Collapse of Rio/BHP Deal Highlights Gold's Outperformance

By Chip Hanlon | November 25, 2008 | 9:04 AM | 3 CommentsTweet This

In a not-so-suprising announcement today, BHP Billiton (NYSE: BHP) said it is giving up its long-running attempt at a hostile takeover of Rio Tinto (NYSE: RTP). Not only would such a deal have faced high regulatory hurdles given the potential size of a combined BHP-RIO, but the shuttering of credit markets and 50% collapse in the CRB index made today's announcement a near-certainty.

Now, about that fall in the CRB index, which is representative of the sharp second-half declines in oil, copper and other industrial commodities: it's yet another indicator which makes the action in gold look especially good by comparison.

So I don't appear like a raging goldbug in the wake of my Friday article on the precious metal, I will acknowledge gold that has staged a few failed rally attempts this year and it's not yet clear cut that its current move is any different. Still, I think it's a tell that the ultimate inflation indicator is showing signs of life and is only 20% off its highs versus a commodities spectrum which has been halved.

This morning on CNBC, Pimco's Paul McCulley said, "Now I look out five to ten years, my gut tells me that there's got to be some sort of inflation payback as a consequence of all this money creation... but over the next year or two, I simply don't see it. It's further and further out over the horizon."

Gold may be suggesting that inflation payback will arrive sooner than anticipated. 

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Pimp Co. is pimping its own Pimp Co. is pimping its own book. They have never met a bailout they don't like. Do you think it may be because they own so much of the G.S.E. debt outstanding? Nah, that couldn't be it. Submitted by Michael Pento on Tue, 2008/11/25 - 11:41am » reply |

Tough words, my friend, but Tough words, my friend, but I agree with your assertion that Pimco doesn't discuss solutions, it simply talks its book. I wrote about that here (scroll to the bottom of that post, to the section called "There's a reason Bill Gross is the best")  Submitted by Chip Hanlon on Tue, 2008/11/25 - 11:52am » reply |

Hahah!!! I said the same Hahah!!! I said the same thing a while back too... He will continue supporting bail outs until the spreads on his massive ABS holdings stop blowing out. He's a crook. Submitted by Bulleri on Tue, 2008/11/25 - 11:59am » reply |

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