A Melman Minute — September 9, 2011

NOTE: Mr. Melman will be appearing at the Cambridge House Toronto Resource Conference of September 15 and 16. He will be chairing corporate presentation panels, presenting his own workshop entitled “An Economic Perfect Storm” the afternoon of the 16th and will take part in the closing panel at 5:30 that afternoon. We invite all “The Melman Report” readers who will be in the GTA on those dates to attend at the Sheraton Conference Center and, as always, Cambridge House has lined up an array of quality speakers and exhibitors.

Long time readers will have no difficulty recalling that your editor has long-standing disagreements with President Obama and, frankly, we even question whether he has the ability, knowledge and experience to handle the job of President of the United States. However, there is one compliment we cannot honestly withhold from him. He is an expert at delivering a speech in a manner geared to generate an emotional reaction, particularly among his strongest supporters. On that score, last night he was in top form as he delivered his jobs message to a joint session of the U.S. Congress.

Therefore, after watching the speech on the ‘telly’, we have found it very worthwhile to print off the text of his speech and coldly, rationally and, as objectively as possible, review what he actually said, thereby eliminating the smiles, frowns, modulations of voice, raised eyebrows and other techniques of the expert speechmakers.

Sad to say, when looked at in this manner, the speech appeared to us to be nothing more than a cliché-laden review of precisely the same generalities we have been hearing for almost three years, generalities which have truly failed to deliver either full employment or stable prosperity.

Those generalities almost always are based on the fact that people should look to government for solutions to problems, government should regulate commerce and industry to protect the populace and the rich should pay their ‘fair share’ which frequently means the basis for his economic programs is a ‘Robin Hood’ approach of soak the rich and redistribute to the poor.

With those thoughts in mind, here is our ‘take’ on the President’s address.

First, it was loaded with promises, but not once did he specifically identify the measures he would take to accomplish the promises. He stated he would bring to the table an “American Jobs Act” that, “...you must pass right away.” Unfortunately, he gave no details about what was included in the Act or whether it was even written as yet. I searched the Internet for a text of the Act without success both last night and this morning and could only locate a generalized outline of what will be written at a later date..

He also has a tendency to promise great accomplishments, but never tells us how those accomplishments are to be achieved. In the speech he stated, “...It (the Act) will create more jobs for construction workers, more jobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed...You should pass this jobs plan right away.” The specific question of exactly how the plan will create all those jobs is left unanswered.

The President also has – at least to us at The Melman Report – an annoying tendency to exaggerate in order to make a rhetorical point. This statement appears to us to be of that nature: “...How can we expect our kids to do their best in places that are literally falling apart? This is America. Every child deserves a great school and we can give it to them...The American Jobs Act will repair and modernize at least 35,000 schools.” Does he really mean that 35,000 schools are falling apart? By the way, we are left to wonder just how the money is to be found to ‘repair and modernize’ those 35,000 schools.

And so it goes – promises made without any explanation of payment or methodology. “Pass this jobs bill and thousands of teachers in every state will go back to work.” Where is the money to come from to pay those teachers? The cost is never identified and the source of the required funds is never discussed.

More quotes – and our comments:

“We have to do more to help the long-term unemployed in their search for work...” Not one idea of how to go about this task is offered – and no explanation of why the problem still exists after almost three years of his Presidency.

“The plan also extends unemployment insurance for another year...” We can only ask why this will be necessary after the bill goes into action to eliminate long term joblessness. We also wonder just why the long-term unemployed should even want to go back to work when you are offering them long-term benefits for staying unemployed.

One concept he identified to pay for this bill, which some have estimated will cost at least $450 billion, is to reduce the cost of government. Toward this end he stated, “...The agreement we passed in July will cut government spending by about $1 trillion over the next ten years (why so long?)...a week from now I’ll be releasing a more ambitious deficit plan (why that delay as well).” Unfortunately, not now or previously, has he ever identified a single bureaucracy to be cut, a single department to be abolished, a single group of recipients who will have to face life without their particular government funding.

“I want to see more products sold around the world stamped with three proud words – ‘made in America’.” Unfortunately, he did not point out that American industry has been fighting an uphill battle compared to other countries thanks to very high wage scales and massive costs required to obey countless government regulations. He never addressed either of those situations.

And so it went, promise after promise, but virtually no specific information about how the goals were to be realistically attained.

There was one moment of candid honesty when he at least acknowledged that, “...Some of you sincerely believe that the only solution to our economic challenges is to simply cut most government spending and eliminate most government regulations.” However, after that promising start, he embarked on a long paragraph justifying government interventions in numerous ways.

The securities markets have given an answer of sorts to the President’s speech by falling sharply after the openings and those initial declines were exacerbated by troubling news coming out of Europe where the currency problems continue unabated.

In fact, the danger of an actual break-up of the Euro appears to be rising. Greece now appears to be on the verge of actually defaulting on their debt and, to us at least, that possibility would suggest that Ireland, Portugal, Italy and Spain may not be far behind. In addition, the more productive northern European nations are openly questioning whether they should be bankrupting their national treasuries in order to support their relatively unproductive cousins.

As can be seen, the appearance of the chart of the Euro has suddenly taken on the appearance of a waterfall, with the Euro dropping to the lowest level in many weeks. By contrast, the US Dollar Index chart is rising rapidly.

As of 9:00 AM PDT, financial markets in the US and Europe are plunging, with the Dow Industrials down by about 325 points and European exchanges are showing losses of 3-4% across the board while Canada’s TSX Index is lower by about 200 points. Gold has recovered from sharp earlier losses to about $1,870 while silver is about unchanged and platinum and palladium are still trading to the downside. Base metals are sharply lower on economic uncertainty while mining share indexes are off by about 1%.

In other markets, crude oil is down by about $3.00 per barrel, the US Dollar is much stronger and interest rates, reflecting strong purchases of US government bonds, are once again headed lower.

All quotes US$ unless otherwise indicated.

I will be out of touch Sunday through Wednesday while traveling by train to Toronto, but plan to prepare Melman Minutes both Thursday and Friday morning while in Toronto. Sorry to be absent during a critical market time, but these plans were made months in advance. I might add that the time will be used to work on a complete revision and updating of our book, “Reversing the Way In.”

Even newsletter editors get a break once in a while and I will be ON VACATION from September 17th through the end of the month and plan resume regular contributions the morning of Monday, October 3, 2011. If conditions appear to justify special reports, I will have Internet capability to forward comments from September 20-27.

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