A Melman Minute — April 1, 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: Mr. Melman will be making a panel appearance and presenting a workshop at the upcoming "Calgary Resource Investment Conference" April 4-5. His workshop topic will be "On the Road to Hyperinflation???" updated for this presentation. Information concerning the conference itself can be obtained at www.cambridgehouse.ca.

Part of our concern is the belief that the election of President Obama is one of those historic actions which will result in long-lasting consequences for America, and, therefore, for the world at large as well. Yesterday, we saw a specific action which could easily be a harbinger of more similar such deeds to come, actions which will change the very nature of life in America. That action was the 'de facto' takeover of General Motors by the United States government.

To review, President Obama forced the firing of GM CEO Richard Wagoner, requested the resignation of virtually the entire GM Board of Directors, rejected the proposed GM restructuring plan and, in addition, the government proposed that they fund the warranties presently in effect and now being offered by the auto giant should GM go out of business.

The President was quoted as saying, "We have no intention of running GM. What we are interested in is giving GM an opportunity to finally make those much needed changes." However, we can only ask if the goal was just to make changes, why was it necessary to get rid of the company's leader and to threaten the Board of Directors, along with the other measures noted above?

In our opinion, Globe and Mail columnist John Ibbotson hit the nail on the head when he wrote, "Sorry, if you fire the CEO, shake up the Board, back the warranties and send in your people to lead the restructuring, you're running the company." (our emphasis). Ibbotson also noted that the government was being even tougher on troubled automaker Chrysler.

Ibbotson then quotes those people who share a conservative philosophy as follows: "...This is a new order not just for the American economy - but for the nation's entire system of government. The government is taking upon itself seemingly limitless powers." He then adds, "They have a point. Nationalizing GM is a staggeringly ambitious act for an administration that has already taken on such mundane tasks as transforming the health-care and education systems, weaning the nation off fossil fuels, reversing a recession and escalating the war in Afghanistan."

We cannot help but recall the fact that during the recently-concluded presidential campaign, it was noted time and again that Obama was the Senator with the furthest "Left" rating of all American Senators during his one and only term in that office. During the first 70 days of his Presidency, it appears to us at TMR that he is apparently running true to form, working relentlessly for the transformation of America away from a free enterprise nation with previously restricted government to one dominated by government forces and actions. That, if it turns out to be true, would be historic indeed.

We believe that this transformation, and the oceans of fiscal stimulation that has accompanied its early stages, could bring about a 'boomlet' which will benefit all commodities, but will create an enormous array of virtually unsolvable problems down the road including rising inflation, rising interest rates and a growing potential for eventual hyperinflation. Within such a scenario, should it come to pass, it is our opinion that virtually all commodities, specifically including base metals, would perform well during the early stages of such economic improvement, but possibly fade later. Precious metals, we believe, could benefit both from the 'boomlet' and the later economic trauma.

London, England is now the primary focus of the world's media as the "G-20" meetings are set to begin tomorrow. Huge crowds have already gathered outside the meeting area and some violence against property has taken place. Dissention is also occurring within the meeting participants themselves and France's President Sarcozy has threatened to pull out of the meeting unless sufficiently strong worldwide financial regulations are to be proposed.

This morning's economic data showed a mixed tone with America's Institute for Supply Management Manufacturing Index for March showing actual improvement, rising to 36.3 in March from February's figure of 35.8. While the new figure remains deep in recession (depression?) territory, the markets were delighted to hear of any improvement and rallied sharply on the news. So did gold.

However, there were still many instances of negative data to digest. Most prominent among these was a report by ADP showing that 742,000 private sector jobs were cut during March. The ADP figure is frequently used as a harbinger of the official government jobs report for March which will be released this Friday morning.

The morning wires also brought more negative news on the real estate front with the Case-Shiller Index of urban housing prices falling to new lows during January, showing a 19% decline - the highest on record - for the three-month period ending that month when compared to year-earlier figures. Of great significance to us was the information that some of the worst new declines took place in areas that had already been the hardest hit, such as Phoenix and San Francisco.

And, of course, the market had to digest all of the unfortunate information coming out of General Motors. We are including a long-term chart of that stock to show how complete has been the devastation to GM shareholders during the entire debacle.

Financial markets opened sharply lower today, but rallied strongly on the Manufacturing Index release. As of 10:10 AM PDT, the Dow Industrials were ahead by almost 90 points and the TSX was also higher, up by about 130. Both gold and platinum were ahead by $8, at $926 and $1,133 respectively while silver was trading quietly just under $13.00 per ounce. Copper and nickel were holding on to their strong gains of yesterday with copper slightly above $1.81 per pound and nickel near $4.50, while lead and zinc were little changed. Crude Oil was down sharply to under $48 per barrel and the US$ was slightly higher in currency action. (All quotes US$ unless otherwise noted.)

Change of Schedule - We will be preparing a "Melman Minute" tomorrow instead of Friday, for two reasons. First, the G-20 opens tomorrow and we look forward to important news from that meeting. Second, we will be traveling to Calgary Friday for the Cambridge House gathering and will be out of reach.

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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