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.
Dan Denning
The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by David on 6 February 2008:
30 % decline of US dollar but inflation adjusted it is more like 50%
Inflation is running at around 14%
the fed is running at 17.5 %
the fed normally runs at 5%-6%
So they are printing cash full ping.
It is widely expected that inflation will come in between
25%- 30% for this year. with
wages stagnant people are losing cash on their pay checks to the tune of 25%-30%
.Savings are being gobbled up at the same rate.
America today, is a mad house.
Last I looked our Canadian dollar was at $1.01 US and thats due to our govt trying to hold it down because we do an enormous amount of trade with America. It's correct value of course would be much higher should the Govt let it rise.
I really get the feeling America is done for. for too many years Americans have allowed gangsters run the country ever since JFK
Bernanke can not control the economy it is going to collapse by next nov. It is simply being held together with duct tape and plastic until the elections are over