Over the ocean, the last days of the American Empire are playing out with quite a bit of drama. We say last days, but really America’s decline could be long and slow like Japan’s, but punctuated with periods of intense volatility and instability.
All 30 Dow Jones Industrials stocks fell. The Dow index closed down 370 points, or 2.9%. The bad days were supposed to be over in January. Yet today was worse than any single day in January. The culprit?
The Institute of Supply Management reported that its non-manufacturing index fell to 41.9 from 54.4. What does that mean? A reading below 50 means the service industry is in contraction. We went from modest expansion to not so modest contraction. There is a word for that. That word is recession.
You didn’t really need any mundane economic indicator to tell you that though, did you? Home prices in the United States are falling. Foreclosures are rising. Losses in the financial sector are substantial and ongoing. It’s no wonder the S&P 500 is off to its worst start in 80 years, according to analyst Howard Silverblatt. The benchmark index of U.S. multinationals is down 8% to begin the year.
Back in Australia, The Financial Times reports that BHP Billiton (ASX: BHP) has increased its all-share offer for Rio Tinto to 3.4 BHP shares for every Rio Tinto (ASX: RIO) share. This gives Rio shareholders 44% of the combined entity as opposed to 41% under the first, rejected proposal.
How will Rio react? Does it see safety and value in the BHP approach? Or should it be afraid that it is just months away from being dismembered into little metal pieces, the aluminium and copper assets going to China and the iron ore assets to BHP?
One thing is for sure, the strategic race to secure resources and influence base metal prices is well and truly on. We’ll have much more on this tomorrow.
The Daily Reckoning Australia