concern. It was my privilege to live in the USA for thirty-four years, from 1962 through mid-1996, and one thing I learned was that Americans cherish their independence and freedom. Therefore, in our opinion, the average American must be greatly concerned about signs that America under Obama appears to be headed toward suborning U.S. independent action to that of international rule. Several signs have appeared, particularly on the economic front.

For example, Fed chief Bernanke recently stated that one way out of the international economic mess was for the establishment of international financial regulatory bodies which would create international financial regulations having the power of law, and that proposal is due for serious discussion at the upcoming G-20 meeting in April.

In yet another instance, Treasury Secretary Geithner just proposed that another international body, the International Monetary Fund (IMF), triple its financial firepower in order to further stimulate international economies. The present IMF budget calls for (all figures US$) $250 billion of useable assets and Geithner's proposal would increase that to $750 billion, thereby dramatically increasing its ability to interfere (read 'stimulate') the economies of a multitude of nations.

Also, in a stunning statement, Australia's newly-elected Prime Minister called directly for the establishment of a "One World" international financial system.

The fact that the world's economies are in dire shape was underscored this morning by the release by the Department of Commerce of Balance of Trade figures for the USA for January. The B of T Deficit actually shrunk in January, a fact which would normally be joyous news, but the reasons for the shrinkage are dire indeed. What has been occurring is that the entire economic structure of America is shrinking, and that alone is the dominant reason for the 'improving' trade deficit figures. Between January 2008 and January 2009, the deficit did indeed shrink by $23.2 billion. However, this occurred because, while American exports were decreasing by an average of $24.4 billion per month, American imports were plunging by $47.6 billion per month as cash-strapped Americans dramatically reduced their purchase of foreign-made products and services.

In our opinion, as soon as the American economy begins to expand, imports will rise and so will be Trade Deficit.

China is obviously aware of what is developing in America and an AP story this morning brings us word that Chinese authorities are truly worried about America's ability to maintain value in their government debt portfolios, of which China holds more than $1 trillion - virtually half their entire foreign currency holdings. JP Morgan economist Frank Gong told AP, "...They are worried about forever-rising deficits, which may devalue Treasuries by pushing interest rates higher. Inside China, there has been a lot of debate about whether they should continue to buy Treasuries." It should also be noted that as Chinese exports drop, their ability to purchase foreign debt also declines and they simply may not be able to continue buying U.S. government debt on the same scale as previously maintained.

Sometimes, one particular industry can serve as a 'barometer' of economic activity and such a story surfaced this morning with word that family entertainment giant Six Flags, Inc. is on the verge of bankruptcy. They have just hired a law firm specializing in bankruptcy proceedings and the Wall Street Journal noted that, "...the 48-year-old company is buckling under the weight of its debt...Six Flags has 20 amusement parks across North America, from Mexico City to San Antonio to just outside Chicago, Atlanta and San Francisco. The New York-based company has about $2.4 billion in debt..." Our observation is that this is just another company drowning in debt, most of which was accumulated during more prosperous times. We fear there may be many more 'out there'.

The wipeout for Six Flags shareholders has been almost total, with the shares declining over the past three years from over $10.00 to about fourteen cents as of this morning. All of this is sad to contemplate, and we wonder if Six Flag's amusements parks will sit idle and empty, just as we note for many shopping centers of late.

One other fact worth mentioning is that Canada no longer seems immune to the parade of growing troubles as the Canadian Unemployment Rate shot up in February from January's 7.1% to 7.7%.

All of this leads us to believe that massive government stimulative programs will continue, as will the creation of huge quantities of unbacked, fiat currencies, thereby setting the stage for future rampant inflation, perhaps even outright hyperinflation. For this reason, we believe the physical holding of gold and silver is a worthwhile insurance precaution against such developments, should they occur.

Financial markets this morning are continuing to balance negative current news with optimistic expectations. As of 8:45 AM PDT, both the Dow Industrials and Canada's TSX have given back early gains and stand 45 and 50 point lower respectively. Precious metals are higher on balance with gold once again near the $930 level and silver just above $13.00 while platinum is close to unchanged in quiet trading. Base metals are holding their gains of recent weeks with this morning's quotes for copper, nickel, zinc and lead being $1.64, $4.27, $0.54 and $0.57 respectively. Mining share indexes are close to unchanged, crude oil is back up to near $48 per barrel and the U.S. Dollar is slightly lower in currency trading.

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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