A Melman Minute — May 19, 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!"

While Canadians were taking the day off for a national holiday Monday (which is why there was no 'Melman Minute' posted), markets around the world were putting on quite a show! Thanks to signs of an improving economic outlook, American and European financial markets soared while India, celebrating a strong victory by the Congress Party, took off with a mammoth 17% one-day gain. Gold, unfortunately, performed in its normal contra-cyclical manner and declined by a sharp $10.00.

The Dow rose by over 230 points on hopes that some of the banking problems were finally being taken care of and stocks relating to credit and banking had, as the Brits would say, a 'smashing' day and one of the strongest was Bank of America. The stock back to almost $12.00 per share following last week's selling and many observers are beginning to believe that a base for long-term growth is being set in.

Other good news included a better-than-expected earnings report from home-supply company Lowe's. First quarter net came in at 32 cents per share, well above the predicted 25 cents which the "Street" had been anticipating. Positive earnings surprises have been rare birds of late.

Despite the market's rejoicing, there was still abundant news on the negative side, such as the U.S. government report this morning that residential construction fell to a record low pace in April. New construction of single family homes and apartments plunged by 12.6% to a record low annual rate of just 458,000 - far below analysts' estimates of around 518,000, and was the lowest number since the American government began to tabulate such figures in 1959.

American Express also gave the markets pause for thought when it reported that it was planning to make another round of job cuts, eliminating an additional 4,000 jobs on top of previously announced reductions, due to rising defaults and delinquencies on its credit card receivables. Amex's Chairman and CEO, Kenneth Chenault, offered the opinion that, "...we continue to be very cautious about the economic outlook."

And there was more information on the theme of increasing government taxation with a Wall Street Journal report this morning headlined, "New Taxes Loom to Pay for Health-Care Overhaul." The article details the substantial number of new taxes now under consideration and the list includes items such as elimination of previous tax exemptions on health care benefits as well as new health-related taxes on alcohol and 'sugary beverages' such as soft drinks, fruit and vegetable drinks which contain sugar, energy and sports drinks, iced teas, iced coffees and flavored milk and dairy drinks.

The dash for higher taxes and fees also includes an item that the Federal Deposit Insurance Corporation (FDIC) intends to enact new fees against large banks to pay for the huge sums FDIC has been expending to take over failing smaller banks. It seems truly strange to us that the government wishes to impose huge fees against somewhat healthier banks in order to pay for the rescue of sicker ones. Seems to us that such policies will only further weaken those that so far have managed to survive.

One last story of note this morning before we have to catch an early ferry to Vancouver. Today is vitally important in California where voters will decide on six measures designed to alleviate that state's economic crisis and the outlook is not favorable. Polls show that the five revenue-raising ballot measures are going to encounter huge resistance while the only one that is likely to pass is a measure to forbid any increases in salaries to politicians and bureaucrats whenever the state runs deficits.

As of 7:20 AM PDT, most markets this morning are reversing yesterday's trends in early trading. Financial markets are slightly lower, precious and base metals are headed higher, the U.S. Dollar is showing some new weakness and the petroleum complex is stronger on balance.

It should be most interesting to report tomorrow morning on the California election results. They could have national or even international impact.

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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