A Melman Minute — April 13, 2011

As long term readers know, at The Melman Report we do not normally make recommendations regarding particular political parties and the forthcoming Canadian national election is no exception. However, we do adhere faithfully to a pair of vital concepts which guide our thinking, our investments and our hopes for the future.

We believe in individual liberty.

We believe in free markets.

As those beliefs relate to precious metals investments, in our opinion there is a historic relationship that we would describe in the following manner: To the degree that governments impede both concepts, precious metals tend to do well; to the degree that free markets and genuine, natural individual liberty prevail, precious metals markets tend to do poorly.

We believe the proof is visible for all to see in the current era. As government bureaucracies mount, as complex regulations are added at an astonishing rate, as taxation exactions surge in amounts, complexity and variety; as the oligarchy of the regulators continues to expand as all this is occurring we cannot help but note that gold has reached the highest price levels in history. As a comparison, during the Reagan years when there was at least some acknowledged effort to rein in the forces of government expansion, precious metals fell into a dismal period lasting two full decades.

With that in mind, we have been observing the political system in the Dominion of Canada as it approaches an important national election scheduled for this coming May 2. We eagerly tuned in to the National Leaders Debate last night, hoping to hear some definitive word that the participants were willing to any substantial degree to unwind what we regard as the overbearing mechanisms of government. We heard none.

Instead, during the debate and in recent print media, we continue to be assaulted with pledges and promises of the wonderful array of goodies that government can provide. Here are some of the items we are being sold, like stock from a merchants tables or windows.

In an article published in the Vancouver Sun, New Democratic Party (NDP) leader Jack Layton pledged that his party would provide the following list, with our short comments in parentheses:

More doctors and nurses (more spending)

2,500 additional police officers (more spending)

200 new inspectors for the Canadian Food Inspection Agency (more spending)

More job creation (more spending)

Increasing public pensions (more spending)

Creating 25,000 new child care spaces (more spending)

Increasing tuition tax credit (diminishing revenues)

Freeze post-secondary tuition rates (more spending)

More infrastructure money for cities (more spending)

More money for urban transit (more spending

More money for affordable housing (more spending)

And, oh yes, out of this concoction of massive increases in spending plus some measures to diminish tax revenues, the NDP promises A BALANCED BUDGET!

In a separate article, Vancouver Sun columnist Ian Mulgrew blasted the system because it did not spend enough money for free legal services for those who cannot afford proper legal advice and support when a crisis arrives. He cited political calls for a new police watchdog agency and quoted a prominent Vancouver lawyer declaring that, ...the legal system needs tens of millions to restore services.

During the debate, while specific proposals for more spending were generally absent, comments from Liberal Leader Michael Ignatieff and the Conservative Prime Minister left little doubt that the Ottawa monetary trough would not be lacking and, while she was absent from the debate, Green Party leader Elizabeth May was quoted in the press as stating she favoured new regulations regarding climate change, foreign affairs, aboriginal rights and measures to somehow narrow the widening gap between the rich and the poor.

And so, it appears that in Canada, there will be no serious attempt of any sort to reduce the intrusions, interference, complexity and taxation powers of government.

Of course, the same type of discussions except on an infinitely larger playing field are taking place in the USA just to the south. Despite evidence of an onrushing monetary debacle staring them straight in the face, during the playing out of two essential debates relating to the National Debt Limit and the Presidents Budget, Americas political leaders are showing that they are truly loath to give up either the buying of votes by delivering the goods to their constituents or any substantial portion of the immense power which has been garnered by both the political and bureaucratic establishments in Washington, D.C.

Until both Canada and the USA - and a host of other countries as well recognize the great array of benefits which could come from a diminishment of government intrusions and resultant improvements in economic and personal liberty, in our opinion at TMR, we will continue to witness national upheavals, economic crises, and what former President Carter once described as a malaise across the land. We also specifically believe that such developments, over time, will continue to support a continuation and even acceleration of the ten-year precious metals bull markets.

One last area of thought is the developing food price inflation which is beginning to engulf larger segments of this planet and for that purpose we are re-publishing the commodity trading chart on COFFEE, perhaps the worlds most widely used global beverage product, other than water itself.

As can be clearly seen, the long-term bull market in coffee is alive and well, subject only to minor corrections and with no end in sight. Major coffee house chains, like major bakeries and candy makers, are now raising prices at an increasing rate and these prices, like gasoline and heating oil, are beginning to hit armies of consumers directly where it hurts the most, right in their wallets.

It is our expectation that as the visible inflationary pain increases, larger numbers of the general public may begin to ask real questions regarding the origination of these unwelcome cost surges and they might finally point the finger of blame directly upon oceans of government-created fiat currencies brought about by governments spending far more than they can collect via reasonable taxation. We believe that when that day finally arrives, Al Jolson`s famous line, `You Ain`t Seen Nothing Yet`, will be applicable to the precious metals bull market.

LAST MINUTE OBSERVATION Since most major banks have been beneficiaries of government largesse over the past three years, we truly sit up and take notice when one of them publishes a report which is sure to cause discomfort among leading political powers, yet that is exactly what Bank of America Merrill Lynch has done today with their prediction that the price of Brent Crude Oil could reach $160 per barrel this year!

As of 9:15 AM PDT, financial markets are turning in mixed performances with the Dow Industrials virtually unchanged while Canada`s TSX Index is up almost 90 points on higher precious metals and oil prices. Gold is trading near $1,460, up about $6 on the session while silver has gained about 40 cents to just above $40.50 per ounce. However, base metals are being hit by aggressive selling and, as a result, mining share indexes have turned moderately lower.

In other markets, long term interest rates are little changed; the US Dollar Index is slightly lower; and Crude Oil prices have gained about 50 cents per barrel to near $1207.00.

All quotes US$ unless otherwise noted.

Next Melman Minute scheduled for Friday, April 15, 2011 although we must note that our technical manager will be traveling on that date and posting to the site might be slightly delayed.

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