August 19, 2008

Global Market Comments for August 19, 2008

1) The producer price index, the real inflation rate, rocketed by 1.2% in July to 9.8% YOY. The stock market barfed 200 points. Lehman (LEH), AIG Int. (AIG), Fannie Mae (FNM) and Freddie Mac (FRE) did coordinated swan dives in true Olympic fashion.

2) According to Dataquick, home prices in Southern California have fallen 31% in July YOY, but sales volume is up 14%. More than half of the sales are foreclosures.

3) Chinese families can legally have only one child, and the overwhelming majority prefer to have a boy. Pregnant women are using cheap ultrasounds to discover the sex of their child, and are getting abortions if their child turns out to have the wrong sex. Because of this sad practice, there are expected to be 40 million more men than women in China in ten years, a demographic development that could lead to political instability.

4) China's per capita income has soared from $160/person in 1978, when Premier Deng Xiaoping (who I interviewed at the time) initiated modern economic reforms, to $2,000 today. But 16% still earn less than $1 a day. Per capita incomes could rise a further tenfold to $20,000 by 2025. China has had the world's worst performing stock market this year, with the Shanghai index down 65% from 6,600 to 2,300.

5) The Democrats hold their convention in Denver next week, and Obama's big announcement will be his choice of a running mate. Expect a Southern or Midwestern middle of the road white guy. The front runner is Senator Joe Biden of Delaware, chairman of the senate foreign relations committee, and two time loser of presidential campaigns. Also rumored are Senator Evan Bayh of Indiana and governor Tim Kaine of Virginia. Expect leaks this weekend so there is no competition with the Olympics for air time. The market won't care who he chooses.

6) US television networks will cease analogue broadcasting next February and go purely digital. Google (GOOG) is lobbying the FCC for the newly freed up bandwidth frequencies to be used to launch WIFI 2.0, a high speed wireless broadband network. The system would be used to service the burgeoning smart cell phone market, would have a 50 mile range, and could penetrate buildings, mountains, and dense foliage, something existing cell phone networks are unable to do.