A Melman Minute
| By | Leonard Melman |
|---|
NOTE: Mr. Melman will be a featured speaker at the world's largest annual mining convention, PDAC, to be held in Toronto from March 6-9. His address to the Financial Conference will take place near noon on Sunday, March 6 and will be entitled, "The Greatest Gamble of All." More than 900 companies will be exhibiting at this gathering with total attendance expected to reach the 22-25,000 level.
The basis for Steineger's remarks is the present ongoing controversy regarding the size and income of various public service union bodies and the erstwhile Senator is suggesting that if legislators are suggesting cutbacks in the number of government employees and their incomes, they should also look inward at themselves as well.
It turns out that Steineger is not alone as similar measures have been introduced in Pennsylvania, Maine and Minnesota. From our point of view, we cannot help but be enthusiastic about such concepts as the thought of fewer law-makers, fewer laws and less money spent on legislation appear to be giant steps forward toward a freer and more efficient society.
As the Brits might say, "Good on you" Mr. Steineger.
The inflation story just won't go away and two articles from this morning's press suggest that further difficulties lay ahead. We note a Reuters article which is headlined, "Global Food Prices Hit Record High" and relates to a United Nations study which claims food prices hit historic new highs during the month of February. The study also predicts that further oil price spikes are likely to occur and that fear-based stockpiling of essential food commodities is now beginning to take place.
The Reuters article informs us that, "...The UN Food and Agriculture Organization's Food Price Index hit it second straight record last month...to further pass peaks seen in 2008 when prices sparked riots in several countries."
Another inflation-related story appeared in the Wall Street Journal when that publication reported that real estate prices in the Miami suburb of Homestead, Florida continued to weaken and, "..Rising gasoline prices are making a bad situation even worse...Higher gas prices are now hitting hard around Homestead, where many residents drive some 30 miles to Miami, adding to homeowners' strain."
As can be seen by the chart on the gasoline commodity contract, gasoline users have little reason for optimism regarding any decrease in price as quotes on the nearest contract are surging, having risen from less than one dollar per US gallon two years ago to more than triple that figure at present and are, in fact, nearing the historic highs set in 2008.
Gas prices in various American markets are now approaching $4.00 per gallon while in Canada, where gas is sold on a "per liter" basis, the price is approaching C$1.25 per liter - or almost US$5.00 per equivalent American gallon.
The combination of rising food prices combined with sharply rising commodity complex prices appears capable of creating a psychological background where fear of visible price inflation begins to take hold. Historically, such fear has been an integral part of previous precious metals bull markets.
Another way of reviewing raw material costs is to observe the "CRB Continuous Commodity Index" chart and for our purposes this morning, we are carrying the quarter-century chart which clearly illustrates the power of recent price action in raw materials. To use the vernacular, it is going crazy, having surpassed all preceding peaks and is now headed sharply higher into new historic territory. Somehow, when we look at this chart, it is difficult to buy into the Bernanke assertion that all is well on the inflationary front.
Unfortunately, we must begin our travels to Toronto for the PDAC gathering in a short while and can note only the early opening figures for most markets. As of 7:00 AM PST, gold and silver are sharply higher with gold back to near the $1,430 level and silver now trading above $35.00. Financial markets are mixed with the Dow Industrials off by about 10 points, despite improvement in American employment data which showed a net gain of almost 200,000 jobs in February, while Canada's TSX Index is up by about 60 points on higher natural resource quotes.
Base metals markets are showing solid strength across the board this AM while mining share indexes are about one percent to the plus side. In other markets, crude oil has just bested the $103 mark; the US Dollar continues to show weakness and long term interest rates are little changed so far today.
All quotes US$ unless otherwise noted.
Next Melman Minute scheduled for Monday, March 7 from the floor of PDAC in Toronto.