A Melman Minute — October 17, 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.

Well, date number Two is in the books and for those hoping for a decisive victory by either side, disappointment was likely the order of the day and the same may be said for those hoping for some sort of discussion of serious economic philosophic alternatives.

This morning’s financial news media was predictable in the tone of its comments. Those biased toward the political left provided us with headlines such as “Obama is back in the fight” (L. A .Times) and “Obama goes on offensive against Romney” (S.F. Chronicle) while the more conservative Wall Street Journal offered “A President without a Plan.”

What seemed to be missing, at least in my opinion, was any meaningful discussion of such basic philosophic points as the merits of unlimited monetary creation; exactly how governments create jobs; what should be the manner and limits of government stimulation; what should be limitations on the role of government in the creation of bodies of regulations which limit freedom and are excessively costly, etc.

It is easy to summarize my overall impression of this debate. If anyone was hoping to receive a clear and detailed idea of what either man would actually do if elected President, it was difficult indeed to gain a clear impression based on last night.

One more to go. We can hope for a more substantial body of precise information – but I wouldn’t want to hold my breath. Just twenty days to go and then it will be over.

While the candidates and the media were somewhat difficult to pin down, we did receive some market action which could indicate the level of certainty regarding America’s future is at least somewhat in doubt.

The chart of the 30-year Treasury Bond interest rate shows a strong gain this morning back to near the 3% level. Given the Fed’s strong determination to hold interest rates at the lowest possible level and given the financial world’s vulnerability to the harm which would be inflicted by a rise in general interest rates, the failure of the TSX to tread along its lowest level is quite interesting and deserves the closest attention.

Another chart which could also be indicative of America’s future – and one which could easily become tied to interest rates – is performance of the US Dollar Index. That number fell sharply this morning and we believe that could relate to two lines of thought. First, it appears that the creation of additional sums of American currency will continue indefinitely. Second, if the fires of inflation become re-ignited, each dollar will buy less for each unit of purchasing.

The DXY chart reflecting strength or weakness in the US Dollar is suddenly showing a new round of weakness, aborting the recent short term rally and now appearing likely to fall through previous support between 78-79. Given the high level of imported goods into the American retail structure, any sharp decline in the Greenback would likely result in higher prices for imported good and, therefore, would appear to mitigate toward higher rates of price inflation – which would then work toward higher rates of interest as investors would expect to receive a higher return in line with accepting risks in the diminishment of purchasing power of the Dollar.

I have a particularly busy schedule set for today and will therefore cut these musings a little short. More to come on Friday.

As of 9:15 AM PDT, financial markets are split with the Dow Industrials close to unchanged while in Canada the TSX Index has gained 40 points, primarily on higher metals prices with gold up by $7 to $1,753 and silver has gained about 30 cents to near $33.25. Base metals are strongly higher across the board and, not surprisingly, mining share indexes are also strongly higher, up by 1.5 to 2%.

In other markets, Crude oil is little changed near $92.50 per barrel, the US Dollar Index is down by about 40 basis point and, as noted earlier, long term interest rates have moved sharply higher.

All quotes US$ unless otherwise indicated.

Next Melman Minute scheduled for Friday, October 19

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