A Melman Minute — April 24, 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!"

Our Apology - Normally, we plan to have the "Melman Minutes" segment of our site prepared and posted by about 9:30 to 10:00 AM. However, this morning our laptop computer got into an 'argument' with one of those pesky automatic updates followed by 'restarts' - and our computer lost, threw in the towel and froze up. It has now, thankfully, 'melted' once again.

Sometimes it is not at all difficult to question the collective wisdom of the investment community and this morning is such a time. We offer this comment on the basis of two sets of circumstances, each relating to evidence that would suggest that this morning's relatively strong securities rallies in Canada and the USA are not being supported by the soundest of background circumstances.

In a technical sense, there is an obvious conflict between the fact that the both the Dow Industrials and the TSX Index are both up around 150 points (as of 10:35 AM PDT) and the concurrent reality that long-term interest rates are breaking upward (clearly visible on our TYX chart); mining share indexes are decidedly higher; gold is sharply higher; and the US Dollar is markedly weaker. One would normally think that such indicators would each serve to drive general securities markets lower, but the opposite is taking place.

In a fundamental sense, the release of news over the past two days could hardly be more negative. This morning, we have learned that Existing Home Sales for March were lower once again and Durable Goods Orders for March were also down. Yesterday, there was a virtual avalanche of negative news including some of the following:

* - New York's Governor David Paterson has been unable to get legislative cooperation to close a projected $17.7 billion deficit for this year alone.

* - The International Monetary Fund just projected that Europe's collective economic outlook for the coming year will now face the deepest slowdown on record. In addition, it was just reported that Germany's economy shrunk by 3.3% this past twelve months and, in addition, their national debt took the greatest leap since WWII.

* - Spain's unemployment rate just soared to an incredible 17% and the European Economic Community has been unable to help that stricken economy.

* - U.S. air, truck and rail freight haulers just reported the outlook for freight haulage in America in the coming year will be sharply lower, by an estimated 20-25% across the board, idling many more workers and also causing sharp reductions in corporate earnings, which are a predominant source for future expansion and job creation.

* - President Obama's closest European ally, U.K. Prime Minister Gordon Brown, is in deep trouble. Britain's level of government borrowings is soaring, their unemployment is rising, their national debt is exploding upward and their economy is still contracting, despite literally unprecedented levels of government stimulation during the past year.

* - America's moving and storage industry is being hit by the reality that as the economy shrinks, so does the number of families moving from town to town. According to the Wall Street Journal in an article yesterday, "...Americans changed residences less often last year than at any time since the Census Bureau began keeping track in 1948..." The article attributes job losses as being one of the most important factors behind this demographic change and noted, "...Unemployment has risen in every state, and fewer jobs in almost every community mean fewer people are moving for work." They also noted that low home prices have also served to discourage moving to lock in a substantial profit, something that occurred with regularity up until the past year.

Many other items could be included in this already-lengthy list, but, in any case, one would have expected market sellers to predominate with such a fundamentally weak background - but that has not been the case.

Our world of base and precious metals deserves some special attention this morning as gold has been putting on a strong rally over the past few days, despite fears that earlier selling would cause that sector to weaken. We append charts on both gold itself and the mining share index which tracks gold most closely, the HUI. Both have shown recent renewed vigor - again moving contrary to what might have been expected given the securities markets performance over the past few days.

HUI's gain this morning has been particularly impressive, recording an increase of over 15 points, or better than 6 percent. Normally, when the shares outperform the metals themselves, that is a positive sign for both.

As of 11:30 AM PDT, financial markets continue to rally with the Dow Industrials up by just over 100 points while the TSX is holding on to a 90 point advance. Gold has traded as high as $915 while silver is once again back up to the $13.00 area. Both mining Indexes are up by about 6% this morning, base metals are modestly higher on balance, crude oil is back above $50 and, as noted, the US Dollar is somewhat weaker on currency markets.

It is our opinion that, looking forward, the worlds of both precious and base metals are beginning to take on a healthier overall appearance.

(All quotes US$ unless otherwise noted.)

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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