A Melman Minute — August 29, 2011
| By | Leonard Melman |
|---|---|
| Date | August 29, 2011 |
If there was one phrase which describes the general reaction relating to financial markets around the world this morning it is a “sense of relief” that things have not turned out to be as bad as had been previously believed.
The eastern seaboard of North America is breathing a sigh of relief that damage from Hurricane Irene has been much less than expected. That storm was initially predicted to be a Grade 3, then downgraded to a ‘2’ and by the time it actually hit the North American coast, it had become a ‘1’. Predictions of huge swaths of wind damage, enormous storm surges and widespread flooding simply never took place. There was some damage and many people lost power, but in general, the impact of the storm, particularly on the insurance industry which had been anticipating huge losses, was much less severe than expected. In addition, many had anticipated huge disruptions to financial markets should major North American exchanges, specifically the New York and American exchanges, fail to open on schedule this Monday morning, but that difficulty also failed to develop.
But that was not all.
Many people are interpreting Fed Chairman Bernanke’s non-committal speech of Friday as indicating that there was no imminent financial crisis, since he was quite willing to tide matters over until the Fed is scheduled to meet on September 20-21.
Then, this morning, Greece just announced that two troubled banks were planning to merge, indicating that by joining their assets together, there was a good probability that neither would fail.
As a result, stock markets around the world have rallied strongly and by mid-morning the Dow Industrials were ahead by more than 200 points, with European exchanges following suit to the upside. Not surprisingly, given at least a temporary diminishment of tensions, gold has fallen backward, dropping once again to below the $1,800 level.
Mexico is truly one of the world’s most important mining nations. Not only is that country one of the world’s largest silver producing nations, but it is also host to a substantial number of projects owned and operated by Canadian junior mining companies. For this reason, we are paying close attention to developments within Mexico in terms of social stability relating to their ongoing war against drug gangs. Therefore, news of a particularly savage atrocity carried out in the industrial and mining center of Monterrey – a city of about 3,000,000 people – appears to be worthy of more than just passing interest.
In that episode stemming from Mexico’s anti-drug battle, 52 people (at last count) were burned to death when drug gangs torched a popular casino, trapping many gamblers who had no avenue of escape. It is not just the number of dead that gives this event exaggerated importance, but rather the fact that it indicates a continual ratcheting up of the level of cruelty that strikes us as most significant. This is particularly so when it must be noted that in recent weeks, stories of the defilement of the dead, hanging people upside-down from bridges to be subsequently shot, random killings of passer-bys and horrifying levels of victim torture are becoming disturbingly commonplace in some locales, particularly in the north of the country.
From our point of view, the mining industry cannot help but be concerned that security of operations in mining areas is growing in importance and that the threat is beginning to exist that many qualified mining personnel who would otherwise be willing to work in Mexico may soon decide to give that nation a ‘pass’ and look for safer regions.
One can only hope that the government of Mexico can find a workable solution to this growing problem in the near future.
As of 11:00 AM PDT, financial markets are continuing to show strength with the Dow Industrials ahead by more than 200 points, but it is important to put this market action into perspective. As can be seen on the Dow chart, all that has occurred is that the Dow has to the point of the preceding breakdown and remains well below previous trading ranges.
Canada’s TSX Index has also moved higher by about 160 points, thanks to rising insurance and banks stocks and despite lower precious metals quotes with gold remaining under $1,790 and silver off by about $1.00 per ounce. Copper is off by about one penny in base metals markets while mining share indexes are very slightly lower.
In other markets, the U.S. Dollar is a bit weaker, long term interest rates are moving higher and Crude Oil is up by almost $2.00 to above $87.00 per barrel.