A Melman Minute — October 15, 2012

NOTE: Mr. Melman will be appearing at the upcoming "Silver Summit" in Spokane, WA scheduled for October 25-26. He will be appearing in an industry panel on the 25th and offering a presentation entitled "Silver - and gold - forecasts for late 2012 through mid-2013." Cambridge House has assembled a fine array of speakers and many mining companies - with an emphasis on silver exploration and development - will be maintaining exhibition booths at the conference. Mining enthusiasts in the Pacific Northwest are urged to attend.

Greetings from sunny California, land of sunshine, beaches and, for various reasons, what I might refer to as epitomizing Milton’s ancient text, “Paradise Lost”. Please allow me to explain.

After fighting my home town of Winnipeg’s horrendously bitter winters, my parents decided to move to warmer climes in 1962 and I had little difficulty in deciding to join them. After all, what gent of 20 wouldn’t prefer to live in Los Angeles versus Winnipeg? Also, as a lifelong Brooklyn and Los Angeles Doger fan, the rospect of being able to actually see Koufax, Drysdale, Snider, Wills et al at Dodger Stadium was well nigh irresistible.

The Los Angeles of 1962 – and the state of California as well – was a far different world than the one I am re-discovering this fall. In that earlier period, the cost of living was relatively low, state taxation was minimal, one could still walk the streets in relative safety at night – outside of a very few well-known areas – and the influx of population attracted to this “Paradise Found” was amazing to behold.

Now, fifty years later, I am finding a California which attracts only a few but is beginning to repel many. Taxes are staggering, the level of regulations demanding specific conduct from the state’s inhabitants is incredibly high, prices are higher that in virtually all of America and, in direct opposite to the situation of 50 years earlier, businesses and people are fleeing the state in historically high numbers.

From our particular point of view, the regulations and laws which have been imposed against prospecting and mining in California beggars belief.

A simple example relating to regulations caught me completely by surprise. I went into a supermarket in the town of Morro Bay last evening to buy a few items. After running my purchases through the register, the clerk asked me where my bag was. I looked at him and asked, “What bag?” He then replied that San Luis Obispo County had just passed a new law prohibiting stores from bagging a customer’s purchases in a plastic bag. A customer either had to provide his own refillable bag or pay for a paper bag – but plastic bags were now illegal.

Strangely enough, the same store SELLS plastic bags of a wide variety from lawn size garbage bags to under-sink garbage bags and still provides free plastic bags in the produce department for oranges, grapes, etc.

This is only one small example. There are laws relating to the exact placement of garbage bins outside homes on collection days, there are laws relating to the composition of gasoline – which is why California pays the highest prices for gas in America; there are laws enacting new taxation in city after city virtually every day in a vain attempt to postpone a final confrontation with fiscal reality – but which serve also to discourage any form of business enterprise within the state.

One of my goals during the coming week is to attempt an evaluation of America’s political mood as the election – only 22 days distant – approaches. If one is a supporter of minimal government, less regulation and diminished taxation, I would offer the opinion that all is not well, an impression I gathered while travelling in Washington, Oregon and California. One of the first surprises was an almost total absence of criticism regarding Joe Biden’s (in my opinion) disgusting conduct during the Vice-Presidential debates. I have done my share of public speaking, much of it in the form of debates relating to financial policies, and I know the most valuable commodity in preparing an answer to a posed question is THINKING TIME. If you have two minutes available, the normal process is to lead off with an introductory sentence or two while you gather your thoughts into cohesive form and then launch into the ‘;meat and potatoes’ of your statement.

One source quoted 84 different times when Biden interrupted Ryan just after the latter began his initial one or two sentences. This utterly preventing Ryan from ever formulating a detailed reply – and the moderator absolutely refused to rein in the Vice President who also grinned and sneered at virtually every Ryan statement.

My interpretation of this lack of criticism is that the vast majority of the media, except for conservative sources such as Fox or factual sources such as the Wall street Journal, is incredibly biased toward the left.

Another example is right here in San Luis Obispo County which remains a Democratic stronghold. The “Tribune” newspaper headlined a story that hunger is rising within the county and, “…over the past five years the Food Bank has seen a ninety percent increase in the number of people who need its help.” However, after reading the detailed story, I did not read one word about how a weak economy might be the chief cause of such growth.

One look at the above chart tells us quite clearly that gold has entered a corrective phase following its strong rally from roughly $1,580 to a recent high near $1,800 – a gain of approximately $220.

It is normal for any strong advance to be followed by a corrective phase and our primary concern regarding the overall health of the particular market is the strength of that phase. Normally, a ‘correction’ retraces one-third to two-thirds of the preceding advance and it must drop below those boundaries before it can be conceded that the correction might actually be an important trend reversal. In that case, the range we should be watching would be from $1,727 down to $1,654 with particular focus on the 50% retrenchment level of $1,690.

The current price in the mid-$1730s is now approaching the upper limit of a normal correction and bears close watching.

As of 10:00 AM, financial markets are split with the Dow Industrials heading higher by almost 90 points while Canada’s TSX Index is down by around 30. Gold and silver have traded lower with gold down by $22 to $1,738 and silver is off by about 70 cents to $32.80. Base metals are little changed on balance while mining share indexes are down by about 1.5%.

In other markets Crude oil is down 75 cents to just above $91 per barrel; long term interest rates are slightly higher and the US Dollar Index is close to unchanged near 79.85.

All price quotes US$ unless otherwise noted.

Next Melman Minute” scheduled for Wednesday, October 17 when we plan to review Tuesday night’s Romney – Obama debate #2.

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