A Melman Minute — September 30, 2011

There is a word which has been raising its ugly head on an increasing basis, and we at The Melman Report can take credit for warning you several months ago that due to increasing desperation, this word would come into significant play. The three-letter word is “TAX” and it has dominated headlines around the world during the past week. We had mentioned that governments would become desperate to raise funds and one of the avenues open to them, as always in difficult times, is to hit as hard and fast with tax increased. However, having said that, even we were amazed as the frequency stories of suggested tax increases have hit the headlines of late.

First came word out of Italy that their legislature was considering a one-time “wealth tax” on the accumulated wealth of the entire Italian population, with emphasis, quite naturally, put on hitting the rich as quickly and massively as possible. Given the lengthy history of the Italian nation, it is not surprising that a great deal of personal wealth has been accumulated and some estimate the figure at over 10 trillion Euros and proponents of the wealth tax argue that it would be the fastest way to make a sizeable impact on Italy’s massive debt.

The European Economic Union was next to step in, suggesting that a new financial transaction tax be imposed on all financial transactions, particularly those handled by banks, suggesting this would be a way for the banks to repay the assistance they received during the crisis of 2008-09.

Brazil soon joined the “let’s find a new tax of our own” crowd by burdening imported cars with a special tax, named an ‘industrialized products tax’ and apparently geared to be a protectionist measure for their own domestic car industry.

France waded in with a new suggested tax, this one imposed against the popular ‘soda pop’ products. The stated goal of the tax would be to create a special fund dedicated to improving the public’s health, but any casual observer of many such taxes over the past years would note that most of those monies have a tendency to simply be placed in the general funds of a nation, rather than being assigned to any particular purpose.

And, most important of all, let us not forget that President Obama has taken dead aim on the assets and income of all those millionaires and billionaires” who, in his words, are not paying their ‘fair share’ of taxation. His stated purpose is to have the ‘wealthy’ finance the $450-odd billion required to implement his “American Jobs Act” (not yet written) whose presumed purpose is to create new jobs for Americans in huge numbers.

Admittedly, we are having trouble with this one as it occurs to us that if you rob one segment of the population, those funds are no longer available to participate in the private economy and as many jobs are lost through that process as would be artificially created through resultant government interventions.

The warning is out and it is clear. Anyone with visible assets and incomes may very well find themselves in the crosshairs of bureaucrats desperate to raise money from any and every possible source.

That handwriting is already on the wall.

In a different direction, a new area of growing contention is being created by those who are adamant that massive and growing numbers of regulations, laws, by-laws and political directives are stifling economic growth as well as civil liberties. Several articles have been posted lately informing the public just how many ways they might find themselves in difficult legal dilemmas, and with increasing frequency, they might likely be utterly unaware that they had even broken any laws

Israel is beginning to feel like they are being assailed from all sides, and the last thing needed from a worldwide peace perspective is an Israel uncertain about threats to its very existence. There is a great deal more to be written about this story and the world had better pay attention.

Bret Stephens, writing in a Wall Street Journal op-ed piece, summarized Israel’s predicament as follows:

“No democracy in the world today lies under a darker shadow of existential dread than Israel and the events of the last month ought to demonstrate that Israel’s dread is not of shadows only. Israel’s efforts to allay the enmity of its enemies or mollify the scorn of its critic have failed.”

The situation could turn into outright, active hostilities in short order. That is no small threat to world peace.

Gold is attempting to find some stability in the area above $1,600 per ounce, a level which appears to be holding, at least for the time being. The situation in the precious metals is also full of flux and is one we should watch closely.

Regrettably, I must be on the road tomorrow morning long before the markets open and am therefore unable to provide a market comment on Friday’s opening.

We plan to be back on our regular schedule over the weekend and will be able to produce a more typical Melman Minute on Monday, October 3, 2011.

One last thought. After almost three weeks of travel, including much time for retrospection, we believe that the world’s problems are incredibly serious, that the attempts to resolve them are destined to fail and the general public is slowly but surely becoming are of the growing roster of difficulties as well as the impotence being shown by most ‘experts’ in finding solutions.

That background, we believe, is a sound one for the precious metals and we believe the chances are excellent for a near to medium term resumption of the major bullish trends in gold, silver, platinum and palladium.

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